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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2008,
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
000-31770
(Commission File Number)
Digital Lightwave, Inc.
(Exact name of Registrant as specified in its charter)
Delaware | 95-4313013 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5775 Rio Vista Drive Clearwater, Florida | 33760 | |
(Address of principal executive offices) | (Zip Code) |
(727) 442-6677
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ¨ | Accelerated Filer | ¨ | |||
Non-accelerated Filer | ¨ (Do not check if smaller reporting company) | Smaller Reporting Company | x |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
The number of shares outstanding of the Registrant’s Common Stock as of November 1, 2008 was 255,489,847.
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QUARTERLY REPORT ON FORM 10-Q
For the Period Ended September 30, 2008
INDEX
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FINANCIAL INFORMATION
Item 1. | Financial Statements |
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
September 30, 2008 | December 31, 2007 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 91 | $ | 12 | ||||
Accounts receivable, less allowance of $61 in 2008 and $77 in 2007 | 3,137 | 3,871 | ||||||
Inventories, net | 3,880 | 2,840 | ||||||
Prepaid expenses and other current assets | 292 | 184 | ||||||
Total current assets | 7,400 | 6,907 | ||||||
Other assets, net | 204 | 204 | ||||||
Total assets | $ | 7,604 | $ | 7,111 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 2,431 | $ | 1,729 | ||||
Current portion of notes payable to related party | — | 530 | ||||||
Total current liabilities | 2,431 | 2,259 | ||||||
Other long-term liabilities | 338 | 355 | ||||||
Notes payable to related party | 36,754 | 34,797 | ||||||
Total liabilities | 39,523 | 37,411 | ||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, $.0001 par value; authorized 20,000,000 shares; no shares issued or outstanding | — | — | ||||||
Common stock, $.0001 par value; authorized 300,000,000 shares; issued and outstanding 255,489,847 and 255,480,847 shares in 2008 and 2007, respectively | 26 | 26 | ||||||
Additional paid-in capital | 123,155 | 123,088 | ||||||
Accumulated deficit | (155,100 | ) | (153,414 | ) | ||||
Total stockholders’ deficit | (31,919 | ) | (30,300 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 7,604 | $ | 7,111 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per-share data)
Three Months Ended September 30, | ||||||||
2008 | 2007 | |||||||
Net sales | $ | 4,115 | $ | 2,305 | ||||
Cost of goods sold | 1,909 | 1,116 | ||||||
Gross profit | 2,206 | 1,189 | ||||||
Operating expenses: | ||||||||
Engineering and development | 565 | 469 | ||||||
Sales and marketing | 627 | 598 | ||||||
General and administrative | 284 | 271 | ||||||
Total operating expenses | 1,476 | 1,338 | ||||||
Operating profit (loss) | 730 | (149 | ) | |||||
Other expense, net | (360 | ) | (833 | ) | ||||
Net profit (loss) | $ | 370 | $ | (982 | ) | |||
Per share of common stock: | ||||||||
Basic net profit (loss) per share | $ | 0.00 | $ | (0.00 | ) | |||
Diluted net profit (loss) per share | $ | 0.00 | $ | (0.00 | ) | |||
Weighted average common shares outstanding | 255,489,847 | 255,270,443 | ||||||
Weighted average common and common equivalent shares outstanding | 255,489,847 | 255,270,443 | ||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per-share data)
Nine Months Ended September 30, | ||||||||
2008 | 2007 | |||||||
Net sales | $ | 8,915 | $ | 8,181 | ||||
Cost of goods sold | 4,701 | 3,884 | ||||||
Gross profit | 4,214 | 4,297 | ||||||
Operating expenses: | ||||||||
Engineering and development | 1,618 | 1,444 | ||||||
Sales and marketing | 1,868 | 1,850 | ||||||
General and administrative | 848 | 871 | ||||||
Impairment of long-lived assets | — | 19 | ||||||
Gain on sale of property and equipment | — | (265 | ) | |||||
Total operating expenses | 4,334 | 3,919 | ||||||
Operating (loss) profit | (120 | ) | 378 | |||||
Other expense, net | (1,566 | ) | (2,420 | ) | ||||
Net loss | $ | (1,686 | ) | $ | (2,042 | ) | ||
Per share of common stock: | ||||||||
Basic net loss per share | $ | (0.01 | ) | $ | (0.01 | ) | ||
Diluted net loss per share | $ | (0.01 | ) | $ | (0.01 | ) | ||
Weighted average common shares outstanding | 255,487,679 | 253,047,746 | ||||||
Weighted average common and common equivalent shares outstanding | 255,487,679 | 253,047,746 | ||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30, | ||||||||
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,686 | ) | $ | (2,042 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Compensation expense for stock option grants | 2 | 80 | ||||||
Contributed services from related party | 64 | 190 | ||||||
Impairment of long lived assets | — | 19 | ||||||
Gain on sale of property and equipment | — | (265 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 734 | 314 | ||||||
Inventories | (1,040 | ) | (589 | ) | ||||
Prepaid expenses and other assets | (108 | ) | (3 | ) | ||||
Accounts payable, accrued expenses and other liabilities | 1,542 | 1,452 | ||||||
Net cash used in operating activities | (492 | ) | (844 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property, plant and equipment | — | (19 | ) | |||||
Proceeds from sale of property and equipment | — | 265 | ||||||
Net cash provided by investing activities | — | 246 | ||||||
Cash flows from financing activities: | ||||||||
Principal payments on notes payable – other | — | (50 | ) | |||||
Proceeds from notes payable – related party | 1,100 | 455 | ||||||
Principal payments on notes payable – related party | (530 | ) | (225 | ) | ||||
Proceeds from sale of common stock | 1 | 3 | ||||||
Net cash provided by financing activities | 571 | 183 | ||||||
Net increase (decrease) in cash and cash equivalents | 79 | (415 | ) | |||||
Cash and cash equivalents at beginning of period | 12 | 425 | ||||||
Cash and cash equivalents at end of period | $ | 91 | $ | 10 | ||||
Supplemental disclosures of non cash activities – related party: | ||||||||
Debt and accrued interest converted into common stock | $ | — | $ | 34,774 | ||||
Reduction of interest payable from sale of property and equipment | $ | — | $ | 55 | ||||
Accrued interest converted to related party note payable | $ | 857 | $ | — | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 321 | $ | 265 |
The accompanying notes are an integral part of these consolidated condensed financial statements.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
Digital Lightwave, Inc. provides the global fiber-optic communications industry with products and technology used to develop, install, maintain, monitor and manage fiber-optic communication networks. Telecommunications service providers, owners of private networks (utilities, government and large enterprises) and equipment manufacturers deploy the Company’s products to provide quality assurance and ensure optimum performance of advanced optical communications networks and network equipment. The Company’s products are sold worldwide to telecommunications service providers, owners of private networks (utilities, government and large enterprises), telecommunications equipment manufacturers, equipment leasing companies and international distributors. The Company’s wholly-owned subsidiaries are Digital Lightwave (UK) Limited (“DLL”), Digital Lightwave Asia Pacific Pty, Ltd. (“DLAP”), and Digital Lightwave Latino Americana Ltda. (“DLLA”). DLL, DLAP, and DLLA provided international sales support, but are currently inactive. All significant intercompany transactions and balances are eliminated in consolidation.
The accompanying unaudited consolidated condensed financial statements of Digital Lightwave, Inc. and its subsidiaries (the “Company,” “Digital Lightwave,” “us,” “we,” “our,” etc.) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these statements include all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of results for such periods. The results of operations for the three- and nine-months months ended September 30, 2008, are not necessarily indicative of results that may be achieved for the full fiscal year or for any future period. The unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
Operational Matters
On April 4, 2008, the Company and Optel Capital, LLC (“Optel”) entered into a Credit and Restructuring Agreement (the “Credit Agreement”) pursuant to which (a) the Company’s existing indebtedness owed to Optel, consisting of approximately $28.0 million of principal, which bore interest at 10% per annum, and accrued interest thereon of approximately $7.7 million, all of which was due and payable upon demand by Optel, was restructured and (b) Optel agreed to make a $2.5 million revolving credit facility available to the Company. The Credit Agreement was approved by the Company’s board of directors upon the unanimous recommendation of a special committee of the board comprised solely of independent directors.
Pursuant to the Credit Agreement, the restructured indebtedness is evidenced by a new secured convertible promissory note in the principal amount of approximately $35.7 million (the “Restated Note”), and the revolving credit facility is evidenced by an additional secured convertible promissory note in the principal amount of $2.5 million (the “New Commitment Note” and, together with the Restated Note, the “Notes”). As of September 30, 2008, the balance of the Restated Note was $35.7 million. There was an outstanding balance on the New Commitment Note as of September 30, 2008 of $1.1 million. The Notes bear interest at a rate equal to LIBOR plus 1.0% per annum and are secured by substantially all the Company’s assets pursuant to an amended and restated security agreement (the “Security Agreement”). For the nine months ended, September 30, 2008, interest expense related to the Restated Note was approximately $674,000 and recorded in other expense on the Consolidated Statements of Operations and accrued interest associated with the Restated Note was approximately $353,000 and recorded in accounts payable and accrued liabilities on the Consolidated Condensed Balance Sheets. Each of the Notes requires quarterly payments of interest commencing on June 30, 2008, and mature on March 31, 2010.
All the indebtedness evidenced by the Notes is convertible into common stock of the Company at the option of Optel at any time following approval of the conversion feature by the disinterested stockholders at a conversion price based on the average trading price of the stock during the five-day period preceding the date of any conversion. The Company and Optel have made it a condition to the indebtedness evidenced by the Notes becoming convertible, that the conversion feature be approved by the holders of a majority of the outstanding shares of common stock of the Company who are not affiliated with Optel or
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any of its affiliates at the Company’s 2009 annual meeting of stockholders. If such holders do not approve the conversion feature, the outstanding debt and accrued interest would immediately become due and payable in full upon demand by Optel at any time after the stockholders’ meeting. An interest payment of approximately $321,000 was made on July 1, 2008.
Accrued Warranty
The Company provides the customer a warranty with each product sold. The Company’s policy for product warranties is to review the warranty reserve on a quarterly basis for specifically identified or new matters and review the reserve for estimated future costs associated with any open warranty years. The reserve is an estimate based on historical trends, the number of products under warranty, the costs of replacement parts and the expected reliability of the Company’s products. A change in these factors could result in a change in the reserve balance. Warranty costs are charged against the accrual when incurred. The reconciliation of the warranty reserve is as follows:
Nine Months Ended September 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Beginning balance | $ | 471 | $ | 487 | ||||
Warranty provision | 117 | 27 | ||||||
Warranty costs | (212 | ) | (97 | ) | ||||
Ending balance | $ | 376 | $ | 417 | ||||
Revenue Recognition
The Company derives its revenue from product sales. The Company recognizes revenue from the sale of products when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and collection of the resulting receivable is reasonably assured.
For all sales, the Company uses a binding purchase order as evidence that a sales arrangement exists. Sales through international distributors are evidenced by a master agreement governing the relationship with the distributor. The Company either obtains an end-user purchase order documenting the order placed with the distributor or proof of delivery to the end user as evidence that a sales arrangement exists. For demonstration units sold to distributors, the distributor’s binding purchase order is evidence of a sales arrangement.
For domestic sales, delivery generally occurs when product is delivered to a common carrier. Demonstration units sold to international distributors are considered delivered when the units are delivered to a common carrier. An allowance is provided for sales returns based on historical experience.
For sales made under an OEM arrangement, delivery generally occurs when the product is delivered to a common carrier. OEM sales are defined as sales of the Company’s products to a third party that will market the products under their brand.
For trade-in sales, including both Company and competitor products, that have a cash component of greater than 25% of the fair value of the sale, the Company recognizes revenue based upon the fair value of what is sold or received, whichever is more readily determinable, if the Company has demonstrated the ability to sell its trade-in inventory for that particular product class. Otherwise, the Company accounts for the trade-in sale as a non-monetary transaction and follows the guidance of Statement of Financial Accounting Standards No. 153Exchanges of Non-monetary Assetsand Accounting Principles Board (“APB”) Opinion No. 29,Accounting for Non-monetary Transactions and related interpretations. Revenue and cost of sales are recorded based upon the cash portion of the transaction.
At the time of the transaction, the Company assesses whether the price associated with its revenue transactions is fixed and determinable and whether or not collection is reasonably assured. The Company assesses whether the price is fixed and determinable based on the payment terms associated with the transaction. Standard payment terms for domestic customers are 30 days from the invoice date. Distributor contracts provide standard payment terms of 60 days from the invoice date. Generally, the Company does not offer extended payment terms.
The Company assesses collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. Collateral is not requested from customers. If it is determined that collection of an account receivable is not reasonably assured at the time of the sale, revenue is recognized at the time collection becomes reasonably assured.
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Most sales arrangements do not include acceptance clauses that require written customer acceptance. However, if a sales arrangement includes such an acceptance provision, acceptance occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period.
Computation of Net Loss Per Share
Basic net loss per share is based on the weighted average number of common shares outstanding during the periods presented. For the three- and nine-month periods ended September 30, 2008 and 2007, diluted loss per share does not include the effect of incremental shares from common stock equivalents using the treasury stock method, as the inclusion of such equivalents would be anti-dilutive. The table below shows the calculation of basic weighted average common shares outstanding and the incremental number of shares arising from common stock equivalents under the treasury stock method:
Three Months Ended September 30, | ||||
2008 | 2007 | |||
Basic: | ||||
Weighted average common shares outstanding | 255,489,847 | 255,470,443 | ||
Diluted: | ||||
Incremental shares for common stock equivalents | — | — | ||
Total dilutive | 255,489,847 | 255,470,443 | ||
Nine Months Ended September 30, | ||||
2008 | 2007 | |||
Basic: | ||||
Weighted average common shares outstanding | 255,487,679 | 253,047,746 | ||
Diluted: | ||||
Incremental shares for common stock equivalents | — | — | ||
Total dilutive | 255,487,679 | 253,047,746 | ||
Stock Based Compensation
The Company’s compensation cost for stock-based employee compensation was $0 and $1,600 for the three- and nine-month periods ended September 30, 2008, respectively. No tax benefits were recognized for these costs due to recurring losses.
The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of the Company’s stock. The Company has not historically paid any dividends on its common stock and does not expect to in the future.
Stock Option Plans
The Company has one stock option plan with shares available for grant as of September 30, 2008 as follows:
Plan 2001 | ||
Available for Grant | 2,003,714 | |
Minimum exercise price as a percentage of fair market value at date of grant | 100% | |
Plan termination date | December 31, 2008 |
Options granted under the plan have a term of nine years. Option grants generally vest in one-third annual increments or quarterly over a three-year period, with the exception of certain option agreements that provide for various vesting schedules
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throughout the same three-year vesting period or options allowing vesting acceleration based on certain performance milestones on each anniversary of the grant date, commencing with the first anniversary. The Company generally recognizes compensation costs for awards on a straight-line basis over the service period.
The following is a summary of the changes in outstanding options during the nine months ended September 30, 2008:
Shares (In thousands) | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | |||||||
Outstanding at December 31, 2007 | 2,509 | $ | 1.54 | $ | 0 | ||||
Granted | — | — | — | ||||||
Exercised | — | — | — | ||||||
Forfeited and expired | (359 | ) | $ | 1.41 | $ | 0 | |||
Outstanding at September 30, 2008 | 2,150 | $ | 1.57 | $ | 0 | ||||
Exercisable at end of period | 2,150 | $ | 1.57 | $ | 0 | ||||
There were no stock options exercised during the nine-month period ended September 30, 2008.
Income Taxes
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses for all periods presented. No interest or penalties were recognized during the nine months ended September 30, 2008.
On January 1, 2007, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48,Accounting for Uncertainty in Income Taxes (“FIN 48”), an interpretation of Statement of Financial Accounting Standards (“SFAS”) No. 109,Accounting for Income Taxes (“FASB 109”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. The Company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the “more-likely-than-not” recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 applies to all tax positions related to income taxes subject to FASB 109. Based on the analysis performed, the Company did not record any unrecognized tax positions as of September 30, 2008. There is a possibility that a limitation on the Company’s net operating loss carryforwards may have come into effect under Section 382 of the Internal Revenue Code as a result of cumulative stock ownership changes. As of September 30, 2008, the impact of such a limitation has no impact on the accompanying financial statements since all net operating losses have a full valuation allowance; however, such a limitation could impact substantially the reported gross asset related to the net operating loss carryforwards.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157 creates a fair value hierarchy, which prioritizes the inputs that should be used in determining fair value. Under this pronouncement, companies must provide disclosures containing relevant information in the financial statements, allowing users to assess inputs used to measure fair value, as well as the effect of those measurements on earnings for the periods presented, including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued Staff Position No. 157-2,Effective Date of FASB Statement No. 157 (“FSP 157-2”), which defers the effective date of SFAS No. 157 for certain nonfinancial assets and liabilities, that are not recorded at fair value on a recurring basis until periods beginning after November 15, 2008. Therefore, the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only. As of September 30, 2008, the Company did not hold any assets or liabilities required to be measured at fair value on a recurring basis, and therefore the adoption of the respective provisions of SFAS 157 did not have a material impact on the Company’s consolidated financial statements.
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In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of Statement of Financial Accounting Standards Statement No. 115 (“SFAS 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS 159 did not have a significant impact on the financial statements for the nine months ended September 30, 2008.
2. INVENTORIES
Inventories are summarized as follows:
September 30, 2008 (In thousands) | December 31, 2007 (In thousands) | |||||
Raw materials, net | $ | 3,486 | $ | 2,706 | ||
Finished goods, net | 394 | 134 | ||||
$ | 3,880 | $ | 2,840 | |||
The Company has established reserves for excess and obsolete inventory based upon current and expected sales trends, the amount of parts on-hand, the market value of parts on-hand and the viability and technical obsolescence of products and components. As of September 30, 2008, inventory reserves were approximately $15.4 million.
3. LEGAL PROCEEDINGS
The Company from time to time may be involved in various lawsuits and actions by third parties arising in the ordinary course of business. The Company is not aware of any pending litigation, claims or assessments that could have a material adverse effect on the Company’s business, financial condition and results of operations.
4. COMMITMENTS
At September 30, 2008, the Company had outstanding non-cancelable purchase order commitments to purchase certain inventory items totaling approximately $1.5 million.
5. RELATED PARTY TRANSACTIONS
Services Rendered
During the three- and nine-month periods ended September 30, 2008, Optel provided the Company with approximately $23,000 and $64,000 respectively, in services associated with information technology and accounting. These services are shown as a contribution of capital and are expensed within general and administration expenses.
Financing
As September 30, 2008, the Company owed Optel approximately $36.8 million in debt and $353,000 in interest on the related party notes.
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
FORWARD LOOKING STATEMENTS
The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, will, should, expect, plan, anticipate, believe, estimate, predict, potential or continue, the negative of terms like these or other comparable terminology. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, possible changes in legislation and other statements regarding matters that are not historical are forward-looking statements, except as required by law. These statements are only predictions. These statements involve known and unknown risks and uncertainties and other factors that may cause actual events or results to differ materially from the results and outcomes discussed in the forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date of filing, and we assume no obligation to update any such forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risks outlined under the caption “Risk Factors” set forth in Item 1A of Part I of our Annual Report on Form 10-K and those contained from time to time in our other filings with the U.S. Securities and Exchange Commission. We caution you that our business and financial performance are subject to substantial risks and uncertainties.
This information should be read in conjunction with (i) the consolidated condensed financial statements and notes thereto included in Item 1 of Part I of this quarterly report on Form 10-Q, and (ii) the consolidated financial statements and notes thereto, as well as the accompanying Management’s Discussion and Analysis of Results of Operations, for the years ended December 31, 2007 and 2006 included in our Annual Reports on Form 10-K.
OVERVIEW
Executive Summary
On April 4, 2008, the Company and Optel entered into a Credit and Restructuring Agreement (the “Credit Agreement”) pursuant to which (a) the Company’s existing indebtedness owed to Optel, consisting of approximately $28.0 million of principal, that bore interest at 10% per annum, and accrued interest thereon of approximately $7.7 million, all of which was due and payable upon demand by Optel, was restructured and (b) Optel agreed to make a $2.5 million revolving credit facility available to the Company. The Credit Agreement was approved by the Company’s board of directors upon the unanimous recommendation of a special committee of the board comprised solely of independent directors.
Pursuant to the Credit Agreement, the restructured indebtedness is evidenced by a new secured convertible promissory note in the principal amount of approximately $35.7 million (the “Restated Note”), and the revolving credit facility is evidenced by an additional secured convertible promissory note in the principal amount of $2.5 million (the “New Commitment Note” and, together with the Restated Note, the “Notes”). The Notes bear interest at a rate equal to LIBOR plus 1.0% per annum and are secured by substantially all the Company’s assets pursuant to an amended and restated security agreement. Each of the Notes requires quarterly payments of interest commencing on June 30, 2008, and matures on March 31, 2010.
The Company designs, develops and markets a portfolio of portable and network-based products for installing, maintaining and monitoring fiber optic circuits and networks. Network operators and telecommunications service providers use fiber optics to provide increased network bandwidth to transmit voice and other non-voice traffic such as internet, data and multimedia video transmissions. The Company provides telecommunications service providers and equipment manufacturers with product capabilities to cost-effectively deploy and manage fiber optic networks. The Company’s product lines include Network Information Computers (“NIC”), Network Access Agents (“NAA”), Optical Test Systems (“OTS”), and Optical Wavelength Managers (“OWM”). The Company’s products are sold worldwide to leading and emerging telecommunications service providers, telecommunications equipment manufacturers, equipment leasing companies and international distributors.
The Company’s net sales are generated from sales of its products less an estimate for customer returns. We expect that the average selling price (“ASP”) of our products will fluctuate based on a variety of factors, including market demand, product configuration, potential volume discounts to customers, the timing of new product introductions and enhancements and the introduction of competitive products. Because the cost of goods sold tends to remain relatively stable for any given product, fluctuations in the ASP may have a material adverse effect on our business, financial condition and results of operations.
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For the nine months ended September 30, 2008, one customer accounted for approximately 16% of total net sales. No other customer accounted for more than 10% of net sales.
The Company recognizes revenue from the sale of products when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and collection of the resulting receivable is reasonably assured. When selling through a distributor to an end-user customer, we either obtain an end-user purchase order documenting the order placed with the distributor or proof of delivery to the end-user as evidence that a sales arrangement exists. No revenue is recognized on products shipped on a trial basis. We believe that our accrued warranty reserve is sufficient to meet our responsibilities for potential future warranty work on products sold.
The Company has not entered into long-term agreements or blanket purchase orders for the sale of its products and, accordingly, does not carry substantial backlog from quarter to quarter. Our sales during a particular quarter are highly dependent upon orders placed by customers during that period. Most of our operating expenses are fixed and cannot be easily reduced in response to decreased revenues. Variations in the timing of revenues could cause significant variations in results of operations from quarter to quarter and result in continuing quarterly losses. The deferral of any large order from one quarter to another would negatively affect the results of operations for the earlier quarter. The Company must obtain orders during each quarter for shipment in that quarter to achieve revenue and profit objectives.
In order to maintain our market share, we are focused on maintaining technological leadership with our product lines. We have evaluated our sales efforts to identify opportunities where our account presence can be improved and are working to exploit those opportunities. Subject to resolution of our working capital constraints, we are seeking new applications for our installed product base to be realized with use of new modular add-ons and enhancements. We also established channel partners such as independent sales representatives and distributors to complement our sales force.
We are concentrating on the products and technologies that we believe are most important to our customers. We plan to introduce enhancements to our product lines to support the telecommunications network evolution of the next generation protocols and services. These plans include the introduction of enhancements that support the convergence of the telecommunications and data communications networks and enhance our data communications network analysis capabilities. These enhancements will position us to meet growing global needs including global high-speed data service requirements.
Critical Accounting Estimates
We believe that estimating valuation allowances and accrued liabilities are critical in that they are important to the portrayal of our financial condition and results of operations and they require difficult, subjective and complex judgments that are often the result of estimates that are inherently uncertain. Specifically, we believe the following estimates to be critical:
• | sales returns and other allowances; |
• | reserve for uncollectible accounts; |
• | reserve for excess and obsolete inventory; |
• | impairment of long-lived assets; |
• | deferred tax valuation allowance; |
• | assessments of uncertain tax positions; |
• | warranty reserve; and |
• | pending litigation. |
We make significant judgments, estimates and assumptions in connection with establishing the above-mentioned valuation allowances. If we made different judgments or used different estimates or assumptions for establishing such amounts, it is likely that the amount and timing of our revenue or operating expenses for any period would be materially different.
We derive our revenues principally from product sales. We recognize revenue from the sale of products when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and collection of the resulting receivable is reasonably assured. We estimate the amount of potential future product returns related to current period product revenue. We consider many factors when making our estimates, including analyzing historical returns, current economic trends, changes in customer demand and acceptance of our products to evaluate the adequacy of the sales returns and other allowances. Our estimate for the provision for sales returns and other allowances as of September 30, 2008 was approximately $54,000.
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We also estimate the collectibility of our accounts receivables. We consider many factors when making our estimates, including analyzing accounts receivable and historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the reserve for uncollectible accounts. Our accounts receivable balance as of September 30, 2008 was $3.1 million, net of our estimated reserve for uncollectible accounts of approximately $61,000.
We estimate the amount of excess and obsolete inventory. When evaluating the reserve for excess and obsolete inventory, we consider many factors, including analyzing current and expected sales trends, the amount of current parts on hand, the current market value of parts on hand and the viability and technical obsolescence of our products. The assumptions made relative to expected sales trends are subjective in nature and have a material impact on the estimate of the reserve requirement. Should future sales trends, in total or by product line, fluctuate from that used in our estimates, this reserve could be overstated or understated. Our inventory balance was $3.9 million as of September 30, 2008, net of our estimated reserve for excess and obsolete inventory of $15.4 million.
We estimate the impairment of long-lived assets. We monitor events and changes in circumstances that could indicate whether carrying amounts of long-lived assets may not be recoverable. These events and circumstances include any decrease in the market price of a long-lived asset, changes in the manner in which a long-lived asset is used, changes in legal factors and a current-period operating loss or cash flow loss combined with a history of operating losses or cash flow losses or a forecast that demonstrates continuing losses associated with the use of long-lived assets. When such an event or changes in circumstance occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. We recognize impairments when there is an excess of the assets carrying value over the fair value as estimated using a discounted expected future cash flows model. In estimating undiscounted expected future cash flows, we must make judgments and estimates related to future sales and profitability. Should future sales trends or profitability be significantly less than that forecasted, our impairment could be understated. We could be required to take an additional impairment charge in the future should our actual cash flows be less than forecasted. As of September 30, 2008 a review of the carrying value of our long-lived assets and the probability of recovering such value indicated that no additional impairment charge was required.
We recognize deferred tax liabilities and assets for expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the consolidated financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We provide for a valuation allowance for the deferred tax assets when we conclude that it is more likely than not that the deferred tax assets will not be realized.
The Company applies a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken in a tax return. The Company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the “more-likely-than-not” recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. The Company has not recorded any unrecognized tax positions as of September 30, 2008. There is a possibility that a limitation on the Company’s net operating loss carryforwards may have come into effect under Section 382 of the Internal Revenue Code as a result of cumulative stock ownership changes. As of September 30, 2008, the impact of such a limitation has no impact on the accompanying financial statements since all net operating losses have a full valuation allowance; however, such a limitation could impact substantially the reported gross asset related to the net operating loss carryforwards.
We estimate the amount of our warranty reserve. We consider many factors when making our estimate, including historical trends, the number of products under warranty, the costs of replacement parts and the expected reliability of our products. We believe that our accrued warranty reserve is sufficient to meet our responsibilities for potential future warranty work on products sold. Our accrued warranty reserve as of September 30, 2008 was approximately $376,000.
We estimate the amount of liability the Company may incur as a result of pending litigation. As of September 30, 2008, the Company was not aware of any pending litigation, claims or assessments. Accordingly, there is no accrual for pending litigation at September 30, 2008.
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RESULTS OF OPERATIONS
The following is a discussion of significant changes in the results of operations of the Company, which occurred in the three- and nine-months ended September 30, 2008, compared to the three- and nine-months ended September 30, 2007. The following sets forth certain financial data as a percentage of net sales:
Percent of Net Sales for the Three Months Ended September 30, | Percent of Net Sales for the Nine Months Ended September 30, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
Net sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||
Cost of goods sold | 46 | 49 | 53 | 47 | ||||||||
Gross profit | 54 | 51 | 47 | 53 | ||||||||
Operating expenses: | ||||||||||||
Engineering and development | 14 | 20 | 18 | 18 | ||||||||
Sales and marketing | 15 | 26 | 21 | 22 | ||||||||
General and administrative | 7 | 12 | 10 | 11 | ||||||||
Impairment of long-lived assets | — | — | — | — | ||||||||
Gain on sale of property and equipment | — | — | — | (3 | ) | |||||||
Total operating expenses | 36 | 58 | 49 | 48 | ||||||||
Operating profit (loss) | 18 | (7 | ) | (2 | ) | 5 | ||||||
Other loss, net | (9 | ) | (36 | ) | (17 | ) | (30 | ) | ||||
Profit (loss) before income taxes | 9 | (43 | ) | (19 | ) | (25 | ) | |||||
Provision for income taxes | — | — | — | — | ||||||||
Net profit (loss) | 9 | % | (43 | )% | (19 | )% | (25 | )% | ||||
Net Sales
Net sales for the quarter ended September 30, 2008 increased $1.8 million, or 78%, to $4.1 million from $2.3 million for the quarter ended September 30, 2007. The increase in net sales was primarily a result of sales of a new feature enhancements in the NIC product family. International net sales for the quarter ended September 30, 2008 were approximately $1.5 million, or 36% of net sales, as compared to approximately $595,000, or 26% of net sales, for the quarter ended September 30, 2007.
Net sales for the nine months ended September 30, 2008 increased $734,000, or 9%, to $8.9 million from $8.2 million for the nine months ended September 30, 2007. The increase in net sales was primarily a result of the improved acceptance of the NIC product due to new feature enhancements. International net sales for the nine months ended September 30, 2008 were approximately $3.1 million, or 35% of net sales, as compared to approximately $2.9 million, or 35% of net sales, for the nine months ended September 30, 2007.
Cost of Goods Sold
Cost of goods sold for the quarter ended September 30, 2008 totaled approximately $1.9 million, or 46% of net sales, as compared to $1.1 million, or 49% of net sales, for the quarter ended September 30, 2007. For the quarter ended September 30, 2008, cost of goods sold percentage was lower due to increased margins for new feature enhancement and decreased allocated expenses.
Cost of goods sold for the nine months ended September 30, 2008 totaled approximately $4.7 million, or 53% of net sales, as compared to $3.9 million, or 47% of net sales, for the nine months ended September 30, 2007. For the nine months ended September 30, 2008, cost of goods sold percentage was higher due to a higher percentage of NIC sales and lower repair and calibration revenue.
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Gross Profit
Gross profit for the quarter ended September 30, 2008 increased by approximately $1.0 million to approximately $2.2 million, or 54% of net sales, from $1.2 million, or 51% of net sales, for the quarter ended September 30, 2007. Gross profit increased as a result of increased sales and new feature enhancements.
Gross profit for the nine months ended September 30, 2008 decreased by approximately $83,000 to approximately $4.2 million, or 47% of net sales, from $4.3 million, or 53% of net sales, for the nine months ended September 30, 2007. Gross profit decreased percentage from the prior period primarily as a result of a higher percentage of NIC sales, overall product mix, and lower repair and calibration service revenue.
Engineering and Development
Engineering and development expenses principally include salaries for engineering and development personnel, outside consulting fees and other development expenses. Engineering and development expenses for the quarter ended September 30, 2008 increased by approximately $96,000 to $565,000, or 14% of net sales, from approximately $469,000, or 20% of net sales, for the quarter ended September 30, 2007. The increase was primarily due to the development of new technology.
Engineering and development expenses for the nine months ended September 30, 2008, increased by approximately $174,000 to $1.6 million, or 18% of net sales, from approximately $1.4 million, or 18% of net sales, for the nine months ended September 30, 2007. The increase was primarily due to the development of new technology.
Sales and Marketing
Sales and marketing expenses principally include salaries, commissions, travel, tradeshows and promotional materials and warranty expenses. Sales and marketing expenses for the quarter ended September 30, 2008 were $627,000, or 15% of net sales, an increase of approximately $29,000 over $598,000, or 26% of net sales, for the quarter ended September 30, 2007. The minimal increase in sales and marketing expenses reflected continuing marketing efforts and travel expenses related to sales.
Sales and marketing expenses for the nine months ended September 30, 2008 were $1.9 million, or 21% of net sales, an increase of approximately $18,000 over $1.9 million, or 22% of net sales, for the nine months ended September 30, 2007. The minimal increase in sales and marketing expenses reflected the addition of sales personnel in the second quarter.
General and Administrative
General and administrative expenses principally include salaries, other compensation, professional fees, facility rentals and information systems related to general management functions. General and administrative expenses for the quarter ended September 30, 2008 remained relatively flat, increasing by approximately $13,000 to $284,000, or 7% of net sales, from approximately $271,000, or 12% net of sales, for the quarter ended September 30, 2007.
General and administrative expenses for the nine months ended September 30, 2008 also remained relatively flat, decreasing by approximately $23,000 to $848,000, or 10% of net sales, from approximately $871,000, or 11% of net sales, for the nine months ended September 30, 2007.
Other Expense, Net
Other expense, net for the quarter ended September 30, 2008 was approximately $360,000, a decrease of $473,000 as compared to other expense, net of approximately $833,000 for the quarter ended September 30, 2007. Other expense, net for the nine months ended September 30, 2008 was approximately $1.6 million, a decrease of approximately $850,000 as compared to other expense, net of approximately $2.4 million for the quarter ended September 30, 2007. The decrease was primarily attributable to reduced interest expense due to the Optel loan restructuring that resulted in lower interest rates.
Net Profit (Loss)
Net profit for the quarter ended September 30, 2008 was approximately $370,000 or $0.00 per diluted share, compared to net loss of approximately $982,000, or $0.00 per diluted share, for the quarter ended September 30, 2007, for the reasons discussed above. Net loss for the nine months ended September 30, 2008 was approximately $1.7 million or $0.01 per diluted share, compared to net loss of approximately $2.0 million, or $0.01 per diluted share, for the nine months ended September 30, 2007, for the reasons discussed above.
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LIQUIDITY AND CAPITAL RESOURCES
On April 4, 2008, the Company and Optel entered into a Credit and Restructuring Agreement (the “Credit Agreement”) pursuant to which (a) the Company’s existing indebtedness owed to Optel, consisting of approximately $28.0 million of principal, which bore interest at 10% per annum, and accrued interest thereon of approximately $7.7 million, all of which was due and payable upon demand by Optel, was restructured and (b) Optel agreed to make a $2.5 million revolving credit facility available to the Company.
Pursuant to the Credit Agreement, the restructured indebtedness is evidenced by a new secured convertible promissory note in the principal amount of approximately $35.7 million (the “Restated Note”), and the revolving credit facility is evidenced by an additional secured convertible promissory note in the principal amount of $2.5 million (the “New Commitment Note and, together with the Restated Note, the “Notes”). The Notes bear interest at a rate equal to LIBOR plus 1.0% per annum and are secured by substantially all the Company’s assets pursuant to an amended and restated security agreement. Each of the Notes requires quarterly payments of interest commencing on June 30, 2008, and matures on March 31, 2010.
All the indebtedness evidenced by the Notes is convertible into common stock of the Company at the option of Optel at any time following approval of the conversion feature by the disinterested stockholders at a conversion price based on the average trading price of the stock during the five-day period preceding the date of any conversion. The Company and Optel have made it a condition to the indebtedness evidenced by the Notes becoming convertible, that the conversion feature be approved by the holders of a majority of the outstanding shares of common stock of the Company who are not affiliated with Optel or any of its affiliates at the Company’s 2009 annual meeting of stockholders. If such holders do not approve the conversion feature, the outstanding debt and accrued interest would immediately become due and payable in full upon demand by Optel at any time after the stockholders’ meeting.
Pursuant to a Registration Rights Agreement entered into in connection with the Credit Agreement, the Company has agreed to file, upon written demand by Optel, a registration statement covering the resale by Optel of the shares of common stock issuable upon conversion of the Notes.
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2008 was approximately $500,000. This was primarily the result of the net loss being offset by net changes in working capital, a decrease in accounts receivable of $734,000, an increase in inventory of $1.0 million and an increase in accounts payable of approximately $1.5 million.
Financing Activities
The Company generated cash of approximately $571,000 from financing activities for the nine months ended September 30, 2008. This reflects $530,000 used to repay related-party notes payable and $1.1 million provided by the New Commitment Note. As of September 30, 2008, $36.8 was outstanding on the related party notes payable and $353,000 of accrued interest was due to Optel. As of September 30, 2008 there remains $1.4 million in available funds from the New Commitment Note. The Company believes cash flows expected to be generated from operations and its borrowing capacity under the New Commitment Note will provide sufficient liquidity to sustain operations for the foreseeable future.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
We are not exposed to material fluctuations in currency exchange rates because the majority of our sales and expenses are denominated in U.S. dollars. As of September 30, 2008, the related party notes have an interest rate based upon LIBOR. As of September 30, 2008, a 1% change in LIBOR would have a $368,000 impact on interest expense.
Item 4. | Controls and Procedures. |
Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2007. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2008, (1) our disclosure controls and procedures are not sufficiently effective pursuant to the requirements of the Sarbanes-Oxley Act of 2002 for companies our size, (2) information to be disclosed in reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms promulgated under the Exchange Act, and (3) information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to the principal executive officer and principal financial officer as appropriate to allow timely decisions regarding required disclosure. The Company has retained a financial consultant to assist with period closings, integrating internal controls and preparing financial reports.
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OTHER INFORMATION
Item 1. | Legal Proceedings. |
The Company from time to time may be involved in various other lawsuits and actions by third parties arising in the ordinary course of business. The Company is not aware of any additional pending litigation, claims or assessments that could have a material adverse effect on the Company’s business, financial condition and results of operations.
Item 1A. | Risk Factors. |
There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 in response to Item 1A to Part 1 of Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. | Defaults Upon Senior Securities. |
None.
Item 4. | Submission of Matters to a Vote of Security Holders. |
None.
Item 5. | Other Information. |
None.
Item 6. | Exhibits and Reports on Form 8-K. |
A list of exhibits is set forth in the Exhibit Index found on page 18 of this report.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Digital Lightwave, Inc. | ||
(Registrant) | ||
By: | /s/ KENNETH T. MYERS | |
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: November 14, 2008 | ||
By: | /s/ KENNETH T. MYERS | |
Interim Chief Accounting Officer | ||
(Principal Financial Officer) | ||
Date: November 14, 2008 |
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Exhibit Number | Description | |
3.1* | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.02 to the Quarterly Report on Form 10-Q filed by the Company on August 14, 2002). | |
3.2* | Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Company on February 16, 2004). | |
3.3* | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.03 to the Quarterly Report on Form 10-Q filed by the Company on August 14, 2002). | |
4.1* | Specimen Certificate for Common Stock (incorporated by reference to Exhibit 4.01 to the Company’s Registration Statement on Form S-1 (File No. 333-09457), declared effective by the Securities and Exchange Commission on February 5, 1997). | |
10.1* | Credit and Restructuring Agreement, between the Digital Lightwave, Inc. and Optel Capital, LLC. dated April 4, 2008 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on April 10, 2008). | |
10.2* | Secured Convertible Promissory Noted (Restated Noted), issued by Digital Lightwave, Inc. to Optel. Capital, LLC dated April 4, 2008 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on April 10, 2008). | |
10.3* | Secured Convertible Promissory Noted (New Commitment Loans) issued by Digital Lightwave, Inc. to Optel Capital, LLC dated April 4, 2008, (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by the Company on April 10, 2008). | |
10.4* | Amended and Restated Security Agreement, between Digital Lightwave, Inc. and Optel Capital, LLC dated April 4, 2008 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by the Company on April 10, 2008). | |
10.5* | Registration Rights Agreement, between Digital Lightwave, Inc. and Optel Capital, LLC. dated April 4, 2008 (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by the Company on April 10, 2008). | |
31.1+ | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. | |
31.2+ | Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. | |
32.1+ | Certification by the Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes–Oxley Act of 2002. |
* | Such exhibits are incorporated by reference. |
+ | Filed herewith. |
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