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| OPTV > SEC Filings for OPTV > Form 10-Q on 4-Nov-2009 | All Recent SEC Filings |
4-Nov-2009
Quarterly Report
In August 2007, our board of directors approved the adoption of the 2007 Plan, which was a special bonus plan designed both to better align management with certain profitability targets established by our board of directors and as a management retention mechanism following the change in control of our company in January 2007. The profitability targets were based on cumulative net income of the company, as measured over any four consecutive fiscal quarters during the period commencing April 1, 2007 and ending December 31, 2009, with cumulative net income being based on net income as publicly reported in the financial statements of the company, subject to certain exclusions. The plan provided for bonus awards, comprised of a combination of a cash amount and a grant of restricted Class A ordinary shares pursuant to our 2005 Incentive Plan. The 2007 Plan provided for the vesting of the restricted shares and the right to receive the cash component, in each case on a pro rata basis, in accordance with the following schedule: (i) 62.5% upon our achievement of cumulative net income equal to or greater than zero, (ii) 12.5% upon our achievement of cumulative net income equal to or greater than $4,000,000, and (iii) 25% upon our achievement of cumulative net income equal to or greater than $6,000,000.
As defined by SFAS No. 123 (revised 2004), "Share-based Payment," and codified under FASB Accounting Standards Codification Topic 718 "Compensation - Stock Compensation" (ASC 718), the 2007 Plan allows for both performance and service elements. Accordingly, once vesting is considered probable, we recognize expense on a straight-line basis over the remaining requisite service period. Final compensation cost is recognized only for awards that ultimately vest. As part of the 2007 Plan, 1,020,232 Class A ordinary shares were issued in August 2007 as 2007 Management Restricted Shares.
All of the profitability targets under the 2007 Plan were achieved in May 2008. At such time, restrictions as to an aggregate of 929,767 of the 2007 Management Restricted Shares lapsed. We withheld an aggregate of 332,258 shares to satisfy applicable withholding tax liabilities.
We recorded an insignificant amount and approximately $0.9 million during the three and nine months ended September 30, 2008, respectively, of share-based compensation expense related to achievement of performance targets under our 2007 plan.
Share-based Compensation Expense
The impact on our results of operations of recording share-based compensation
for the three and nine months ended September 30, 2009 and 2008 was as follows
(in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Cost of revenues - services and other $ 53 $ 73 $ 205 $ 402
Research and development 102 137 416 773
Sales and marketing 30 45 151 254
General and administrative 84 109 316 776
$ 269 $ 364 $ 1,088 $ 2,205
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No options were exercised during the three months ended September 30, 2009. Cash received from option exercises under all share-based compensation plans was not significant for the nine months ended September 30, 2009. Cash received from option exercises under all share-based compensation plans was not significant for the three and nine months ended September 30, 2008. No income tax benefit was recognized in the statement of operations for share-based compensation costs for the three and nine months ended September 30, 2009 and 2008. No share-based compensation costs were capitalized for the three and nine months ended September 30, 2009 and 2008.
Valuation Assumptions
We calculated the fair value of each stock option award on the date of grant
using the Black-Scholes valuation model. The assumptions used for our
calculations were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Risk-free interest rates 2.45% - 2.56% 2.64% - 3.16% 1.38% - 2.78% 2.64% - 3.76%
Average expected lives
(months) 61 63 61 63
Dividend yield - - - -
Expected volatility 71% 62% 71% 62%
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Our computations of expected volatility for the three and nine months ended September 30, 2009 and 2008 were based on historical volatility of our share price. Our computations of expected life for the three and nine months ended September 30, 2009 and 2008 were determined based on historical experience of similar awards, giving consideration to the contractual terms of the share-based awards, vesting schedules and expectations of future employee behavior. The interest rates for periods within the contractual life of the awards are based on the similar United States Treasury yield curve in effect at the time of grant. While we believe that these assumptions are reasonable, actual experience may differ materially from these assumptions.
We calculated the fair value of restricted shares based on the closing price of our Class A ordinary shares on the date of grant, as such price was quoted on The NASDAQ Stock Market.
Option Award Activity
The following table summarizes stock option activity under our equity incentive
plans during the three and nine months ended September 30, 2009:
Number of Weighted
Options Average
Outstanding Exercise Price Exercise Price
Balance, December 31, 2008 5,185,075 $ 4.84
Options granted 77,200 $1.09 - $1.34 $ 1.19
Options exercised (20,100 ) $1.05 $ 1.05
Options forfeited (119,471 ) $1.03 - $3.16 $ 2.19
Options expired (147,250 ) $1.05 - $9.90 $ 1.79
Balance, March 31, 2009 4,975,454 $ 4.95
Options granted 74,400 $1.30 - $1.53 $ 1.45
Options forfeited (31,126 ) $1.07 - $2.99 $ 1.72
Options expired (77,579 ) $0.33 - $13.87 $ 3.14
Balance, June 30, 2009 4,941,149 $ 4.94
Options granted 118,400 $1.27 - $1.35 $ 1.32
Options forfeited (28,593 ) $1.05 - $3.41 $ 1.43
Options expired (235,727 ) $1.46 - $54.25 $ 7.54
Balance, September 30, 2009 4,795,229 $ 4.75
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The following table summarizes information with respect to options outstanding at September 30, 2009:
Options Outstanding Options Currently Exercisable
Weighted Average Weighted Weighted
Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$0.33 - $1.32 485,392 8.55 $ 1.16 96,018 $ 1.13
$1.33 - $1.53 492,991 8.72 $ 1.46 121,516 $ 1.48
$1.60 - $2.69 474,344 5.35 $ 2.25 374,246 $ 2.24
$2.70 - $2.70 847,200 5.33 $ 2.70 847,200 $ 2.70
$2.73 - $2.82 251,400 4.46 $ 2.78 247,671 $ 2.78
$2.84 - $2.84 996,207 6.20 $ 2.84 889,758 $ 2.84
$2.85 - $3.23 524,108 4.72 $ 3.01 476,946 $ 3.01
$3.35 - $10.00 481,263 3.10 $ 6.94 461,848 $ 7.08
$10.19 - $82.06 241,324 0.75 $ 39.75 241,324 $ 39.75
$88.00 - $88.00 1,000 0.17 $ 88.00 1,000 $ 88.00
4,795,229 5.62 $ 4.75 3,757,527 $ 5.59
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Intrinsic Value
The aggregate intrinsic value of an option is calculated as the excess, if any, of the closing price of our Class A ordinary shares over the exercise price of the option. Aggregate intrinsic value is not equivalent to the value determined by the Black-Scholes valuation model.
Options Exercised. The aggregate intrinsic value of options exercised under our stock option plans, determined as of the date of option exercise, was not significant for the nine months ended September 30, 2009. The aggregate intrinsic value of options exercised under our stock option plans, determined as of the date of option exercise, was not significant for the three and nine months ended September 30, 2009 and 2008.
Vested and Unvested Options. The aggregate intrinsic value of all vested and unvested options outstanding as of September 30, 2009 was approximately $0.1 million, based on the closing price of our Class A ordinary shares on September 30, 2009, which was $1.38.
Exercisable Options. The aggregate intrinsic value of options currently exercisable as of September 30, 2009 was not significant, based on the closing price of our Class A ordinary shares on September 30, 2009, which was $1.38. The weighted average remaining contractual life of currently exercisable options, calculated at September 30, 2009, was 4.91 years.
Vested and Expected-to-Vest Options. The number of options vested and expected-to-vest as of September 30, 2009 was 4,544,809, the weighted-average exercise price of which was $4.93. The aggregate intrinsic value of options vested and expected-to-vest as of September 30, 2009 was approximately $0.1 million, based on the closing price of our Class A ordinary shares on September 30, 2009, which was $1.38. The weighted average remaining contractual life of options vested and expected-to-vest as of September 30, 2009 was 5.46 years.
Weighted Average Grant-date Fair Value. The weighted average grant-date fair value of options granted was $0.80 and $0.85 per share for grants in the three months ended September 30, 2009 and 2008, respectively. The weighted average grant-date fair value of options granted was $0.79 and $0.78 per share for grants in the nine months ended September 30, 2009 and 2008, respectively.
Restricted Shares Activity
The following table summarizes activity relating to restricted shares during the
three and nine months ended September 30, 2009:
Weighted Average
Number of Grant Date
Shares Fair Value
Unvested shares balance, December 31, 2008 980,347 $ 1.07
Unvested restricted shares granted 100,000 $ 1.34
Unvested restricted shares forfeited and cancelled (17,957 ) $ 1.04
Restricted shares vested (97,307 ) $ 1.08
Unvested shares balance, March 31, 2009 965,083 $ 1.09
Unvested restricted shares forfeited and cancelled (3,334 ) $ 1.04
Restricted shares vested (63,295 ) $ 1.04
Unvested shares balance, June 30, 2009 898,454 $ 1.10
Unvested restricted shares forfeited and cancelled (3,907 ) $ 1.04
Restricted shares vested (63,102 ) $ 1.04
Unvested shares balance, September 30, 2009 831,445 $ 1.10
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Unrecognized Compensation Expense
As of September 30, 2009, there was approximately $0.7 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under our option plans. That cost is expected to be recognized over a weighted-average period of 2.47 years.
As of September 30, 2009, there was approximately $0.5 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted shares granted. That cost is expected to be recognized over a weighted-average period of 2.16 years.
Note 10. Employee Bonus
During April and May 2009, we paid approximately $6.4 million in cash to our employees as a bonus for achievement of company and individual performance objectives in 2008. The amount of the bonus awards was fully accrued as of December 31, 2008.
In August 2007, our board of directors approved the adoption of the 2007 Plan, which was comprised of a combination of a cash amount and a grant of restricted Class A ordinary shares, subject to achievement of specified profitability targets. We recorded an insignificant amount and approximately $1.6 million of bonus expense for the cash component of the 2007 Plan related to achievement of performance targets during the three and nine months ended September 30, 2008, respectively, and an insignificant amount and approximately $0.9 million of share-based compensation expense for the restricted Class A ordinary shares component of the 2007 Plan related to achievement of performance targets during the three and nine months ended September 30, 2008, respectively. All of the profitability targets under the 2007 Plan were achieved in May 2008.
Note 11. Income Taxes
We are subject to U.S. federal income tax as well as income tax of multiple foreign and state jurisdictions. We have substantially concluded all U.S. federal income tax matters for years through 1998. We have substantially concluded all material state, local and foreign income tax matters for years through 1999.
We have significant net operating loss carryforwards that are subject to certain
Section 382 limitations as a result of past changes in ownership as defined by
federal and state law. Certain of these attributes will never be utilized, and
we have therefore removed them from our disclosures and our deferred tax assets.
We classify interest and penalties associated with our uncertain tax positions as a component of income tax expense. For the three and nine months ended September 30, 2009 and 2008, the interest and penalties that we recognized as part of income tax expense were not material.
California enacted a new tax law during the first quarter of 2009 that gives corporations subject to California income tax the option, beginning in 2011, to elect single factor apportionment and assign corporate income to California based solely on sales made within the state as opposed to a combination of sales, payroll and property. We currently anticipate that we will elect single factor apportionment but have determined that the resulting change in our tax rate will not impact our deferred tax assets since we maintain a full valuation allowance on our U.S. deferred tax assets.
Note 12. Fair Value Measurement
We adopted SFAS No. 157, "Fair Value Measures" as codified under FASB Accounting Standards Codification Topic 820 "Fair Value Measurements and Disclosures" (ASC 820) as of January 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities. Non-recurring nonfinancial assets and nonfinancial liabilities for which we have not applied the provisions of ASC 820 include those measured at fair value in goodwill impairment testing, indefinite-lived intangible assets measured at fair value for impairment testing, and those initially measured at fair value in a business combination.
Valuation Hierarchy
ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset's or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2009 (in thousands):
Fair Value Measurements at September 30, 2009 Using
Carrying Quoted prices in Significant other Significant
Amount at active markets observable inputs unobservable inputs
September 30, 2009 (Level 1) (Level 2) (Level 3)
Available for sale short-term
marketable debt securities $ 30,833 $ - $ 30,833 $ -
Available for sale long-term
marketable debt securities 4,995 - 4,995 -
$ 35,828 $ - $ 35,828 $ -
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Valuation Techniques
Available for sale marketable debt securities are measured at fair value using Level 2 inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Note 13. Commitments and Contingencies
Operating Leases
We lease our facilities from third parties under operating lease agreements or sublease agreements in the United States, Europe and Asia Pacific. As of September 30, 2009, the terms of these leases were set to expire between October 2009 and March 2015. Total rent expense was approximately $1.3 million and $1.2 million for the three months ended September 30, 2009 and 2008, respectively. Total rent expense was approximately $3.8 million and $4.0 million for the nine months ended September 30, 2009 and 2008, respectively. Sublease income was approximately $0.2 million and $0.1 million for the three months ended September 30, 2009 and 2008, respectively and $0.5 million and $0.1 million for the nine months ended September 30, 2009 and 2008, respectively.
Future minimum payments, net of future minimum sublease income, under non-cancelable operating leases as of September 30, 2009 were as follows (in thousands):
Minimum
Year ending December 31, Commitments
2009 (remaining three months) $ 1,153
2010 5,115
2011 5,228
2012 3,719
2013 2,880
Thereafter 2,937
$ 21,032
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Other Commitments
In the ordinary course of business we enter into various arrangements with vendors and other business partners for marketing and other services. Future minimum commitments under these arrangements as of September 30, 2009 were $0.2 million for the remaining three months of 2009 and insignificant for the years ending December 31, 2010 and 2011. In addition, we also have arrangements with certain parties that provide for revenue sharing payments.
As of September 30, 2009, we had three standby letters of credit aggregating approximately $1.2 million, two of which were issued to landlords of our leased properties, and one of which was issued to a sublessee at our New York facility, which we vacated in the second quarter of 2005. As of September 30, 2009, we have pledged a deposit account containing approximately $1.2 million as collateral for these letters of credit.
Contingencies
Initial Public Offering Securities Litigation. In July 2001, the first of a
series of putative securities class actions was filed in the United States
District Court for the Southern District of New York against certain investment
banks which acted as underwriters for our initial public offering, us and
various of our officers and directors. In November 2001, a similar securities
class action was filed in the United States District Court for the Southern
District of New York against Wink Communications and two of its officers and
directors and certain investment banks which acted as underwriters for Wink
Communications' initial public offering. We acquired Wink Communications in
October 2002. The complaints allege undisclosed and improper practices
concerning the allocation of initial public offering shares, in violation of the
federal securities laws, and seek unspecified damages on behalf of persons who
purchased our Class A ordinary shares during the period from November 23, 1999
through December 6, 2000 and Wink Communications' common stock during the period
from August 19, 1999 through December 6, 2000. Other actions have been filed
making similar allegations regarding the initial public offerings of more than
300 other companies. All of these lawsuits have been coordinated for pretrial
purposes as In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS).
Defendants in these cases filed an omnibus motion to dismiss on common pleading
issues. All claims against our officers and directors have been dismissed
without prejudice in this litigation pursuant to the parties' stipulation
approved by the Court on October 9, 2002. On February 19, 2003, the Court denied
in part and granted in part the omnibus motion to dismiss filed on behalf of
defendants, including us and Wink Communications. The Court's order dismissed
all claims against us and Wink Communications except for a claim brought under
Section 11 of the Securities Act of 1933.
In 2007, a settlement that had been pending with the Court since 2004 was terminated by stipulation of the parties, after a ruling by the Second Circuit Court of Appeals in six "focus" cases in the IPO litigation (neither OpenTV nor Wink Communications is a focus case) made it unlikely that the settlement would receive final Court approval. Plaintiffs filed amended master allegations and amended complaints in the six focus cases. In 2008, the Court largely denied the defendants' motion to dismiss the amended complaints.
Earlier this year, the parties reached a global settlement of the litigation under which insurance will pay the full amount of settlement share allocated to us and to Wink Communications, and we will bear no financial liability. In October 2009, the Court issued an order granting final approval of the settlement. Shortly thereafter, a group of objectors filed a petition with the United States Court of Appeals for the Second Circuit requesting permission to appeal the Court's order certifying a class for the settlement; that petition is currently pending. If for any reason the settlement does not become effective, we believe we have meritorious defenses and intend to defend ourselves vigorously. No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.
Broadcast Innovation Matter. On November 30, 2001, a suit was filed in the United States District Court for the District of Colorado by Broadcast Innovation, L.L.C., or BI, alleging that DIRECTV, Inc., EchoStar Communications Corporation, Hughes Electronics Corporation, Thomson Multimedia, Inc., Dotcast, Inc. and Pegasus Satellite Television, Inc. are infringing certain claims of United States patent no. 6,076,094, assigned to or licensed by BI. DIRECTV and certain other defendants settled with BI on July 17, 2003. We are unaware of the specific terms of that settlement. Though we are not currently a defendant in the suit, BI may allege that certain of our products, possibly in combination with the products provided by some of the defendants, infringe BI's patent. The agreement between OpenTV, Inc. and EchoStar includes indemnification obligations that may be triggered by the litigation. If liability is found against EchoStar in this matter, and if such a decision implicates our technology or products, EchoStar has notified OpenTV, Inc. of its expectation of indemnification, in which case our business performance, financial position, results of operations or cash flows may be adversely affected. Likewise, if OpenTV, Inc. were to be named as a defendant and it is determined that the products of OpenTV, Inc. infringe any of the asserted claims, and/or it is determined that OpenTV, Inc. is obligated to defend EchoStar in this matter, our business performance, financial position, results of operations or cash flows may be adversely . . .
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