10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ______________________________________

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                 

Commission file number 1-31614

 ______________________________________

VITESSE SEMICONDUCTOR CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	77-0138960
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4721 Calle Carga

Camarillo, California 93012

(Address of principal executive offices)(zip code)

Registrant’s telephone number, including area code: (805) 388-3700

 ______________________________________

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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

As of August 1, 2014, there were outstanding 67,697,535 shares of the registrant’s Common Stock, $0.01 par value.

VITESSE SEMICONDUCTOR CORPORATION

UNAUDITED QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2014

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets as of June 30, 2014 and September 30, 2013	3
	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2014 and 2013	4
	Unaudited Consolidated Statements of Stockholders’ Equity for the Nine Months Ended June 30, 2014	5
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2014 and 2013	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 6.	Exhibits	30

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PART I. FINANCIAL INFORMATION

ITEM 1:  FINANCIAL STATEMENTS

VITESSE SEMICONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

	June 30, 2014			September 30, 2013
	(in thousands, except par value)
ASSETS
Current assets:
Cash	$	70,812		$	68,863
Accounts receivable	10,101			9,807
Inventory, net	11,237			10,692
Restricted cash	793			101
Prepaid expenses and other current assets	2,175			1,796
Total current assets	95,118			91,259
Property, plant and equipment, net	2,944			3,107
Other intangible assets, net	1,569			1,170
Other assets	3,548			3,425
	$	103,179		$	98,961
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,693		$	7,436
Accrued expenses and other current liabilities	12,060			12,245
Current portion of debt, net	32,375			—
Deferred revenue	3,030			2,215
Total current liabilities	55,158			21,896
Other long-term liabilities	470			407
Long-term debt, net	16,328			16,366
Convertible subordinated debt, net	—			44,384
Total liabilities	71,956			83,053
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value: 10,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.01 par value: 250,000 shares authorized; 67,342 and 57,545 shares outstanding at June 30, 2014 and September 30, 2013, respectively	673			575
Additional paid-in-capital	1,922,468			1,891,661
Accumulated deficit	(1,891,918		)	(1,876,328		)
Total stockholders’ equity	31,223			15,908
	$	103,179		$	98,961

See accompanying notes to unaudited consolidated financial statements.

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VITESSE SEMICONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
	(in thousands, except per share data)
Net revenues:
Product revenues	$	26,012		$	26,285		$	75,744		$	74,879
Intellectual property revenues	1,139			133			4,082			2,019
Net revenues	27,151			26,418			79,826			76,898
Costs and expenses:
Cost of product revenues	12,254			11,666			33,909			34,010
Engineering, research and development	10,006			11,706			31,581			31,987
Selling, general and administrative	7,330			7,257			23,189			22,617
Amortization of intangible assets	88			80			267			266
Costs and expenses	29,678			30,709			88,946			88,880
Loss from operations	(2,527		)	(4,291		)	(9,120		)	(11,982		)
Other expense (income):
Interest expense, net	1,510			1,983			4,706			5,919
Gain on compound embedded derivative	—			—			—			(803		)
Loss on extinguishment of debt	—			—			1,594			—
Other expense, net	18			31			111			5
Other expense, net	1,528			2,014			6,411			5,121
Loss before income tax expense (benefit)	(4,055		)	(6,305		)	(15,531		)	(17,103		)
Income tax expense (benefit)	333			129			59			(790		)
Net loss	$	(4,388	)	$	(6,434	)	$	(15,590	)	$	(16,313	)
Net loss per common share - basic and diluted	$	(0.07	)	$	(0.17	)	$	(0.27	)	$	(0.47	)
Weighted average common shares outstanding - basic and diluted	59,965			38,630			58,631			34,601

See accompanying notes to unaudited consolidated financial statements.

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VITESSE SEMICONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock					Additional Paid-in-Capital			Accumulated Deficit			Total Stockholders' Equity
(in thousands)	Shares		Amount
Balance at September 30, 2013	57,545		$	575		$	1,891,661		$	(1,876,328	)	$	15,908
Net loss	—		—			—			(15,590		)	(15,590		)
Compensation expense related to stock options, awards and Employee Stock Purchase Plan	—		—			4,466			—			4,466
Issuance of common stock upon exercise of stock options	49		—			114			—			114
Issuance of shares under Employee Stock Purchase Plan	366		4			905			—			909
Issuance of common stock, net of offering costs	8,582		86			26,519			—			26,605
Release of restricted stock units	1,179		12			(12		)	—			—
Repurchase and retirement of restricted stock units for payroll taxes	(379	)	(4		)	(1,247		)	—			(1,251		)
Other	—		—			62			—			62
Balance at June 30, 2014	67,342		$	673		$	1,922,468		$	(1,891,918	)	$	31,223

See accompanying notes to unaudited consolidated financial statements.

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VITESSE SEMICONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended June 30,
	2014			2013
	(in thousands)
Cash flows used in operating activities:
Net loss	$	(15,590	)	$	(16,313	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,541			1,877
Stock-based compensation	4,466			3,305
Change in fair value of compound embedded derivative liability	—			(803		)
Gain on disposal of assets	(137		)	(153		)
Loss on extinguishment of debt, net	1,594			—
Amortization of debt issuance costs	143			203
Amortization of debt discounts	1,365			1,890
Accretion of debt premiums	(15		)	(126		)
Change in operating assets and liabilities:
Accounts receivable	(294		)	(1,001		)
Inventory	(545		)	179
Prepaids and other assets	(724		)	(841		)
Accounts payable	57			2,639
Accrued expenses and other liabilities	(278		)	553
Deferred revenue	815			1,888
Net cash used in operating activities	(7,602		)	(6,703		)
Cash flows used in investing activities:
Capital expenditures	(1,157		)	(575		)
Proceeds from sale of fixed assets	183			156
Payments under licensing agreements	(510		)	(342		)
Net cash used in investing activities	(1,484		)	(761		)
Cash flows provided by financing activities:
Proceeds from the exercise of stock options and issuances of shares under ESPP	1,023			866
Net proceeds from the sale of common stock	26,805			54,668
Repurchase of 2014 Debentures	(14,606		)	—
Consent fee on amendment of credit agreement	(308		)	—
Cash restricted under credit agreement	(687		)	—
Repurchase and retirement of restricted stock units for payroll taxes	(1,251		)	(620		)
Other	59			(6		)
Net cash provided by financing activities	11,035			54,908
Net increase in cash	1,949			47,444
Cash at beginning of period	68,863			23,891
Cash at end of period	$	70,812		$	71,335
Supplemental cash flow information:
Cash paid (refunded) during the period for:
Interest	$	4,471		$	4,917
Income taxes	180			(1,094		)
Non-cash investing and financing activities:
Equity offering costs incurred but not paid	$	200		$	207
Licensing agreement obligation incurred but not paid	156			—
Reclassification of compound embedded derivative liability to additional paid-in-capital	—			2,096

See accompanying notes to unaudited consolidated financial statements.

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VITESSE SEMICONDUCTOR CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2014 AND 2013

NOTE 1-THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Vitesse Semiconductor Corporation (“Vitesse,” the “Company,” “us,” or “we”) is a leading supplier of high-performance integrated circuits (“ICs”) that are used primarily by manufacturers of networking systems for Carrier, Enterprise and Internet of Things (“IoT”) networking applications. Vitesse designs, develops and markets a diverse portfolio of high-performance, low-power and cost-competitive semiconductor products for these applications.

Vitesse was incorporated in the state of Delaware in 1987. Our headquarters are located at 4721 Calle Carga, Camarillo, California, and our phone number is (805) 388-3700. Our stock trades on the NASDAQ Global Market under the ticker symbol VTSS.

Fiscal Year

Our fiscal year is October 1 through September 30.

Basis of Presentation

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. The September 30, 2013 balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required for annual periods. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended September 30, 2013, included in our Annual Report on Form 10-K filed with the SEC on December 5, 2013.

The consolidated financial statements included herein are unaudited. However, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly our consolidated financial position, the consolidated results of our operations and the consolidated cash flows and the changes in our stockholders’ equity. The results of operations for the three and nine months ended June 30, 2014 are not necessarily indicative of the results to be expected for future quarters or the full year.

Reclassifications

Certain reclassifications have been made to prior fiscal year amounts and related footnotes to conform to current fiscal year presentation with no changes to stockholders’ equity amounts or net loss for the three and nine months ended June 30, 2013.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the unaudited consolidated financial statements. Management regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, warranty reserves, inventory valuation reserves, stock-based compensation, compound embedded derivative valuation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances. These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results we experience may differ materially and adversely from our original estimates. To the extent there are material differences between the estimates and the actual results, our future results of operations will be affected.

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Risks and Uncertainties

Our future results of operations involve a number of risks and uncertainties. Factors that could affect our business or future results and cause actual results to vary materially from historical results include, but are not limited to, the highly cyclical nature of the semiconductor industry; our high fixed costs; declines in average selling prices; decisions by our IC manufacturer customers to curtail outsourcing; our substantial indebtedness; our ability to fund liquidity needs; our failure to maintain an effective system of internal controls; product return and liability risks; the absence of significant backlog in our business; our dependence on international operations and sales; proposed changes to United States tax laws; that our management information systems may prove inadequate; our ability to attract and retain qualified employees; difficulties consolidating and evolving our operational capabilities; our dependence on materials and equipment suppliers; our loss of customers; adverse tax consequences; the development of new proprietary technology and the enforcement of intellectual property rights by or against us; the complexity of packaging and test processes in our industry; competition; our need to comply with existing and future environmental regulations; and fire, flood or other calamity affecting us or others with whom we do business.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a NetOperating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a netoperating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. This amendment is effective for public entities for fiscal years beginning after December 15, 2013, and interim periods within those years. We do not expect the adoption of this standard to have a material impact on our unaudited consolidated financial position and results of operations.

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NOTE 2-COMPUTATION OF NET LOSS PER SHARE

For the three and nine months ended June 30, 2014 and 2013, we recorded a net loss. As such, all outstanding potential common shares were excluded from the diluted earnings per share computation.

The following potentially dilutive common shares are excluded from the computation of net loss per share.

	June 30,
	2014	2013
	(in thousands)
Outstanding stock options	2,964	2,110
Outstanding restricted stock units	2,377	2,031
Employee Stock Purchase Plan shares	355	518
Convertible preferred stock	—	674
2014 Debentures	7,298	10,332
Term B Loan	1,887	1,887
Total potential common shares excluded from calculation	14,881	17,552

NOTE 3-INVENTORY, NET

	June 30, 2014		September 30, 2013
	(in thousands)
Raw materials	$	1,110	$	1,220
Work-in-process	5,296		3,652
Finished goods	4,831		5,820
Total inventory, net	$	11,237	$	10,692

NOTE 4-DEBT

	June 30, 2014		September 30, 2013
	(in thousands)
Term A Loan, bearing interest at 9.0% and 10.5% as of June 30, 2014 and September 30, 2013, respectively, due August 2016	$	7,783	$	7,919
Term B Loan, convertible, bearing interest at 9.0% and 8.0% as of June 30, 2014 and September 30, 2013, respectively, due August 2016	8,545		8,444
Other	—		3
Long-term debt, net	16,328		16,366
2014 Debentures, convertible, 8.0% fixed-rate notes, due October 2014	32,375		44,384
Total debt, net	$	48,703	$	60,750

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Additional information about our debt is as follows:

	Term A Loan			Term B Loan			2014 Debentures
	(in thousands)
Principal	$	7,857		$	9,342		$	32,843
Unamortized debt discount	(74		)	(797		)	(468		)
Carrying value	$	7,783		$	8,545		$	32,375
Interest payable terms	Quarterly, in arrears			Quarterly, in arrears			Semi-annually, in arrears
Annual effective interest rate	9.5		%	13.5		%	12.2		%
Conversion rate per common share	n/a			$	4.95		$	4.50

Our current debt is comprised of our convertible subordinated debentures (“2014 Debentures”). Our long-term debt is comprised of our senior term loans (the “Term A Loan” and “Term B Loan”, which we collectively refer to as our “Term A and B Loans”).

The credit agreements for the Term A and B Loans and 2014 Debentures provide that we must repurchase, at the option of the holders, indebtedness at its principal amounts plus accrued and unpaid interest upon the occurrence of a fundamental change involving us, as described in the agreements. Upon the occurrence of a fundamental change involving us, the holders of the 2014 Debentures and the Term B Loan may be entitled to receive a “make-whole premium” if they convert their 2014 Debentures or Term B Loan into common stock, payable in additional shares of common stock, if the trading price of our common stock is between $3.20 and $6.00 per share. During the three months ended June 30, 2014, cash of $0.7 million was restricted for payment of the 2014 Debentures following the sale of assets under the terms of the credit agreement.

On November 5, 2013, we amended the credit agreement for the Term A and B Loans (the “Amendment”). The Amendment extends the maturity dates of our outstanding Term A Loan and Term B Loan from February 4, 2014 and October 30, 2014, respectively, to August 31, 2016, and also provides that the Term A and B Loans will each bear interest in cash at 9.0% per annum payable quarterly in arrears. The Amendment provides us with a right to optionally prepay the Term A and B Loans in whole or in part, at any time and from time-to-time, subject to the payment of a prepayment fee. The prepayment fee is 5% of the aggregate principal amount repaid for prepayments made prior to October 30, 2014, 3% for prepayments made on or after October 30, 2014 but prior to October 30, 2015, and 2% for prepayments made on or after October 30, 2015. The credit agreement for the Term A and B Loans continues to require that we prepay the Term A and B Loans upon the occurrence of certain prepayment events, but the Amendment provides us with greater flexibility to sell assets and use the resulting proceeds for purposes other than repaying the Term A and B Loans after repayment of our 2014 Debentures.

The Amendment provides us with the right, so long as no event of default exists under the credit agreement for the Term A and B Loans, to purchase, repay, redeem, or defease any or all of the 2014 Debentures. In addition, the Amendment requires us to maintain an unrestricted cash balance of $8.0 million and achieve minimum quarterly revenues of $10.0 million. We were in compliance with all covenants as of June 30, 2014.

The credit agreement for the Term A and B Loans continues to provide the lenders with the right to convert the Term B Loan into shares of our common stock at a conversion price of $4.95 per share through October 30, 2014. After that date, the lenders will not have the right to convert the Term B Loan into common stock.

In connection with the Amendment, we paid the lenders a consent fee of $0.3 million which was recorded as a debt discount and will be amortized over the remaining term of the Term A and B Loans. Additionally, in connection with the Amendment we repurchased $13.7 million principal amount of our 2014 Debentures at 107% of the principal amount thereof plus accrued interest, which eliminated the potential issuance of approximately 3.0 million dilutive common shares. We recorded a loss on extinguishment of debt in the amount of $1.6 million related to the repurchase of the 2014 Debentures. After this transaction, $32.8 million principal amount of 2014 Debentures remain outstanding and are due on October 30, 2014.

Debt Maturities

Maturity of our total aggregated outstanding debt is as follows:

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Fiscal Year	(in thousands)
2014	$	—
2015	32,843
2016	17,199
Total	$	50,042

Except for required repurchases upon a change in control or in the event of certain asset sales, as described in the applicable credit agreements, we are not required to make any sinking fund or redemption payments with respect to this debt.

NOTE 5-FAIR VALUE MEASUREMENTS

We measure the fair value of our Term A and B Loans and 2014 Debentures, which are carried at amortized cost, on a quarterly basis for disclosure purposes. We use a binomial-lattice model to estimate fair values of these financial instruments. The estimated fair value of our Term A Loan is determined using Level 3 inputs based primarily on the comparability of its terms to the terms we could obtain, for similar instruments, in the current market. The key unobservable input utilized in the model for our Term B Loan and 2014 Debentures includes a discount rate of 4.1% and 3.3%, respectively.

The estimated fair values of our financial instruments are as follows:

	June 30, 2014				September 30, 2013
	Carrying value		Fair value		Carrying value		Fair value
	(in thousands)
Term A Loan	$	7,783	$	8,840	$	7,919	$	8,165
Term B Loan	8,545		10,360		8,444		9,781
2014 Debentures	32,375		34,615		44,384		49,282

NOTE 6-STOCKHOLDERS’ EQUITY

Authorized Capital Stock

We are authorized to issue up to 250 million shares of common stock, par value $0.01, per share, of which 9.2 million shares are reserved for future potential issuance upon conversion of debt, 8.4 million shares of common stock have been reserved for issuance under our stock compensation plans, and 3.4 million shares of common stock are reserved for issuance under

our Employee Stock Purchase Plan (“ESPP”).

In June 2014, we raised $26.6 million, net of offering expenses of $2.1 million, from the registered public sale of 8,582,076 shares of common stock at $3.35 per share.

NOTE 7-STOCK BASED COMPENSATION

Stock Options

We have in effect one stock incentive plan, the 2013 Incentive Plan (the “Plan”), under which non-qualified stock options and restricted stock units have been granted to employees and non-employee directors. Under the Plan, we have 1.8 million shares available for future grant as of June 30, 2014.

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Compensation cost related to our Plan and ESPP is as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
Cost of revenues	$	210	$	161	$	619	$	459
Engineering, research and development	573		428		1,643		1,193
Selling, general and administrative	803		567		2,204		1,653
Total stock-based compensation expense	$	1,586	$	1,156	$	4,466	$	3,305

As of June 30, 2014, there was $7.2 million of unrecognized stock-based compensation expense related to non-vested stock options, restricted stock units and our ESPP. The weighted average period over which the unearned stock-based compensation for stock options and restricted stock units expected to be recognized is approximately 1.4 years and 1.9 years, respectively. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional equity awards and our stock price increases.

Activity in stock option awards is as follows:

	Shares   (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life  (years)	Aggregate Intrinsic Value (in thousands)
Options outstanding, September 30, 2013	2,089		$	13.43	6.67	$	591
Granted	1,014		2.53
Exercised	(49	)	2.35
Cancelled or expired	(90	)	86.22
Options outstanding, June 30, 2014	2,964		7.64		7.23	1,792
Options exercisable, June 30, 2014	1,649		$	11.67	5.85	$	578

This intrinsic value represents the excess of the fair market value of our common stock on the date of exercise over the exercise price of such options. The aggregate intrinsic values in the preceding table for the options outstanding represent the total pretax intrinsic value, based on our closing stock price of $3.45 as of June 30, 2014, which would have been received by the option holders had those option holders exercised their in-the-money options as of those dates. There were 0.6 million in-the-money stock options that were exercisable as of June 30, 2014.

The per share fair values of time-based stock options granted in connection with stock incentive plans have been estimated using the following weighted average assumptions:

	Nine Months Ended June 30,
	2014	2013
Expected life (in years)	5.79	5.65
Expected volatility:
Weighted-average	81.5%	82.0%
Range	79.5% - 81.6%	79.8% - 82.1%
Expected dividend	—	—
Risk-free interest rate	1.7% - 1.9%	.9% - 1.0%

The weighted average fair value at the date of grant of time-based options granted in the nine months ended June 30, 2014 and 2013 was $1.75 and $1.43, respectively.

On December 10, 2013, we granted 500,000 market-based stock options at an exercise price of $2.53 to executive officers. The market-based options vest if either of the following conditions is met prior to December 10, 2018: (i) the closing price of our common stock equals or exceeds twice the exercise price of $2.53 for 30 consecutive trading days; or (ii) a change in control occurs where the Company’s stockholders receive in consideration of their shares of common stock cash or other consideration with a value at least equal to twice the exercise price of $2.53. We evaluate stock awards with market conditions as to the probability that the market conditions will be met and estimate the date at which the market conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period. We used the following assumptions to

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estimate the fair value of the options: expected life of 1.3 years, expected volatility of 80.0%, a zero dividend rate, and a risk-free rate of 2.79%. The market-based options had a grant date per share fair value of $1.86.

The following table provides additional information in regards to options outstanding as of June 30, 2014:

	Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding (in thousands)	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable (in thousands)	Weighted Average Exercise Price
$2.10 - $2.26	424	8.68	$	2.11	194	$	2.10
2.53	987	9.45	2.53		116	2.53
2.54 - 4.36	750	7.03	3.45		542	3.50
4.60 - 41.20	594	5.08	7.89		588	7.91
42.00 - 145.40	209	0.67	57.39		209	57.39
$2.10 - $145.40	2,964	7.23	$	7.64	1,649	$	11.67

Restricted Stock Units

Activity for our restricted stock award units is as follows:

	Restricted Stock Units (in thousands)		Weighted Average Grant-Date Fair Value per Share		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Restricted stock units, September 30, 2013	2,021		$	2.65	1.13	$	6,143
Awarded	1,600		2.62
Released	(1,179	)	2.69
Forfeited	(65	)	2.42
Restricted stock units, June 30, 2014	2,377		$	2.62	1.21	$	8,200

We issue restricted stock units as part of our equity incentive plans. For the majority of restricted stock units granted, the number of shares issued on the date the restricted stock units vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. The impact of such withholding totaled $1.3 million and $0.6 million for the nine months ended June 30, 2014 and 2013, respectively, and was recorded as settlement on restricted stock tax withholding in the accompanying unaudited consolidated statements of stockholders’ equity. Although shares withheld are not issued, they are treated as common stock repurchases in our unaudited consolidated financial statements, as they reduce the number of shares that would have been issued upon vesting.

Employee Stock Purchase Plan

Pursuant to our ESPP, eligible employees may authorize payroll deductions of up to 15% of their regular base salary subject to certain limits to purchase shares at the lower of 85% of the fair market value of the common stock on the date of the commencement of the offering or on the last day of the 6-month offering period. On January 31, 2014, 0.4 million shares were issued at a price per share of $2.46, a 15% discount to the share price on August 1, 2013, the commencement date for the purchase period that ended January 31, 2014. On July 31, 2014, 0.4 million shares were issued at a price per share of $2.55, a 15% discount to the share price on July 31 2014, the last date of the purchase period. We recognized $0.5 million and $0.4 million of stock compensation expense under the ESPP during the nine months ended June 30, 2014 and 2013, respectively. We determine the fair value of the ESPP awards using the Black-Scholes pricing model. Underlying assumptions used were as follows:

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	Nine Months Ended June 30,
	2014	2013
Expected life (in years)	0.5	0.5
Expected volatility	37.1% - 50.3%	47.6% - 49.8%
Expected dividend	—	—
Risk-free interest rate	0.07% - 0.08%	0.11% - 0.14%

NOTE 8-INCOME TAXES

The income tax expense (benefit) as a percentage of loss before income taxes was 0.4% for the nine months ended June 30, 2014 compared to (4.6)% for the comparable period in the prior year. Our income tax expense (benefit) is primarily impacted by foreign taxes, certain nondeductible interest and share based expenses. The income tax expense (benefit) is also impacted by the release of a portion of the valuation allowance related to certain foreign jurisdictions’ deferred tax assets as such balances were more likely than not realizable within the applicable carryforward period based on our analysis of the available positive and negative evidence.

At June 30, 2014, we had approximately $43.4 million, $33.0 million, and $133.2 million of federal, state, and foreign Net Operating Losses (“NOLs”), respectively, that can be used in future tax years. In December 2012, we issued 10.7 million shares of common stock in a public offering which resulted in a Section 382 ownership change. In general, a Section 382 ownership change occurs if there is a cumulative change in our ownership by “5%” shareholders (as defined in the Internal Revenue Code of 1986, as amended) that exceeds 50 percentage points over a rolling three-year period. An ownership change generally affects the rate at which NOLs and potentially other deferred tax assets are permitted to offset future taxable income. Of our federal NOL amount as of June 30, 2014, $28.1 million is subject to an annual Section 382 limitation of $1.4 million due to the December 2012 ownership change. Since we maintain a full valuation allowance on all of our U.S. and state deferred tax assets, the impact of the ownership change on the future realizability of our U.S. and state deferred tax assets did not result in an impact to our provision for income taxes for the nine months endedJune 30, 2014, or on our net deferred tax asset as of June 30, 2014.

If an additional ownership change occurs in the future, our ability to utilize our NOL carryforwards and other deferred tax assets to offset future taxable income may be further limited and the value and recoverability of our NOLs and other deferred tax assets could be further diminished.

NOTE 9-SIGNIFICANT CUSTOMERS, CONCENTRATION OF CREDIT RISK AND GEOGRAPHIC INFORMATION

We manage and operate our business through one operating segment.

Net revenues from customers that were equal to or greater than 10% of total net revenues are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
Tellabs	*		10.3	%	*		*
WPG Holdings**	26.6	%	19.2	%	24.5	%	16.4	%

 __________________________________________________

*Less than 10% of total net revenues for period indicated.

**Distributor

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and accounts receivable. Cash consists of demand deposits maintained with several financial institutions, which often exceed Federal Deposit Insurance Corporation limits of $250,000. We have never experienced any losses related to these balances; however, our balances are significantly in excess of insured limits.

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At June 30, 2014, there was one customer that accounted for 16.8% of accounts receivable. At September 30, 2013, there were two customers that accounted for 23.8% of accounts receivable. We believe that this concentration and the concentration of credit risk resulting from trade receivables owing from high-technology industry customers is substantially mitigated by our credit evaluation process, relatively short collection periods and maintaining an allowance for anticipated losses. We generally do not require collateral security for outstanding amounts.

Net revenues by geographic area are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
United States	$	5,936	$	5,590	$	17,356	$	23,693
Asia Pacific	17,606		16,856		52,272		42,957
Europe, Middle East and Africa	3,609		3,972		10,198		10,248
Total net revenues	$	27,151	$	26,418	$	79,826	$	76,898

Revenues by geographic area are based upon the country of billing. The geographic location of distributors and third-party manufacturing service providers may be different from the geographic location of the ultimate end users.

We believe a substantial portion of the products billed to original equipment manufacturers (“OEMs”) and third-party manufacturing service providers in the Asia Pacific region are ultimately shipped to end-markets in the United States and Europe.

We also classify our product revenues based on our three product lines: (i) Connectivity; (ii) Ethernet switching; and (iii) Transport processing. Product revenues by product line are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
Connectivity	$	10,132	$	12,199	$	29,556	32,172
Ethernet switching	14,001		9,541		36,955		28,178
Transport processing	1,879		4,545		9,233		14,529
Product revenues	$	26,012	$	26,285	$	75,744	$	74,879

NOTE 10-COMMITMENTS AND CONTINGENCIES

Operating Leases and Software Licenses

We lease facilities under non-cancellable operating leases. The leases expire at various dates through fiscal year 2017 and frequently include renewal provisions for varying periods of time, provisions which require us to pay taxes, insurance, maintenance costs, or provisions for minimum rent increases. Minimum leases payments, including scheduled rent increases are recognized as rent expenses on a straight line basis over the applicable lease term. Lease incentives received are recognized as a reduction of rental expense on a straight-line basis over the term of the lease.

Software license commitments represent non-cancellable licenses of intellectual property from third‑parties used in the development of our products.

Future minimum lease payments under non-cancellable operating leases that have remaining non-cancellable lease terms in excess of one year and software licenses are as follows:

	Remaining in 2014		2015		2016		2017		2018		Thereafter		Total
	(in thousands)
Operating leases	$	559	$	1,952	$	591	$	110	$	—	$	—	$	3,212
Software licenses	1,684		7,136		3,147		2,900		2,800		—		17,667
Total	$	2,243	$	9,088	$	3,738	$	3,010	$	2,800	$	—	$	20,879

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Litigation

From time-to-time, we are involved in legal proceedings in the ordinary course of business, including actions against us which assert or may assert claims or seek to impose fines and penalties in substantial amounts. Although the ultimate outcome of these matters cannot be determined, we believe that as of June 30, 2014, the final disposition of any such proceedings will not have a material adverse effect on our financial position, results of operations, or liquidity. Related legal defense costs are expensed

as incurred.

Guarantees and Indemnities

During our normal course of business, we make certain contractual guarantees and indemnities pursuant to which we may be required to make future payments under specific circumstances. We review our exposure under these agreements no less than annually, or more frequently when events indicate. Except for our established warranty reserves, we do not expect that any potential payments in connection with any of these indemnity obligations would have a material adverse effect on our consolidated financial position. Accordingly, except for established warranty reserves, we have not recorded any liabilities for these agreements as of June 30, 2014 and September 30, 2013.

Warranties

We establish reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with our customers. We generally warrant our products against defects for one year from date of shipment, with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. Our warranty reserves are established at the time of sale and updated throughout the warranty period based upon numerous factors including historical warranty return rates and expenses over various warranty periods. Historically, our warranty returns have not been material.

Intellectual Property Indemnities

We indemnify certain customers and our contract manufacturers against liability arising from third-party claims of intellectual property rights infringement related to our products. These indemnities appear in development and supply agreements with our customers as well as manufacturing service agreements with our contract manufacturers, are not limited in amount or duration and generally survive the expiration of the contract. Given that the amount of any potential liabilities related to such indemnities cannot be determined until an infringement claim has been made, we are unable to determine the maximum amount of losses that we could incur related to such indemnifications.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement

You should read the following discussion and analysis in conjunction with our Unaudited Consolidated Financial Statements and the related Notes thereto contained in Part I, Item 1 of this Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Report, as well as in our Annual Report on Form 10-K for the year ended September 30, 2013 (“Annual Report”) and in our other filings with the SEC, which discuss our business in greater detail.

This Quarterly Report contains forward-looking statements that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statements that do not directly relate to historical or current fact. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “should,” “estimates,” “predicts,” “potential,” “continue,” “becoming,” “transitioning,” and similar expressions to identify such forward-looking statements. Our forward-looking statements include statements as to our business outlook, revenues, margins, expenses, tax provision, capital resources sufficiency, capital expenditures, interest income, cash commitments, and expenses. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those referenced in the subsection entitled “Risk Factors” in Part II, Item 1A of this Report and Part I, Item 1A of our Annual Report, and similar discussions in our other SEC filings. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Overview

We are a leading supplier of high-performance ICs that are used primarily by manufacturers of networking systems for Carrier, Enterprise and IoT networking applications. We design, develop and market a diverse portfolio of high-performance, low-power and cost-competitive networking and connectivity IC solutions. For more than 30 years, we have been a leader in the adoption of new technologies in Carrier and Enterprise networking.

Both bandwidth demands and complexity, driven by the introduction of new content-rich services, the convergence of voice, video and data, and enhanced 4G/LTE mobile networks, have risen dramatically in Carrier and Enterprise networks. Media-rich devices, such as smartphones and game consoles, require increased bandwidth. New Enterprise deployment options, such as Cloud-based services and social media and telepresence, also spur demand. More recently, there is a trend for increased Ethernet deployment within networks used in Industrial and Military networking, automotive transport, and future Smart Grid applications, collectively referred to as the Internet of Things, or IoT.

As a result, Carrier, Enterprise, and increasingly, IoT networks are transitioning to all-IP and packet-based Ethernet networks that can scale in terms of services, bandwidth and capability, while lowering power consumption and acquisition and operations costs. These networks are based on technology that is significantly more sophisticated, service-aware, secure and reliable than traditional Enterprise-grade Ethernet LAN technology. Such networks are built on new technology that is often referred to as “Carrier Ethernet” in Carrier networks and “Converged Enhanced Ethernet” in Enterprise networks.

Realization of Our Transition Strategy

Several years ago, we embarked on the strategic mission of re-inventing Vitesse to take advantage of the dramatic ongoing transformation of our target networking markets. Our objective is to be a leading supplier of high-performance ICs for the global communications infrastructure markets. In an effort to diversify ourselves and provide new opportunities for growth, we re-positioned our engineering, research and development (“R&D”) teams and invested heavily to enter new markets, develop new products, and penetrate new customers. Over the last three years we have seen consistent growth in this new product portfolio, which reached 28% and 45% of our total product revenues for fiscal year 2013 and the nine months endedJune 30, 2014, respectively.

To continue to grow our new product revenue, we must win market share in high-growth communications market segments. In 2013, we expanded our market focus to include elements of the IoT market, which provides substantial new growth opportunities for Vitesse.

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We believe we have effectively and efficiently targeted these high-growth infrastructure markets with substantial R&D investments over the last five years. To optimize our R&D efficiency, we chose to serve large, growing, independent markets which rely increasingly on Ethernet technology: Carrier and Enterprise networks. As we are now four years into the deployment of these new products, we can see that our target markets and products were well chosen. Increasingly, we also now see opportunities for our products and technology within the IoT, where Gigabit Ethernet-based networks are emerging. There is tremendous synergy and cost savings in terms of R&D effort to provide Ethernet switch and PHY products into this emerging adjacent market.

In bringing our new products to market, our customer engagements and number of design opportunities identified by our sales team have consistently increased since 2010. In 2013, design wins for our new products increased by approximately 40% from 2012. We continue to see strong trends in both design wins and design opportunities. Our new products have captured design wins at over 200 customers, including market leaders such as Alcatel-Lucent, Cisco, Ericsson, Hewlett Packard, Huawei, Juniper, Samsung, and ZTE. While many of these wins represented additional business at our most important customers, what we call “same-store-sales,” many others are wins at new customers, and reflect our growing market share.

Because our products are highly complex, it takes our customers 12 to 36 months to go from sample availability to first customer shipment as customers do the necessary development work to complete and qualify their systems in the network. Since it typically takes an additional 12 to 24 months to ramp into full production, we believe design wins represent a good leading indicator of potential future revenues. We model how our customers will ramp from design win to production based on a number of factors, including customer forecast, market segment, type of product, and historical results.

In 2013, we introduced the third-generation of both our switch engine and PHY products. These new products allowed us to significantly increase our served markets in Carrier, Enterprise and IoT networking. We have become the clear choice for meeting our customers’ needs for service delivery, synchronization, security, and software.

We augment our product revenues by leveraging our substantial intellectual property portfolio to generate revenues. Our primary focus for intellectual property licensing has been our Gigabit Ethernet CuPHY and switch cores and our eFEC technology. We license to non-competing third-parties in adjacent or similar markets.

Our accounting policy generally uses the “sell-through” model for sales to our distributors. The “sell-through” model recognizes revenue only upon shipment of the merchandise from our distributor to the final customer. As such, we may have variability in our revenue from quarter-to-quarter as customers have substantial flexibility to reschedule backlog with our distribution partners as part of the terms and conditions of sale. Our distributor sales were 52.7% , 51.6% and 44.6% of product revenue in fiscal years 2013, 2012 and 2011, respectively, and 57.5% of product revenue for the nine months ended June 30, 2014.

In the normal course of business, we regularly assess our product portfolio to ensure it aligns with our strategy. At such time, we may determine to phase-out products and put them through “end-of-life”, or EOL. When we EOL a product, we typically provide up to six months notice for our customers to make a last-time-buy of product and six additional months to take receipt of that product. The EOL announcement can result in near-term increases in our revenues as customers typically respond to these announcements by making last-time-buys to ensure that they have adequate stock on hand to support their production forecast.

During the last three years, we accelerated our efforts to increase our product gross margins and operating margins, which together have substantially increased our operating leverage. Our efforts in operations include reductions in materials costs and cycle times, improved product yields, implementation of programs such as lean manufacturing, and an enhanced customer-centric focus. As a fabless semiconductor company, we outsource the majority of our manufacturing. Our successful management of our supply chain has provided us with competitive materials pricing and effective lead times for the materials we purchase. We have sizable advantages due to lower manufacturing fixed costs, reduced cycle times, and lower inventory resulting from our outsourcing of almost all of our wafer fabrication and assembly. During periods of strong demand, we could experience longer lead times, difficulties in obtaining capacity, and/or difficulty in meeting commitments for our required deliveries during periods of strong demand. Average margins vary widely within the markets we serve, with the Carrier networking market having the highest average margins and the Enterprise networking market having the lowest average margins. We endeavor to increase margins by providing products that have significant added value relative to our competition.

We have also streamlined our R&D and selling, general and administrative (“SG&A”) organizations, reducing expenses almost 25% over the past three fiscal years. We leverage top-level consultants to help us achieve short-term design goals while ensuring we maintain our in-house engineering talent to drive our overall corporate objectives.

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We base our estimates on historical experience and on various other assumptions that we believe are reasonable in the circumstances. We regularly discuss with our audit committee the basis of our estimates. These estimates could change under different assumptions or conditions.

We believe that our critical accounting policies and estimates, as described in our Annual Report on Form 10-K for the year ended September 30, 2013, are our most critical accounting policies and are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments. There have been no significant changes to these policies during the nine months endedJune 30, 2014.

Impact of Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements see “The Company and Its Significant Accounting Policies” footnote in the accompanying notes to the unaudited consolidated financial statements.

Results of Operations for the three and nine months ended June 30, 2014, as compared to the three and nine months ended June 30, 2013

The following table sets forth certain Unaudited Consolidated Statements of Operations data for the periods indicated.

The percentages in the table are based on net revenues.

	Three Months Ended June 30,										Nine Months Ended June 30,
	2014					2013					2014					2013
	$			%		$			%		$			%		$			%
	(in thousands, except for percentages)
Net revenues:
Product revenues	$	26,012		95.8	%	$	26,285		99.5	%	$	75,744		94.9	%	$	74,879		97.4	%
Intellectual property revenues	1,139			4.2	%	133			0.5	%	4,082			5.1	%	2,019			2.6	%
Net revenues	27,151			100.0	%	26,418			100.0	%	79,826			100.0	%	76,898			100.0	%
Costs and expenses:
Cost of product revenues	12,254			45.1	%	11,666			44.2	%	33,909			42.5	%	34,010			44.2	%
Engineering, research and development	10,006			36.9	%	11,706			44.3	%	31,581			39.6	%	31,987			41.6	%
Selling, general and administrative	7,330			27.0	%	7,257			27.5	%	23,189			29.0	%	22,617			29.4	%
Amortization of intangible assets	88			0.3	%	80			0.3	%	267			0.3	%	266			0.3	%
Costs and expenses	29,678			109.3	%	30,709			116.3	%	88,946			111.4	%	88,880			115.5	%
Loss from operations	(2,527		)	(9.3	)%	(4,291		)	(16.3	)%	(9,120		)	(11.4	)%	(11,982		)	(15.5	)%
Other expense (income):
Interest expense, net	1,510			5.6	%	1,983			7.5	%	4,706			5.9	%	5,919			7.7	%
Gain on compound embedded derivative	—			—	%	—			—	%	—			—	%	(803		)	(1.0	)%
Loss on extinguishment of debt	—			—	%	—			—	%	1,594			2.0	%	—			—	%
Other expense, net	18			0.1	%	31			0.1	%	111			0.1	%	5			—	%
Other expense, net	1,528			5.7	%	2,014			7.6	%	6,411			8.0	%	5,121			6.7	%
Loss before income tax expense (benefit)	(4,055		)	(15.0	)%	(6,305		)	(23.9	)%	(15,531		)	(19.4	)%	(17,103		)	(22.2	)%
Income tax expense (benefit)	333			1.2	%	129			0.5	%	59			0.1	%	(790		)	(1.0	)%
Net loss	$	(4,388	)	(16.2	)%	$	(6,434	)	(24.4	)%	$	(15,590	)	(19.5	)%	$	(16,313	)	(21.2	)%

Product Revenues

We sell our products into the following markets: (i) Carrier networking; (ii) Enterprise networking; and (iii) Non-core. The Carrier networking market includes core, metro, edge, and access equipment used for transport, switching, routing, mobile access, and backhaul in service provider networks. The Enterprise networking market covers Ethernet switching and routing

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equipment used within LANs in SME and SMB networks and Cloud Access services. The Non-core market is comprised of products that have not received additional investment over the last five years and, as a result, have generally been in decline.

The demand for our products is affected by various factors, including our development and introduction of new products, availability and pricing of competing products, capacity constraints at our suppliers, EOL product decisions, and general economic conditions. Therefore, our revenues for the three and nine months ended June 30, 2014 may not necessarily be indicative of future revenues.

Product revenues by market are as follows:

	Three Months Ended June 30,
	2014				2013
	Amount		% of Product Revenues		Amount		% of Product Revenues		Change			% Change
	(in thousands, except percentages)
Carrier networking	$	12,035	46.3	%	$	14,368	54.7	%	$	(2,333	)	(16.2	)%
Enterprise networking	13,918		53.5	%	11,368		43.2	%	2,550			22.4	%
Non-core	59		0.2	%	549		2.1	%	(490		)	(89.3	)%
Product revenues	$	26,012	100.0	%	$	26,285	100.0	%	$	(273	)	(1.0	)%

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Product Revenues		Amount		% of Product Revenues		Change			% Change
	(in thousands, except percentages)
Carrier networking	$	36,820	48.6	%	$	41,497	55.4	%	$	(4,677	)	(11.3	)%
Enterprise networking	38,537		50.9	%	31,884		42.6	%	6,653			20.9	%
Non-core	387		0.5	%	1,498		2.0	%	(1,111		)	(74.2	)%
Product revenues	$	75,744	100.0	%	$	74,879	100.0	%	$	865		1.2	%

The lower Carrier networking revenues are largely attributable to a decrease in sales of older products for SONET applications, some of which went through EOL in prior periods. The decline is partially offset by increases in sales of our new products, primarily for Carrier Ethernet applications, which increased more than 65% from the comparable periods in the prior year.

The higher Enterprise networking revenues are primarily due to increases in sales of our new products, both switches and 10G Ethernet PHYs, as new customers ramp into production. The increases are partially offset by declines in sales of our crosspoint switches and older generation switches and PHYs.

In fiscal 2012, a number of older products went through EOL. Revenues from these EOL products totaled $0.3 million and $3.6 million in the three months endedJune 30, 2014 and 2013, respectively, and $5.3 million and $12.4 million in the nine months endedJune 30, 2014 and 2013, respectively.

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We also classify our product revenues based on our three product lines: (i) Connectivity; (ii) Ethernet switching; and (iii) Transport processing.

Product revenues by product line are as follows:

	Three Months Ended June 30,
	2014				2013
	Amount		% of Product Revenues		Amount		% of Product Revenues		Change			% Change
	(in thousands, except percentages)
Connectivity	$	10,132	39.0	%	$	12,199	46.4	%	$	(2,067	)	(16.9	)%
Ethernet switching	14,001		53.8	%	9,541		36.3	%	4,460			46.7	%
Transport processing	1,879		7.2	%	4,545		17.3	%	(2,666		)	(58.7	)%
Product revenues	$	26,012	100.0	%	$	26,285	100.0	%	$	(273	)	(1.0	)%

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Product Revenues		Amount		% of Product Revenues		Change			% Change
	(in thousands, except percentages)
Connectivity	$	29,556	39.0	%	$	32,172	43.0	%	$	(2,616	)	(8.1	)%
Ethernet switching	36,955		48.8	%	28,178		37.6	%	8,777			31.1	%
Transport processing	9,233		12.2	%	14,529		19.4	%	(5,296		)	(36.5	)%
Product revenues	$	75,744	100.0	%	$	74,879	100.0	%	$	865		1.2	%

The lower Connectivity revenues are primarily attributable to the decrease in sales of some of our mature crosspoint switches, partially offset by a strong increase in sales of our new 10G Ethernet PHYs and new crosspoint switches.

The higher Ethernet switching revenues are largely attributable to an increase in sales of our new Enterprise and Carrier Ethernet switch engines and 1GbE Copper PHYs.

The lower Transport processing revenues are largely attributable to decreased sales of SONET framers that went through EOL in prior periods. In the nine months ended June 30, 2014, the decrease is partially offset by an increase in sales of switch fabrics going through EOL and new optical transport network (“OTN”) products.

Intellectual Property Revenues

	Three Months Ended June 30,
	2014				2013
	Amount		% of Net  Revenues		Amount		% of Net  Revenues		Change		% Change
	(in thousands, except percentages)
Intellectual property revenues	$	1,139	4.2	%	$	133	0.5	%	$	1,006	756.4	%

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Net  Revenues		Amount		% of Net  Revenues		Change		% Change
	(in thousands, except percentages)
Intellectual property revenues	$	4,082	5.1	%	$	2,019	2.6	%	$	2,063	102.2	%

Intellectual property revenues include licenses, support, royalties, and sales of patents. The higher intellectual property revenues are due to increased deliveries of intellectual property. The timing and amounts of intellectual property revenues fluctuate. Expenses associated with the sale of intellectual property are included in SG&A.

21

Net revenues from customers that were equal to or greater than 10% of total net revenues are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
Tellabs	*		10.3	%	*		*
WPG Holdings**	26.6	%	19.2	%	24.5	%	16.4	%

______________________________________

* Less than 10% of total net revenues for period indicated.

** Distributors

Net revenues by geographic area are as follows:

	Three Months Ended June 30,
	2014				2013
	Amount		% of Net Revenues		Amount		% of Net Revenues		Change			% Change
	(in thousands, except percentages)
United States	$	5,936	21.9	%	$	5,590	21.2	%	$	346		6.2	%
Asia Pacific	17,606		64.8	%	16,856		63.8	%	750			4.4	%
Europe, Middle East and Africa	3,609		13.3	%	3,972		15.0	%	(363		)	(9.1	)%
Net revenues	$	27,151	100.0	%	$	26,418	100.0	%	$	733		2.8	%

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Net Revenues		Amount		% of Net Revenues		Change			% Change
	(in thousands, except percentages)
United States	$	17,356	21.7	%	$	23,693	30.8	%	$	(6,337	)	(26.7	)%
Asia Pacific	52,272		65.5	%	42,957		55.9	%	9,315			21.7	%
Europe, Middle East and Africa	10,198		12.8	%	10,248		13.3	%	(50		)	(0.5	)%
Net revenues	$	79,826	100.0	%	$	76,898	100.0	%	$	2,928		3.8	%

Revenues by geographic area are based upon the country of billing. The geographic location of distributors and third-party manufacturing service providers may be different from the geographic location of the ultimate end users. We believe a substantial portion of the products billed to OEMs and third-party manufacturing service providers in the Asia Pacific region are ultimately shipped to end-markets in the United States and Europe.

Cost of Product Revenues

	Three Months Ended June 30,
	2014				2013
	Amount		% of Product Revenues		Amount		% of Product Revenues		Change		% Change
	(in thousands, except percentages)
Cost of product revenues	$	12,254	47.1	%	$	11,666	44.4	%	$	588	5.0	%

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Product Revenues		Amount		% of Product Revenues		Change			% Change
	(in thousands, except percentages)
Cost of product revenues	$	33,909	44.8	%	$	34,010	45.4	%	$	(101	)	(0.3	)%

22

We use third-parties for wafer fabrication and assembly and test services. Cost of product revenues consists predominantly of: (i) purchased finished wafers; (ii) assembly services; (iii) test services; and (iv) labor and overhead costs associated with product procurement, planning and quality assurance.

Our cost of product revenues is affected by various factors, including product mix, volume, and provisions for excess and obsolete inventories, material costs, manufacturing efficiencies, and the position of our products within their life-cycles. Our cost of product revenues as a percentage of net product revenues is affected by these factors, as well as customer mix, volume, pricing, and competitive pricing programs.

Cost of product revenues as a percentage of product revenues for the three months ended June 30, 2014 was negatively impacted by a high volume sale of a single, low-margin product. Otherwise, cost of product revenues as a percentage of product revenues continued to decrease for both the three and nine month periods ended June 30, 2014 primarily due to higher margins on Copper PHY and Ethernet Switch products, as well as a decrease in lower margin SONET framer product sales, as compared to the prior periods.

Engineering, Research and Development

	Three Months Ended June 30,
	2014				2013
	Amount		% of Net Revenues		Amount		% of Net Revenues		Change			% Change
	(in thousands, except percentages)
Engineering, research and development	$	10,006	36.9	%	$	11,706	44.3	%	$	(1,700	)	(14.5	)%

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Net Revenues		Amount		% of Net Revenues		Change			% Change
	(in thousands, except percentages)
Engineering, research and development	$	31,581	39.6	%	$	31,987	41.6	%	$	(406	)	(1.3	)%

R&D expenses consist primarily of compensation expenses for employees and contractors engaged in research, design and development activities. R&D also includes costs of mask tooling, which we fully expense in the period, and electronic design automation tools, software licensing contracts, subcontracting and fabrication costs, depreciation and amortization, and overhead including facilities expenses.

The level of R&D expenses will vary from period-to-period, depending on timing of development projects and the purchase of masks aligned to those projects. The level of R&D expenses as a percentage of net revenues will vary, depending, in part, on the level of net revenues. Our R&D efforts are critical to maintaining a high level of new product introductions and are critical to our plans for future growth.

The decrease in R&D spending for the three months ended June 30, 2014, as compared to the prior year period, is due primarily to reduced mask tooling of $1.5 million and lower outside contractor expenses of $0.7 million in the current period. These decreases are partially offset by higher employee compensation expenses of $0.7 million, including stock compensation, in the current period.

The decrease in R&D spending for the nine months ended June 30, 2014, as compared to the prior year period, is due primarily to reduced mask tooling of $1.3 million and lower outside contractor expenses of $1.3 million in the current period. These decreases are partially offset by higher employee compensation expenses of $1.6 million, including stock compensation, and higher tooling expense of $0.4 million in the current period, as compared to the prior year period.

23

Selling, General and Administrative

	Three Months Ended June 30,
	2014				2013
	Amount		% of Net  Revenues		Amount		% of Net  Revenues		Change		% Change
	(in thousands, except percentages)
Selling, general and administrative	$	7,330	27.0	%	$	7,257	27.5	%	$	73	1.0	%

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Net  Revenues		Amount		% of Net  Revenues		Change		% Change
	(in thousands, except percentages)
Selling, general and administrative	$	23,189	29.0	%	$	22,617	29.4	%	$	572	2.5	%

SG&A expenses consist primarily of compensation expense, legal and other professional fees, facilities expenses, outside labor, and communication expenses.

SG&A expenses in the three months ended June 30, 2014 are comparable to the same period in the prior year.

SG&A expenses in the nine months ended June 30, 2014, as compared to the prior year period, increased $0.6 million, primarily due to higher employee compensation expenses of $1.3 million, including stock compensation, and relocation expenses of $0.5 million related to the move of our primary test operations from Singapore to Taiwan and our Camarillo facilities to an adjacent building. These increases are partially offset by $1.3 million lower asset retirement obligation, facilities and other expenses.

Interest Expense, Net

	Three Months Ended June 30,
	2014				2013
	Amount		% of Net  Revenues		Amount		% of Net  Revenues		Change			% Change
	(in thousands, except percentages)
Interest expense, net	$	1,510	5.6	%	$	1,983	7.5	%	$	(473	)	(23.9	)%

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Net  Revenues		Amount		% of Net  Revenues		Change			% Change
	(in thousands, except percentages)
Interest expense, net	$	4,706	5.9	%	$	5,919	7.7	%	$	(1,213	)	(20.5	)%

Interest expense, net is comprised of cash interest expense, amortization of debt discount, premium, and debt issuance cost, net of interest income. Interest expense, net decreased primarily due to the repurchase in November 2013 of $13.7 million principal amount of our 2014 Debentures.

Gain on Compound Embedded Derivative

	Nine Months Ended June 30,
	2014			2013
	Amount		% of Net  Revenues	Amount			% of Net  Revenues		Change		% Change
	(in thousands, except percentages)
Gain on compound embedded derivative	$	—	—	$	(803	)	(1.0	)%	$	803	(100.0	)%

24

The compound embedded derivative included in our 2014 Debentures required bifurcation and accounting at fair value because the economic and contractual characteristics of the compound embedded derivative met the criteria for bifurcation and separate accounting due to the conversion price not being indexed to our own stock. The compound embedded derivative is comprised of the conversion option and a make-whole payment for foregone interest if the holder converts the debenture early. The make-whole payment for foregone interest expired October 30, 2012, and upon its expiration, the compound embedded derivative no longer met the criteria for bifurcation as all components of the conversion feature were indexed to our own stock. A final valuation was completed on October 30, 2012, resulting in gain of $0.8 million due to the change in fair value in the first quarter of fiscal year 2013.

Loss on Extinguishment of Debt

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Net  Revenues		Amount		% of Net  Revenues	Change		% Change
	(in thousands, except percentages)
Loss on extinguishment of debt	$	1,594	2.0	%	$	—	—	$	1,594	100.0	%

The loss on extinguishment of debt is due to the repurchase in November 2013 of $13.7 million principal amount of our 2014 Debentures at 107% of the principal amount thereof.

Income Tax Expense (Benefit)

	Three Months Ended June 30,
	2014				2013
	Amount		% of Net  Revenues		Amount		% of Net  Revenues		Change		% Change
	(in thousands, except percentages)
Income tax expense (benefit)	$	333	1.2	%	$	129	0.5	%	$	204	158.1	%

	Nine Months Ended June 30,
	2014				2013
	Amount		% of Net  Revenues		Amount			% of Net  Revenues		Change		% Change
	(in thousands, except percentages)
Income tax expense (benefit)	$	59	0.1	%	$	(790	)	(1.0	)%	$	849	(107.5	)%

Our effective tax rate is primarily impacted by certain foreign taxes, certain nondeductible interest and share based expenses and the release of a portion of the evaluation allowance related to certain foreign jurisdictions’ deferred tax assets as such balances were more likely than not realizable within the applicable carryforward period. Our effective tax rate for the nine months endedJune 30, 2014 was 0.4% which was lower than the federal and state statutory rate due to the projected federal and state losses for the fiscal year as well as the related valuation allowances.

Financial Condition and Liquidity

Cash Flow Analysis

Cash increased to $70.8 million at June 30, 2014, from $68.9 million at September 30, 2013. Our cash flows from operating, investing and financing activities are summarized as follows:

25

	Nine Months Ended June 30,
	2014			2013
	(in thousands)
Net cash used in operating activities	$	(7,602	)	$	(6,703	)
Net cash used in investing activities	(1,484		)	(761		)
Net cash provided by financing activities	11,035			54,908
Net increase in cash	1,949			47,444
Cash at beginning of period	68,863			23,891
Cash at end of period	$	70,812		$	71,335

Net Cash Used In Operating Activities

During the nine months ended June 30, 2014, cash used in operations totaled $7.6 million. Excluding changes in working capital, we used $6.6 million to fund the cash portion of our net loss. We used cash to fund increases in accounts receivable, inventory, prepaid expenses and other assets totaling $1.6 million and to fund decreases in accrued expenses and other liabilities totaling $0.3 million. These uses were offset by higher accounts payable and deferred revenue totaling $0.9 million which provided cash.

Accounts receivable, accounts payable, accrued expenses and other liabilities at June 30, 2014 are comparable to their respective balances at September 30, 2013. Inventory levels increased $0.5 million to $11.2 million at June 30, 2014 from $10.7 million at September 30, 2013 to meet increased demand. Deferred revenue increased $0.8 million from $2.2 million at September 30, 2013, to $3.0 million at June 30, 2014, due to the timing of payments from distributors.

During the nine months ended June 30, 2013, cash used in operations totaled $6.7 million. Excluding changes in working capital, we used $10.1 million to fund the cash portion of our net loss. We used cash to fund increases in accounts receivable and prepaid expenses totaling $1.8 million. These uses were offset by lower inventory of $0.2 million and higher accounts payable, accrued liabilities and deferred revenue totaling $5.1 million.

Accounts receivable increased $1.0 million from $9.4 million at September 30, 2012, to $10.4 million at June 30, 2013, primarily due to higher revenues and timing of sales during the quarter ended June 30, 2013. Accounts payable, accrued expenses and other liabilities increased by $3.2 million, excluding the impact of unpaid equity offering costs, from $18.5 million at September 30, 2012, to $21.9 million at June 30, 2013, due to the timing of obligations and/or payments to our vendors and other service providers. Deferred revenue increased $1.9 million from $0.9 million at September 30, 2012, to $2.8 million at June 30, 2013, due to the timing of payments from distributors.

Net Cash Used In Investing Activities

Investing activities used cash in the nine months ended June 30, 2014 for capital expenditures of $1.2 million and payments under licensing agreements of $0.5 million. Expenditures were partially offset by cash provided by the sale of capital assets of $0.2 million. Investing activities used cash in the nine months ended June 30, 2013, for capital expenditures of $0.6 million and payments under licensing agreements of $0.3 million. Expenditures were partially offset by cash provided by the sale of capital assets of $0.2 million.

Net Cash Provided By Financing Activities

Net cash provided by financing activities during the nine months ended June 30, 2014 totaled $11.0 million. Cash from the sale of common stock totaled $26.8 million, net of approximately $1.9 million in paid expenses. Additional offering costs of $0.2 million were incurred, but unpaid as of June 30, 2014. Proceeds from the exercise of stock options and issuances of shares under the ESPP totaled $1.0 million. Cash used for the repurchase of our 2014 Debentures totaled $14.6 million. We also used cash to pay a consent fee of $0.3 million related to the November 2013 amendment of our credit agreement. Cash of $0.7 million was restricted for payment of the 2014 Debentures following the sale of assets under the terms of the credit agreement. Cash used for the repurchase of restricted stock units for payroll taxes on behalf of employees was $1.3 million. Net cash provided by financing activities during the nine months ended June 30, 2013 totaled $54.9 million. Cash from the sale of common stock totaled $54.7 million, net of approximately $4.0 million in paid expenses. Additional offering costs of $0.2 million were incurred, but unpaid as of June 30, 2013. Proceeds from the exercise of stock options and issuances of shares under the ESPP totaled $0.9 million. Cash used for the repurchase of restricted stock units for payroll taxes paid on behalf of employee was $0.6 million.

26

Capital Resources, Including Debt, Contingent Liabilities and Operating Leases

Prospective Capital Needs

Our principal sources of liquidity are our existing cash, cash generated from product sales, and cash generated from the sales or licensing of our intellectual property. Our cash totaled $70.8 million at June 30, 2014. Our working capital at June 30, 2014, was $40.0 million.

In order to achieve sustained profitability and positive cash flows from operations, we may need to reduce operating expenses and/or increase revenues. We have completed a series of cost reduction actions that have improved our operating expense structure. We will continue to perform additional actions, as necessary. Our ability to maintain, or increase, current revenue levels to sustain profitability will depend, in part, on demand for our products.

Our current debt is comprised of our 2014 Debentures, of which the total principal amount of $32.8 million is due on October 30, 2014. Our long-term debt is comprised of our senior Term A and B Loans which have a total principal amount of $17.2 million due on August 31, 2016. We will use our existing cash and restricted cash to repay our 2014 Debentures on or before their maturity in October 2014. The credit agreement for our Term A and B Loans requires us to maintain an unrestricted cash balance of $8.0 million. We believe that our existing sources of liquidity, along with cash expected to be generated from revenues, will be sufficient to fund our operations for at least the next 12 months after repayment of the 2014 Debentures and to meet our minimum cash covenant. Our available liquidity could be adversely affected, however, if we incur operating losses and negative cash flows in the future, and we may need to reduce or postpone our operating costs or obtain alternate sources of financing, or both. We may need additional capital in the future and may not have access to additional sources of capital on favorable terms or at all. If we raise additional funds through the issuance of equity or debt securities, such securities may have rights, preferences or privileges senior to those of our common stock and our stockholders may experience dilution of their ownership interests. There can be no assurance, however, that our efforts will be successful.

We have a Form S-3 universal shelf registration statement on file with the SEC. The universal shelf registration statement on Form S-3 permits Vitesse to sell, in one or more public offerings, shares of our common stock, shares of preferred stock or debt securities, or any combination of such securities, for proceeds in an aggregate amount of up to $75.0 million. As ofJune 30, 2014, we raised a total of $28.7 million of gross proceeds from the sale of 8,582,076 shares of our common stock, leaving approximately $46.3 million of securities available for issuance pursuant to the Form S-3. The Form S-3 will expire in January 2017.

Contractual Obligations

	Payment Obligations by Fiscal Year
	Remaining in 2014		2015		2016		2017		2018		2019 and Thereafter		Total
	(in thousands)
Convertible subordinated debt (1)	$	—	$	32,843	$	—	$	—	$	—	$	—	$	32,843
Term A Loan (2)	—		—		7,857		—		—		—		7,857
Term B Loan (3)	—		—		9,342		—		—		—		9,342
Loan interest (4)	391		3,102		1,776		—		—		—		5,269
Operating leases (5)	559		1,952		591		110		—		—		3,212
Software licenses (6)	1,684		7,136		3,147		2,900		2,800		—		17,667
Inventory and related purchase obligations (7)	5,928		2,005		73		60		—		—		8,066
Total	$	8,562	$	47,038	$	22,786	$	3,070	$	2,800	$	—	$	84,256

_________________________________________________

(1) Convertible subordinated debt represents amounts due for our 8.0% convertible debentures due October 30, 2014.

(2) Term A Loan represents amounts due for our 9.0% fixed rate senior notes due August 31, 2016.

(3) Term B Loan represents amounts due for our 9.0% fixed rate senior notes due August 31, 2016.

(4) Interest payable for 2014 Debentures through 2015 and Term A and B Loans through 2016.

27

(5) We lease facilities under non-cancellable operating lease agreements that expire at various dates through 2017.

(6) Software license commitments represent non-cancellable licenses of technology from third-parties used in the development of our products.

(7) Inventory and other purchase obligations represent non-cancellable purchase commitments. For purposes of the table above, inventory and other purchase obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms. Our purchase orders are based on our current manufacturing needs and are typically fulfilled by our vendors within a relatively short time.Other purchase commitments may be for longer periods and are dictated by contractual terms.

Off-Balance Sheet Arrangements

At June 30, 2014, we had no material off-balance sheet arrangements, other than operating leases, certain software licenses and non-cancellable purchase commitments.

28

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our quantitative and qualitative disclosures about market risk are described in our Annual Report on Form 10-K for the year ended September 30, 2013. There have been no material changes to these risks during the nine months ended June 30, 2014.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated as of June 30, 2014, the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2014, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, during the quarter ended June 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on the Effectiveness of Internal Controls

Our disclosure controls and procedures provide our Chief Executive Officer and Chief Financial Officer reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within the Company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

29

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time-to-time in our normal course of business, we are a party to various legal claims, actions and complaints. Although the ultimate outcome of these matters cannot be determined, management believes that, as of June 30, 2014, the final disposition of these proceedings will not have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2013.

ITEM 6. EXHIBITS

Exhibit		Incorporated by Reference				Filed or Furnished
Number	Exhibit Description	Form	File Number	Exhibit	Filing Date	Herewith
31.1	Certification of Principal Executive officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1#	Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS**	XBRL Instance Document					X
101.SCH**	XBRL Taxonomy Extension Schema Document					X
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document					X

_____________________________________________________

# The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Vitesse Semiconductor Corporation under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

** The information in this exhibit is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

30

SIGNATURES

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.

August 5, 2014	VITESSE SEMICONDUCTOR CORPORATION
	By:	/s/ CHRISTOPHER R. GARDNER
		Christopher R. Gardner
		Chief Executive Officer
August 5, 2014	VITESSE SEMICONDUCTOR CORPORATION
	By:	/s/ MARTIN S. MCDERMUT
		Martin S. McDermut
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

31

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to

Section 302 of the Sarbanes Oxley Act of 2002

I, Christopher R. Gardner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vitesse Semiconductor Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 5, 2014	/s/ CHRISTOPHER R. GARDNER
	Christopher R. Gardner
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to

Section 302 of the Sarbanes Oxley Act of 2002

I, Martin S. McDermut, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vitesse Semiconductor Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 5, 2014	/s/ MARTIN S. MCDERMUT
	Martin S. McDermut
	Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Vitesse Semiconductor Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 

August 5, 2014	/s/ CHRISTOPHER R. GARDNER
	Christopher R. Gardner
	Chief Executive Officer
August 5, 2014	/s/ MARTIN S. MCDERMUT
	Martin S. McDermut
	Chief Financial Officer

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STOCK BASED COMPENSATION Restricted Stock Units Narrative (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation recognized	$ 1,586	$ 1,156	$ 4,466	$ 3,305
Total Stockholders' Equity
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Impact of retaining common stock from employees upon vesting of restricted shares and restricted stock units to cover income tax withholding			$ (1,251)	$ (620)

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COMMITMENTS AND CONTINGENCIES (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Jun. 30, 2014
Commitments and Contingencies Disclosure [Abstract]
Standard Product Warranty Period	1 year
Operating leases
Remaining in 2014	$ 559
2015	1,952
2016	591
2017	110
2018	0
Thereafter	0
Total	3,212
Software licenses
Remaining in 2014	1,684
2015	7,136
2016	3,147
2017	2,900
2018	2,800
Thereafter	0
Total	17,667
Total
Remaining in 2014	2,243
2015	9,088
2016	3,738
2017	3,010
2018	2,800
Thereafter	0
Total	$ 20,879

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STOCKHOLDERS' EQUITY (Details) (USD $)	1 Months Ended
	Jun. 30, 2014	Dec. 31, 2012	Sep. 30, 2013
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Common stock, shares authorized	250,000,000		250,000,000
Common stock, par value (in dollars per share)	$ 0.01		$ 0.01
Issuance of common stock, net of offering costs	$ 26,600,000
Stock offering costs	$ 2,100,000
Issuance of common stock, net of offering costs (in shares)	8,582,076	10,651,280
Price per share	$ 3.35
Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Preferred stock, shares authorized	10,000,000		10,000,000
Preferred stock, par value (in dollars per share)	$ 0.01		$ 0.01
Preferred stock, shares outstanding	0		0
Conversion of Debt, Shares Issued [Member]
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Common stock, shares reserved for future issuance	9,200,000
Stock Options [Member]
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Common stock, shares reserved for future issuance	8,400,000
ESPP Shares [Member]
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Common stock, shares reserved for future issuance	3,400,000

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THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES Narrative (Details) (USD $)			9 Months Ended
	Jun. 30, 2014 major_customer	Sep. 30, 2013 major_customer	Jun. 30, 2014 Customer Concentration Risk [Member] Accounts Receivable [Member]	Jun. 30, 2013 Customer Concentration Risk [Member] Accounts Receivable [Member]	Nov. 05, 2013 Debt Instrument, Term A and B Loans [Member]
Unrestricted cash balance					$ 8,000,000
Number of Major Customers	1	2
Concentration Risk, Percentage			16.80%	23.80%

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INCOME TAXES Narrative (Details) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended		9 Months Ended
	Jun. 30, 2014	Dec. 31, 2012	Jun. 30, 2014	Jun. 30, 2013
Operating Loss Carryforwards [Line Items]
Effective Income Tax Rate, Continuing Operations			0.40%	(4.60%)
Issuance of common stock, net of offering costs (in shares)	8,582,076	10,651,280
Percent of shareholder change to limit the net loss carryforwards		5.00%
Percentage points		0.50%
Rolling period over which shareholder basis points must be over		3 years
Subject to annual limitation	$ 28.1		$ 28.1
Internal Revenue Service (IRS) [Member]
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	43.4		43.4
Net operating loss annual limit			1.4
State and Local Jurisdiction [Member]
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	33.0		33.0
Foreign Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	$ 133.2		$ 133.2

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STOCK BASED COMPENSATION Summary of assumptions used to value stock options granted in connection with stock incentives (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation recognized	$ 1,586	$ 1,156	$ 4,466	$ 3,305
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life (in years)			5 years 9 months 13 days	5 years 7 months 24 days
Expected Volatility Rate, Minimum			79.50%	79.80%
Expected Volatility Rate, Maximum			81.60%	82.10%
Weighted Average Volatility Rate			81.50%	82.00%
Expected dividend			0.00%	0.00%
Risk Free Interest Rate, Minimum			1.70%	0.90%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Maximum			1.90%	1.00%
Employee Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation recognized			$ 456	$ 443
Expected life (in years)			6 months	6 months
Expected Volatility Rate, Minimum			37.10%	47.60%
Expected Volatility Rate, Maximum			50.30%	49.80%
Expected dividend			0.00%	0.00%
Risk Free Interest Rate, Minimum			0.07%	0.11%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Maximum			0.08%	0.14%

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INVENTORY

9 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

INVENTORY

INVENTORY, NET

	June 30, 2014		September 30, 2013
	(in thousands)
Raw materials	$	1,110	$	1,220
Work-in-process	5,296		3,652
Finished goods	4,831		5,820
Total inventory, net	$	11,237	$	10,692

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SEGMENT AND GEOGRAPHIC INFORMATION Schedule of Revenue by Major Customers by Reporting Segments (Details)	9 Months Ended		9 Months Ended		3 Months Ended					9 Months Ended
	Jun. 30, 2014 segment major_customer	Sep. 30, 2013 major_customer	Jun. 30, 2014 Customer Concentration Risk [Member] Accounts Receivable [Member]	Jun. 30, 2013 Customer Concentration Risk [Member] Accounts Receivable [Member]	Jun. 30, 2013 Major Customer, Tellabs [Member] Customer Concentration Risk [Member] Sales [Member]	Jun. 30, 2014 Major Customers, WPG [Member] Customer Concentration Risk [Member] Sales [Member]		Jun. 30, 2013 Major Customers, WPG [Member] Customer Concentration Risk [Member] Sales [Member]		Jun. 30, 2014 Major Customers, WPG [Member] Customer Concentration Risk [Member] Sales [Member]		Jun. 30, 2013 Major Customers, WPG [Member] Customer Concentration Risk [Member] Sales [Member]
Segment Reporting [Abstract]
Number of Operating Segments	1
Revenue from External Customer [Line Items]
Number of Major Customers	1	2
Concentration Risk, Percentage			16.80%	23.80%	10.30%	26.60%	[1]	19.20%	[1]	24.50%	[1]	16.40%	[1]

[1] Distributor

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DEBT Schedule of Outstanding Debt (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 Notes Payable to Banks [Member] Term A Loan [Member] Rate	Jun. 30, 2014 Convertible Notes Payable [Member] Term B Loan Convertible [Member] Rate	Jun. 30, 2014 Convertible Debt [Member] 2014 Debentures [Member] Rate	Sep. 30, 2013 Convertible Debt [Member] 2014 Debentures [Member]
Debt Instrument [Line Items]
Increase (Decrease) in Restricted Cash and Investments	$ (687)	$ 0
Principal			7,857	9,342	32,843
Unamortized debt discount			(74)	(797)	(468)
Carrying value			7,783	8,545
2014 Debentures, convertible, 8.0% fixed-rate notes, due October 2014					$ 32,375	$ 44,384
Annual effective interest rate			9.50%	13.50%	12.20%
Conversion rate per common share				$ 4.95	$ 4.50

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DEBT Schedule of Long-term Debt Instruments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Sep. 30, 2013
Debt Instrument [Line Items]
Long-term debt, net	$ 16,328	$ 16,366
Total debt, net	48,703	60,750
Notes Payable to Banks [Member] | Term A Loan [Member]
Debt Instrument [Line Items]
Stated rate	9.00%	10.50%
Long-term debt, net	7,783	7,919
Convertible Notes Payable [Member] | Term B Loan Convertible [Member]
Debt Instrument [Line Items]
Stated rate	9.00%	8.00%
Long-term debt, net	8,545	8,444
Capital Lease Obligations [Member]
Debt Instrument [Line Items]
Long-term debt, net	0	3
Convertible Debt [Member] | 2014 Debentures [Member]
Debt Instrument [Line Items]
Stated rate	8.00%	8.00%
2014 Debentures, convertible, 8.0% fixed-rate notes, due October 2014	$ 32,375	$ 44,384

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SEGMENT AND GEOGRAPHIC INFORMATION Net Revenues By Geographic Area (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenue from External Customer [Line Items]
Net revenues	$ 27,151	$ 26,418	$ 79,826	$ 76,898
United States
Revenue from External Customer [Line Items]
Net revenues	5,936	5,590	17,356	23,693
Asia Pacific [Member]
Revenue from External Customer [Line Items]
Net revenues	17,606	16,856	52,272	42,957
EMEA [Member]
Revenue from External Customer [Line Items]
Net revenues	$ 3,609	$ 3,972	$ 10,198	$ 10,248

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DEBT Narrative (Details) (USD $)	3 Months Ended		9 Months Ended		0 Months Ended	9 Months Ended							0 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Nov. 05, 2013 Term A and B Loans	Jun. 30, 2014 Term A and B Loans Minimum [Member]	Jun. 30, 2014 Term A and B Loans Maximum [Member]	Nov. 05, 2013 Term A and B Loans Debt Instrument, Redemption, Period One [Member]	Nov. 05, 2013 Term A and B Loans Debt Instrument, Redemption, Period Two [Member]	Nov. 05, 2013 Term A and B Loans Debt Instrument, Redemption, Period Three [Member]	Jun. 30, 2014 Convertible Notes Payable [Member] Term B Loan Convertible [Member]	Sep. 30, 2013 Convertible Notes Payable [Member] Term B Loan Convertible [Member]	Nov. 05, 2013 Convertible Debt [Member] 2014 Debentures [Member]	Jun. 30, 2014 Convertible Debt [Member] 2014 Debentures [Member]	Sep. 30, 2013 Convertible Debt [Member] 2014 Debentures [Member]
Debt Instrument [Line Items]
Gain from other long-term liabilities	$ 0	$ 0	$ 0	$ 803,000
Reclassification of compound embedded derivative liability to additional paid-in-capital			0	2,096,000
Increase (Decrease) in Restricted Cash and Investments			(687,000)	0
Trading price of common stock payable in additional shares range						$ 3.20	$ 6.00
Stated rate					9.00%						9.00%	8.00%		8.00%	8.00%
Prepayment fee percent								5.00%	3.00%	2.00%
Unrestricted cash balance					8,000,000
Minimum quarterly revenue					10,000,000.0
Conversion price					$ 4.95						$ 4.95			$ 4.50
Fee amount					308,000.000
Repurchase amount													13,700,000
Prepayment repurchase percentage													107.00%
Incremental common shares attributable to conversion of debt securities													3,000,000.0
Loss on extinguishment of debt	0	0	1,594,000	0									1,594,000
Long-term Debt, Gross											$ 9,342,000			$ 32,843,000

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DEBT Schedule of Maturities of Long-term Debt (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Debt Disclosure [Abstract]
2014	$ 0
2015	32,843
2016	17,199
Total	$ 50,042

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COMPUTATION OF NET LOSS PER SHARE

9 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

COMPUTATION OF NET LOSS PER SHARE

COMPUTATION OF NET LOSS PER SHARE

For the three and nine months ended June 30, 2014 and 2013, we recorded a net loss. As such, all outstanding potential common shares were excluded from the diluted earnings per share computation.

The following potentially dilutive common shares are excluded from the computation of net loss per share.

	June 30,
	2014	2013
	(in thousands)
Outstanding stock options	2,964	2,110
Outstanding restricted stock units	2,377	2,031
Employee Stock Purchase Plan shares	355	518
Convertible preferred stock	—	674
2014 Debentures	7,298	10,332
Term B Loan	1,887	1,887
Total potential common shares excluded from calculation	14,881	17,552

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FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILITY Schedule of the fair value of the loans and compound embedded derivative (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Jun. 30, 2014 Convertible Notes Payable [Member]	Jun. 30, 2014 Convertible Debt [Member]	Jun. 30, 2014 Carrying (Reported) Amount, Fair Value Disclosure [Member] Notes Payable to Banks [Member]	Sep. 30, 2013 Carrying (Reported) Amount, Fair Value Disclosure [Member] Notes Payable to Banks [Member]	Jun. 30, 2014 Carrying (Reported) Amount, Fair Value Disclosure [Member] Convertible Notes Payable [Member]	Sep. 30, 2013 Carrying (Reported) Amount, Fair Value Disclosure [Member] Convertible Notes Payable [Member]	Jun. 30, 2014 Carrying (Reported) Amount, Fair Value Disclosure [Member] Convertible Debt [Member]	Sep. 30, 2013 Carrying (Reported) Amount, Fair Value Disclosure [Member] Convertible Debt [Member]	Jun. 30, 2014 Estimate of Fair Value, Fair Value Disclosure [Member] Notes Payable to Banks [Member]	Sep. 30, 2013 Estimate of Fair Value, Fair Value Disclosure [Member] Notes Payable to Banks [Member]	Jun. 30, 2014 Estimate of Fair Value, Fair Value Disclosure [Member] Convertible Notes Payable [Member]	Sep. 30, 2013 Estimate of Fair Value, Fair Value Disclosure [Member] Convertible Notes Payable [Member]	Jun. 30, 2014 Estimate of Fair Value, Fair Value Disclosure [Member] Convertible Debt [Member]	Sep. 30, 2013 Estimate of Fair Value, Fair Value Disclosure [Member] Convertible Debt [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair Value Inputs, Discount Rate	4.10%	3.30%
Debt Instrument, Fair Value Disclosure			$ 7,783	$ 7,919	$ 8,545	$ 8,444	$ 32,375	$ 44,384	$ 8,840	$ 8,165	$ 10,360	$ 9,781	$ 34,615	$ 49,282

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STOCK BASED COMPENSATION Summary of restricted stock unit activity (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended	12 Months Ended	9 Months Ended
	Jun. 30, 2014 Restricted Stock Units (RSUs) [Member]	Sep. 30, 2013 Restricted Stock Units (RSUs) [Member]	Jun. 30, 2014 Stock Options [Member]	Jun. 30, 2013 Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Maximum			1.90%	1.00%
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Restricted stock units, Restricted Stock Units, Beginning balance	2,021
Restricted stock units, Weighted Average Grant-Date Fair Value per Share, Beginning balance	$ 2.65
Weighted average remaining contractual life (in years), beginning balance	1 year 2 months 15 days	1 year 1 month 17 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Intrinsic Value	$ 6,143,000
Restricted Stock Units, Awarded	1,600
Weighted Average Grant-Date Fair Value per Share, Awarded	$ 2.62
Restricted Stock Units, Released	(1,179)
Weighted Average Grant-Date Fair Value per Share, Released	$ 2.69
Restricted Stock Units, Forfeited	(65)
Weighted Average Grant-Date Fair Value per Share, Forfeited	$ 2.42
Restricted stock units, Restricted Stock Units, Ending balance	2,377	2,021
Restricted stock units, Weighted Average Grant-Date Fair Value per Share, Ending balance	$ 2.62	$ 2.65
Weighted average remaining contractual life (in years), ending balance	1 year 2 months 15 days	1 year 1 month 17 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Intrinsic Value	$ 8,200,000	$ 6,143,000

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Sep. 30, 2013
Current assets:
Cash	$ 70,812	$ 68,863
Accounts receivable	10,101	9,807
Inventory, net	11,237	10,692
Restricted cash	793	101
Prepaid expenses and other current assets	2,175	1,796
Total current assets	95,118	91,259
Property, plant and equipment, net	2,944	3,107
Other intangible assets, net	1,569	1,170
Other assets	3,548	3,425
Total Assets	103,179	98,961
Current liabilities:
Accounts payable	7,693	7,436
Accrued expenses and other current liabilities	12,060	12,245
Current portion of debt, net	32,375	0
Deferred revenue	3,030	2,215
Total current liabilities	55,158	21,896
Other long-term liabilities	470	407
Long-term debt, net	16,328	16,366
Convertible subordinated debt, net	0	44,384
Total liabilities	71,956	83,053
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value: 10,000 shares authorized; no shares issued or outstanding	0	0
Common stock, $0.01 par value: 250,000 shares authorized; 67,342 and 57,545 shares outstanding at June 30, 2014 and September 30, 2013, respectively	673	575
Additional paid-in-capital	1,922,468	1,891,661
Accumulated deficit	(1,891,918)	(1,876,328)
Total stockholders’ equity	31,223	15,908
Total Liabilities and Stockholders' Deficit	$ 103,179	$ 98,961

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SEGMENT AND GEOGRAPHIC INFORMATION Product Revenues By The Three Product Lines (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 product_line	Jun. 30, 2013
Revenue from External Customers [Line Items]
Number Of Product Lines			3
Product revenues	$ 26,012	$ 26,285	$ 75,744	$ 74,879
Connectivity [Member]
Revenue from External Customers [Line Items]
Product revenues	10,132	12,199	29,556	32,172
Ethernet switching [Member]
Revenue from External Customers [Line Items]
Product revenues	14,001	9,541	36,955	28,178
Transport processing [Member]
Revenue from External Customers [Line Items]
Product revenues	$ 1,879	$ 4,545	$ 9,233	$ 14,529

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows used in operating activities:
Net loss	$ (15,590)	$ (16,313)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,541	1,877
Stock-based compensation	4,466	3,305
Change in fair value of compound embedded derivative liability	0	(803)
Gain on disposal of assets	(137)	(153)
Loss on extinguishment of debt, net	1,594	0
Amortization of debt issuance costs	143	203
Amortization of debt discounts	1,365	1,890
Accretion of debt premiums	(15)	(126)
Change in operating assets and liabilities:
Accounts receivable	(294)	(1,001)
Inventory	(545)	179
Prepaids and other assets	(724)	(841)
Accounts payable	57	2,639
Accrued expenses and other liabilities	(278)	553
Deferred revenue	815	1,888
Net cash used in operating activities	(7,602)	(6,703)
Cash flows used in investing activities:
Capital expenditures	(1,157)	(575)
Proceeds from sale of fixed assets	183	156
Payments under licensing agreements	(510)	(342)
Net cash used in investing activities	(1,484)	(761)
Cash flows provided by financing activities:
Proceeds from the exercise of stock options and issuance of shares under ESPP	1,023	866
Net proceeds from the sale of common stock	26,805	54,668
Repurchase of 2014 Debentures	(14,606)	0
Consent fee on amendment of credit agreement	(308)	0
Increase (Decrease) in Restricted Cash and Investments	(687)	0
Repurchase and retirement of restricted stock units for payroll taxes	(1,251)	(620)
Other	59	(6)
Net cash provided by financing activities	11,035	54,908
Net increase in cash	1,949	47,444
Cash at beginning of period	68,863	23,891
Cash at end of period	70,812	71,335
Cash paid (refunded) during the period for:
Interest	4,471	4,917
Income taxes	180	(1,094)
Non-cash investing and financing activities:
Equity offering costs incurred but not paid	200	207
Licensing agreement obligation incurred but not paid	156	0
Reclassification of compound embedded derivative liability to additional paid-in-capital	$ 0	$ 2,096

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STOCK BASED COMPENSATION Compensation costs related to the stock-based compensations plans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 1,586	$ 1,156	$ 4,466	$ 3,305
Cost of revenues [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	210	161	619	459
Engineering, research and development [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	573	428	1,643	1,193
Selling, general and administrative [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 803	$ 567	$ 2,204	$ 1,653

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STOCK BASED COMPENSATION (Tables)

9 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Employee Stock Purchase Plan, Activity [Table Text Block]

We determine the fair value of the ESPP awards using the Black-Scholes pricing model. Underlying assumptions used were as follows:

	Nine Months Ended June 30,
	2014	2013
Expected life (in years)	0.5	0.5
Expected volatility	37.1% - 50.3%	47.6% - 49.8%
Expected dividend	—	—
Risk-free interest rate	0.07% - 0.08%	0.11% - 0.14%

Compensation costs related to the stock-based compensation plans

Compensation cost related to our Plan and ESPP is as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
Cost of revenues	$	210	$	161	$	619	$	459
Engineering, research and development	573		428		1,643		1,193
Selling, general and administrative	803		567		2,204		1,653
Total stock-based compensation expense	$	1,586	$	1,156	$	4,466	$	3,305

Activity under all stock option plans

Activity in stock option awards is as follows:

	Shares   (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life  (years)	Aggregate Intrinsic Value (in thousands)
Options outstanding, September 30, 2013	2,089		$	13.43	6.67	$	591
Granted	1,014		2.53
Exercised	(49	)	2.35
Cancelled or expired	(90	)	86.22
Options outstanding, June 30, 2014	2,964		7.64		7.23	1,792
Options exercisable, June 30, 2014	1,649		$	11.67	5.85	$	578

Summary of assumptions used to value stock options granted in connection with stock incentive plans

The per share fair values of time-based stock options granted in connection with stock incentive plans have been estimated using the following weighted average assumptions:

	Nine Months Ended June 30,
	2014	2013
Expected life (in years)	5.79	5.65
Expected volatility:
Weighted-average	81.5%	82.0%
Range	79.5% - 81.6%	79.8% - 82.1%
Expected dividend	—	—
Risk-free interest rate	1.7% - 1.9%	.9% - 1.0%

Schedule of Shares Authorized under Stock Option Plans by Exercise Price Range

The following table provides additional information in regards to options outstanding as of June 30, 2014:

	Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding (in thousands)	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable (in thousands)	Weighted Average Exercise Price
$2.10 - $2.26	424	8.68	$	2.11	194	$	2.10
2.53	987	9.45	2.53		116	2.53
2.54 - 4.36	750	7.03	3.45		542	3.50
4.60 - 41.20	594	5.08	7.89		588	7.91
42.00 - 145.40	209	0.67	57.39		209	57.39
$2.10 - $145.40	2,964	7.23	$	7.64	1,649	$	11.67

Summary of restricted stock unit activity

Activity for our restricted stock award units is as follows:

	Restricted Stock Units (in thousands)		Weighted Average Grant-Date Fair Value per Share		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Restricted stock units, September 30, 2013	2,021		$	2.65	1.13	$	6,143
Awarded	1,600		2.62
Released	(1,179	)	2.69
Forfeited	(65	)	2.42
Restricted stock units, June 30, 2014	2,377		$	2.62	1.21	$	8,200

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STOCK BASED COMPENSATION Activity under all stock option plans (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended	12 Months Ended
	Jun. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Options outstanding, Shares, Beginning balance	2,089
Options outstanding, Weighted average exercise price, Beginning balance	$ 13.43
Options outstanding, Weighted average remaining contractual life (in years), Beginning balance	7 years 2 months 23 days	6 years 8 months 1 day
Options outstanding, Aggregate intrinsic value, Beginning balance	$ 591
Shares, Granted	1,014
Weighted average exercise price, Granted	$ 2.53
Shares, Exercised	(49)
Weighted average exercise price, Exercised	$ 2.35
Shares, Cancelled or expired	(90)
Weighted average exercise price, Cancelled or expired	$ 86.22
Options outstanding, Shares, Ending balance	2,964	2,089
Options outstanding, Weighted average exercise price, Ending balance	$ 7.64	$ 13.43
Options outstanding, Weighted average remaining contractual life (in years), Ending balance	7 years 2 months 23 days	6 years 8 months 1 day
Options outstanding, Aggregate intrinsic value, Ending balance	1,792	591
Options exercisable, Shares, Ending balance	1,649
Options exercisable, Weighted average exercise price, Ending balance	$ 11.67
Options exercisable, Weighted average remaining contractual life (in years), Ending balance	5 years 10 months 6 days
Aggregate intrinsic value, Options exercisable	$ 578

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Schedule of minimum lease payments and software licenses

Future minimum lease payments under non-cancellable operating leases that have remaining non-cancellable lease terms in excess of one year and software licenses are as follows:

	Remaining in 2014		2015		2016		2017		2018		Thereafter		Total
	(in thousands)
Operating leases	$	559	$	1,952	$	591	$	110	$	—	$	—	$	3,212
Software licenses	1,684		7,136		3,147		2,900		2,800		—		17,667
Total	$	2,243	$	9,088	$	3,738	$	3,010	$	2,800	$	—	$	20,879

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THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Vitesse Semiconductor Corporation (“Vitesse,” the “Company,” “us,” or “we”) is a leading supplier of high-performance integrated circuits (“ICs”) that are used primarily by manufacturers of networking systems for Carrier, Enterprise and Internet of Things (“IoT”) networking applications. Vitesse designs, develops and markets a diverse portfolio of high-performance, low-power and cost-competitive semiconductor products for these applications.

Vitesse was incorporated in the state of Delaware in 1987. Our headquarters are located at 4721 Calle Carga, Camarillo, California, and our phone number is (805) 388-3700. Our stock trades on the NASDAQ Global Market under the ticker symbol VTSS.

Fiscal Year

Our fiscal year is October 1 through September 30.

Basis of Presentation

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. The September 30, 2013 balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required for annual periods. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended September 30, 2013, included in our Annual Report on Form 10-K filed with the SEC on December 5, 2013.

The consolidated financial statements included herein are unaudited. However, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly our consolidated financial position, the consolidated results of our operations and the consolidated cash flows and the changes in our stockholders’ equity. The results of operations for the three and nine months ended June 30, 2014 are not necessarily indicative of the results to be expected for future quarters or the full year.

Reclassifications

Certain reclassifications have been made to prior fiscal year amounts and related footnotes to conform to current fiscal year presentation with no changes to stockholders’ equity amounts or net loss for the three and nine months ended June 30, 2013.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the unaudited consolidated financial statements. Management regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, warranty reserves, inventory valuation reserves, stock-based compensation, compound embedded derivative valuation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances. These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results we experience may differ materially and adversely from our original estimates. To the extent there are material differences between the estimates and the actual results, our future results of operations will be affected.

Risks and Uncertainties

Our future results of operations involve a number of risks and uncertainties. Factors that could affect our business or future results and cause actual results to vary materially from historical results include, but are not limited to, the highly cyclical nature of the semiconductor industry; our high fixed costs; declines in average selling prices; decisions by our IC manufacturer customers to curtail outsourcing; our substantial indebtedness; our ability to fund liquidity needs; our failure to maintain an effective system of internal controls; product return and liability risks; the absence of significant backlog in our business; our dependence on international operations and sales; proposed changes to United States tax laws; that our management information systems may prove inadequate; our ability to attract and retain qualified employees; difficulties consolidating and evolving our operational capabilities; our dependence on materials and equipment suppliers; our loss of customers; adverse tax consequences; the development of new proprietary technology and the enforcement of intellectual property rights by or against us; the complexity of packaging and test processes in our industry; competition; our need to comply with existing and future environmental regulations; and fire, flood or other calamity affecting us or others with whom we do business.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a NetOperating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a netoperating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. This amendment is effective for public entities for fiscal years beginning after December 15, 2013, and interim periods within those years. We do not expect the adoption of this standard to have a material impact on our unaudited consolidated financial position and results of operations.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2014	Sep. 30, 2013
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares outstanding	67,341,895	57,545,025

XML

THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business

Description of Business

Vitesse Semiconductor Corporation (“Vitesse,” the “Company,” “us,” or “we”) is a leading supplier of high-performance integrated circuits (“ICs”) that are used primarily by manufacturers of networking systems for Carrier, Enterprise and Internet of Things (“IoT”) networking applications. Vitesse designs, develops and markets a diverse portfolio of high-performance, low-power and cost-competitive semiconductor products for these applications.

Vitesse was incorporated in the state of Delaware in 1987. Our headquarters are located at 4721 Calle Carga, Camarillo, California, and our phone number is (805) 388-3700. Our stock trades on the NASDAQ Global Market under the ticker symbol VTSS.

Fiscal Year

Fiscal Year

Our fiscal year is October 1 through September 30.

Basis of Presentation

Basis of Presentation

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. The September 30, 2013 balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required for annual periods. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended September 30, 2013, included in our Annual Report on Form 10-K filed with the SEC on December 5, 2013.

The consolidated financial statements included herein are unaudited. However, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly our consolidated financial position, the consolidated results of our operations and the consolidated cash flows and the changes in our stockholders’ equity. The results of operations for the three and nine months ended June 30, 2014 are not necessarily indicative of the results to be expected for future quarters or the full year.

Reclassifications

Reclassifications

Certain reclassifications have been made to prior fiscal year amounts and related footnotes to conform to current fiscal year presentation with no changes to stockholders’ equity amounts or net loss for the three and nine months ended June 30, 2013.

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the unaudited consolidated financial statements. Management regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, warranty reserves, inventory valuation reserves, stock-based compensation, compound embedded derivative valuation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances. These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results we experience may differ materially and adversely from our original estimates. To the extent there are material differences between the estimates and the actual results, our future results of operations will be affected.

Risks and uncertainties

Risks and Uncertainties

Our future results of operations involve a number of risks and uncertainties. Factors that could affect our business or future results and cause actual results to vary materially from historical results include, but are not limited to, the highly cyclical nature of the semiconductor industry; our high fixed costs; declines in average selling prices; decisions by our IC manufacturer customers to curtail outsourcing; our substantial indebtedness; our ability to fund liquidity needs; our failure to maintain an effective system of internal controls; product return and liability risks; the absence of significant backlog in our business; our dependence on international operations and sales; proposed changes to United States tax laws; that our management information systems may prove inadequate; our ability to attract and retain qualified employees; difficulties consolidating and evolving our operational capabilities; our dependence on materials and equipment suppliers; our loss of customers; adverse tax consequences; the development of new proprietary technology and the enforcement of intellectual property rights by or against us; the complexity of packaging and test processes in our industry; competition; our need to comply with existing and future environmental regulations; and fire, flood or other calamity affecting us or others with whom we do business.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a NetOperating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a netoperating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. This amendment is effective for public entities for fiscal years beginning after December 15, 2013, and interim periods within those years. We do not expect the adoption of this standard to have a material impact on our unaudited consolidated financial position and results of operations.

XML

Document and Entity Information	9 Months Ended
	Jun. 30, 2014	Aug. 01, 2014
Document And Entity Information [Abstract]
Entity Registrant Name	VITESSE SEMICONDUCTOR CORP
Entity Central Index Key	0000880446
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Filer Category	Accelerated Filer
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Entity Common Stock, Shares Outstanding		67,697,535

XML

COMPUTATION OF NET LOSS PER SHARE (Tables)

9 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Schedule of potential common shares excluded from the diluted computation

The following potentially dilutive common shares are excluded from the computation of net loss per share.

	June 30,
	2014	2013
	(in thousands)
Outstanding stock options	2,964	2,110
Outstanding restricted stock units	2,377	2,031
Employee Stock Purchase Plan shares	355	518
Convertible preferred stock	—	674
2014 Debentures	7,298	10,332
Term B Loan	1,887	1,887
Total potential common shares excluded from calculation	14,881	17,552

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net revenues:
Product revenues	$ 26,012	$ 26,285	$ 75,744	$ 74,879
Intellectual property revenues	1,139	133	4,082	2,019
Net revenues	27,151	26,418	79,826	76,898
Costs and expenses:
Cost of product revenues	12,254	11,666	33,909	34,010
Engineering, research and development	10,006	11,706	31,581	31,987
Selling, general and administrative	7,330	7,257	23,189	22,617
Amortization of intangible assets	88	80	267	266
Costs and expenses	29,678	30,709	88,946	88,880
Loss from operations	(2,527)	(4,291)	(9,120)	(11,982)
Other expense (income):
Interest expense, net	1,510	1,983	4,706	5,919
Gain on compound embedded derivative	0	0	0	(803)
Loss on extinguishment of debt	0	0	1,594	0
Other expense, net	18	31	111	5
Other expense, net	1,528	2,014	6,411	5,121
Loss before income tax expense (benefit)	(4,055)	(6,305)	(15,531)	(17,103)
Income tax expense (benefit)	333	129	59	(790)
Net loss	$ (4,388)	$ (6,434)	$ (15,590)	$ (16,313)
Net loss per common share - basic and diluted (in dollars per share)	$ (0.07)	$ (0.17)	$ (0.27)	$ (0.47)
Weighted average common shares outstanding - basic and diluted	59,965	38,630	58,631	34,601

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STOCKHOLDERS' EQUITY

9 Months Ended

Jun. 30, 2014

Equity [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS’ EQUITY

Authorized Capital Stock

We are authorized to issue up to 250 million shares of common stock, par value $0.01, per share, of which 9.2 million shares are reserved for future potential issuance upon conversion of debt, 8.4 million shares of common stock have been reserved for issuance under our stock compensation plans, and 3.4 million shares of common stock are reserved for issuance under

our Employee Stock Purchase Plan (“ESPP”).

In June 2014, we raised $26.6 million, net of offering expenses of $2.1 million, from the registered public sale of 8,582,076 shares of common stock at $3.35 per share.

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FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILITY

9 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILITY

FAIR VALUE MEASUREMENTS

We measure the fair value of our Term A and B Loans and 2014 Debentures, which are carried at amortized cost, on a quarterly basis for disclosure purposes. We use a binomial-lattice model to estimate fair values of these financial instruments. The estimated fair value of our Term A Loan is determined using Level 3 inputs based primarily on the comparability of its terms to the terms we could obtain, for similar instruments, in the current market. The key unobservable input utilized in the model for our Term B Loan and 2014 Debentures includes a discount rate of 4.1% and 3.3%, respectively.

The estimated fair values of our financial instruments are as follows:

	June 30, 2014				September 30, 2013
	Carrying value		Fair value		Carrying value		Fair value
	(in thousands)
Term A Loan	$	7,783	$	8,840	$	7,919	$	8,165
Term B Loan	8,545		10,360		8,444		9,781
2014 Debentures	32,375		34,615		44,384		49,282

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SEGMENT AND GEOGRAPHIC INFORMATION (Tables)

9 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Schedule of Revenue by Major Customers by Reporting Segments

Net revenues from customers that were equal to or greater than 10% of total net revenues are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
Tellabs	*		10.3	%	*		*
WPG Holdings**	26.6	%	19.2	%	24.5	%	16.4	%

 __________________________________________________

*Less than 10% of total net revenues for period indicated.

**Distributor

Net Revenues By Geographic Area

Net revenues by geographic area are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
United States	$	5,936	$	5,590	$	17,356	$	23,693
Asia Pacific	17,606		16,856		52,272		42,957
Europe, Middle East and Africa	3,609		3,972		10,198		10,248
Total net revenues	$	27,151	$	26,418	$	79,826	$	76,898

Product Revenues By The Three Product Lines

Product revenues by product line are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
Connectivity	$	10,132	$	12,199	$	29,556	32,172
Ethernet switching	14,001		9,541		36,955		28,178
Transport processing	1,879		4,545		9,233		14,529
Product revenues	$	26,012	$	26,285	$	75,744	$	74,879

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INVENTORY (Tables)

9 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

INVENTORY

	June 30, 2014		September 30, 2013
	(in thousands)
Raw materials	$	1,110	$	1,220
Work-in-process	5,296		3,652
Finished goods	4,831		5,820
Total inventory, net	$	11,237	$	10,692

XML

SEGMENT AND GEOGRAPHIC INFORMATION

9 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

SEGMENT AND GEOGRAPHIC INFORMATION

SIGNIFICANT CUSTOMERS, CONCENTRATION OF CREDIT RISK AND GEOGRAPHIC INFORMATION

We manage and operate our business through one operating segment.

Net revenues from customers that were equal to or greater than 10% of total net revenues are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
Tellabs	*		10.3	%	*		*
WPG Holdings**	26.6	%	19.2	%	24.5	%	16.4	%

 __________________________________________________

*Less than 10% of total net revenues for period indicated.

**Distributor

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and accounts receivable. Cash consists of demand deposits maintained with several financial institutions, which often exceed Federal Deposit Insurance Corporation limits of $250,000. We have never experienced any losses related to these balances; however, our balances are significantly in excess of insured limits.

At June 30, 2014, there was one customer that accounted for 16.8% of accounts receivable. At September 30, 2013, there were two customers that accounted for 23.8% of accounts receivable. We believe that this concentration and the concentration of credit risk resulting from trade receivables owing from high-technology industry customers is substantially mitigated by our credit evaluation process, relatively short collection periods and maintaining an allowance for anticipated losses. We generally do not require collateral security for outstanding amounts.

Net revenues by geographic area are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
United States	$	5,936	$	5,590	$	17,356	$	23,693
Asia Pacific	17,606		16,856		52,272		42,957
Europe, Middle East and Africa	3,609		3,972		10,198		10,248
Total net revenues	$	27,151	$	26,418	$	79,826	$	76,898

Revenues by geographic area are based upon the country of billing. The geographic location of distributors and third-party manufacturing service providers may be different from the geographic location of the ultimate end users.

We believe a substantial portion of the products billed to original equipment manufacturers (“OEMs”) and third-party manufacturing service providers in the Asia Pacific region are ultimately shipped to end-markets in the United States and Europe.

We also classify our product revenues based on our three product lines: (i) Connectivity; (ii) Ethernet switching; and (iii) Transport processing. Product revenues by product line are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
Connectivity	$	10,132	$	12,199	$	29,556	32,172
Ethernet switching	14,001		9,541		36,955		28,178
Transport processing	1,879		4,545		9,233		14,529
Product revenues	$	26,012	$	26,285	$	75,744	$	74,879

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STOCK BASED COMPENSATION

9 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK BASED COMPENSATION

STOCK BASED COMPENSATION

Stock Options

We have in effect one stock incentive plan, the 2013 Incentive Plan (the “Plan”), under which non-qualified stock options and restricted stock units have been granted to employees and non-employee directors. Under the Plan, we have 1.8 million shares available for future grant as of June 30, 2014.

Compensation cost related to our Plan and ESPP is as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
Cost of revenues	$	210	$	161	$	619	$	459
Engineering, research and development	573		428		1,643		1,193
Selling, general and administrative	803		567		2,204		1,653
Total stock-based compensation expense	$	1,586	$	1,156	$	4,466	$	3,305

As of June 30, 2014, there was $7.2 million of unrecognized stock-based compensation expense related to non-vested stock options, restricted stock units and our ESPP. The weighted average period over which the unearned stock-based compensation for stock options and restricted stock units expected to be recognized is approximately 1.4 years and 1.9 years, respectively. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional equity awards and our stock price increases.

Activity in stock option awards is as follows:

	Shares   (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life  (years)	Aggregate Intrinsic Value (in thousands)
Options outstanding, September 30, 2013	2,089		$	13.43	6.67	$	591
Granted	1,014		2.53
Exercised	(49	)	2.35
Cancelled or expired	(90	)	86.22
Options outstanding, June 30, 2014	2,964		7.64		7.23	1,792
Options exercisable, June 30, 2014	1,649		$	11.67	5.85	$	578

This intrinsic value represents the excess of the fair market value of our common stock on the date of exercise over the exercise price of such options. The aggregate intrinsic values in the preceding table for the options outstanding represent the total pretax intrinsic value, based on our closing stock price of $3.45 as of June 30, 2014, which would have been received by the option holders had those option holders exercised their in-the-money options as of those dates. There were 0.6 million in-the-money stock options that were exercisable as of June 30, 2014.

The per share fair values of time-based stock options granted in connection with stock incentive plans have been estimated using the following weighted average assumptions:

	Nine Months Ended June 30,
	2014	2013
Expected life (in years)	5.79	5.65
Expected volatility:
Weighted-average	81.5%	82.0%
Range	79.5% - 81.6%	79.8% - 82.1%
Expected dividend	—	—
Risk-free interest rate	1.7% - 1.9%	.9% - 1.0%

The weighted average fair value at the date of grant of time-based options granted in the nine months ended June 30, 2014 and 2013 was $1.75 and $1.43, respectively.

On December 10, 2013, we granted 500,000 market-based stock options at an exercise price of $2.53 to executive officers. The market-based options vest if either of the following conditions is met prior to December 10, 2018: (i) the closing price of our common stock equals or exceeds twice the exercise price of $2.53 for 30 consecutive trading days; or (ii) a change in control occurs where the Company’s stockholders receive in consideration of their shares of common stock cash or other consideration with a value at least equal to twice the exercise price of $2.53. We evaluate stock awards with market conditions as to the probability that the market conditions will be met and estimate the date at which the market conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period. We used the following assumptions to estimate the fair value of the options: expected life of 1.3 years, expected volatility of 80.0%, a zero dividend rate, and a risk-free rate of 2.79%. The market-based options had a grant date per share fair value of $1.86.

The following table provides additional information in regards to options outstanding as of June 30, 2014:

	Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding (in thousands)	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable (in thousands)	Weighted Average Exercise Price
$2.10 - $2.26	424	8.68	$	2.11	194	$	2.10
2.53	987	9.45	2.53		116	2.53
2.54 - 4.36	750	7.03	3.45		542	3.50
4.60 - 41.20	594	5.08	7.89		588	7.91
42.00 - 145.40	209	0.67	57.39		209	57.39
$2.10 - $145.40	2,964	7.23	$	7.64	1,649	$	11.67

Restricted Stock Units

Activity for our restricted stock award units is as follows:

	Restricted Stock Units (in thousands)		Weighted Average Grant-Date Fair Value per Share		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Restricted stock units, September 30, 2013	2,021		$	2.65	1.13	$	6,143
Awarded	1,600		2.62
Released	(1,179	)	2.69
Forfeited	(65	)	2.42
Restricted stock units, June 30, 2014	2,377		$	2.62	1.21	$	8,200

We issue restricted stock units as part of our equity incentive plans. For the majority of restricted stock units granted, the number of shares issued on the date the restricted stock units vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. The impact of such withholding totaled $1.3 million and $0.6 million for the nine months ended June 30, 2014 and 2013, respectively, and was recorded as settlement on restricted stock tax withholding in the accompanying unaudited consolidated statements of stockholders’ equity. Although shares withheld are not issued, they are treated as common stock repurchases in our unaudited consolidated financial statements, as they reduce the number of shares that would have been issued upon vesting.

Employee Stock Purchase Plan

Pursuant to our ESPP, eligible employees may authorize payroll deductions of up to 15% of their regular base salary subject to certain limits to purchase shares at the lower of 85% of the fair market value of the common stock on the date of the commencement of the offering or on the last day of the 6-month offering period. On January 31, 2014, 0.4 million shares were issued at a price per share of $2.46, a 15% discount to the share price on August 1, 2013, the commencement date for the purchase period that ended January 31, 2014. On July 31, 2014, 0.4 million shares were issued at a price per share of $2.55, a 15% discount to the share price on July 31 2014, the last date of the purchase period. We recognized $0.5 million and $0.4 million of stock compensation expense under the ESPP during the nine months ended June 30, 2014 and 2013, respectively. We determine the fair value of the ESPP awards using the Black-Scholes pricing model. Underlying assumptions used were as follows:

	Nine Months Ended June 30,
	2014	2013
Expected life (in years)	0.5	0.5
Expected volatility	37.1% - 50.3%	47.6% - 49.8%
Expected dividend	—	—
Risk-free interest rate	0.07% - 0.08%	0.11% - 0.14%

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INCOME TAXES

9 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The income tax expense (benefit) as a percentage of loss before income taxes was 0.4% for the nine months ended June 30, 2014 compared to (4.6)% for the comparable period in the prior year. Our income tax expense (benefit) is primarily impacted by foreign taxes, certain nondeductible interest and share based expenses. The income tax expense (benefit) is also impacted by the release of a portion of the valuation allowance related to certain foreign jurisdictions’ deferred tax assets as such balances were more likely than not realizable within the applicable carryforward period based on our analysis of the available positive and negative evidence.

At June 30, 2014, we had approximately $43.4 million, $33.0 million, and $133.2 million of federal, state, and foreign Net Operating Losses (“NOLs”), respectively, that can be used in future tax years. In December 2012, we issued 10.7 million shares of common stock in a public offering which resulted in a Section 382 ownership change. In general, a Section 382 ownership change occurs if there is a cumulative change in our ownership by “5%” shareholders (as defined in the Internal Revenue Code of 1986, as amended) that exceeds 50 percentage points over a rolling three-year period. An ownership change generally affects the rate at which NOLs and potentially other deferred tax assets are permitted to offset future taxable income. Of our federal NOL amount as of June 30, 2014, $28.1 million is subject to an annual Section 382 limitation of $1.4 million due to the December 2012 ownership change. Since we maintain a full valuation allowance on all of our U.S. and state deferred tax assets, the impact of the ownership change on the future realizability of our U.S. and state deferred tax assets did not result in an impact to our provision for income taxes for the nine months endedJune 30, 2014, or on our net deferred tax asset as of June 30, 2014.

If an additional ownership change occurs in the future, our ability to utilize our NOL carryforwards and other deferred tax assets to offset future taxable income may be further limited and the value and recoverability of our NOLs and other deferred tax assets could be further diminished.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Operating Leases and Software Licenses

We lease facilities under non-cancellable operating leases. The leases expire at various dates through fiscal year 2017 and frequently include renewal provisions for varying periods of time, provisions which require us to pay taxes, insurance, maintenance costs, or provisions for minimum rent increases. Minimum leases payments, including scheduled rent increases are recognized as rent expenses on a straight line basis over the applicable lease term. Lease incentives received are recognized as a reduction of rental expense on a straight-line basis over the term of the lease.

Software license commitments represent non-cancellable licenses of intellectual property from third‑parties used in the development of our products.

Future minimum lease payments under non-cancellable operating leases that have remaining non-cancellable lease terms in excess of one year and software licenses are as follows:

	Remaining in 2014		2015		2016		2017		2018		Thereafter		Total
	(in thousands)
Operating leases	$	559	$	1,952	$	591	$	110	$	—	$	—	$	3,212
Software licenses	1,684		7,136		3,147		2,900		2,800		—		17,667
Total	$	2,243	$	9,088	$	3,738	$	3,010	$	2,800	$	—	$	20,879

Litigation

From time-to-time, we are involved in legal proceedings in the ordinary course of business, including actions against us which assert or may assert claims or seek to impose fines and penalties in substantial amounts. Although the ultimate outcome of these matters cannot be determined, we believe that as of June 30, 2014, the final disposition of any such proceedings will not have a material adverse effect on our financial position, results of operations, or liquidity. Related legal defense costs are expensed

as incurred.

Guarantees and Indemnities

During our normal course of business, we make certain contractual guarantees and indemnities pursuant to which we may be required to make future payments under specific circumstances. We review our exposure under these agreements no less than annually, or more frequently when events indicate. Except for our established warranty reserves, we do not expect that any potential payments in connection with any of these indemnity obligations would have a material adverse effect on our consolidated financial position. Accordingly, except for established warranty reserves, we have not recorded any liabilities for these agreements as of June 30, 2014 and September 30, 2013.

Warranties

We establish reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with our customers. We generally warrant our products against defects for one year from date of shipment, with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. Our warranty reserves are established at the time of sale and updated throughout the warranty period based upon numerous factors including historical warranty return rates and expenses over various warranty periods. Historically, our warranty returns have not been material.

Intellectual Property Indemnities

We indemnify certain customers and our contract manufacturers against liability arising from third-party claims of intellectual property rights infringement related to our products. These indemnities appear in development and supply agreements with our customers as well as manufacturing service agreements with our contract manufacturers, are not limited in amount or duration and generally survive the expiration of the contract. Given that the amount of any potential liabilities related to such indemnities cannot be determined until an infringement claim has been made, we are unable to determine the maximum amount of losses that we could incur related to such indemnifications.

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STOCK BASED COMPENSATION Stock Options Narrative (Details) (USD $)	9 Months Ended				0 Months Ended	9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 Stock Options [Member]	Jun. 30, 2013 Stock Options [Member]	Dec. 10, 2013 Stock Options [Member] Executive Officer [Member]	Jun. 30, 2014 Restricted Stock Units (RSUs) [Member]	Jun. 30, 2014 Total Stockholders' Equity	Jun. 30, 2013 Total Stockholders' Equity
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Repurchase and retirement of restricted stock units for payroll taxes							$ (1,251,000)	$ (620,000)
Number of shares available for future grant	1,800,000
Unrecognized stock-based compensation expense	$ 7,200,000
Weighted average period over which the unearned stock-based compensation is expected to be recognized			1 year 5 months 8 days			1 year 10 months 24 days
Closing stock price used to calculate total pretax intrinsic value	$ 3.45
In-the-money stock options exercisable	600,000
Weighted average grant date fair value	$ 1.75	$ 1.43			$ 1.86
Options granted					500,000
Weighted average exercise price, Granted	$ 2.53				$ 2.53
Consecutive trading days					30 days
Expected life (in years)			5 years 9 months 13 days	5 years 7 months 24 days	1 year 3 months 18 days
Expected volatility:					80.00%
Expected dividend			0.00%	0.00%	0.00%
Risk-free interest rate					2.79%

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FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILITY (Tables)

9 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Schedule of the fair value of the loans and compound embedded derivative

The estimated fair values of our financial instruments are as follows:

	June 30, 2014				September 30, 2013
	Carrying value		Fair value		Carrying value		Fair value
	(in thousands)
Term A Loan	$	7,783	$	8,840	$	7,919	$	8,165
Term B Loan	8,545		10,360		8,444		9,781
2014 Debentures	32,375		34,615		44,384		49,282

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COMPUTATION OF NET LOSS PER SHARE Schedule of Dilutive Common Shares Excluded from the Computation (Details) In Thousands, unless otherwise specified	9 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	14,881	17,552
Outstanding stock options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	2,964	2,110
Outstanding restricted stock units [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	2,377	2,031
ESPP Shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	355	518
Convertible preferred stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	674
2014 Convertible debentures
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	7,298	10,332
Convertible Notes Payable [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,887	1,887

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STOCK BASED COMPENSATION Employee Stock Purchase Plan Narrative (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended		0 Months Ended		9 Months Ended		0 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jan. 31, 2014 Employee Stock [Member]	Aug. 02, 2013 Employee Stock [Member]	Jun. 30, 2014 Employee Stock [Member]	Jun. 30, 2013 Employee Stock [Member]	Jul. 31, 2014 Subsequent Event [Member] Employee Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum annual contributions per employee, percent							15.00%
Call option for percent of share of stock							85.00%
Common stock, shares reserved for future issuance							3,400,000
Shares issued in period					366,485				355,415
Per share price of ESPP shares issued					$ 2.46				$ 2.55
Discount from market price						15.00%
Stock compensation recognized	$ 1,586	$ 1,156	$ 4,466	$ 3,305			$ 456	$ 443

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock [Member]	Additional Paid-in-Capital [Member]	Accumulated Deficit [Member]	Total Stockholders' Equity
Balance at Sep. 30, 2013	$ 15,908	$ 575	$ 1,891,661	$ (1,876,328)	$ 15,908
Balance (in shares) at Sep. 30, 2013		57,545,000
Increase (Decrease) in Stockholders' Equity
Net loss	(15,590)				(15,590)
Compensation expense related to stock options, awards and Employee Stock Purchase Plan			4,466		4,466
Stock Issued During Period, Shares, Exercise of Stock Options		49,000
Adjustments to Additional Paid in Capital, Share-based Compensation, Stock Options, Issuance of Common Stock Upon Exercise			114		114
Stock Issued During Period, Shares, Employee Stock Purchase Plans		366,000
Stock Issued During Period, Value, Employee Stock Purchase Plan		4	905		909
Issuance of common stock, net of offering costs (in shares)		8,582,000
Issuance of common stock, net of offering costs		86	26,519		26,605
Release of restricted stock units (in shares)		1,179,000
Release of restricted stock units		12	(12)
Repurchase and retirement of restricted stock units for payroll taxes (in shares)		(379,000)
Repurchase and retirement of restricted stock units for payroll taxes		(4)	(1,247)		(1,251)
Other			62		62
Balance at Jun. 30, 2014	$ 31,223	$ 673	$ 1,922,468	$ (1,891,918)	$ 31,223
Balance (in shares) at Jun. 30, 2014		67,342,000

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DEBT

9 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

DEBT

DEBT

	June 30, 2014		September 30, 2013
	(in thousands)
Term A Loan, bearing interest at 9.0% and 10.5% as of June 30, 2014 and September 30, 2013, respectively, due August 2016	$	7,783	$	7,919
Term B Loan, convertible, bearing interest at 9.0% and 8.0% as of June 30, 2014 and September 30, 2013, respectively, due August 2016	8,545		8,444
Other	—		3
Long-term debt, net	16,328		16,366
2014 Debentures, convertible, 8.0% fixed-rate notes, due October 2014	32,375		44,384
Total debt, net	$	48,703	$	60,750

Additional information about our debt is as follows:

	Term A Loan			Term B Loan			2014 Debentures
	(in thousands)
Principal	$	7,857		$	9,342		$	32,843
Unamortized debt discount	(74		)	(797		)	(468		)
Carrying value	$	7,783		$	8,545		$	32,375
Interest payable terms	Quarterly, in arrears			Quarterly, in arrears			Semi-annually, in arrears
Annual effective interest rate	9.5		%	13.5		%	12.2		%
Conversion rate per common share	n/a			$	4.95		$	4.50

Our current debt is comprised of our convertible subordinated debentures (“2014 Debentures”). Our long-term debt is comprised of our senior term loans (the “Term A Loan” and “Term B Loan”, which we collectively refer to as our “Term A and B Loans”).

The credit agreements for the Term A and B Loans and 2014 Debentures provide that we must repurchase, at the option of the holders, indebtedness at its principal amounts plus accrued and unpaid interest upon the occurrence of a fundamental change involving us, as described in the agreements. Upon the occurrence of a fundamental change involving us, the holders of the 2014 Debentures and the Term B Loan may be entitled to receive a “make-whole premium” if they convert their 2014 Debentures or Term B Loan into common stock, payable in additional shares of common stock, if the trading price of our common stock is between $3.20 and $6.00 per share. During the three months ended June 30, 2014, cash of $0.7 million was restricted for payment of the 2014 Debentures following the sale of assets under the terms of the credit agreement.

On November 5, 2013, we amended the credit agreement for the Term A and B Loans (the “Amendment”). The Amendment extends the maturity dates of our outstanding Term A Loan and Term B Loan from February 4, 2014 and October 30, 2014, respectively, to August 31, 2016, and also provides that the Term A and B Loans will each bear interest in cash at 9.0% per annum payable quarterly in arrears. The Amendment provides us with a right to optionally prepay the Term A and B Loans in whole or in part, at any time and from time-to-time, subject to the payment of a prepayment fee. The prepayment fee is 5% of the aggregate principal amount repaid for prepayments made prior to October 30, 2014, 3% for prepayments made on or after October 30, 2014 but prior to October 30, 2015, and 2% for prepayments made on or after October 30, 2015. The credit agreement for the Term A and B Loans continues to require that we prepay the Term A and B Loans upon the occurrence of certain prepayment events, but the Amendment provides us with greater flexibility to sell assets and use the resulting proceeds for purposes other than repaying the Term A and B Loans after repayment of our 2014 Debentures.

The Amendment provides us with the right, so long as no event of default exists under the credit agreement for the Term A and B Loans, to purchase, repay, redeem, or defease any or all of the 2014 Debentures. In addition, the Amendment requires us to maintain an unrestricted cash balance of $8.0 million and achieve minimum quarterly revenues of $10.0 million. We were in compliance with all covenants as of June 30, 2014.

The credit agreement for the Term A and B Loans continues to provide the lenders with the right to convert the Term B Loan into shares of our common stock at a conversion price of $4.95 per share through October 30, 2014. After that date, the lenders will not have the right to convert the Term B Loan into common stock.

In connection with the Amendment, we paid the lenders a consent fee of $0.3 million which was recorded as a debt discount and will be amortized over the remaining term of the Term A and B Loans. Additionally, in connection with the Amendment we repurchased $13.7 million principal amount of our 2014 Debentures at 107% of the principal amount thereof plus accrued interest, which eliminated the potential issuance of approximately 3.0 million dilutive common shares. We recorded a loss on extinguishment of debt in the amount of $1.6 million related to the repurchase of the 2014 Debentures. After this transaction, $32.8 million principal amount of 2014 Debentures remain outstanding and are due on October 30, 2014.

Debt Maturities

Maturity of our total aggregated outstanding debt is as follows:

Fiscal Year	(in thousands)
2014	$	—
2015	32,843
2016	17,199
Total	$	50,042

Except for required repurchases upon a change in control or in the event of certain asset sales, as described in the applicable credit agreements, we are not required to make any sinking fund or redemption payments with respect to this debt.

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INVENTORY INVENTORY (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Sep. 30, 2013
Inventory, net:
Raw materials	$ 1,110	$ 1,220
Work-in-process	5,296	3,652
Finished goods	4,831	5,820
Total inventory, net	$ 11,237	$ 10,692

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STOCK BASED COMPENSATION Summary of Exercise Prices (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Jun. 30, 2014
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 2.10
Exercise Price Range, Upper Range Limit	$ 145
Number of Options Outstanding	2,964
Outstanding Options, Weighted Average Remaining Contractual Term	7 years 2 months 23 days
Outstanding Options, Weighted Average Exercise Price	$ 7.64
Number of Exercisable Options	1,649
Exercisable Options, Weighted Average Exercise Price	$ 11.67
2.10 - 2.26 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 2.10
Exercise Price Range, Upper Range Limit	$ 2.26
Number of Options Outstanding	424
Outstanding Options, Weighted Average Remaining Contractual Term	8 years 8 months 4 days
Outstanding Options, Weighted Average Exercise Price	$ 2.11
Number of Exercisable Options	194
Exercisable Options, Weighted Average Exercise Price	$ 2.10
2.53 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 2.53
Exercise Price Range, Upper Range Limit	$ 2.53
Number of Options Outstanding	987
Outstanding Options, Weighted Average Remaining Contractual Term	9 years 5 months 12 days
Outstanding Options, Weighted Average Exercise Price	$ 2.53
Number of Exercisable Options	116
Exercisable Options, Weighted Average Exercise Price	$ 2.53
2.54 - 4.36 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 2.54
Exercise Price Range, Upper Range Limit	$ 4.36
Number of Options Outstanding	750
Outstanding Options, Weighted Average Remaining Contractual Term	7 years 0 months 10 days
Outstanding Options, Weighted Average Exercise Price	$ 3.45
Number of Exercisable Options	542
Exercisable Options, Weighted Average Exercise Price	$ 3.50
4.60 - 41.20 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 4.60
Exercise Price Range, Upper Range Limit	$ 41.20
Number of Options Outstanding	594
Outstanding Options, Weighted Average Remaining Contractual Term	5 years 0 months 29 days
Outstanding Options, Weighted Average Exercise Price	$ 7.89
Number of Exercisable Options	588
Exercisable Options, Weighted Average Exercise Price	$ 7.91
42.00 - 145.40 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 42
Exercise Price Range, Upper Range Limit	$ 145
Number of Options Outstanding	209
Outstanding Options, Weighted Average Remaining Contractual Term	8 months 1 day
Outstanding Options, Weighted Average Exercise Price	$ 57.39
Number of Exercisable Options	209
Exercisable Options, Weighted Average Exercise Price	$ 57.39

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DEBT (Tables)

9 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments

	June 30, 2014		September 30, 2013
	(in thousands)
Term A Loan, bearing interest at 9.0% and 10.5% as of June 30, 2014 and September 30, 2013, respectively, due August 2016	$	7,783	$	7,919
Term B Loan, convertible, bearing interest at 9.0% and 8.0% as of June 30, 2014 and September 30, 2013, respectively, due August 2016	8,545		8,444
Other	—		3
Long-term debt, net	16,328		16,366
2014 Debentures, convertible, 8.0% fixed-rate notes, due October 2014	32,375		44,384
Total debt, net	$	48,703	$	60,750

Schedule of Debt

Additional information about our debt is as follows:

	Term A Loan			Term B Loan			2014 Debentures
	(in thousands)
Principal	$	7,857		$	9,342		$	32,843
Unamortized debt discount	(74		)	(797		)	(468		)
Carrying value	$	7,783		$	8,545		$	32,375
Interest payable terms	Quarterly, in arrears			Quarterly, in arrears			Semi-annually, in arrears
Annual effective interest rate	9.5		%	13.5		%	12.2		%
Conversion rate per common share	n/a			$	4.95		$	4.50

Schedule of Maturities of Long-term Debt

Maturity of our total aggregated outstanding debt is as follows:

Fiscal Year	(in thousands)
2014	$	—
2015	32,843
2016	17,199
Total	$	50,042