NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(1) Organization
Unwired Planet, Inc. (Unwired Planet or the Company), was incorporated in Delaware in 1994 and established many
of the foundational patents that allow mobile devices to connect to the Internet. Over the years, the Company has developed a patent portfolio of approximately 200 issued United States and foreign patents and approximately 60 pending applications,
some of which the Company believes are foundational in allowing mobile devices to connect to the Internet.
On February 13, 2013, the
Company, through a wholly-owned subsidiary, acquired a patent portfolio from a wholly owned subsidiary of Telefonaktiebolaget L M Ericsson (Ericsson) that consists of approximately 2,150 patents and patent applications and the right to
receive 100 additional patents per year for five years beginning in 2014. The acquired patents cover technology utilized in telecommunications infrastructure and mobile devices including, among other things, signal processing, network protocols,
radio resource management, voice/text applications, mobility management, software, hardware and antennas and were purchased by the Company subject to existing encumbrances. The Company is not entitled to royalty payments that are currently being
received by Ericsson under third party license agreements on any patents included in the portfolio.
Consideration to be paid to Ericsson
consists of a nontransferable, limited license to the Companys patents and a percentage of future gross revenues generated by a combined patent portfolio that includes both the Ericsson Patents plus the Companys legacy mobility patents
(fee share). The fee share Ericsson will receive from the derived value of the patent portfolio is computed on a tiered basis. Specifically, Ericsson will receive 20% of the first $100 million of gross revenue, 50% of the next $400
million and 70% of any amounts above $500 million. The fee share has no termination date.
(2) Significant Accounting Policies
(a) Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
The Company finalized the sale of the location product line on February 1, 2012 to
Persistent Systems Ltd (Persistent Systems). On April 16, 2012, the Company announced the disposition of the mediation and messaging product lines, which were the Companys remaining product-related businesses. The Company
accounted for the sale of the location, mediation and messaging product lines as a discontinued operation. Accordingly, the consolidated financial statements have been revised for all periods presented to reflect both the location and the Mediation
and Messaging businesses as discontinued operations. On April 30, 2012, the Company completed the sale of the Mediation and Messaging businesses to Openwave Mobility, Inc. (formerly, OM 1, Inc.) (Openwave Mobility), a portfolio
company of Marlin Equity Partners.
(b) Classification of Continuing and Discontinued Operations
Due to the sale of the Companys remaining product businesses in 2012, the Company has presented financial results for the product
businesses in discontinued operations. As the majority of costs related to employees and operations in
F-11
the past related to product operations, the Company identified costs it considered to be related to the ongoing intellectual property business for presentation in continuing operations. Costs the
Company identified as relating to continuing operations include costs related to all personnel dedicated to its patent initiatives, including external legal fees and support personnel. Additionally, certain general and administrative costs were
included, which are equivalent to the resources the Company expects to have on an ongoing basis after its transition to an intellectual property business. This includes the Companys Chief Executive Officer (CEO) and Chief
Financial Officer, as well as accounting, information systems, and support personnel. All compensation, benefits, stock-based compensation and restructuring costs, if any, associated with these positions were included in ongoing
operations. Additionally, the Company included costs related to being a public company, such as external audit costs, costs associated with the Sarbanes-Oxley Act, board of directors fees, Securities and Exchange Commission (SEC)
filings and NASDAQ fees. Facilities and information technology costs were allocated based upon the percentage of headcount of the employees assumed to be working primarily for the intellectual property business. Restructuring costs related to
facilities remained in continuing operations, as the Company retained the related liabilities. All other historical costs were classified as discontinued operations as they were considered necessary to support the product businesses.
Unless noted otherwise, discussions in the notes to consolidated financial statements pertain to continuing operations.
(c) Use of Estimates and Business Risks
The preparation of consolidated financial statements in conformity with the accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
On January 12, 2012, the Company announced its pursuit of strategic alternatives for its
product operations. On February 1, 2012, the Company announced the sale of its location product operations for a purchase price of $6.0 million. On April 30, 2012, the Company sold the Mediation and Messaging product lines for a purchase
price of $49.6 million. The sale of these businesses was designed to allow the Company to focus on realizing the value of its intellectual property, which is likely to require significant legal expense in pursuing payments for the licensing of the
Companys patents.
In fiscal 2012, the Company entered into patent licensing agreements with two licensees, most recently, in the first
quarter of fiscal 2012, the Company entered into a license agreement with Microsoft whereby the Company licensed rights to all of its patents for a fee of $15.0 million which was received during the second quarter of fiscal 2012. Additionally,
during the first quarter of fiscal 2011 the Company licensed a number of patents to a licensee which generated $4.0 million in patent revenue for the period. The Company currently derives its ongoing patent royalty revenues from one of its
licensees. The timing of future patent licensing transactions, if any, can create significant variability in the timing and level of Company revenues and profitability.
Under the terms of the Companys acquisition of certain patents and patent applications from Ericsson in 2013 pursuant to a Master Sale Agreement (the MSA), dated as of January 10,
2013, between Unwired Planet and certain of the Companys subsidiaries, including the Companys indirect subsidiary, Unwired Planet LLC (UP LLC) and Ericsson, UP LLC will pay Ericsson the following portion of UP LLCs
cumulative gross revenue on a quarterly basis in accordance with the provisions of the MSA (the Gross Revenue Payments): (i) 20% of the amount of Cumulative Gross Revenue, until the Cumulative Gross Revenue equals $100 million; plus
(ii) 50% of the amount of Cumulative
F-12
Gross Revenue in excess of $100 million, until the Cumulative Gross Revenue equals $500 million; plus (iii) 70% of the amount of Cumulative Gross Revenue in excess of $500 million. Revenue
sharing may be adjusted in Ericssons favor in certain circumstances as described below. This revenue sharing may be adjusted in certain circumstances depending on the terms of specific licensing arrangements. As a result, Unwired Planet will
not realize the benefit of all of the revenue the Company generates under this arrangement, and the Company will lose an increasing percentage of its revenue if the Company is successful.
Further, UP LLC granted Ericsson licenses and other rights in the transferred patents and all other patents owned or controlled by UP LLC. The transferred patents are also subject to certain encumbrances
relating to existing Ericsson licenses, and UP LLC has granted Ericsson a lien on all of UP LLCs assets. Additionally, the Company agreed not to engage in, or provide services to any person who conducts or otherwise engages in, the business of
generating revenue or otherwise monetizing patents through licensing or selling of patents or initiation or participation in litigation or other legal proceedings to protect and enforce any patent or any other intellectual property right or any
other business that is competitive with the business of UP LLC. During a specified period following the closing of the Ericsson transaction, with respect to certain patents, the MSA establishes revenue sharing adjustments in favor of Ericsson if UP
LLC grants licenses (or similar rights) below certain agreed-upon royalty rates. Additionally, UP LLC has accepted an obligation to behave in a manner that is fair, reasonable and non-discriminatory (FRAND).
The aggregate result of these commitments, together with other obligations contained in Ericsson transaction documents, is such that the Company will
pursue recurring revenue license arrangements that reflect the fair value of the Companys entire patent portfolio, while at the same time respecting Ericssons existing commitments, customers and, to the extent applicable, any FRAND
obligations. The Company believes that such an approach will maximize value for the Companys stockholders over the long term, but such arrangements may take a longer period of time to achieve and may result in smaller up-front payments, as
compared to lump sum perpetual licensing.
To support the Companys business strategy, in 2013, Unwired Planet entered into multiple
financing agreements consisting of debt and equity. On June 28, 2013, Unwired Planet entered into a Securities Purchase Agreement with Indaba Capital Fund, L.P. (Indaba) with respect to a Registered Direct Offering of 7,530,120
shares of the Companys common stock, par value $0.001 per share, at a price of $1.66 per share (the Per Share Purchase Price). Concurrently, the Company completed a private offering of $25 million aggregate principal amount of its
Senior Secured Notes due 2018 (the Notes). The Notes are governed by the terms of an Indenture, dated as of June 28, 2013, by and between the Company and Wells Fargo Bank National Association, as trustee and were purchased by Indaba
pursuant to a Note Purchase Agreement dated June 28, 2013 by and between the Company and Indaba.
On June 28, 2013, the Company
announced the filing of a registration statement on Form S-3 with the SEC for a rights offering to stockholders as of the record date of July 8, 2013 (collectively, the Offerees) of 7,530,120 shares of the Companys common
stock at the Per Share Purchase Price (the Rights Offering). On August 14, 2013, the Companys registration statement became effective allowing us to proceed with the Rights Offering.
In connection with the Rights Offering, the Company entered into a Purchase Agreement on June 28, 2013 with Indaba pursuant to which Indaba is
obligated to purchase such number of unregistered shares of the Companys common stock equal to the number of shares offered in the Rights Offering that are not purchased by the Offerees. The Company is also obligated to issue to Indaba 225,904
unregistered shares of the Companys common stock in consideration for such purchase commitment.
F-13
The financing agreements, collectively, contain covenants, representations, warranties, conditions and
indemnifications in respect of the Company and business that could potentially limit the Companys flexibility to obtain additional financing and pursue other business opportunities. In addition, funds available for operations, future business
opportunities and distributions will be reduced by that portion of cash flow required to make future interest payments on debt. Unwired Planets ability to service the Companys debt in the future will depend upon, among other things, the
Companys future financial and operating performance.
We believe that our current working capital and anticipated cash flows from
operations, as well as proceeds from our financing activities, and the release of the restricted cash will be adequate to meet our cash needs for daily operations and capital expenditures for at least the next 12 months.
(d) Cash, Cash Equivalents and Short- and Long-Term Investments
Cash and cash equivalents are comprised of cash and highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Cash
equivalents are comprised of short-term investments with an investment rating by any two of the following: Moodys of A-2 or higher, or by Standard & Poors of A1 or higher. The Company is exposed to credit risk in the event of
default by the financial institutions or the issuers of these investments to the extent of the amounts recorded on the consolidated balance sheet are in excess of amounts that are insured by the FDIC.
The Company classifies its short and long-term investments in debt and marketable equity securities as available-for-sale. Available-for-sale securities
are carried at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss) until realized or a loss is considered to be other than temporary. The Company uses the specific-identification method in
determining cost in calculating realized gains and losses.
(e) Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term.
(f) Revenue Recognition
The Company recognizes revenue from the licensing of the Companys intellectual property when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred, (iii) the sales price is fixed or determinable, and (iv) collection of resulting receivables is reasonably assured. To date, the Companys patent license agreements have provided for the grant of
perpetual licenses, covenants-not-to-sue, and releases from any pending litigation, upon execution of the agreement. To date, revenue from upfront payments from licensees for the licensing of the Companys patents has been recognized when the
arrangement is mutually signed, since there has been no delivery or future performance obligation and the other three criteria are met upon signing the arrangement. When patent licensing arrangements include royalties for future sales of the
licensees products using the Companys licensed patented technology, revenue is recognized when the royalty report is received from the licensee, at which time the fixed and determinable criteria are met.
On February 13, 2013, the Company, through a wholly-owned subsidiary, acquired a patent portfolio from a wholly owned subsidiary of Ericsson that
consists of approximately 2,150 patents and patent applications and the right to receive 100 additional patents per year for five years beginning in 2014. The acquired patents cover technology utilized in telecommunications infrastructure and mobile
devices including, among other things, signal processing,
F-14
network protocols, radio resource management, voice/text applications, mobility management, software, hardware and antennas and were purchased by the Company subject to existing encumbrances.
Consideration to be paid to Ericsson consists of a nontransferable, limited license to the Companys patents and a percentage of future gross revenues generated by a combined patent portfolio that includes both the Ericsson Patents plus the
Companys legacy mobility patents (fee share). The fee share that Ericsson will receive from the derived value of the patent portfolio is computed on a tiered basis. Specifically, Ericsson will receive 20% of the first $100 million
of gross revenue, 50% of the next $400 million and 70% of any amounts above $500 million. The fee share has no termination date.
The fee
share to Ericsson will be recorded as a reduction in gross revenue when the fee share is paid or payable. During the fiscal year ended June 30, 2013, approximately $0.1 million in revenues were generated from the combined patent portfolio and
the corresponding $21,000 in fee share payable to Ericsson is reflected as a reduction in gross revenue.
See Note 4 for further discussion of
the Ericsson transaction.
(g) Stock-based Compensation
The Company recognizes expense for the fair value of its stock-based compensation awards.
The following table illustrates stock-based compensation recognized in the consolidated statements of operations by category of award (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Stock-based compensation related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants of nonvested stock
|
|
$
|
772
|
|
|
$
|
1,031
|
|
|
$
|
183
|
|
Stock options granted to employees and directors
|
|
|
6,379
|
|
|
|
801
|
|
|
|
219
|
|
Discontinued operations
|
|
|
624
|
|
|
|
6,573
|
|
|
|
2,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation recognized in the statements of operations
|
|
$
|
7,775
|
|
|
$
|
8,405
|
|
|
$
|
2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2013, the Company accelerated the vesting of 2.5 million shares of stock and extended the exercise
period of 2.7 million shares of stock held by several key employees who departed the Company. As a result of these extensions and accelerations, the Company recorded approximately $0.5 million and $2.6 million in stock-based compensation
expense, which represents the incremental value of the modified awards.
During fiscal 2012, the Company accelerated the vesting of 168,000
shares of stock and extended the exercise period of 148,000 shares of stock held by two former directors of the Company. Additionally, the Company accelerated the vesting of approximately 257,813 shares of stock and extended the exercise period of
approximately 1.2 million shares of stock held by several key employees who departed the Company. As a result of these modifications, the Company recorded approximately $0.8 million in stock-based compensation expense, which represents the
incremental value of the modified awards. Additionally, during the third quarter of fiscal 2012, the Company granted approximately 2.2 million shares of restricted stock units to key employees. The vesting of the restricted stock units
accelerated during the fourth quarter of fiscal 2012 upon the closing of the sale of the mediation and messaging product businesses, and resulted in $4.2 million in stock-based compensation expense being recorded during fiscal 2012. Of this $4.2
million, $3.2 million was recorded in discontinued operations in fiscal 2012.
During fiscal 2013, 2012 and 2011, tax benefits related to
stock option expense were immaterial.
The Company amortizes stock-based compensation for awards granted on a straight-line basis over the
requisite service (vesting) period for the entire award.
F-15
(h) Treasury Stock
Shares of the Companys common stock repurchased by the Company are recorded at cost and are included as a separate component of stockholders
equity. These shares are a result of share-based payment awards settled net of tax withholdings. Under the cost method, the gross cost of the shares reacquired is charged to a contra equity account entitled treasury stock. The equity accounts that
were credited for the original share issuance (Company common stock, paid-in capital in excess of par, etc.) remain intact. At June 30, 2013, the total value of treasury stock was $0.6 million.
(i) Foreign Currency Translation and Derivative Financial Instruments
The functional currency of the Companys foreign subsidiaries is the United States Dollar (USD).
Current assets and current liabilities recorded in foreign subsidiaries are translated into USD at year-end exchange rates and revenues and expenses are
translated at average exchange rates during the year. The effects of foreign currency translation adjustments for subsidiaries are included in other expense, net in the consolidated statements of operations. All transactional gains or losses on
foreign currency transactions are recognized in other expense, net in the consolidated statements of operations.
The Company has operated
internationally and is exposed to potentially adverse movements in foreign currency rate changes. With the disposition of the Companys product businesses as of April 30, 2012, the Company expects to have a significantly reduced exposure
to foreign currency rate changes. Prior to April 30, 2012, the Company entered into foreign exchange derivative instruments to reduce the Companys exposure to foreign currency rate changes on receivables, payables and intercompany
balances denominated in a nonfunctional currency. The objective of these derivatives was to neutralize the impact of foreign currency exchange rate movements on the Companys operating results. These derivatives may require us to exchange
currencies at rates agreed upon at the inception of the contracts. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally
offset with the gains and losses of the foreign exchange forward contracts. The Company does not enter into foreign exchange transactions for trading or speculative purposes, nor does the Company hedge foreign currency exposures in a manner that
entirely offsets the effects of movement in exchange rates. Unwired Planet does not designate the Companys foreign exchange forward contracts as accounting hedges and, accordingly, the Company adjusts these instruments to fair value through
earnings in the period of change in their fair value.
Net foreign exchange gains (losses) included in other expense, net in the accompanying
consolidated statements of operations for total income of $30,000, expense of $0.4 million and income of $0.1 million for fiscal 2013, 2012 and 2011, respectively. As of June 30, 2013 and June 30, 2012, the Company had no outstanding
forward contracts.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amount of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary in order to reduce deferred tax assets to the amounts expected to be recovered.
F-16
(k) Comprehensive Income (Loss)
Comprehensive income (loss) includes net loss, unrealized gains (losses) on available for sale securities and foreign currency translation adjustments for
subsidiaries whose functional currency is not the USD. Tax effects of comprehensive loss have not been material. The Company reports the components of comprehensive income (loss) on its consolidated statements of comprehensive income (loss). The
amount of accumulated unrealized gain on available-for-sale securities at June 30, 2013 was $2,000 and accumulated unrealized loss for 2012 was $0.8 million.
The following table sets forth the components of accumulated other comprehensive income (loss) for fiscal 2013, 2012 and 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
(Loss) on:
|
|
|
|
|
|
|
Available
for Sale
Securities
|
|
|
Foreign
Currency
Translation
|
|
|
Total
|
|
Balance at June 30, 2011
|
|
$
|
(821
|
)
|
|
$
|
(771
|
)
|
|
$
|
(1,592
|
)
|
Net change in fair value recorded in accumulated OCI
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Net realized losses reclassified to earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of sale of discontinued operations
|
|
|
|
|
|
|
771
|
|
|
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2012
|
|
|
(784
|
)
|
|
|
|
|
|
|
(784
|
)
|
Net change in fair value recorded in accumulated OCI
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized losses reclassified to earnings
|
|
|
798
|
|
|
|
|
|
|
|
798
|
|
Impact of sale of discontinued operations
|
|
|
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
$
|
14
|
|
|
$
|
(12
|
)
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive loss were as follows as of the dates noted (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
Net unrealized gains (losses) on marketable securities:
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities not other-than-temporarily impaired
|
|
$
|
|
|
|
$
|
(11
|
)
|
Unrealized gain (loss) on marketable securities other-than-temporarily impaired
|
|
|
14
|
|
|
|
(801
|
)
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on marketable securities
|
|
|
14
|
|
|
|
(812
|
)
|
Interest on marketable securities
|
|
|
|
|
|
|
28
|
|
Cumulative translation adjustments
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accumulated other comprehensive gain (loss)
|
|
$
|
2
|
|
|
$
|
(784
|
)
|
|
|
|
|
|
|
|
|
|
(l) Financial Instruments and Concentration of Risk
The carrying value of financial instruments, including cash and cash equivalents, short-term investments and accounts payable, approximates fair value due
to the short-term nature of these financial instruments. Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and marketable investments.
Cash and cash equivalents and short and long term investments are held with large and established financial institutions.
F-17
The Company currently derives its ongoing patent royalty revenues from one licensee. The timing of future
patent licensing transactions, if any, can create significant variability in the timing and level of Company revenues and profitability.
Net Income (Loss) Per Share
Basic
net income (loss) per share has been computed using the weighted average number of shares of Company common stock outstanding during the period, less shares subject to repurchase. The following table presents the calculation of basic and diluted net
income (loss) per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(39,679
|
)
|
|
$
|
(8,150
|
)
|
|
$
|
(8,105
|
)
|
Net income (loss) from discontinued operations, net of tax
|
|
|
(7,934
|
)
|
|
|
22,717
|
|
|
|
(27,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(47,613
|
)
|
|
$
|
14,567
|
|
|
$
|
(35,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
90,978
|
|
|
|
86,567
|
|
|
|
84,781
|
|
Weighted average shares of restricted stock subject to repurchase
|
|
|
(135
|
)
|
|
|
(213
|
)
|
|
|
(204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic net income (loss) per common share
|
|
|
90,843
|
|
|
|
86,354
|
|
|
|
84,577
|
|
Dilutive effect of restricted stock subject to repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of employee stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted net income (loss) per share
|
|
|
90,843
|
|
|
|
86,354
|
|
|
|
84,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(0.44
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.10
|
)
|
Net income (loss) from discontinued operations
|
|
$
|
(0.09
|
)
|
|
$
|
0.26
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.53
|
)
|
|
$
|
0.17
|
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
The following table sets forth potential shares of Company common stock that are not included in the diluted
net income (loss) per share calculation because to do so would be antidilutive for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Weighted average effect of potential common stock (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested common stock subject to repurchase
|
|
|
135
|
|
|
|
213
|
|
|
|
204
|
|
Options that would have been included in the computation of dilutive shares outstanding had the Company reported net income from
continuing operations, prior to applying the treasury method
|
|
|
1,648
|
|
|
|
2,876
|
|
|
|
3,636
|
|
Options that were excluded from the computation of dilutive shares outstanding because the total assumed proceeds exceeded the
average market value of the Companys common stock during the fiscal year
|
|
|
4,449
|
|
|
|
7,730
|
|
|
|
7,018
|
|
Market based stock options to non-employee (1)
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
Contingent shares for Commitment Fee (2)
|
|
|
226
|
|
|
|
|
|
|
|
|
|
Contingent shares for non-employee compensation (3)
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,045
|
|
|
|
10,819
|
|
|
|
10,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Please see Note 12(f) of the notes to the consolidated financial statements.
|
(2)
|
|
Please see Note 3 of the notes to the consolidated financial statements.
|
(3)
|
|
In connection with the Transactions, the Company entered into an agreement with a consultant to provide corporate finance advisory services to the Company in connection
with the Transaction. This consultant will receive compensation in the aggregate amount of 2% of total gross proceeds from the Senior Secured Notes, a Registered Direct Offering and the Rights Offering in cash, plus an additional fee of 2% of total
gross proceeds from the Senior Secured Notes, the Registered Direct Offering and the Rights Offering payable through the issuance of unregistered shares of Company common stock, par value $0.001. The Senior Secured Notes and Registered Direct
proceeds were received on June 28, 2013, however, the Rights Offering was not completed as of June 30, 2013. The number of such shares issued and due as of June 30, 2013 are calculated based on 2% of total gross proceeds from the
Senior Secured Notes and the Registered Direct Offering divided by the trading price per share of Company common stock as of the time of issuance. A total of 386,598 shares of Company stock are due to this consultant for the Senior Secured Notes and
the Registered Direct Offering as compensation for providing corporate financial advisory services as of June 30, 2013. The fair value of the Company common stock issued of $0.8 million has been recorded as issue costs for debt and equity. The
debt issue costs are recorded as a deferred asset and amortized over the life of the Notes and the equity issue costs are charged against the equity proceeds.
|
(3) Financing Agreements
On June 28, 2013, Unwired Planet entered into multiple Financing Agreements. The agreements include a Note Purchase Agreement, a
Securities Purchase Agreement and a Backstop Purchase Agreement (collectively Transactions or Financing Agreements). In connection with these Financing Agreements, Company entered into an agreement with a third party to pay
certain fees in cash and stock for financial advisory services.
(a) Senior Secured Notes
The Company entered into an Indenture Agreement with Wells Fargo Bank National Association, trustee, to provide for the issuance Senior Secured Notes in
an aggregate amount not to exceed $35 million. The Company entered into a Note Purchase Agreement with Indaba Capital Fund, L.P. (Indaba) to purchase the Companys Senior Secured Notes
F-19
in the amount of $25 million on June 28, 2013. The Notes are offered at 98% of the principal and mature in June 2018. From the date of issuance of the Notes up to and inclusive of the second
anniversary of the date of issuance, the Notes will bear interest at 12.875%, paid quarterly as payment-in-kind. Payment date is the last day of each quarter, with the initial payment date being June 30, 2013. From the second anniversary of the
date of issuance of the Notes up to and inclusive of the maturity date of June 28, 2018, the Notes will bear interest at a per annum rate of 12.5%, paid quarterly in cash. The Company may elect to pay interest as payment-in-kind with the
issuance of additional Notes; provided that in the event of such election, the per annum interest rate will be increased by .375%. The effective interest rate is 17.2%.
The Company may redeem some or all of the Notes on or after June 28, 2014 with the net cash proceeds from the sale, lease, conveyance, transfer or other disposition of its patents at a redemption
price equal to 115% plus accrued and unpaid interest. In addition, Company may redeem some or all of the Notes at any time on or after June 28, 2015 at a redemption price initially equal to 110% and declining over time, in each case, plus
accrued and unpaid interest.
The agreement provides that the Notes will be secured by substantially all assets of the company other than
certain excluded property. On the issue date, such excluded property included, among other property, all equity interests in the Companys subsidiaries and all assets of the Companys subsidiaries. The Agreement provides that certain
newly-created domestic subsidiaries will become guarantors under that Agreement and pledge their assets as additional collateral securing the Notes in certain circumstances.
In the event of certain change of control transactions, which include the sale of patents that generate net proceeds to the Company equal to or greater than $150 million during the term of the Notes, each
holder of the Notes may require the Company to purchase some or all of its Notes at a purchase price equal to 115% of the aggregate principal amount thereof if such redemption date occurs between the issue date and June 28, 2015, and declining
thereafter, in each case, plus accrued and unpaid interest to the date of purchase.
The Indenture contains restrictive covenants that, among
other things, restrict the ability of the Company and its subsidiaries to: (1) incur debt; (2) pay dividends and make distributions on, or redeem or repurchase the Companys equity interests; (3) make certain investments;
(4) sell assets; (5) create liens; and (6) enter into transactions with affiliates. The Company is also required to maintain one or more accounts with an aggregate minimum cash and cash equivalents balance of $10 million, provided
that this requirement will no longer be in effect at any time after the first time the volume weighted average trading price of a share of the Companys common stock exceeds $3.00 for any period of 15 trading days in any 30 day trading day
period occurring after June 28, 2015. As of June 30, 2013, the Company was in compliance with the covenants in the Indenture relating to the Notes.
(b) Registered Direct Offering
On June 28, 2013, Company entered into a
Securities Purchase Agreement for a Registered Direct Offering with Indaba that provided for issuance of 7,530,120 shares of Company common stock, par value $0.001, at $1.66 per share for $12.5 million.
The Securities Purchase Agreement contains customary representations, warranties and covenants and includes the terms and conditions for the sale of the
Companys common stock, indemnification and contribution obligations and other terms and conditions customary in agreements of this type. Additionally, the Securities Purchase Agreement provides Indaba with certain Board of Director designation
rights for as long as Indaba continues to maintain a voting percentage equal to or greater than 5% of the total shares of Company common stock outstanding, or as long as
F-20
Indaba continues to maintain a voting percentage equal to or greater than 3% of the total shares outstanding and hold at least 50% of the Senior Secured Notes, in each case subject to the terms
and conditions under the Securities Purchase Agreement and subject to applicable rules and published guidance of The NASDAQ Stock Market LLC, including, but not limited to, listing rule 5640 (or any successor rule).
(c) Backstop Purchase Agreement
On June 28, 2013, the Company filed a registration statement on Form S-3 with the SEC for a rights offering to stockholders as of the record date of July 8, 2013 of 7,530,120 shares of Company
common stock at the per share purchase price of $1.66 (the Rights Offering). On August 14, 2013, the Companys registration statement was declared effective by the SEC allowing us to proceed with the Rights Offering. In
connection with the Rights Offering, the Company entered into a Backstop Purchase Agreement on June 28, 2013 with Indaba (the Backstop Purchase Agreement) to which Indaba is obligated to purchase such number of unregistered shares
of Company common stock equal to the number of shares offered in the Rights Offering that are not purchased by existing stockholders. The Company is also obligated to issue to Indaba 225,904 unregistered shares of Company common stock
(Backstop Fee) in consideration for providing its backstop purchase commitment (Backstop Purchase Commitment).
(d) Financial Advisory Services
In connection with these Transactions, Company entered into an agreement on June 28, 2013 with a consultant and agreed to pay certain fees in cash and through the issuance of Company common stock in
exchange for financial advisory services. The agreed upon fee is 2% of gross proceeds from the Transactions payable in cash and 2% of gross proceeds from the Transactions payable through the issuance of Companys common stock, par value $.001.
The number of shares issued is calculated based on the total gross proceeds from the Transactions divided by the price per share of Company common stock at the closing of the Transactions. A total of $0.8 million in stock compensation has been
recorded for the consultant for services rendered as of June 30, 2013.
(e) Accounting for the
Transactions
The Financing Transactions, including the Senior Secured Notes, Registered Direct Offering and the Backstop Purchase
Commitment and Backstop Fee were accounted for using fair value measurement. Because these Transactions occurred simultaneously, they were accounted for using relative fair value. The fair value was allocated to the Senior Secured Notes, Registered
Direct Offering and the Backstop Purchase Commitment and Backstop Fee, based on the proceeds from the Transactions. Various factors were considered in determining the fair value of the Transactions. These factors include (1) closing price per
share on the date the Transactions closed; (2) cash interest payments on the Notes; (3) payment-in-kind payments on the Notes; (4) principal prepayment of the Notes; (5) the Notes maturity date; (6) the Notes debt covenants;
(7) discount rates; (8) market interest rates; (9) Company projections; (10) comparable issues and spread analysis; (11) Capital Asset Pricing Model scenarios; (12) and backstop purchase commitment scenarios.
The following table summarizes the fair value of the Companys Senior Secured Notes using Level 3 inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Total
|
|
2018 Note
|
|
$
|
22,066
|
|
|
$
|
22,066
|
|
Payment-In-Kind Note
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Carrying value of Note
|
|
$
|
22,092
|
|
|
$
|
22,092
|
|
|
|
|
|
|
|
|
|
|
F-21
The fair value of the individual Transactions was determined and in total the fair value of the Transaction
was $36.9 million. Total proceeds received for these Transactions were $36.9 million on June 28, 2013. Fair value was allocated based on the individual fair values in total as follows (in thousands):
|
|
|
|
|
Proceeds allocated
|
|
|
|
|
Notes Offering
|
|
$
|
22,068
|
|
Registered Direct
|
|
|
13,491
|
|
Backstop commitment
|
|
|
854
|
|
Backstop fee
|
|
|
437
|
|
|
|
|
|
|
Total fair value
|
|
$
|
36,850
|
|
|
|
|
|
|
The discount on the Senior Secured Notes is determined as the difference between the face value of the Notes and the
relative fair value of the Notes. The relative fair value of the Notes was determined to be $22.1 million based on the fair value of all Transactions relative to the total proceeds. As a result, the discount on the Notes is $2.9 million. Debt
issuance costs of $1.3 million were recorded in other assets and will be amortized through interest expense. Both the Notes discount and debt issuance costs will be amortized over the life of the Notes using the effective interest rate method. The
amortization expense is recorded as an adjustment to interest expense.
Interest payable on the Senior Secured Notes is payment-in-kind up to
and inclusive of the second anniversary. The payment-in-kind Notes accrue interest each period. All payment-in-kind payments are reflected in the Notes Register with the Indenture trustee and no new notes are issued when there is a payment-in-kind
payment.
The relative fair value of the Registered Direct Offering was determined to be $13.5 million based on the fair value of all
Transactions relative to the total proceeds. Equity issuance costs of $0.8 million were charged against equity proceeds.
The Backstop
Purchase Commitment and Backstop Fee are forward contracts and were accounted for as equity instruments. The fair value of the Backstop Purchase Commitment and Backstop Fee were determined to be $0.9 million and $0.4 million, respectively.
The following table summarizes the issuance of Company common stock related to the equity financing and the issuance costs related to the
equity financing in the consolidated statement of stockholders equity as of June 30, 2013 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid
In Capital
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Registered Direct Offering
|
|
|
7,530
|
|
|
$
|
8
|
|
|
$
|
13,483
|
|
Backstop Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment
|
|
|
|
|
|
|
|
|
|
|
854
|
|
Backstop Fee
|
|
|
|
|
|
|
|
|
|
|
437
|
|
Third Party Vendor Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory Services Fee
|
|
|
|
|
|
|
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,530
|
|
|
|
8
|
|
|
|
15,524
|
|
Less Issuance Costs
|
|
|
|
|
|
|
|
|
|
|
(774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2013
|
|
|
7,530
|
|
|
$
|
8
|
|
|
$
|
14,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
(4) Ericsson Transaction
On February 13, 2013, the Company, through a wholly-owned subsidiary, acquired a patent portfolio from a wholly owned subsidiary
of Ericsson that consists of approximately 2,150 patents and patent applications and the right to receive 100 additional patents per year for five years beginning in 2014. The acquired patents cover technology utilized in telecommunications
infrastructure and mobile devices including, among other things, signal processing, network protocols, radio resource management, voice/text applications, mobility management, software, hardware and antennas and were purchased subject to existing
encumbrances. The Company is not entitled to royalty payments that are currently being received by Ericsson under third party license agreements on any patents included in the portfolio. Consideration to be paid to Ericsson consists of a
nontransferable, limited license to the Companys patents and an amount equal to a percentage of future gross revenues generated by a combined patent portfolio that includes both the Ericsson Patents plus the Companys legacy mobility
patents (fee share). The payments Ericsson will receive from the derived value of the patent portfolio is computed on a tiered basis. Specifically, Ericsson will receive an amount equal to 20% of the first $100 million of gross revenue,
50% of the next $400 million and 70% of any amounts above $500 million. The fee share has no termination date.
The Ericsson Patents and the
Companys patents (the combined patent portfolio) have been transferred to UP LLC, a variable interest entity organized and based in Nevada that is consolidated by the Company. UP LLC is capitalized with equity from its two members,
Unwired Planet IP Holdings, Inc. and Unwired Planet IP Manager, LLC, both of which are wholly owned by the Company.
The transaction with
Ericsson was completed pursuant to a Master Sale Agreement dated January 10, 2013 between (i) Ericsson and its subsidiaries and (ii) the Company and its subsidiaries (MSA). In addition, in connection with the completion of
the transaction with Ericsson, UP LLC adopted an Amended and Restated Operating Agreement of UP LLC (Operating Agreement). Under the terms of the MSA and the Operating Agreement, UP LLC is required to comply with a number of restrictions
on its future activities.
Those restrictions include:
|
a)
|
|
During a specified period following the closing of the Transaction, with respect to certain patents, the MSA establishes revenue sharing adjustments in favor of
Ericsson if UP LLC grants licenses (or similar rights) below certain agreed-upon royalty rates. Additionally, pursuant to the MSA with respect to the Ericsson Patents and to the extent applicable, UP LLC has accepted an obligation to behave in a
manner that is fair, reasonable and non-discriminatory (FRAND).
|
|
b)
|
|
Right of first refusal by Ericsson on any transfer of Ericsson Patents.
|
|
c)
|
|
The Company has agreed not to engage in, or provide services to any person who conducts or otherwise engages in, the business of generating revenue or otherwise
commercialize patents through licensing or selling of patents or initiation or participation in litigation or other legal proceedings to protect and enforce any patent or any other intellectual property right or any other business that is
competitive with the business of UP LLC.
|
|
d)
|
|
Restrictions on the ability of UP LLC to operate outside the ordinary course, including restrictions on the incurrence of debt, creation of liens, changes in business,
affiliate transactions, or sales of certain assets and requirements to observe corporate formalities and preserving the legal separateness and bankruptcy remoteness of UP LLC.
|
F-23
Additionally, under the MSA, Ericsson is entitled to at least $1.05 billion (less the amount of cumulative
fee share payments to Ericsson) upon the occurrence of the following events:
|
a)
|
|
A change in control of UP prior to the third anniversary of the closing of the Transaction.
|
|
b)
|
|
A Trigger Event, defined as:
|
|
i.
|
|
any representation or warranty in the MSA and the ancillary documents (collectively, the Purchase Documents) failing to be true and correct and that would
result in a material adverse effect;
|
|
ii.
|
|
a default in the payment of obligations under the Purchase Documents in an aggregate amount exceeding $5 million (except in the case of a good faith dispute);
|
|
iii.
|
|
a knowing or willful, uncured default in the performance of any other material covenant, condition or agreement contained in the Purchase Documents or a default in the
performance of any other material covenant, condition or agreement contained in the Purchase Documents that would reasonably be expected to result in an Insolvency Event;
|
|
iv.
|
|
any event or condition that results in the acceleration of more than $5 million in indebtedness of UP LLC or its members, or UP LLC or its members failing to pay more
than $5 million of indebtedness at maturity;
|
|
v.
|
|
the commencement of certain bankruptcy proceedings and other Insolvency Events;
|
|
vi.
|
|
the failure by UP LLC or its members to pay one or more final judgments in an aggregate amount exceeding $5 million (to the extent not covered by insurance); or
|
|
vii.
|
|
the Company asserting in writing that any provision of the Purchase Documents is not a legal, valid and binding obligation of any party thereto, or that any guarantees
or any security interests purported to be created by the Purchase Documents are not in full force and effect including, if applicable, a valid and perfected security interest in the securities, assets or properties covered thereby.
|
Ericsson has a security interest in all assets of UP LLC and its two members (Unwired Planet IP Holdings, Inc. and Unwired
Planet IP Manager, LLC) as well as a pledge of the equity interests in UP LLC.
Because of the restrictions on UP LLC and the rights and
obligations of Ericsson after the transaction, the Company, for accounting purposes, has concluded that its arrangement with Ericsson is executory in nature and accordingly has not given current recognition to it. Specifically, the company has
not recognized an asset value for the patents received and has not recorded revenue from the license issued to Ericsson. Revenues earned from licensing the combined patent portfolio will be recognized when the criteria for recognition have been met.
The fee share to Ericsson will be recorded as a reduction in gross revenue when the fee share is paid or payable.
Transaction costs of $7.2
million for legal and advisory services, travel, and other direct costs of entering into the transaction with Ericsson were charged to expense during fiscal year ended June 30, 2013.
(5) Discontinued Operations
(a) Product Business
On January 12, 2012, the Company announced its pursuit of strategic alternatives for its product operations. On February 1, 2012, the Company sold its non-core product line, Location, to a
subsidiary of Persistent Systems for $6.0 million in cash, with $0.6 million of that amount being placed in an escrow account for a period of one year, to secure
F-24
indemnification claims made by Persistent Systems, if any. The Company recorded a pre-tax gain on sale of discontinued operations of approximately $5.2 million within discontinued operations in
the third quarter of fiscal 2012. During the third quarter of fiscal 2013, the escrowed funds were distributed pursuant to agreements reached with Persistent Systems, resulting in a gain on sale of discontinued operations of $0.6 million in the
consolidated statement of operations.
Upon the sale of the Location business, the associated financial results have been classified as a
discontinued operation in the Companys consolidated financial statements for all periods presented. As of March 31, 2013, there were no assets or liabilities attributable to the Location product business due to the sale of the
discontinued operation on February 1, 2012.
On April 30, 2012, the Company sold the Mediation and Messaging product lines to
Openwave Mobility. These sales completed the divestiture of Unwired Planets product business. As such, the historical results of the product business have been reclassified and presented as discontinued operations. Openwave Mobility paid $49.6
million in cash, which was subject to certain working capital adjustments thereto as provided in the Asset Purchase and Sale Agreement, upon the closing of the transaction. Subsequent to fiscal 2012, the Company settled all working capital
adjustments with Openwave Mobility, resulting in a loss on the sale of discontinued operations of $0.75 million which was recorded in the first quarter of fiscal 2013. As of June 30, 2012, the Company had accrued $1.3 million for working
capital adjustments. The total amount of working capital adjustments was therefore $2.1 million, which was refunded to Openwave Mobility in October 2012.
The Company and Openwave Mobility also entered into a transition services agreement (TSA) under which the Company provided accounting and other services to Openwave Mobility which concluded in
October 2012. Openwave Mobility paid a flat fee for these services per month. The costs of providing these services that were incremental to the flat fee are reflected in discontinued operations on the statement of operations.
Upon these sales of the location, mediation and messaging businesses, the product businesses financial results have been classified as a
discontinued operation in the Companys consolidated financial statements for all periods presented. The net assets associated with the remaining product businesses were classified as held-for-sale from March 31, 2012 until
their disposition on April 30, 2012.
The financial results of the product business included in discontinued operations were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Revenue of discontinued operations
|
|
$
|
|
|
|
$
|
105,009
|
|
|
$
|
151,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(7,934
|
)
|
|
|
(22,069
|
)
|
|
|
(15,569
|
)
|
Income tax (benefit) expense
|
|
|
(150
|
)
|
|
|
5,508
|
|
|
|
1,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations, net of taxes
|
|
$
|
(7,784
|
)
|
|
$
|
(27,577
|
)
|
|
$
|
(17,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Client Operations
During fiscal 2008, the Company sold its Client Operations to Purple Labs, a private company based in Chambéry, France. The terms of the agreement include initial consideration of $20.0 million in
cash received by the Company in June 2008, and a note receivable of $5.8 million that was paid in July 2008.
F-25
Additionally, upon the sale in June 2008, $4.2 million was placed in escrow by Purple Labs, originally to be
held until September 30, 2009, to secure indemnification claims made by Purple Labs, if any. On September 23, 2009, Myriad AG (formerly known as Purple Labs) (Myriad) made claims against the escrow in excess of $4.2 million and
therefore the funds were not released from escrow. On September 24, 2010, the parties agreed to release $2.0 million from the escrow to Myriad and the remaining balance of $2.2 million, plus accrued interest, to the Company. This amount was
recognized as a gain on sale of discontinued operations in the first quarter of fiscal 2011.
On August 28, 2011, the Company entered
into an agreement with Myriad (the Agreement) for the purposes of settling all existing litigation between the Company and Myriad in connection with the Companys sale of the client business to Purple Labs in June 2008. The
Agreement terminated specified sections of an intellectual property licensing agreement which was entered into in connection with the sale of its client business that occurred in June 2008, clarified which patents were transferred with the sale of
the client business and which remained the property of the Company, contained a mutual covenant not to sue, and provided that the Company would pay to Myriad $12.0 million. The payment of $12.0 million occurred in September 2011, and was
recorded as a loss on discontinued operations in the fourth quarter of fiscal 2011.
The Client operations financial results have been
classified as a discontinued operation in the Companys consolidated statements of operations for each period presented.
The financial
results of Client operations included in discontinued operations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Revenue of discontinued operation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operation
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
3,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
3,411
|
|
Loss on sale of discontinued operation
|
|
|
|
|
|
|
|
|
|
|
(9,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss from discontinued operation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(6,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220)
: Presentation of Comprehensive Income (Update 2011-05) allows the option of presenting
the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, Update
2011-05 requires companies to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the
components of other comprehensive income are presented. In December 2011, Accounting Standards Update No. 2011-12, Comprehensive Income (Topic 22)
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of
Items Out of Comprehensive Income in Accounting Standards Update No. 2011-05
was issued. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and is applied
retrospectively. Accordingly, the Company adopted the new guidance on July 1, 2012, and elected to present separate consolidated statements of comprehensive income.
F-26
Recently Issued Accounting Pronouncements
Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
: This ASU was issued
to address concerns raised in the initial issuance of ASU 2011-05, Presentation of Comprehensive Income, for which the Board deferred the effective date of certain provisions relating to the presentation of reclassification adjustments in the income
statement. With the issuance of ASU 2013-02 entities are now required to disclose:
For items reclassified out of accumulated other
comprehensive income (AOCI) and into net income in their entirety, the effect of the reclassification on each affected net income line item; and
For AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures. This information may be provided either in the notes
or parenthetically on the face of the statement that reports net income as long as all the information is disclosed in a single location. However, an entity is prohibited from providing this information parenthetically on the face of the statement
that reports net income if it has items that are not reclassified in their entirety into net income. ASU Topic No. 2013-02 is effective for the Companys fiscal year 2014, although early adoption is permitted. The adoption of this guidance
is not expected to have a material impact on the Companys consolidated financial statements.
Accounting Standards Update
No. 2013-05, Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity:
This ASU addresses the
accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity
or a business within a foreign entity. ASU Topic No. 2013-05 is effective for the Companys fiscal year 2014, although early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the
Companys consolidated financial statements.
Accounting Standards Update No. 2013-11,
Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
: An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to
a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at
the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and
the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a
deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For example, an entity should not
evaluate whether the deferred tax asset expires before the statute of limitations on the tax position or whether the deferred tax asset may be used prior to the unrecognized tax benefit being settled. The amendments in this Update do not require new
recurring disclosures. ASU Topic No. 2013 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance is not expected to have a material impact on the
Companys consolidated financial statements.
F-27
(7) Geographic, Segment and Significant Customer Information
The Company operates based on a single operating segment. All of the Companys revenues related to the ongoing intellectual
property business for fiscal 2013, 2012 and 2011 were from two licensees, Microsoft, Inc. (Microsoft) and Mobixell Networks, Inc. (Mobixell Networks) as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total
Revenue Fiscal
Year Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Microsoft
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
Mobixell Networks
|
|
|
100
|
%
|
|
|
|
|
|
|
100
|
%
|
(8) Balance Sheet Components
(a) Cash, cash equivalents and investments
The following tables summarize the Companys cash, cash equivalents, restricted cash and investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
|
Amortized
cost
|
|
|
Unrealized
gains
|
|
|
Unrealized
losses
|
|
|
Estimated
fair value
|
|
Cash
|
|
$
|
38,492
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38,492
|
|
Short-term Restricted Cash
|
|
|
17,251
|
|
|
|
|
|
|
|
|
|
|
|
17,251
|
|
Long-term Restricted Cash (1)
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
508
|
|
Money Market Funds
|
|
|
9,121
|
|
|
|
|
|
|
|
|
|
|
|
9,121
|
|
Certificate of Deposit
|
|
|
2,005
|
|
|
|
|
|
|
|
|
|
|
|
2,005
|
|
U.S. Government Agencies
|
|
|
2,978
|
|
|
|
2
|
|
|
|
|
|
|
|
2,980
|
|
Corporate Bonds
|
|
|
5,808
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
5,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,163
|
|
|
$
|
4
|
|
|
$
|
(2
|
)
|
|
$
|
76,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in cash and cash equivalents
|
|
$
|
47,613
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
47,613
|
|
Included in restricted cash
|
|
|
17,251
|
|
|
|
|
|
|
|
|
|
|
|
17,251
|
|
Included in deposits and assets
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
508
|
|
Included in short-term investments
|
|
|
10,791
|
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
10,793
|
|
Included in long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,163
|
|
|
$
|
4
|
|
|
$
|
(2
|
)
|
|
$
|
76,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Long-term restricted cash is included in deposits and other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
|
Amortized
cost
|
|
|
Unrealized
gains
|
|
|
Unrealized
losses
|
|
|
Estimated
fair value
|
|
Cash
|
|
$
|
721
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
721
|
|
Money Market Funds
|
|
|
37,488
|
|
|
|
|
|
|
|
|
|
|
|
37,488
|
|
Certificate of Deposit
|
|
|
2,220
|
|
|
|
|
|
|
|
|
|
|
|
2,220
|
|
Commercial Paper
|
|
|
7,844
|
|
|
|
|
|
|
|
|
|
|
|
7,844
|
|
U.S. Government Agencies
|
|
|
6,064
|
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
6,070
|
|
Auction Rate Securities
|
|
|
3,038
|
|
|
|
|
|
|
|
(801
|
)
|
|
|
2,237
|
|
Corporate Bonds
|
|
|
36,429
|
|
|
|
10
|
|
|
|
(27
|
)
|
|
|
36,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,804
|
|
|
$
|
17
|
|
|
$
|
(829
|
)
|
|
$
|
92,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in cash and cash equivalents
|
|
$
|
39,709
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39,709
|
|
Included in short-term investments
|
|
|
43,863
|
|
|
|
17
|
|
|
|
(20
|
)
|
|
|
43,860
|
|
Included in long-term investments
|
|
|
10,232
|
|
|
|
|
|
|
|
(809
|
)
|
|
|
9,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,804
|
|
|
$
|
17
|
|
|
$
|
(829
|
)
|
|
$
|
92,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
Property and equipment, net
Property and Equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Computer equipment and software
|
|
$
|
213
|
|
|
$
|
18,863
|
|
Furniture and equipment
|
|
|
47
|
|
|
|
64
|
|
Leasehold improvements
|
|
|
45
|
|
|
|
2,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305
|
|
|
|
20,965
|
|
Less: accumulated depreciation
|
|
|
(93
|
)
|
|
|
(20,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
212
|
|
|
$
|
452
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, including depreciation from discontinued operations, was $0.3 million, $3.5 million and $5.2
million for fiscal 2013, 2012 and 2011, respectively.
(b) Accrued Liabilities
Accrued Liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
|
2013
|
|
|
2012
|
|
Accrued director compensation
|
|
$
|
295
|
|
|
$
|
|
|
Accrued professional fees
|
|
|
353
|
|
|
|
455
|
|
Escheat liabilities
|
|
|
439
|
|
|
|
439
|
|
Withholding taxes payable
|
|
|
256
|
|
|
|
198
|
|
Income taxes payable
|
|
|
|
|
|
|
1,043
|
|
Other accrued liabilities
|
|
|
1,474
|
|
|
|
880
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,817
|
|
|
$
|
3,015
|
|
|
|
|
|
|
|
|
|
|
Our board is generally compensated with options and restricted stock. As of January 2013, the shares within the
boards option plan had decreased to a level insufficient to support their compensation. The board members have agreed to defer receiving their stock based compensation in anticipation of the plan being replenished at the upcoming annual
general meeting. As a result, approximately $0.3 million has been accrued for board compensation at June 30, 2013 in other accrued liabilities in the Companys consolidated balance sheet.
(9) Financial Instruments
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash and highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Cash equivalents are comprised of short-term investments
with an investment rating of any two of the following: Moodys of A-2 or higher, or Standard & Poors of A1 or higher at the time of purchase. The Company is exposed to credit risk in the event of default by the financial
institutions or the issuers of these investments to the extent the amounts recorded on the balance sheet are in excess of amounts that are insured by the FDIC.
Restricted cash
In the second fiscal quarter of 2013, the Company transferred $0.7 million into a
Rabbi trust to fund a severance payment obligation which was paid during the fourth quarter of fiscal 2013.
F-29
In connection with the closing of the Ericsson patent acquisition, the Company terminated its credit
facility with Silicon Valley Bank, dated as of January 23, 2009, provided that the Company will be able to maintain certain letters of credit under the credit facility to the extent such letters of credit are fully cash collateralized. The
amount collateralized is approximately $17.8 million, of which $17.3 million is classified as short term restricted cash and $0.5 million is classified as long term restricted cash in deposits and other assets on the Companys June 30,
2013 balance sheet. Approximately $17.0 million of this amount relates to the lease on the Companys prior headquarters which expired in April 2013 and the related restriction was removed in early July 2013.
Investments
The Companys
investment policy is consistent with the definition of available-for-sale securities. From time to time, the Company may sell certain securities but the objectives are generally not to generate profits on short-term differences in price. The
following tables show the Companys available-for-sale investments within investments and cash and cash equivalents in the consolidated balance sheet (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity for the
year ending June 30,
|
|
|
Cost Value
|
|
|
Fair Value
|
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
June 30, 2013
Total
|
|
|
June 30, 2013
Total
|
|
U.S. Government Agencies
|
|
$
|
2,978
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,978
|
|
|
$
|
2,980
|
|
Certificates of Deposit
|
|
|
2,005
|
|
|
|
|
|
|
|
|
|
|
|
2,005
|
|
|
|
2,005
|
|
Corporate Bonds
|
|
|
5,808
|
|
|
|
|
|
|
|
|
|
|
|
5,808
|
|
|
|
5,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,791
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,791
|
|
|
$
|
10,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate
|
|
|
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary and Other-Than-Temporary Impairments On Available-For-Sale Securities
As of each balance sheet date, the Company reviews its investments in an unrealized loss position for impairment in accordance with guidance issued by the
FASB and the SEC in order to determine whether an impairment is temporary or other-than-temporary (OTTI). When an unrealized loss on a security is considered temporary, the Company records the unrealized loss in other comprehensive
income (loss) and not in earnings.
An OTTI occurs when it is anticipated that the amortized cost will not be recovered for a security in an
unrealized loss position. In such situations, the amount of OTTI recorded in earnings is the entire difference between the securitys amortized cost and its fair value when either: (i) the Company has the intent to sell the security; or
(ii) it is more likely than not that the Company will be required to sell the security before recovery of the decline in fair value below amortized cost. If neither of these two conditions exists, only the difference between the amortized cost
basis of the security and the present value of projected future cash flows expected to be collected is recognized as an OTTI charge in earnings (credit loss). If the fair value is less than the present value of projected future cash
flows expected to be collected, this portion of OTTI relates to other-than credit factors (noncredit loss) and is recorded as other comprehensive income (loss) within stockholders equity.
In the fiscal years ended June 30, 2011, the Company had OTTI charges in earnings of $1.1 recorded in other expense, net. There were no OTTI charges
during fiscal 2012 and fiscal 2013.
F-30
The following tables show the gross unrealized losses and fair value of the Companys investments with
unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Corporate Bonds
|
|
$
|
2,216
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,216
|
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,216
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,216
|
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013, the Company had 4 investments in an unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2012
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
U.S. Government Agencies
|
|
$
|
2,765
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,765
|
|
|
$
|
(1
|
)
|
Corporate Bonds
|
|
|
30,750
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
30,750
|
|
|
|
(27
|
)
|
Auction Rate Securities
|
|
|
|
|
|
|
|
|
|
|
2,237
|
|
|
|
(801
|
)
|
|
|
2,237
|
|
|
|
(801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,515
|
|
|
$
|
(28
|
)
|
|
$
|
2,237
|
|
|
$
|
(801
|
)
|
|
$
|
35,752
|
|
|
$
|
(829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2012, the Company had 54 investments in an unrealized loss position.
The table below presents activity related to the credit loss component recognized in earnings (in thousands):
|
|
|
|
|
Cumulative OTTI credit losses recognized as of June 30, 2011
|
|
$
|
(462
|
)
|
OTTI charges related to securities with previous credit losses
|
|
|
|
|
Less: OTTI charges related to securities sold
|
|
|
|
|
|
|
|
|
|
Cumulative OTTI credit losses recognized as of June 30, 2012
|
|
|
(462
|
)
|
OTTI charges related to securities with previous credit losses
|
|
|
|
|
Less: OTTI charges related to securities sold
|
|
|
462
|
|
|
|
|
|
|
Cumulative OTTI credit losses recognized as of June 30, 2013
|
|
$
|
|
|
|
|
|
|
|
In March 2011, the Company had the intent to sell one Auction Rate Security (ARS) investment and in April
2011, two of the ARS were sold. The sale of one of these ARS resulted in proceeds of $2.5 million in the fourth quarter of fiscal 2011 and recognition of an OTTI charge of $0.4 million in the third quarter of fiscal 2011 for the ARS classified
as intent to sell due to the Companys discussions with the buyer of that ARS as of March 31, 2011. Proceeds of $2.3 million and an OTTI charge of $0.6 million was recognized in the fourth quarter of fiscal 2011 for the ARS not
classified as intent to sell as of March 31, 2011.
There was a realized gain of $0.3 million recorded during the fiscal year
ended June 30, 2011 from the sales of two available-for-sale securities. Realized gains and losses are included in other income (expense), net in the consolidated statement of operations.
The Company sold the last remaining ARS in February 2013. Proceeds of $1.9 million and a realized loss of $1.1 million were recognized in the third
quarter of fiscal year 2013. The Company recorded $0.5 million other-than-
F-31
temporary-impairments in the consolidated statement of operation during fiscal 2010 related to these securities. During the fiscal years ended June 30, 2012 and 2013 there were no OTTI
charges in earnings.
Fair Value Measurement
The FASB has established a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The
following are the hierarchical levels of inputs to measure fair value:
|
|
|
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or
liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
Level 3: Unobservable inputs reflecting the Companys own assumptions incorporated in valuation techniques used to determine fair value. These
assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The carrying
value of the Companys cash and cash equivalents approximates their fair value and is based on Level 1 inputs. The carrying value of the Companys accounts payable, accrued liabilities and restructuring liabilities approximates their fair
value due to the short-term nature of these instruments and is based on Level 2 inputs. The Company recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting
period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the fiscal year ended June 30, 2013. In addition, see note 3 for details on the fair value of the Senior Secured Notes.
The following tables summarize the Companys financial assets and liabilities measured at fair value on a recurring basis, by level
within the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of securities as of June 30, 2013
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
9,121
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,121
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
|
2,005
|
|
|
|
|
|
|
|
|
|
|
|
2,005
|
|
Corporate Bonds
|
|
|
5,808
|
|
|
|
|
|
|
|
|
|
|
|
5,808
|
|
U.S. Government Agencies
|
|
|
2,980
|
|
|
|
|
|
|
|
|
|
|
|
2,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
19,914
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Condition Consultant Stock
|
|
$
|
|
|
|
$
|
904
|
|
|
$
|
|
|
|
|
904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
904
|
|
|
$
|
|
|
|
$
|
904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of securities as of June 30, 2012 (in thousands)
|
|
|
|
Markets for Identical
Assets (Level 1)
|
|
|
Observable Inputs
(Level 2)
|
|
|
Unobservable
Inputs (Level 3)
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
37,488
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,488
|
|
Commercial Paper
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
|
2,220
|
|
|
|
|
|
|
|
|
|
|
|
2,220
|
|
Commercial Paper
|
|
|
6,344
|
|
|
|
|
|
|
|
|
|
|
|
6,344
|
|
Corporate Bonds
|
|
|
31,991
|
|
|
|
|
|
|
|
|
|
|
|
31,991
|
|
U.S. Government Agencies
|
|
|
3,305
|
|
|
|
|
|
|
|
|
|
|
|
3,305
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
|
4,421
|
|
|
|
|
|
|
|
|
|
|
|
4,421
|
|
U.S. Government Agencies
|
|
|
2,765
|
|
|
|
|
|
|
|
|
|
|
|
2,765
|
|
Auction Rate Securities
|
|
|
|
|
|
|
|
|
|
|
2,237
|
|
|
|
2,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
90,034
|
|
|
$
|
|
|
|
$
|
2,237
|
|
|
$
|
92,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction Rate Securities
As of June 30, 2012, a $2.2 million auction rate security, recorded in long-term investments on the consolidated balance sheet, was considered illiquid based upon a lack of auction results beginning
in fiscal 2008. The Company estimated the fair value of this ARS based on (1) financial standing of the issuer; (2) size of position held and the liquidity of the market; (3) contractual restrictions on disposition; (4) pending
public offering with respect to the financial instrument; (5) pending reorganization activity affecting the financial instrument; (6) reported prices and the extent of the public trading in similar financial instruments of the issuer or
comparable companies; (7) ability of the issuer to obtain required financing; (8) changes in the economic conditions affecting the issuer; (9) a recent purchase of the sale of a security of the issuer; (10) pricing by other
dealers in similar securities; (11) financial statements of any underlying ARS portfolio investments; (12) successful auction/early redemption; (13) failing auctions until maturity; or (14) default and the estimated cash flows
for each scenario. Other factors were considered, such as interest rate effects, liquidity, trinomial probabilities, recovery rates, value of the investments held by the issuer and the financial condition and credit ratings of the issuer, insurers,
and parent companies, as applicable.
Assumptions of probabilities of default, probabilities of passing auction, and probabilities of earning
the maximum rate for each period are based upon the risks, the underlying investments collateralizing the ARS, the maturity date of the ARS, the maximum rate of the ARS and current market conditions, and third party professional judgment.
The ARS is Triple X structured obligations of special purpose reinsurance entities associated with life insurance companies. On
May 3, 2012, the ARS related to federal education student loans programs was bought back by the investment broker at par value of $2.2 million. As of June 30, 2012, the ARS instrument remaining was rated BBB by Standard and Poors and
all of the $3.5 million par value of this illiquid investment is insured against defaults of principal and interest by third party insurance companies. The Company sold the ARS in February 2013. Proceeds of $1.9 million and a realized loss of $1.1
million were recognized in the third quarter of fiscal year 2013.
F-33
The following table represents the reconciliation of the beginning and ending balances of the Companys
ARS measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
Fair Value Measurements
Using
Significant
(Level 3) ARS
|
|
Balance at June 30, 2010
|
|
$
|
9,279
|
|
Change in unrealized losses included in other comprehensive income
|
|
|
921
|
|
Other-than-temporary impairment
|
|
|
(1,071
|
)
|
Sale of ARS
|
|
|
(4,747
|
)
|
|
|
|
|
|
Balance at June 30, 2011
|
|
|
4,382
|
|
Change in unrealized losses included in other comprehensive income
|
|
|
55
|
|
Sale of ARS
|
|
|
(2,200
|
)
|
|
|
|
|
|
Balance at June 30, 2012
|
|
|
2,237
|
|
Change in unrealized losses included in other comprehensive income
|
|
|
(329
|
)
|
Sale of ARS
|
|
|
(1,908
|
)
|
|
|
|
|
|
Balance at June 30, 2013
|
|
$
|
|
|
|
|
|
|
|
(10) Borrowings
Credit Agreement
The Company had secured a revolving credit facility with Silicon Valley Bank. As of September 30, 2011, the borrowing base was $40.0 million. On
May 4, 2012, the Company entered into an amendment to reduce the amount of the line of credit from $25.0 million to $18.0 million, delete the Borrowing Base requirement, delete the minimum EBITDA covenant, delete the fee on undrawn amounts, and
modify the Liquidity Coverage Ratio definition.
The Company could borrow, repay and re-borrow under the revolving credit facility at any time
up to the maturity date. Effective with the May 4, 2012 amendment, the Company was no longer required to pay a fee on any undrawn amounts under the credit facility. For each letter of credit issued, the Company was required to pay
0.75% per annum on the face amount of the letter of credit. Annually, the Company was required to pay a commitment fee to the lender. In January 2011, the Company paid a $0.1 million commitment fee to the lender. In April 2012, the Company
paid a $75,000 commitment fee to the lender.
In February 2013, in connection with the closing of the Ericsson patent purchase agreement, the
Company terminated its credit facility with Silicon Valley Bank, provided that the Company will be able to maintain certain letters of credit under the credit facility to the extent that such letters are fully cash collateralized. The amount
collateralized is reflected as restricted cash on the Companys balance sheet for approximately $17.8 million. Approximately $17.0 million of this relates to the lease on the Companys prior headquarters which expired in April 2013, after
which time that amount of cash will no longer be restricted. This restricted cash was released in July 2013.
Senior Secured Notes
Refer to Financing Agreements in Note 3 of the notes to consolidated financial statement.
F-34
(11) Commitments and Contingencies
(a) Leases
The Company also has numerous facility operating leases at other locations in the United States and other countries. Future minimum lease payments under all non-cancelable operating leases with terms in
excess of one year and future contractual sublease income were as follows at June 30, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30,
|
|
Future
Lease
Payments
|
|
|
Future
Contractual
Sublease
Income
|
|
|
Net
Future
Lease
Payments
|
|
2014
|
|
$
|
1,461
|
|
|
$
|
(728
|
)
|
|
$
|
733
|
|
2015
|
|
|
591
|
|
|
|
(192
|
)
|
|
|
399
|
|
2016
|
|
|
145
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,197
|
|
|
$
|
(920
|
)
|
|
$
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense, net of accrued restructuring for fiscal 2013, 2012 and 2011, was approximately $117,000, $3.3 million and
$4.5 million, respectively, net of sublease income of $1.5 million, $1.5 million and $1.3 million for fiscal 2013, 2012 and 2011, respectively. Net future lease payments include $1.3 million of accrued restructuring-related lease obligations (see
Note 13 Restructuring and Related Costs).
(b) Litigation
Openwave Systems Inc. v. Apple Inc. (Apple), Research in Motion Ltd, and Research in Motion Corp. (RIM) (now known as Blackberry)
On August 31, 2011, the Company filed a complaint in the Federal District Court for the District of Delaware against Apple and
RIM, alleging that Apple and RIM products infringe certain of the Companys patents, seeking among other things a declaration that the Companys patents cited in the complaint have been infringed by Apple and RIM and that these patents are
valid and enforceable, damages as a result of the infringement, and an injunction against further infringement. This matter had been stayed pending a parallel case filed with the International Trade Commission (ITC). The Company withdrew
the ITC investigation in October 2012. The Federal District Court in Delaware lifted the stay in January 2013 and the matter is now proceeding.
Unwired Planet LLC v. Apple Inc. (Apple) & Unwired Planet LLC v. Google, Inc. (Google)
On September 20, 2012, the Company filed two separate complaints in the U.S. District Court for the District of Nevada, charging Apple with
infringing 10 of its patents, and charging Google with infringing 10 different patents. Together, the two cases charge infringement of a total of 20 patents related to smart mobile devices, cloud computing, digital content stores, push notification
technologies and location-based services such as mapping and advertising. On August 30, 2013, the U.S. District Court for the District of Nevada granted Apples motion to transfer venue from the District of Nevada to the Northern District of
California.
From time to time, the Company may be involved in litigation or other legal proceedings, including those noted above, relating to
or arising out of its day-to-day operations or otherwise. Litigation is inherently uncertain, and the Company could experience unfavorable rulings. Should the Company experience an unfavorable ruling, there exists the possibility of a material
adverse impact on its financial condition, results of operations, cash flows or on its business for the period in which the ruling occurs and/or in future periods.
F-35
(c) Indemnification Claims
Prior to the sale of the Companys product businesses, the Companys software license and services agreements generally included a limited
indemnification provision for claims from third parties relating to its intellectual property. In connection with the sale of the Companys product businesses, the Company retains certain ongoing liabilities with respect to indemnification
claims related to its former customers that were initiated prior to the sale of the Location business line and the Messaging and Mediation product businesses.
Originally, three licensees of the Company sought indemnification from the Company under their respective license agreements in connection with being named as defendants in two matters pending in the
United States District Court for the Eastern District of Texas captioned Unified Messaging Solutions, Inc. v. Google, et al. (Civil Action No. 6:11cv00464) and Unified Messaging Solutions, Inc. v. Facebook, et al. (Civil Action
No. 6:11cv00120 (the Actions). Plaintiffs in the Actions allege that the licensees web-based communication services infringe patents allegedly owned by the plaintiff and the licensees claim that their web-based services are
comprised of products licensed from the Company. The Company has assumed the defense on behalf of two of the licensees. With respect to the third, the licensee conducted its own defense and has resolved this issue.
As of June 30, 2013, nothing has been accrued for indemnifications. Historically, costs related to these indemnification provisions have been
infrequent.
(12) Stockholders Equity
(a) Tax Benefits Preservation Agreement
On January 28, 2012, the Company entered into a Tax Benefits Preservation Agreement that entitles each holder of the Companys common stock to purchase one ten-thousandth of a share of Series A
Junior Participating Cumulative Preferred Stock at a price of $15 per one ten-thousandth of a share, subject to adjustment, upon the occurrence of certain requirements.
(b) Stock Plans
On October 16, 2005, the Companys 1995 Plan
(formerly the Software.com, Inc. 1995 Stock Option Plan) (the 1995 Stock Plan) expired, and, accordingly, options can no longer be granted from the 1995 Stock Plan. A total of 17,743,215 shares of Company common stock had previously been
authorized for issuance under the 1995 Stock Plan. As of June 30, 2013, options to purchase a total of 22,773 shares were outstanding under the 1995 Stock Plan.
On September 25, 2006, the Companys 1996 Stock Plan (formerly the Phone.com, Inc. 1996 Stock Plan) (the 1996 Stock Plan) expired and, accordingly, options can no longer be granted
from the 1996 Stock Plan. A total of 12,262,282 shares of Company common stock had previously been authorized for issuance under the 1996 Stock Plan. As of June 30, 2013, options to purchase a total of 26,739 shares were outstanding under the
1996 Stock Plan.
The Openwave Systems Inc. Amended and Restated 1999 Directors Equity Compensation Plan (the Directors
Stock Plan) which was approved by the stockholders at the Companys annual meeting held on December 3, 2009, provides for the grant of non-statutory stock options to non-employee directors (Outside Directors). Under the
Directors Stock Plan, a total of 1,650,000 shares of the Companys common stock have been reserved for issuance. Options and awards granted to new or existing Outside Directors under the Directors Stock Plan vest ratably over a
period of three years. The Directors Stock Plan also provides for the acceleration of options upon the dismissal of an Outside Director from the Board upon or within 24 months following a change in control of the Company. The exercise price of
options
F-36
granted under the Directors Stock Plan is equal to the fair market value of the Companys common stock on the date of grant. The exercise price of nonvested shares granted under the
Directors Stock Plan is $0.00. Under the Directors Stock Plan, stock option grants have a term of ten years. As of June 30, 2013, the Company had a total of 24,505 shares of the Companys common stock available for grant, and
options for a total of 780,706 shares were outstanding under the Directors Stock Plan.
The Openwave Systems Inc. 2001 Stock
Compensation Plan (2001 Stock Plan) provides for the issuance of non-statutory stock options, nonvested stock bonus awards and nonvested stock purchase awards to directors, employees and consultants of the Company. The 2001 Stock Plan
serves as the successor to certain plans of the Company and plans acquired by the Company. No further grants will be made under the predecessor plans; however, each outstanding option granted under a predecessor plan shall continue to be governed by
the terms and conditions of the predecessor plan under which it was granted. A total of 4,068,128 shares of Company common stock have been reserved for issuance under the 2001 Stock Plan. Under the 2001 Stock Plan, the exercise price for
non-statutory options is determined by the plan administrator and may be above or below the fair market value of the Companys common stock on the date of grant. Options issued under the 2001 Stock Plan generally expire ten years from the date
of grant. Vesting periods are determined by the plan administrator and generally provide for shares to vest ratably over a period of three to four years, with options for new employees generally including a one-year cliff period. As of June 30,
2013, the Company had a total of 450,194 shares of the Companys common stock available for grant, and a total of 27,509 shares outstanding under the 2001 Stock Plan.
The Openwave Systems Inc. Amended and Restated 2006 Stock Incentive Plan, as amended (2006 Stock Plan), which was approved by the stockholders at the Companys annual meeting held on
December 4, 2008, provides incentive stock options, non-statutory stock options, restricted stock purchase rights and stock appreciation rights to employees and consultants of the company and its affiliates. The plan also provides
restricted stock bonus, phantom stock units, restricted stock units, performance shares bonus and performance share units (Full-Value Stock Award). A total of 17,000,000 shares of Company common stock have been reserved for issuance
under the 2006 Stock Plan. Each share of Company common stock issued pursuant to a stock award issued under this Plan shall reduce the Share Reserve by one (1) share; provided, however that for each Full-Value Stock Award, the share
reserve shall be reduced by one and one-half (1.5) shares. The exercise price of options granted under the 2006 Stock Plan is usually equal to the fair market value of the Companys common stock on the date of grant. The exercise
price of nonvested shares granted under the 2006 Stock Plan is $0.00. Options issued under the 2006 Stock Plan generally expire ten years from the date of grant. Vesting periods are determined by the plan administrator and generally provide for
shares to vest ratably over a period of three to four years, with options for new employees generally including a one-year cliff period. As of June 30, 2013, the Company had a total of 868,583 shares of Company common stock available for grant,
and awards for a total of 6,549,223 shares were outstanding under the 2006 Stock Plan.
The following table summarizes the number of common
shares available for issuance under the plans discussed above as of June 30, 2013:
|
|
|
|
|
|
|
June 30,
2013
|
|
1995 and 1996 Stock Plans
|
|
|
|
|
2001 Stock Plan
|
|
|
450,194
|
|
Directors Stock Plan
|
|
|
24,505
|
|
2006 Stock Plan
|
|
|
868,583
|
|
|
|
|
|
|
Total
|
|
|
1,343,282
|
|
|
|
|
|
|
F-37
(c) Stock Purchase Rights
Certain outstanding stock purchase rights are subject to a restricted stock purchase agreement whereby the Company has the right to repurchase the stock
upon the voluntary or involuntary termination of the purchasers employment with the Company at the purchasers purchase price. The Companys repurchase right lapses at a rate determined by the stock plan administrator but at a
minimum rate of 20% per year. Through June 30, 2013, the Company has issued 11,411,230 shares under restricted stock purchase agreements, of which 490,892 shares have been repurchased and 106,000 shares remain subject to repurchase at a
weighted-average purchase price of $0.00 per share.
(d) Employee Stock Purchase Plans
Under the Companys Employee Stock Purchase Plan (ESPP), eligible employees could purchase Company common stock through payroll
deductions at a price equal to 85% of the lower of the fair market value of the Companys common stock as of the beginning and the end of the six month offering periods. Effective November 15, 2012, the ESPP was suspended. The amount of
stock-based compensation expense recognized relating to the ESPP during fiscal 2013 was immaterial.
During fiscal 2013, 2012 and 2011, 5,627,
84,740 and 229,638 shares, respectively, were purchased by employees under the ESPP.
The fair value used in recording the stock-based
compensation expense associated with the ESPP was estimated for each offering period using the Black-Scholes-Merton option pricing model. The expected term was six months, coinciding with each offering period. Expected volatilities were based on the
historical volatility experienced in the Companys stock price, as well as implied volatility in the market traded options on Unwired Planet common stock when appropriate. The risk-free rate for the expected term of the option was based on the
U.S. Treasury yield curve in effect at the time of the grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Expected volatility
|
|
|
61.4
|
%
|
|
|
52.7-92.0
|
%
|
|
|
47.1-53.1
|
%
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Risk-free rate
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.1-0.2
|
%
|
(e) Stock-based compensation
The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model and assumptions noted in the following table. The Company estimates the expected
term for new grants based upon actual post-vesting option cancellation and exercise experience as well as the average midpoint between vesting and the contractual term for outstanding options. The Companys expected volatility for the expected
term of the option is based upon the historical volatility experienced in the Companys stock price, as well as implied volatility in the market traded option on Unwired Planets common stock, when appropriate. During fiscal 2013, 2012 and
2011 implied volatility was not utilized in the Companys valuation of options granted due to the lack of option contracts with a strike price similar to the Companys stock option grants. To the extent volatility of its stock price
increases in the future, the Companys estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation expense in future periods. The risk-free rate for the expected term of the option is
based on the U.S. Treasury yield curve in effect at the time of grant. The Company determines the fair value of nonvested shares based on the NASDAQ closing stock price on the date of grant.
F-38
The ranges of assumptions used were as follows for fiscal 2013, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Expected volatility
|
|
|
62.1-73.6
|
%
|
|
|
72.2-78.5
|
%
|
|
|
60.6-71.1
|
%
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
2.66-5.87
|
|
|
|
3.60-6.07
|
|
|
|
3.32-6.16
|
|
Risk-free rate
|
|
|
0.4-1.0
|
%
|
|
|
0.6-1.2
|
%
|
|
|
0.9-1.8
|
%
|
A summary of option activity through June 30, 2013 is presented below (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at June 30, 2010
|
|
|
8,828
|
|
|
$
|
3.51
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
4,060
|
|
|
|
2.08
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,111
|
)
|
|
|
1.46
|
|
|
|
|
|
|
|
|
|
Forfeited, canceled or expired
|
|
|
(1,888
|
)
|
|
|
3.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2011
|
|
|
9,889
|
|
|
$
|
3.21
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
4,773
|
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,783
|
)
|
|
|
1.37
|
|
|
|
|
|
|
|
|
|
Forfeited, canceled or expired
|
|
|
(4,628
|
)
|
|
|
2.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2012
|
|
|
8,251
|
|
|
$
|
3.14
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
991
|
|
|
|
1.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,046
|
)
|
|
|
1.63
|
|
|
|
|
|
|
|
|
|
Forfeited, canceled or expired
|
|
|
(2,341
|
)
|
|
|
5.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2013
|
|
|
5,855
|
|
|
$
|
2.03
|
|
|
|
2.22
|
|
|
$
|
1,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Expected to Vest at June 30, 2013
|
|
|
5,568
|
|
|
$
|
2.05
|
|
|
|
1.86
|
|
|
$
|
1,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2013
|
|
|
4,883
|
|
|
$
|
2.10
|
|
|
|
0.85
|
|
|
$
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of options granted during fiscal 2013, 2012 and 2011 was $0.72, $0.98 and
$0.90, respectively. The total intrinsic value of options exercised during fiscal 2013, 2012 and 2011 was $2.5 million, $1.7 million and $0.8 million, respectively. Upon the exercise of options, the Company issues new common stock from its
authorized shares.
F-39
A summary of the activity of the Companys nonvested share awards, including discontinued operations
for fiscal year 2013 is presented below (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
Nonvested SharesRestricted Stock Awards
|
|
Shares
|
|
|
Grant Date
Fair Value
Per Share
|
|
Nonvested at June 30, 2010
|
|
|
222
|
|
|
$
|
1.98
|
|
Nonvested shares granted
|
|
|
108
|
|
|
|
2.37
|
|
Vested
|
|
|
(110
|
)
|
|
|
2.14
|
|
Forfeited
|
|
|
(23
|
)
|
|
|
2.07
|
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2011
|
|
|
197
|
|
|
$
|
2.07
|
|
Nonvested shares granted
|
|
|
151
|
|
|
|
1.67
|
|
Vested
|
|
|
(168
|
)
|
|
|
1.86
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2012
|
|
|
180
|
|
|
$
|
1.93
|
|
Nonvested shares granted
|
|
|
90
|
|
|
|
1.42
|
|
Vested
|
|
|
(164
|
)
|
|
|
1.85
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2013
|
|
|
106
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
The total fair value of shares vested, including discontinued operations, during fiscal 2013, 2012 and 2011 was $0.2
million, $0.3 million and $0.2 million, respectively.
As of June 30, 2013, there was $2.9 million of total unrecognized compensation
cost related to all unvested share awards and options. That cost is expected to be recognized on a declining basis as the shares vest over the next three years.
A summary of the activity of the Companys restricted stock units for fiscal year 2013 is presented below (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
Units
|
|
|
Weighted
Average Grant
Date Fair
Value
|
|
Restricted Stock Units
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2011
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,504
|
|
|
$
|
2.04
|
|
Vested
|
|
|
(2,175
|
)
|
|
$
|
2.59
|
|
Forfeited
|
|
|
(53
|
)
|
|
$
|
1.93
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2012
|
|
|
276
|
|
|
$
|
2.04
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,315
|
|
|
$
|
1.55
|
|
Vested
|
|
|
(1,014
|
)
|
|
$
|
1.91
|
|
Forfeited
|
|
|
(20
|
)
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2013
|
|
|
1,557
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
F-40
The impact on the Companys results of operations of recording stock-based compensation for fiscal
2013, 2012 and 2011 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2013 (1)
|
|
|
2012
|
|
|
2011
|
|
Stock-based compensation by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expense
|
|
$
|
1
|
|
|
$
|
15
|
|
|
$
|
|
|
Patent initiative expense
|
|
|
261
|
|
|
|
43
|
|
|
|
|
|
General and administrative
|
|
|
6,889
|
|
|
|
1,774
|
|
|
|
402
|
|
Discontinued operations
|
|
|
624
|
|
|
|
6,573
|
|
|
|
2,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,775
|
|
|
$
|
8,405
|
|
|
$
|
2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The stock based compensation expense in fiscal 2013 includes approximately $3.4 million in stock compensation to a non-employee vendor.
|
(f) Consultant compensation
During fiscal 2013, the Company issued one million shares of Company common stock to a consultant for performance under a services contract in connection with the Ericsson transaction. The fair value
associated with this stock issuance of $1.9 million was recognized as stock-based compensation expense during the year ended June 30, 2013. An additional 500,000 shares of Company common stock will be issued if prior to August 14, 2014 the
volume weighted average trading price of the Companys common stock over any 20 consecutive trading days equals or exceeds $3.00 (First Incentive Fee). An additional 700,000 shares of Company common stock will be issued if prior to
February 12, 2015 the volume weighted average trading price of the Companys common stock over any 20 consecutive trading days equals or exceeds $5.00 (Second Incentive Fee). The awards related to the Incentive Fees will only
vest if the respective Company common stock price targets are met. The Incentive Fees are classified as a liability as the Company is required to settle the Incentive Fees by transferring cash in the event a change of control transaction occurs. The
fair value of the awards for the Incentive Fees will be remeasured on a quarterly basis using a Monte Carlo simulation method and any changes in fair value will be recognized as expense or income in the statement of operations. As of June 30,
2013, the fair value of the Incentive Fee awards was estimated at $0.9 million. The amount of stock based compensation expense in fiscal 2013 related to the issuance of the Incentive Fees was $1.5 million and included in general and
administrative expenses. Subsequent changes in the fair value will be recognized in Other Income and Expense. Other Income relating to the change in liability value for the fiscal year 2013 is $0.8 million. The first tranche of Company common stock
issued was modified at the end of the fourth quarter of fiscal 2013 to add an additional six months to the issue date from February 14, 2014 to August 14, 2014. This modification was in relation to the Financing Agreements and therefore
considered a cost of the Transaction. The cost associated with the modification was $0.2 million in the fourth quarter of fiscal year 2013.
The estimated assumptions used in the Monte-Carlo simulation model to value the Companys market-condition consultant stock grants are:
|
|
|
|
|
|
|
Fiscal Year
ended
June 30, 2013
|
|
Expected volatility
|
|
|
62.28 - 72.38
|
%
|
Expected dividends
|
|
|
None
|
|
Risk-free rate
|
|
|
.24
-
.28
|
%
|
F-41
Additionally, during fiscal 2013, the Company issued 225,000 restricted stock units to consultant advisors.
These shares were determined to be equity instruments. Each quarter, as the consultant advisors complete their obligation, the Company will measure the fair value of the grants based on the market price of the stock on the last day of the quarter.
The Company expensed $0.1 million as of June 30, 2013.
(g) CEO Separation and Bonus
On February 19, 2013, the Company announced that Michael Mulica intended to step down as the Companys President and Chief Executive Officer as
of May 31, 2013 pursuant to a separation agreement entered into between the Company and Mr. Mulica (the Separation Agreement). The Separation Agreement provided that upon Mr. Mulicas exit, all of his unvested equity
awards covering shares of the Companys common stock shall automatically be accelerated so as to become immediately and completely vested, and the post-termination exercise periods for all of his stock options shall be extended for an
additional six months. In addition, Mr. Mulica is entitled to salary continuation for twelve months which commenced upon separation and was eligible for an incentive cash award for the first six months of 2013 for an amount of up to 150% of
Mr. Mulicas base salary, based on certain performance criteria detailed in the Separation Agreement and prorated for the amount of days actually worked. Mr. Mulica is also entitled to certain benefits continuation and outplacement
assistance. Additionally, on February 14, 2013, in recognition of Mr. Mulicas efforts in connection with the closing of the Companys patent transaction with Ericsson, the Companys Board of Directors awarded
Mr. Mulica a $200,000 cash bonus and 300,000 restricted stock units that vested in accordance with the terms of the Separation Agreement. For fiscal year 2013, the Company has incurred $0.4 million in expense and $2.3 million in stock-based
compensation for the separation of the CEO and bonus to the CEO.
(h) Registered Direct Offering and Purchase
Agreement
Refer to Financing Agreements in Note 3 of the notes to consolidated financial statement.
(13) Restructuring and Related Costs
As a result of the Companys change in strategy and its desire to improve its cost structure, the Company has announced several
restructurings. These restructurings include the fiscal 2013 restructuring (FY2013), fiscal 2012 restructuring (FY2012 Restructuring), fiscal 2010 restructuring (FY2010 Restructuring), fiscal 2009 restructuring (FY2009 Restructuring), fiscal 2008
restructuring (FY2008 Restructuring), fiscal 2007 fourth quarter restructuring (FY2007 Q4 Restructuring), the fiscal 2007 first quarter restructuring (FY2007 Restructuring), as well as restructuring plans initiated in prior years.
F-42
The following tables set forth the restructuring activity through June 30, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 02 to FY 09
Restructuring
Plans
|
|
|
FY 10
Restructuring
Plans
|
|
|
FY 11
Restructuring
Plan
|
|
|
FY 12
Restructuring
Plan
|
|
|
FY 13
Restructuring
Plan
|
|
|
|
Facility
(3)
|
|
|
Severance
(2)
|
|
|
Facility
(3)
|
|
|
Severance
(2)
|
|
|
Severance
(2)
|
|
|
Facility
(3)
|
|
|
Severance
(2)
|
|
|
Severance
(3)
|
|
|
Facility
(3)
|
|
|
Severance
(3)
|
|
|
Accrual
|
|
Accrual balances as of June 30, 2010
|
|
$
|
37,657
|
|
|
$
|
65
|
|
|
$
|
1,110
|
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,948
|
|
Activity for fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New charges and adjustments to estimates
|
|
|
760
|
|
|
|
(5
|
)
|
|
|
356
|
|
|
|
(18
|
)
|
|
|
2,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,139
|
|
Accretion expense
|
|
|
1,090
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,109
|
|
Cash paid, net
|
|
|
(14,297
|
)
|
|
|
(60
|
)
|
|
|
(737
|
)
|
|
|
(98
|
)
|
|
|
(1,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances as of June 30, 2011
|
|
|
25,210
|
|
|
|
|
|
|
|
748
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,175
|
|
Activity for fiscal 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New charges and adjustments to estimates
|
|
|
(48
|
)
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
1,411
|
|
|
|
4,327
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
6,303
|
|
Accretion expense
|
|
|
680
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
691
|
|
Cash paid, net
|
|
|
(13,324
|
)
|
|
|
|
|
|
|
(432
|
)
|
|
|
|
|
|
|
(205
|
)
|
|
|
(610
|
)
|
|
|
(4,327
|
)
|
|
|
(573
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances as of June 30, 2012
|
|
|
12,518
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
802
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
13,698
|
|
Activity for fiscal 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New charges and
|
|
|
10
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
831
|
|
|
|
701
|
|
|
|
1,443
|
|
adjustments to estimates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion expense
|
|
|
221
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
Cash paid, net
|
|
|
(12,008
|
)
|
|
|
|
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
(731
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(831
|
)
|
|
|
(653
|
)
|
|
|
(14,435
|
)
|
Write-offs (Severance, Cobra & Outplacement)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
(41
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances as of June 30, 2013
|
|
$
|
741
|
|
|
$
|
|
|
|
$
|
105
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Total charges does not include $0.2 million of accelerated depreciation of fixed assets as represented on the Companys consolidated statement of operations under
restructuring and other costs for fiscal 2010.
|
(2)
|
|
These amounts relate to discontinued operations.
|
(3)
|
|
These amounts relate to continuing operations.
|
Facility
Facility costs represent the closure and downsizing costs of facilities that were
consolidated or eliminated due to the restructurings. Closure and downsizing costs include payments required under lease contracts, less any applicable sublease income after the properties were abandoned, lease buyout costs and restoration costs
associated with certain lease arrangements. To determine the lease loss portion of the closure and downsizing costs, certain estimates were made related to: (1) the time period over which the relevant building would remain vacant,
(2) sublease terms and (3) sublease rates, including common area charges. As of June 30, 2013, the Company has sublease contracts in place for two of its exited facilities.
Restructuring Plans
As a result
of the Companys change in strategy and its desire to improve its cost structure, the Company has announced several restructurings. These restructuring plans include the restructuring announced during the first quarter of fiscal 2012 (the
FY2012 Restructuring), and various other restructurings in fiscal 2002 through 2011. Most recently, the Company announced a restructuring on November 7, 2012 in relation to the relocation of its headquarters to Reno, Nevada. The
Company incurred a $0.3 million charge during the first quarter of fiscal 2013, related to severance as a result of this relocation. The Company recorded an additional restructuring expense charge of $1.4 million under this plan during the second
quarter of fiscal 2013, which includes approximately $0.4 million in severance payments and $1.0 million in facility charges, of which $0.2 million is a non-cash charge for accelerated depreciation. The Company did not record any additional charges
for restructuring in the third or fourth quarters of fiscal 2013.
F-43
Previously, the Company implemented a restructuring plan in fiscal 2012 (the FY2012
Restructuring) to better align the Companys resources among its operational groups, reduce costs and improve operating efficiencies. As such, during the second quarter of fiscal 2012, the Company incurred $1.4 million in facility charges
associated with restructuring reduction of space used for the Companys headquarters under this plan. The Company also incurred $4.9 million in restructuring charges related to severance, of which $0.5 million is included in continuing
operations and $4.4 million is included in discontinued operations for the year ended, June 30, 2013.
The Company implemented the FY2010
Restructuring to consolidate the Companys resources, primarily in development, and improve operating efficiencies. As such, during fiscal 2010, the Company incurred approximately $0.2 million in accelerated depreciation on fixed assets
associated with a facility identified for restructuring. During fiscal 2010, the Company recognized $1.3 million in facilities charges associated with a facility the Company exited during the year under the FY2010 Restructuring. During fiscal 2011,
a sublease for the facility under this restructuring was signed, which resulted in an additional restructuring charge of $0.4 million. The lease payments will be paid over the term of the remaining lease. As of June 30, 2012, the remaining
balance was $0.3 million facilities related accrual. The Company paid $0.2 million through June 30, 2013 and expects to pay $0.1 million from July 2013 through January 2014.
The Company implemented the FY2009 Restructuring to consolidate the Companys resources, primarily in development and support, and improve operating efficiencies. As such, during fiscal 2009, the
Company incurred approximately $3.4 million in facilities charges associated with a facility identified for restructuring and $0.1 million in accelerated depreciation on fixed assets associated with facilities identified for restructuring. During
fiscal 2010, the Company revised the estimated sublease terms associated with these facilities, which resulted in an additional restructuring charge of $2.0 million. During fiscal 2011, a sublease for one of the facilities under this restructuring
was signed, which resulted in an additional restructuring charge of $0.7 million. As of June 30, 2012, the remaining balance was $12.5 million facilities related accrual. The Company paid $11.8 million through June 30, 2013 and expects to
pay $0.8 million from July 2013 through November 2014.
The following table summarizes the expected future payments for restructuring
liabilities by fiscal year (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30,
|
|
Future
Lease
Payments
|
|
|
Future
Contractual
Sublease
Income
|
|
|
Net
Future
Lease
Payments
|
|
2014
|
|
$
|
1,642
|
|
|
$
|
(1,033
|
)
|
|
$
|
609
|
|
2015
|
|
|
505
|
|
|
|
(237
|
)
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,147
|
|
|
$
|
(1,270
|
)
|
|
$
|
877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys restructuring liabilities are recorded at net present value. Over time, the net present value
increases to equal the amount of the net future cash payments, removing the need for time-based discounting. Accretion expense reflects the increase in the net present value during the relevant period. Future accretion expense on the restructured
facility obligations above is $18,000, which will be recorded as restructuring expense over the life of the respective leases.
F-44
(14) Income Taxes
Loss from continuing operations before provision for income taxes is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Domestic
|
|
$
|
(39,637
|
)
|
|
$
|
(9,439
|
)
|
|
$
|
(7,990
|
)
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(39,637
|
)
|
|
$
|
(9,439
|
)
|
|
$
|
(7,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes includes the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic income tax
|
|
$
|
|
|
|
$
|
(3,790
|
)
|
|
$
|
|
|
Foreign income tax
|
|
|
42
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
2,501
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42
|
|
|
$
|
(1,289
|
)
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes for continuing operations were an expense of $42,000 in fiscal 2013. A benefit totaled $1.3 million in
fiscal 2012, and an expense of $0.1 million in fiscal 2011.
Income tax benefit for discontinued operations totaled $0.8 million for fiscal
2013. This expense was primarily related to a South Korean tax refund which the Company determined as more likely than not, uncollectable from the South Korean Tax Agency and release of accrued taxes related to foreign subsidiaries transferred. The
Company recorded an income tax expense related to discontinued operations of $5.5 million and income tax benefit of $1.6 million during fiscal 2012 and fiscal 2011, respectively.
The following table reconciles the expected corporate federal income tax expense (benefit), computed by multiplying the Companys loss before income taxes by the statutory income tax rate of 35%, to
the Companys income tax expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Federal tax benefit at statutory rate
|
|
$
|
(13,873
|
)
|
|
$
|
(3,304
|
)
|
|
$
|
(2,797
|
)
|
State taxes
|
|
|
|
|
|
|
(486
|
)
|
|
|
|
|
Effect of foreign operations
|
|
|
42
|
|
|
|
2,501
|
|
|
|
115
|
|
Net operating losses not benefited, net
|
|
|
13,873
|
|
|
|
|
|
|
|
2,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense
|
|
$
|
42
|
|
|
$
|
(1,289
|
)
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
The tax effect of temporary differences that give rise to significant portions of the Companys
deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
636,588
|
|
|
$
|
593,321
|
|
Accruals and allowances not deductible for tax purposes
|
|
|
35
|
|
|
|
14,286
|
|
Research and development credit and other credits carry-forwards
|
|
|
51,333
|
|
|
|
51,333
|
|
Stock based compensation
|
|
|
935
|
|
|
|
982
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, gross
|
|
|
688,891
|
|
|
|
659,922
|
|
Less: valuation allowance
|
|
|
(688,891
|
)
|
|
|
(659,922
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
In light of the Companys recent history of operating losses, the Company has recorded a valuation allowance for all
of its federal and state deferred tax assets, as it is presently unable to conclude that it is more likely than not that federal and state deferred tax assets in excess of deferred tax liabilities will be realized.
During fiscal 2012, the Company recorded a valuation allowance of $2.5 million against the beginning foreign deferred tax asset balance following the
Companys announcement that it was pursuing strategic alternatives for the mediation and messaging product operations, which created uncertainty regarding the ability of certain foreign subsidiaries to generate future taxable income. As a
result of the sale of the product business, the Company does not have any foreign deferred tax assets as of June 30, 2013.
Approximately
$250.5 million of the valuation allowance for deferred tax assets relating to net operating loss carryforwards is attributable to employee stock option deductions, the benefit from which will be allocated to additional paid-in capital rather than
current earnings when and if subsequently realized. The benefit from approximately $8.5 million of the total $51.3 million valuation allowance for deferred tax assets related to research and development credit carryforwards will be allocated to
additional paid-in capital rather than current earnings when and if subsequently realized.
As of June 30, 2013, the Company had net
operating loss carryforwards for federal and state income tax purposes of approximately $1.68 billion and $556 million, respectively. In addition, the Company has gross federal and California research and development credit carryforwards of
approximately $30.1 million and $21.2 million, respectively. The federal net operating loss carryforwards and research and development credit carryforwards will expire from 2018 through 2033. The California research and development credits may be
carried forward indefinitely. The federal net operating losses can be carried forward for 20 years. The California net operating loss carryforwards will expire from 2014 through 2032.
Under Internal Revenue Code Section 382, the utilization of a corporations net operating loss (NOL) carryforwards is limited following a change in ownership (as defined by the
Internal Revenue Code) of greater than 50% within a three-year NOL period. If it is determined that prior equity transactions limit the Companys NOL carryforwards, the annual limitation will be determined by multiplying the market value of the
Company on the date of the ownership change by the federal long-term tax-exempt rate. Any amount exceeding the annual limitation may be carried forward to future years for the balance of the NOL carryforward period.
F-46
The Companys policy is to include interest and penalties related to unrecognized tax benefits in tax
expense on the Companys consolidated statement of operations. As of June 30, 2013, no amount is accrued for interest associated with tax liabilities.
The sale of the product business did not include a transfer of the Companys gross unrecognized tax benefits reflected in long-term taxes payable and other in the consolidated balance sheet. To the
extent these estimated liabilities are adjusted, the difference will be reported as discontinued operations in the statement of operations in the period adjusted, since it relates to foreign withholding taxes on product revenues.
During fiscal 2011, 2012 and 2013, the total amount of gross unrecognized tax benefit activity was as follows (in thousands):
|
|
|
|
|
Balance as of June 30, 2010
|
|
$
|
4,173
|
|
Additions based on tax positions related to current year
|
|
|
155
|
|
Reductions for tax positions of prior years
|
|
|
153
|
|
Lapse of statute of limitations
|
|
|
(3,652
|
)
|
Impact of currency fluctuation
|
|
|
198
|
|
|
|
|
|
|
Balance as of June 30, 2011
|
|
|
1,027
|
|
Additions based on tax positions related to current year
|
|
|
48
|
|
Additions for tax positions of prior years
|
|
|
240
|
|
Reductions for tax positions of prior years
|
|
|
(239
|
)
|
Lapse of statute of limitations
|
|
|
(130
|
)
|
Impact of currency fluctuation
|
|
|
(28
|
)
|
|
|
|
|
|
Balance as of June 30, 2012
|
|
|
918
|
|
Reductions for tax positions of prior years
|
|
|
(240
|
)
|
Lapse of statute of limitations
|
|
|
(85
|
)
|
|
|
|
|
|
Balance as of June 30, 2013
|
|
$
|
593
|
|
|
|
|
|
|
The total amount of gross unrecognized tax benefits was $0.6 million as of June 30, 2013. All of the tax expense or
benefit realized during fiscal 2011, 2012 and 2013 related to changes in unrecognized tax benefits was recorded as net income or expense from discontinued operations. Changes in the Companys gross unrecognized tax benefits as of June 30,
2013, if any, will be reflected in discontinued operations since the amounts relate to foreign withholding tax on prior revenues relating to the product operations.
Although timing of the resolution and/or closure on the Companys unrecognized tax benefits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax
benefits would materially change in the next 12 months.
The Company files U.S. federal, U.S. state and foreign tax returns. Because of net
operating loss carryforwards, substantially all of the Companys tax years, from fiscal 1995 through fiscal 2011, remain open to state tax examinations with the exception of Alabama, Massachusetts and Texas. Most of the Companys foreign
jurisdictions have three or four open tax years at any point in time.
F-47
(15)Subsequent Events
On June 28, 2013, the Company announced the filing of a registration statement on Form S-3 with the SEC for the Rights Offering to
stockholders of 7,530,120 shares of the Companys common stock, par value $0.001, for $1.66 per share. The registration statement became effective on August 15, 2013 with the Rights Offering effective on August 19, 2013 and closing
September 9, 2013. The Rights Offering is fully backstopped by Indaba Capital. Refer to Financing Agreements in Note 3 for additional details on the Backstop Purchase Agreement.
F-48