EX-99.1 3 f02152a1exv99w1.txt EXHIBIT 99.1 . . . EXHIBIT 99.1 JCA TECHNOLOGY, INC. INDEX TO FINANCIAL STATEMENTS
PAGE Report of Ernst & Young LLP, Independent Registered Public Accounting Firm 2 Balance Sheets 3 Statements of Operations 4 Statements of Stockholders' Equity 5 Statements of Cash Flows 6 Notes to Financial Statements 7
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders JCA Technology, Inc. We have audited the accompanying balance sheets of JCA Technology, Inc. as of December 28, 2003 and December 29, 2002, and the related statements of operations, stockholders' equity, and cash flows for the years ended December 28, 2003 and December 29, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of JCA Technology, Inc. at December 28, 2003 and December 29, 2002, and the results of its operations and its cash flows for the years ended December 28, 2003 and December 29, 2002, in conformity with U.S. generally accepted accounting principles. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations raise substantial doubt about its ability to continue as a going concern. The 2003 financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Ernst & Young LLP San Jose, California September 19, 2004 2 JCA TECHNOLOGY, INC. BALANCE SHEETS
DECEMBER 28, DECEMBER 29, JULY 3, 2003 2002 2004 ------------- ------------- ------------- (unaudited) ASSETS Current Assets Cash and cash equivalents $ 216,000 $ 816,000 $ 861,000 Trade accounts receivable, less allowances of $106,000 at December 28, 2003, $240,000 at December 29, 2002 and $61,000 at July 3, 2004 1,261,000 1,009,000 877,000 Inventories: Raw materials 286,000 347,000 213,000 Work in progress 72,000 79,000 39,000 Finished goods 67,000 39,000 110,000 ------------- ------------- ------------- Total inventories 425,000 465,000 362,000 Prepaid expenses and other current assets 24,000 12,000 15,000 ------------- ------------- ------------- Total current assets 1,926,000 2,302,000 2,115,000 Receivable from Parent - - 3,428,000 Property, plant and equipment: Manufacturing and development equipment 2,293,000 2,356,000 281,000 Computer software and equipment 76,000 76,000 11,000 ------------- ------------- ------------- 2,369,000 2,432,000 292,000 Less allowances for depreciation and amortization (1,255,000) (916,000) (33,000) ------------- ------------- ------------- Net property, plant and equipment 1,114,000 1,516,000 259,000 ------------- ------------- ------------- Intangible assets, net of accumulated amortization of $10,417,000 at December 28, 2003, $9,725,000 at December 29, 2002 and $295,000 at July 3, 2004 703,000 1,395,000 4,155,000 ------------- ------------- ------------- Total assets $ 3,743,000 $ 5,213,000 $ 9,957,000 ============= ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 209,000 $ 194,000 $ 66,000 Accrued compensation and related benefits 347,000 542,000 388,000 Warranty provision 194,000 149,000 112,000 Other accrued expenses 466,000 228,000 254,000 Restructuring accrual - 110,000 - ------------- ------------- ------------- Total current liabilities 1,216,000 1,223,000 820,000 Payable to Parent 20,324,000 16,613,000 - Commitments and contingencies Stockholders' equity: Common stock, $0.01 par value: Authorized shares - 1,000 Issued and outstanding - 1,000 - - - Additional paid-in capital 313,297,000 313,297,000 11,110,000 Accumulated deficit (331,094,000) (325,920,000) (1,973,000) ------------- ------------- ------------- Total stockholders' equity (17,797,000) (12,623,000) 9,137,000 ------------- ------------- ------------- Total liabilities and stockholders' equity $ 3,743,000 $ 5,213,000 $ 9,957,000 ============= ============= =============
See notes to financial statements. 3 JCA TECHNOLOGY, INC. STATEMENTS OF OPERATIONS
YEAR ENDED SIX MONTHS ENDED ---------------------------- ---------------------------- DECEMBER 28, DECEMBER 29, JULY 3, JUNE 29, 2003 2002 2004 2003 ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) Net product revenues $ 6,573,000 $ 9,018,000 $ 3,184,000 $ 3,250,000 Cost of net product revenues 7,272,000 17,226,000 2,900,000 3,673,000 ------------ ------------ ------------ ------------ Gross profit (loss) (699,000) (8,208,000) 284,000 (423,000) Operating Expenses: Research and development 1,527,000 4,657,000 652,000 783,000 Less funding received from research and development contracts (50,000) (197,000) - (50,000) ------------ ------------ ------------ ------------ Net research and development 1,477,000 4,460,000 652,000 733,000 Sales and marketing 892,000 1,273,000 495,000 446,000 General and administrative 1,310,000 2,025,000 690,000 763,000 Amortization of intangibles 692,000 2,821,000 420,000 346,000 Impairment of intangibles - 7,178,000 - - Restructuring and other charges 124,000 3,118,000 - (44,000) ------------ ------------ ------------ ------------ Total operating expenses 4,495,000 20,875,000 2,257,000 2,244,000 ------------ ------------ ------------ ------------ Operating loss (5,194,000) (29,083,000) (1,973,000) (2,667,000) Interest income 2,000 16,000 - - Other income (expense), net 18,000 17,000 - 15,000 ------------ ------------ ------------ ------------ Net loss $ (5,174,000) $(29,050,000) $ (1,973,000) $ (2,652,000) ============ ============ ============ ============ Basic and diluted net loss per share $ (5,174) $ (29,050) $ (1,973) $ (2,652) ============ ============ ============ ============ Shares used to compute net loss per share 1,000 1,000 1,000 1,000 ============ ============ ============ ============
See notes to financial statements. 4 JCA TECHNOLOGY, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL --------------------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL ---------- ------------ ------------- ------------- ------------- Balance at December 30, 2001 1,000 $ - $ 313,297,000 $(296,870,000) $ 16,427,000 Net loss and comprehensive loss - - - (29,050,000) (29,050,000) ---------- ------------ ------------- ------------- ------------- Balance at December 29, 2002 1,000 - 313,297,000 (325,920,000) (12,623,000) Net loss and comprehensive loss - - - (5,174,000) (5,174,000) ---------- ------------ ------------- ------------- ------------- Balance at December 28, 2003 1,000 - 313,297,000 (331,094,000) (17,797,000) Purchase price adjustments from Bookham acquisition (unaudited) - - (302,187,000) 331,094,000 28,907,000 Net loss and comprehensive loss (unaudited) $ (1,973,000) (1,973,000) ---------- ------------ ------------- ------------- ------------- Balance at July 3, 2004 (unaudited) 1,000 $ - $ 11,110,000 $ (1,973,000) $ 9,137,000 ========== ============ ============= ============= =============
See notes to financial statements. 5 JCA TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED SIX MONTHS ENDED ---------------------------- ---------------------------- DECEMBER 28, DECEMBER 29, JULY 3, JUNE 29, 2003 2002 2004 2003 ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net loss $ (5,174,000) $(29,050,000) $ (1,973,000) $ (2,652,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 518,000 1,072,000 156,000 275,000 Restructuring and impairment charges 169,000 3,096,000 - - Amortization of goodwill and other intangibles 692,000 2,821,000 420,000 346,000 Impairment of goodwill - 7,178,000 - - Loss on disposal of assets - 115,000 - - Changes in operating assets and liabilities: Accounts receivable (252,000) 230,000 384,000 (95,000) Inventories 40,000 1,545,000 63,000 13,000 Prepaid expenses and other current assets (12,000) 72,000 9,000 (99,000) Accounts payable 15,000 (36,000) (143,000) (76,000) Accrued expenses 88,000 (2,327,000) (253,000) (41,000) Accrued restructuring (110,000) (2,059,000) - (110,000) ------------ ------------ ------------ ------------ Net cash used in operating activities (4,026,000) (17,343,000) (1,337,000) (2,439,000) INVESTING ACTIVITIES Acquistion of property, plant and equipment (291,000) (86,000) (200,000) (261,000) Proceeds from sale of property, plant and equipment 6,000 504,000 - - ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities (285,000) 418,000 (200,000) (261,000) FINANCING ACTIVITIES Funding received from Parent 3,711,000 15,032,000 2,182,000 3,083,000 ---------------------------- ---------------------------- Net cash provided by financing activities 3,711,000 15,032,000 2,182,000 3,083,000 ---------------------------- ---------------------------- Increase (decrease) in cash and cash equivalents (600,000) (1,893,000) 645,000 383,000 Cash and cash equivalents at beginning of period 816,000 2,709,000 216,000 816,000 ---------------------------- ---------------------------- Cash and cash equivalents at end of period $ 216,000 $ 816,000 $ 861,000 $ 1,199,000 ============================ ============================
See notes to financial statements. 6 JCA TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business JCA Technology, Inc. ("JCA" or "the Company") was incorporated in California on October 18, 2000. The Company was acquired by New Focus, Inc. ("New Focus" or "the Parent") in January 2001 as a wholly-owned subsidiary. The Company develops and manufactures high-speed radio-frequency (RF) products serving defense, commercial radar, and homeland security markets. Basis of Presentation These financial statements have been carved out of the Parent's consolidated financials statements and reflect the purchase price allocations upon the acquisition of JCA by New Focus and present the Company's activities on a separate entity basis. Assets and liabilities separately and distinctly identifiable to JCA are reflected on the accompanying balance sheets. The statements of operations include allocations of certain corporate expenses, including compensation and benefits for sales and marketing, accounting and finance, legal and human resource functions, insurance services, information technology services and other New Focus corporate and infrastructure costs. These allocations were principally allocated using the ratio of the Company's revenue to the total revenue of the Parent and the Company or based on space occupied by the Company or based upon number of employees, where appropriate. During the first six months of fiscal 2004, the Company increased its infrastructure; therefore, reducing the support needed from its Parent company. The following table summarizes the allocations by major category:
YEAR ENDED SIX MONTHS ENDED ------------------------- ----------------------- DECEMBER 28, DECEMBER 29, JULY 3, JUNE 29, 2003 2002 2004 2003 ----------- ----------- ---------- ---------- Sales and Marketing $ 892,000 $ 524,000 $ 79,000 $ 446,000 General & Administration 1,080,000 890,000 86,000 640,000 Facility and related 885,000 733,000 340,000 448,000 Manufacturing support 1,218,000 1,795,000 - 653,000 ---------- ---------- ---------- ---------- Allocations from Parent $4,075,000 $3,942,000 $ 505,000 $2,187,000 ========== ========== ========== ==========
The expense allocations were determined on the basis that management of New Focus and JCA considered to be a reasonable reflection of the utilization of services provided or the benefit received by JCA. Although JCA is part of a consolidated group for tax purposes, these financial statements have been prepared on a separate entity basis. Management believes that the assumptions and allocations used in these financial statements are reasonable. The expense allocated to JCA for these services are not indicative of the expenses that would have been incurred on a stand-alone basis nor are they indicative of costs that may be charged or incurred in the future. These financial statements may not necessarily reflect what JCA's results of operations, financial position or cash flows would have been had JCA been a stand-alone entity during the periods presented. The Company maintains a fifty-two/fifty-three week fiscal year cycle ending on the Sunday closest to December 31. Each of the two years in the period ended December 28, 2003 was comprised of fifty-two weeks Profitability Uncertain and Liquidity Constraints The Company has incurred substantial operating losses. Until profitability is achieved, substantial doubt exists about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. These losses were funded by the Parent since its acquisition of the Company on January 16, 2001. 7 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, the allowances for doubtful accounts, product return reserves, inventory write-downs and warranty accruals; the useful lives of fixed assets; impairment charges on long-lived assets and other charges, allocations from the Parent and accrued liabilities and other reserves. Actual results could differ from these estimates and such differences may be material to the financial statements. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents for both fiscal 2002 and 2003 and the six months ended July 3, 2004 and June 29, 2003 consist primarily of money market funds. Inventories Inventories are stated at the lower of cost (determined using the first in, first out method) or market (estimated net realizable value). The Company plans production based on orders received and forecasted demand. Provisions for inventory were calculated in accordance with the Company's policy, which is based on inventory levels in excess of estimated six-month demand for each specific product. Fixed Assets The Company records its property and equipment at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years for equipment and software. See Note 11 for market value adjustments recorded during 2004. Advertising Expenses The cost of advertising is expensed as incurred. The Company's advertising costs were approximately $235,000, $203,000 and $94,000 and $118,000 for fiscal years ended December 28, 2003 and December 29, 2002 and the six-month periods ended July 3, 2004 and June 29, 2003, respectively. Revenue Recognition and Warranty Provision The Company recognizes product revenue when persuasive evidence of an arrangement exists, the product has been shipped, title has transferred, collectibility is reasonably assured, fees are fixed or determinable and there are no uncertainties with respect to customer acceptance. The Company provides for estimated product returns and the estimated cost to repair products under warranty at the time of sale. The Company generally warrants its products for twelve months from shipment. The Company specifically reserves any known warranty returns and calculates additional reserves based on the Company's history of warranty experience. The following table summarizes warranty activities for fiscal years 2003 and 2002 and the six-month period ending July 3, 2004:
DECEMBER 28, DECEMBER 29, JULY 3, 2003 2002 2004 ------------ ------------ --------- Warranty balance- beginning $ 149,000 $ 211,000 $ 194,000 Add: provision 155,000 157,000 82,000 Less: charges (110,000) (219,000) (164,000) --------- --------- --------- Warranty balance- ending balance $ 194,000 $ 149,000 $ 112,000 ========= ========= =========
8 Research and Development Company-sponsored research and development costs as well as costs related to research and development contracts are expensed as incurred. Total expenditures for research and development in the fiscal years ended December 28, 2003 and December 29, 2002 and six-months periods ended July 3, 2004 and June 29, 2003 were $1,477,000, $4,460,000, $652,000 and $733,000, respectively. Funding earned under the contractual terms of research and development contracts is netted against research and development costs, which were $50,000 and $197,000 for the fiscal years ended December 28, 2003 and December 29, 2002, respectively, and $50,000 for the six months ended June 29, 2003. There was no funding earning during the six-month period ended July 3, 2004. The funding relates to various arrangements whereby the Company is reimbursed for substantially all of its costs incurred under the related project. Stock-Based Compensation The Parent has stock-based compensation plans which are described more fully in Note 7. The Company accounts for stock compensation plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), and related Interpretations. No stock-based employee compensation cost is reflected in net loss for stock options, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss using the straight-line amortization method had compensation expense for the Company's stock-based award plans been determined based upon the fair value at the grant dates for awards under the plan consistent with the method of Financial Accounting Standards. No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
YEAR ENDED SIX MONTHS ENDED --------------------------- -------------------------- DECEMBER 28, DECEMBER 29, JULY 3, JUNE 29, 2003 2002 2004 2003 ----------- ------------ ----------- ----------- Net loss as reported $(5,174,000) $(29,050,000) $(1,973,000) $(2,652,000) Less: stock-based compensation valued under FAS 123 (445,000) (904,000) (178,000) (161,000) ----------- ------------ ----------- ----------- Pro forma net loss $(5,619,000) $(29,954,000) $(2,151,000) $(2,813,000) =========== ============ =========== =========== Basic and diluted net loss per share - as reported $ (5,174) $ (29,050) $ (1,973) $ (2,652) =========== ============ =========== =========== Basic and diluted net loss per share - pro forma $ (5,619) $ (29,954) $ (2,151) $ (2,813) =========== ============ =========== =========== Shares used to compute net loss per share 1,000 1,000 1,000 1,000 =========== ============ =========== ===========
Because options vest over several years, the above pro forma results are not representative of the pro forma results for future years. For purposes of pro forma disclosure, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
EMPLOYEE STOCK OPTIONS PLANS EMPLOYEE STOCK PURCHASE PLANS YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED -------------------------- ------------------- -------------------------- ------------------- DECEMBER 28, DECEMBER 29, JULY 3, JUNE 29, DECEMBER 28, DECEMBER 29, JULY 3, JUNE 29, 2003 2002 2004 2003 2003 2002 2004 2003 ------------ ------------ ------- -------- ------------ ------------ ------- -------- Expected dividend yield - - - - - - - - Risk free interest rate 3.52% 4.40% 3.79% 3.52% 3.90% 4.40% 3.96% 3.82% Expected life of options (years) 7.5 7.5 7.5 7.5 0.5 0.5 0.5 0.5 Assumed volatility 114% 119% 103% 114% 113% 119% 107% 115%
The weighted average fair value of options granted in fiscal 2003 and 2002 and the six-month periods ending July 3, 2004 and June 29, 2003 were $3.45, $3.39, $4.33 and $3.45, respectively. Income Taxes For purposes of the financial statements, the Company has presented income taxes on a separate entity basis, as described in Note 6. Deferred income taxes are provided for differences arising in the timing of income and expenses for financial reporting and for income tax purposes using the asset/liability method of accounting. Under this method, deferred income taxes are recognized for the future tax consequences attributable to the differences between the financial statements' carrying amounts of existing assets and liabilities and their respective tax bases, using enacted tax rates. Valuation allowances are provided if, based on the weight of available 9 evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Interim Financial Information The interim financial information at July 3, 2004 and for the six-month periods ended July 3, 2004 and June 29, 2003 is unaudited but, in the opinion of management, includes all adjustments, consisting only of normal recurring accruals, which the Company considers necessary for a fair presentation of the financial position and results of operations for the interim periods. The results of operations for the six-month periods ended July 3, 2004 are not necessarily indicative of the results to be expected for the full fiscal year. 3. CONCENTRATION OF REVENUES AND CREDIT AND OTHER RISKS The Company sells its products to customers in defense and commercial radar industries. The Company performs ongoing credit evaluations of its customers and does not require collateral. The Company provides reserves for potential credit losses, and such losses have been within management's expectations. The following table summarizes the provision for doubtful accounts for fiscal years 2002 and 2003:
ADDITIONS (DEDUCTIONS) CHARGED BALANCES AT (CREDITED) TO BEGINNING OF COSTS AND DEDUCTIONS BALANCES AT PERIOD EXPENSES WRITE-OFFS END OF PERIOD --------------------------------- ------------ --------------- Year ended December 29, 2002 $ (344,000) $ (88,000) $ 192,000 $ (240,000) Year ended December 28, 2003 (240,000) 6,000 128,000 (106,000)
For the year ended December 28, 2003, Raytheon and Maryland Procurement Office accounted for approximately 16% and 11% of the Company's revenues, respectively. For the year ended December 29, 2002, Alcatel ASN Services accounted for approximately 29% of net revenues. For the six-months ended July 3, 2004, Raytheon accounted for approximately 12% of the Company's revenues. For the six-month ended June 29, 2003, Maryland Procurement Office accounted for approximately 21% of net revenues. No other customer accounted for greater than 10% of the Company's revenue in the periods presented. 4. COMMITMENTS AND CONTINGENCIES The sale and manufacture of certain of the Company's products requires continued compliance with governmental security and import/export regulations. The Company has been notified by the U.S. Department of Commerce of charges for certain export violations relating to actual or deemed exports without, or with improper, licenses. The Company agreed to a settlement with the Department of Commerce under which the Company will pay a $200,000 penalty but will not be barred or restricted from exporting its products. The penalty charge was fully accrued for in 2003. The Company paid the penalty in full in April 2004. The Company shares its operating facility with its Parent and does not have any long-term contractual obligations related to the facility. Allocated rental expense including building rent, utilities and any building related expenses for years ending December 28, 2003 and December 29, 2002 and six-months ending July 3, 2004 and June 29, 2003 were $885,000, $733,000, $340,000 and $448,000, respectively. 5. EMPLOYEE BENEFIT PLAN The Company's parent sponsors a 401(k) Plan that allows voluntary contributions by eligible employees, who may elect to contribute up to the maximum allowed under the Internal Revenue Service regulations. The Company made 25% matching contributions (up to a maximum of $2,000 per eligible employee per year) and recognized costs of $56,000, $85,000, $57,000, and $36,000 for these matching provisions in the fiscal years ended December 28, 2003 and December 29, 2002 and the six-months ended July 3, 2004 and June 29, 2003, respectively. 6. INCOME TAXES The Company is part of the New Focus federal consolidated and California combined group for income tax purposes. For purposes of these financial statements, income taxes are presented on a separate-entity basis. No benefit for income taxes was recognized for the Company's net tax operating losses for 2003 and 2002. Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company's historical performance and the reported cumulative net losses in prior years, the Company's net deferred tax assets have been fully offset by a valuation allowance. As of December 31, 2003, the Company had federal and state net operating loss carryforwards of 10 $17,040,000 and $11,126,000, respectively, for tax purposes. As of December 31, 2003, the Company also had federal and state tax credit carryforwards of approximately $163,000 and $527,000, respectively. The net operating losses and tax credit carryforwards will expire at various dates beginning in 2011 through 2021 if not utilized. Changes in the ownership structure of New Focus as a result of its acquisition by Bookham in March 2004 may result in limitations on utilization of the Company's net operating losses and tax credits under the Internal Revenue Code. 7. STOCK COMPENSATION PLANS Stock Option Plans New Focus accounts for stock based compensation arrangements in accordance with the provisions of APB No. 25. Options to purchase the common stock of New Focus are granted to JCA employees, with such options vesting over a five year period. Under APB 25, compensation expense is recognized for options with an exercise price below the estimated fair value of New Focus's common stock at the date of grant. No stock-based employee compensation cost is reflected in net loss for stock options, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. As of December 29, 2002, there were approximately 470,000 options outstanding held by JCA employees with a weighted-average exercise price of $5.11 per share of which 132,000 options had vested. During 2002, 596,000 options were granted at a weighted - average exercise price of $3.55 per share, 1,000 options were exercised with a weighted-average exercise price of $0.625 and 399,000 options were cancelled with a weighted-average price of $7.55 per share. As of December 28, 2003, there were approximately 302,000 options outstanding held by JCA employees with a weighted-average exercise price of $4.98 per share of which 88,000 options had vested. During 2003, 15,000 options had been issued at the exercise price of $3.84 per share, 60,000 options were exercised with a weighted-average exercise price of $3.99 per share and 123,000 options were cancelled with a weighted-average price of $6.36 per share. The following table summarizes information concerning currently outstanding and exercisable stock options at December 28, 2003:
Outstanding Exercisable ----------------------------------------- ----------------------- Remaining Weighted Weighted Contractual Average Average Options Life (Years) Exercise Price Options Exercise Price ------- ------------ -------------- ------- -------------- $ 0.0625 -$ 2.8100 61,417 8.03 $ 2.34 15,599 $ 1.57 $ 2.9000 -$ 2.9000 87,500 8.59 $ 2.90 5,000 $ 2.90 $ 2.9700 -$ 3.8900 96,627 8.20 $ 3.83 38,679 $ 3.85 $ 3.9900-$ 49.3800 56,218 7.31 $13.09 29,139 $ 13.96 ------- ---- ------ ------ -------- Total 301,762 8.11 $ 4.98 88,417 $ 6.73 ======= ==== ====== ====== ========
Employee Stock Purchase Plan The Company participated in it's Parent's Employee Stock Purchase Plan (Purchase Plan) until February 2004 which allowed employees to contribute up to 15% of their annual base pay plus commissions to purchase New Focus common stock. The price of common stock purchased under the Purchase Plan was equal to 85% of the lower of the fair market value of the common stock on the commencement date of each offering period or the relevant purchase date. During fiscal 2003, approximately 84,000 shares were issued under the Purchase Plan to JCA employees at an average price of approximately $2.48 per share. During fiscal 2002, approximately 116,000 shares were issued under the Purchase Plan to JCA employees at an average price of approximately $2.88 per share. 8. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION The Company currently is organized and operates as one operating segment: the design, development, manufacturing and marketing and selling of high-speed radio-frequency (RF) products for defense and avionics applications. The Company evaluates performance and allocates resources based on revenues and overall profitability. Geographic information for fiscal years 2003 and 2002 and the six-month periods ending July 3, 2004 and June 29, 2003 is presented below. Revenues are attributed to countries based on the location of customers. 11
YEAR ENDED SIX MONTHS ENDED ------------------------------ ------------------------------- DECEMBER 28, DECEMBER 29, JULY 3, JUNE 29, 2003 2002 2004 2003 ------------ ------------ ------- -------- REVENUES United States $ 5,993,000 $ 5,846,000 $ 2,645,000 $ 3,043,000 Asia 115,000 151,000 144,000 30,000 France 71,000 1,448,000 99,000 117,000 Other Europe 394,000 1,573,000 296,000 60,000 ------------ ------------ ------------ ------------- Total revenues $ 6,573,000 $ 9,018,000 $ 3,184,000 $ 3,250,000 ============ ============ ============ =============
9. INTANGIBLES ASSETS In 2002, the Company determined that it would discontinue new product development for certain high-speed radio-frequency products. As a result of this decision the Company expected that revenues from its telecom products would further decline. In accordance with the Company's policy, undiscounted cash flows indicated that the remaining intangible assets associated with the JCA acquisition were impaired. The Company calculated the impairment charges by comparing the expected discounted future cash flows to the carrying amount of the related intangible assets. The discount rate applied to these cash flows was based on the Parent's weighted average cost of capital, which represents the blended after-tax costs of debt and equity. This analysis resulted in a $7.2 million write-down of intangibles in fiscal year 2002. As of December 28, 2003, the Company had $703,000 remaining in an acquired intangible related to the acquisition of JCA. In 2004, the Company recorded $4.5 million of intangible assets related to the acquisition of the Company by Bookham with $4.2 million net of accumulated amortization remaining as of July 3, 2004. 10. RESTRUCTURING CHARGES Demand for telecom products fell abruptly beginning in the latter half of the first quarter of 2001 due to a widespread business downturn in the telecommunication industry. In late 2001, the Company's parent, New Focus, Inc., announced the restructuring plan for its JCA operation which included closing of the Company's manufacturing site in Camarillo in the early part of the third quarter of 2002 and the transfer of production from the Camarillo operation to the Parent's facility in San Jose, California. Additionally, the Company announced its plan to discontinue the new product development of certain high-speed RF products for next-generation telecommunications applications, including reducing its Wisconsin-based engineering staff and decreasing the square footage occupied under its Wisconsin facility lease. In 2002, the Company recorded restructuring and impairment charges totaling approximately $3,118,000 for actions taken to resize the Company's operations as a result of a continuing decline in demand for its products as well as the general decline in the telecommunications industry. These restructuring activities included discontinuing the Company's new product development of certain high-speed RF products for next-generation telecommunications applications. The restructuring and asset impairment charges consisted primarily of approximately $3,096,000 for the write-down of assets. In 2003, the Company recorded restructuring and impairment charges totaling $169,000 net of auction sales proceeds for idled equipment. The Company reversed approximately $45,000 from the severance provision for adjustments relating to final payments on severance related fees. The table below summarizes the Company's restructuring activities:
BEGINNING PROVISION ENDING BALANCE AS OF TWELVE MONTHS BALANCE AS OF DECEMBER 30, ENDED DECEMBER 29, CASH NON-CASH DECEMBER 29, 2001 2002 PAYMENTS CHARGES 2002 ------------- ------------------ -------- ------- ------------- Restructuring activities Workforce reduction severance costs $ 1,949,000 $ 22,000 $ (1,861,000) $ - $ 110,000 Facility closure costs 220,000 - (220,000) - - Property and equipment write-downs - 3,096,000 - (3,096,000) - ----------- ------------- -------------- -------------- --------- Restructuring charges $ 2,169,000 $ 3,118,000 $ (2,081,000) $ (3,096,000) $ 110,000 =========== ============= ============== ============== =========
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BEGINNING PROVISION ENDING BALANCE AS OF TWELVE MONTHS BALANCE AS OF DECEMBER 29, ENDED DECEMBER 28, CASH NON-CASH DECEMBER 28, 2002 2003 PAYMENTS CHARGES 2003 ------------- ------------------ -------- ------- ------------- Restructuring activities Workforce reduction severance costs $ 110,000 $ (45,000) $ (65,000) $ - $ - Property and equipment write-downs - 169,000 - (169,000) - ----------- ----------- ------------- -------------- ---- Restructuring charges $ 110,000 $ 124,000 $ (65,000) $ (169,000) $ - =========== =========== ============= ============== ====
In the six months ended June 29, 2003, the Company reversed approximately $45,000 from the severance provision for adjustments relating to final payments on severance related fees. There were no restructuring and impairment activities in the six months ending July 3, 2004. The table below summarizes the Company's restructuring activities:
BEGINNING PROVISION ENDING BALANCE AS OF SIX MONTHS BALANCE AS OF DECEMBER 29, ENDED JUNE 29, CASH NON-CASH JUNE 29, 2002 2003 PAYMENTS CHARGES 2003 ------------- -------------- -------- ------- ------------- Restructuring activities Workforce reduction severance costs $ 110,000 $ (45,000) $ (65,000) $ - $ - ----------- -------------- ------------- ------ ----- Restructuring charges $ 110,000 $ (45,000) $ (65,000) $ - $ - =========== ============== ============= ====== =====
11. MERGER WITH BOOKHAM TECHNOLOGY PLC JCA was acquired by Bookham Technology plc ("Bookham") through its acquisition of New Focus on March 8, 2004. As a result of the acquisition, certain assets were adjusted to reflect the market value on the date of the acquisition and stockholders' equity was adjusted to reflect only 2004 operational results based on the carved-out financial statements. The following accounts were impacted as a result of the acquisition adjustments:
PRIOR TO BOOKHAM POST BOOKHAM ACQUISITION ADJUSTMENTS ACQUISITION ---------------- ----------- ------------ Net property, plant and equipment $ 1,195,000 $ (948,000) $ 247,000 Intangible assets 580,000 3,870,000 4,450,000 Additional paid-in capital 313,296,990 (302,187,000) 11,109,990 Accumulated deficit (331,094,000) 331,094,000 - Receivable from/(payable to) Parent (21,863,000) 25,985,000 4,122,000
As a result of Bookham's acquisition, the statement of operations for the period from March 9, 2004 through July 3, 2004 reflects the impact of the purchase price adjustments noted above. 12. SUBSEQUENT EVENTS On July 21, 2004, JCA was sold to Endwave Corporation for a consideration of $6 million. 13 13. QUARTERLY SUMMARIES (UNAUDITED)
THREE MONTHS ENDED ------------------------------------------------------ JUL. 3, APR. 4, DEC. 28, SEPT. 29, JUNE 29, 2004 2004 2003 2003 2003 ---- ---- ---- ---- ---- (IN THOUSANDS) QUARTERLY STATEMENT OF OPERATIONS DATA: Net revenues $ 1,665 $ 1,519 $ 1,734 $ 1,589 $ 1,889 Cost of net revenues 1,350 1,550 1,878 1,721 1,968 ------- ------- ------- ------ ------- Gross profit (loss) 315 (31) (144) (132) (79) Operating Expenses: Research and development, net 339 313 384 360 409 Sales and marketing 262 233 223 223 223 General and administrative 349 341 296 250 510 Amortization of goodwill and other intangibles 223 197 173 173 173 Impairment of goodwill and other intangibles - - - - - Restructuring and asset impairment charges - - (1) 170 (9) ------- ------- ------- ------ ------- Total operating expenses 1,173 1,084 1,075 1,176 1,306 ------- ------- ------- ------ ------- Operating loss (858) (1,115) (1,219) (1,308) (1,385) Interest and other income (expense), net - - 3 1 - ------- ------- ------- ------ ------- Net loss $ (858) $ 1,115) $(1,216) $(1,307) $(1,385) ======= ======= ======= ====== ======= Basic and diluted net loss per share $ (0.86) $ (1.12) $ (1.22) $ (1.31) $ (1.39) ======= ======= ======= ====== ======= THREE MONTHS ENDED ------------------------------------------------------ MARCH 30, DEC. 29, SEPT. 29, JUNE 30, MARCH 31, 2003 2002 2002 2002 2002 ---- ---- ---- ---- ---- (IN THOUSANDS) QUARTERLY STATEMENT OF OPERATIONS DATA: Net revenues $ 1,361 $ 1,832 $ 1,576 $ 2,559 $ 3,051 Cost of net revenues 1,705 3,119 4,833 5,137 4,137 ------- ------- ------- -------- ------- Gross profit (loss) (344) (1,287) (3,257) (2,578) (1,086) Operating Expenses: Research and development, net 324 200 535 2,030 1,695 Sales and marketing 223 220 303 378 372 General and administrative 253 333 418 623 651 Amortization of goodwill and other intangibles 173 153 172 1,248 1,248 Impairment of goodwill and other intangibles - - - 7,178 - Restructuring and asset impairment charges (36) (96) 9 3,205 - ------- ------- ------- -------- ------- Total operating expenses 937 810 1,437 14,662 3,966 ------- ------- ------- -------- ------- Operating loss (1,281) (2,097) (4,694) (17,240) (5,052) Interest and other income (expense), net 15 18 - 1 14 ------- ------- ------- -------- ------- Net loss $(1,266) $(2,079) $(4,694) $(17,239) $(5,038) ======= ======= ======= ======== ======= Basic and diluted net loss per share $ (1.27) $ (2.08) $ (4.69) $ 17.24) $ (5.04) ======= ======= ======= ======== =======
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