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SCMR > SEC Filings for SCMR > Form 10-Q on 7-Mar-2014All Recent SEC Filings

Show all filings for SYCAMORE NETWORKS INC

Form 10-Q for SYCAMORE NETWORKS INC


7-Mar-2014

Quarterly Report

Management's Discussion and Analysis of Financial Condition and Results of Operations

Except for the historical information contained herein, we wish to caution you that certain matters discussed in this report constitute forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including, without limitation, those risks and uncertainties discussed under the heading "Risk Factors" contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2013. The information discussed in this report should be read in conjunction with our Annual Report on Form 10-K and other reports we file from time to time with the SEC. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise. Forward-looking statements include statements regarding our expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the SEC. These reports, any amendments to these reports, proxy and information statements and certain other documents we file with the SEC are available through the SEC's website at www.sec.gov or free of charge on our website as soon as reasonably practicable after we file the documents with the SEC. The public may also read and copy these reports and any other materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Executive Summary

Prior to February 1, 2013, the Company developed and marketed Intelligent Bandwidth Management solutions for fixed line and mobile network operators worldwide and provided services associated with such products (the "Intelligent Bandwidth Management Business"), and, prior to November 1, 2012, the Company also developed and marketed a mobile broadband optimization solution (the "IQstream Business"). As used in these Notes to the Consolidated Financial Statements, "Sycamore," "we," "us," or "our" refers collectively to the Company and its subsidiaries.

On October 23, 2012, the Company entered into the Asset Sale Agreement with Buyer with respect to the Asset Sale. The Company's stockholders authorized the Asset Sale at the Special Meeting and the Asset Sale was completed on January 31, 2013 (the transfer of the Company's equity interests in Sycamore Shanghai, which was subject to the receipt of government approval, occurred on March 25, 2013). Upon the closing of the Asset Sale, Buyer acquired substantially all of the Company's operating assets relating to the Intelligent Bandwidth Management Business, including the Company's accounts receivable, inventories and prepaid and other assets, and assumed most of the Company's remaining current liabilities, including substantially all of the Company's deferred revenue and accrued warranty obligations. On April 22, 2013, the Company commenced litigation against Buyer and certain of its affiliates with respect to certain amounts due under the Asset Sale Agreement (the "Delaware Litigation"). In connection with such litigation, on May 28, 2013, the Company and such parties reached an agreement pursuant to which (1) the Company agreed to dismiss the Delaware Litigation without prejudice, (2) Buyer paid certain undisputed amounts of $1.7 million owed to the Company and (3) the parties agreed to submit the remaining issues relating to amounts in dispute of $1,456,747 to arbitration for resolution by a neutral accountant. The matters in dispute have been resolved by the neutral accountant in favor of the Company in the amount of $1,107,736, which includes reimbursement for a portion of the fees and expenses paid to the neutral accountant. On March 5, 2014, the Company received the $1,107,736 payment. Now that all matters set forth in the Delaware Litigation have been finally resolved, it will be dismissed with prejudice. For additional information concerning this matter, see Note 5, "Commitments and Contingencies."

In conjunction with the approval of the Asset Sale Agreement, the Board also approved the Dissolution pursuant to the Plan of Dissolution following the completion of the Asset Sale. The Plan of Dissolution was also approved by


the Company's stockholders at the Special Meeting and, following a review of the Company's strategic alternatives for all of the Company's assets and available options for providing value to the Company's stockholders, the Company filed the Certificate of Dissolution with the Secretary of State of the State of Delaware on March 7, 2013. For additional information regarding the Dissolution, please see the Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on December 28, 2012 and its Current Report on Form 8-K filed with the SEC on March 8, 2013.

In connection with the filing of the Certificate of Dissolution, on March 7, 2013, the Company closed its stock transfer books and discontinued recording transfers of the Common Stock. The Common Stock, and stock certificates evidencing shares of the Common Stock, are no longer assignable or transferable on the Company's books, other than transfers by will, intestate succession or operation of law. The Company also submitted a request to NASDAQ to suspend trading of the Common Stock on The NASDAQ Global Select Market effective as of the close of trading on March 7, 2013 and, on March 15, 2013, the Company filed a Form 25 with the SEC to delist its Common Stock, which became effective prior to the opening of trading on March 25, 2013. Since the suspension of trading of the Common Stock on The NASDAQ Global Select Market, shares of our Common Stock held in street name with brokers have been trading in the over-the-counter market on the Pink Sheets, an electronic bulletin board established for unlisted securities.

As a result of the completion of the Asset Sale and the Company's previously announced halting of further development and marketing in connection with the IQstream Business, the Company no longer has any operating assets or revenue. Since the filing of the Certificate of Dissolution, the Company has been operating in accordance with the Plan of Dissolution, which contemplates an orderly wind down of the Company's business, including the disposition of the IQstream Business, the sale or monetization of the Company's other remaining non-cash assets and the satisfaction or settlement of its liabilities and obligations, including contingent liabilities and claims.

On December 20, 2013, the Board approved the termination of the employment of Alan R. Cormier as Sycamore's President, Chief Executive Officer and Secretary, effective as of that date. David Guerrera, Sycamore's former Associate Counsel, was appointed President and General Counsel of Sycamore, effective immediately following Mr. Cormier's departure as President, Chief Executive Officer and Secretary. Anthony Petrillo continues to serve as Sycamore's Chief Financial Officer. As of January 25, 2014, Mr. Guerrera and Mr. Petrillo are Sycamore's only remaining employees.

On January 31, 2014, the Company entered into the Patent Sale Agreement with Dragon, pursuant to which the Company agreed to sell the IBM Patents to Dragon for $2.0 million. The sale of the IBM Patents was completed on February 28, 2014. None of the IBM Patents are related to the IQstream Business, which has a separate portfolio of three United States patents and five United States patent applications.

The Company's remaining primary non-cash assets consist of our real estate holdings in Tyngsborough, Massachusetts, our intellectual property and other assets relating to the IQstream Business, our investments in private companies and certain other assets that were not sold to Buyer in the Asset Sale.

Following the filing of the Certificate of Dissolution, in light of the Board's views as to the prospects for the IQstream Business, the Board determined to terminate all of the remaining IQstream Employees. The Company continues to pursue available options with respect to the assets of the IQstream Business, including a possible sale of the IQstream Patent Portfolio, equipment and other assets of the IQstream Business. The Company also owns approximately 102 acres of undeveloped land located in Tyngsborough, Massachusetts, which it currently is actively marketing for sale. There can be no assurance as to the amount of consideration the Company may be able to obtain for these assets or as to any time frame within which a potential sale or other disposition of these assets might occur.

During the Dissolution period, the Company will continue to pursue the liquidation to cash of its remaining non-cash assets for possible distribution to our stockholders. Subject to uncertainties inherent in the winding up of the Company's business, we expect to make one or more additional liquidating distributions as promptly as practicable following the liquidation to cash of our non-cash assets and after payment of, or provision for, outstanding claims in accordance with Delaware law. However, the Dissolution process and the payment of any distribution to stockholders involve substantial risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to stockholders, and no assurance can be given that the distributions will equal or exceed our estimate of net assets presented in the Statement of Net Assets.


Net Assets in Liquidation and Changes in Net Assets for the three and six months ended January 25, 2014

Net assets in liquidation are $16.6 million. For the three and six months ended January 25, 2014, the Company adjusted its estimate of the net realizable value of assets and its estimated settlement amounts of liabilities. The result of these changes was a net increase to net assets of $3.0 million.

The net realizable value of assets increased by $2.0 million as a result of the entry into the Patent Sale Agreement with respect to the IBM Patents. None of the IBM Patents are related to the IQstream Patent Portfolio, which the Company continues to own. For purposes of the Statement of Net Assets, we determined that we cannot reasonably provide an estimate of the net realizable value of the IQstream Patent Portfolio and, accordingly, have assigned no value to the IQstream Patent Portfolio. In the event the Company is successful in its efforts to sell the IQstream Patent Portfolio, the Company will record the amount of the sale at the time thereof, which may result in a net increase to net assets.

Additionally, the net realizable value of assets increased by $1.1 million as a result of the determination by a neutral accountant that certain disputed amounts were for the account of the Company under the Asset Sale Agreement. For additional information concerning this matter, see Note 5, "Commitments and Contingencies."

The Company also increased its reserve for estimated costs during the Dissolution period by $0.2 million. This increase was primarily related to additional compensation and consulting costs expected to be incurred as a result of certain wind down activities taking longer to complete than originally anticipated. The increase to compensation costs was offset in part by a reduction in estimated professional fees and other expenses associated with wind down activities.

During the Dissolution period, the Company will continue to pursue the liquidation to cash of its remaining non-cash assets for possible distribution to our stockholders. Subject to uncertainties inherent in the winding up of the Company's business, we expect to make one or more additional liquidating distributions as promptly as practicable following the liquidation to cash of our non-cash assets and after payment of, or provision for, outstanding claims in accordance with Delaware law. However, the Dissolution process and the payment of any distribution to stockholders involve substantial risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount that will ultimately be distributed to stockholders, and no assurance can be given that the distributions will equal or exceed our estimate of net assets presented in the Statement of Net Assets.

Critical Accounting Policies and Estimates

Preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Management believes the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2013 describes the significant accounting estimates and policies used in the preparation of the financial statements. Actual results in these areas could differ from management's estimates. There have been no significant changes in the Company's critical accounting policies during the first six months of fiscal 2014.

Liquidity and Capital Resources

Total cash, cash equivalents and investments were $17.5 million as of January 25, 2014 compared to $21.0 million at July 31, 2013.

During the Dissolution period, the Company has been pursuing the liquidation of its remaining non-cash assets to cash for possible distribution to our stockholders. On January 31, 2014, the Company entered into the Patent Sale Agreement with Dragon, pursuant to which the Company agreed to sell the IBM Patents to Dragon for $2.0 million. The sale of the IBM Patents was completed on February 28, 2014.

Following the sale of the IBM Patents, the Company's primary non-cash assets consist of our real estate holdings in Tyngsborough, Massachusetts, our intellectual property and other assets relating to the IQstream Business, our investments in private companies and certain other assets that were not sold to Buyer in the Asset Sale. While we continue to pursue the sale or monetization of these assets in accordance with the Plan of Dissolution, we cannot provide any assurance that we will be able to successfully sell these assets.


Our primary source of liquidity comes from our cash and cash equivalents, which totaled $17.5 million as of January 25, 2014, the majority of which is held in the United States. Under Delaware law, the Dissolution period will last for a minimum of three years. We believe that our current cash and cash equivalents are sufficient to satisfy our anticipated cash requirements through the Dissolution period. However, the Dissolution process involves substantial risks and uncertainties. Accordingly, the actual amount of cash remaining for distribution to stockholders following completion of the Dissolution could vary significantly from current estimates and could even result in no excess cash available for distribution.

Commitments, Contractual Obligations and Off-Balance Sheet Arrangements

Following the closing of the Asset Sale, the Company has no remaining material operating leases or inventory or other purchase commitments.

In connection with the closing of the Asset Sale and as set forth in the Asset Sale Agreement, the Company agreed to indemnify Buyer and certain of its related parties for any damages arising out of any breach of any of our representations or warranties or failure to perform any of our covenants or agreements in the Asset Sale Agreement, our failure to fully or timely pay, satisfy or perform any retained liabilities or our failure to pay any taxes associated with the assets and subsidiaries being sold for periods prior to the closing date of the Asset Sale, including any capital gain or corporate income taxes resulting from the transfer of our China subsidiary. The Company's aggregate indemnification liability for breaches of representations or warranties was limited to $2,812,500. On January 31, 2014, all surviving representations and warranties under the Asset Sale Agreement expired without Buyer asserting any indemnification claims against the Company. Accordingly, the Company has not recorded, nor does it expect to record, any liability in connection with those obligations.

Item 3.

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