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 February 2, 2008

or

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

Commission File Number: 001-33109

OPTIUM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		59-3684497
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

200 Precision Road, Horsham PA 19044

(Address of principal executive offices) (Zip Code)

(267) 803-3800

(Registrant’s telephone number, including area code)

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.

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer x		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). o Yes x No

As of March 11, 2008, the registrant had 25,481,832 shares of Common Stock, par value $.0001, outstanding. This number excludes 1,494,085 shares held by the registrant as treasury shares.

TABLE OF CONTENTS

PART I

Financial Information

		Page

ITEM 1.	Financial Statements.

1.	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended February 2, 2008 and January 27, 2007	2

2.	Condensed Consolidated Balance Sheets as of February 2, 2008 (unaudited) and July 28, 2007	3

3.	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended February 2, 2008 and January 27, 2007	4

4.	Notes to Condensed Consolidated Financial Statements (unaudited)	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk.	27

ITEM 4.	Controls and Procedures.	27

PART II

Other Information

ITEM 1.	Legal Proceedings.	28
ITEM 1A.	Risk Factors.	28
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	41
ITEM 3.	Defaults Upon Senior Securities.	41
ITEM 4.	Submission of Matters to a Vote of Security Holders.	41
ITEM 5.	Other information.	41
ITEM 6.	Exhibits.	41

SIGNATURES		42

FORWARD-LOOKING STATEMENTS

From time to time, the Company makes forward-looking statements. Forward-looking statements include financial projections, statements of plans and objectives for future operations, statements of future economic performance, and statements of assumptions relating thereto. When used in this document, the words “will,” “plan,” “believe,” “may,” “anticipate,” “ could,” “seek,” “estimate,” “expect,” “continue,” “intend,” and similar expressions, variations or the negatives of these terms are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable at the time they are made, no assurance can be made that these expectations will prove to be correct.

The Company may include forward-looking statements in its periodic reports to the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K, in its annual report to shareholders, in its proxy statements, in its press releases, in other written materials, and in statements made by employees to analysts, investors, representatives of the media, and others.

By their very nature, forward-looking statements are subject to uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. Actual results may differ materially due to a variety of factors including, without limitation, those discussed under “Management’s Discussion and Analysis of Financial Conditions and Results of Operations;” “Risk Factors;” and elsewhere in this report. Investors and others should carefully consider these factors and other uncertainties and events, whether or not the statements are described as forward-looking.

Forward-looking statements made by the Company are intended to apply only at the time they are made, unless explicitly stated to the contrary. Moreover, whether or not stated in connection with a forward-looking statement, the Company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made. If the Company were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that the Company will make additional updates or corrections thereafter.

PART I

Financial Information

ITEM 1. Financial Statements

Optium Corporation

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

	Three months ended					Six months ended
	February 2, 2008			January 27, 2007		February 2, 2008			January 27, 2007
Revenue	$	40,294		$	34,139	$	76,414		$	64,149
Cost of revenue	29,413			24,214		55,864			45,519
Gross profit	10,881			9,925		20,550			18,630
Operating expenses:
Research and product development	5,995			3,513		11,032			6,509
Selling, general and administrative	6,231			3,359		12,582			6,186
Total operating expenses	12,226			6,872		23,614			12,695
Income (loss) from operations	(1,345		)	3,053		(3,064		)	5,935
Interest and other income, net	614			1,102		1,319			1,158
Income (loss) before income tax expense	(731		)	4,155		(1,745		)	7,093
Income tax expense	69			293		134			472
Net income (loss)	$	(800	)	$	3,862	$	(1,879	)	$	6,621

Basic net income (loss) per share	$	(0.03	)	$	0.16	$	(0.07	)	$	0.48
Basic weighted average common shares outstanding	25,452			24,592		25,443			13,668

Diluted net income (loss) per share	$	(0.03	)	$	0.15	$	(0.07	)	$	0.28
Diluted weighted average common shares outstanding	25,452			26,592		25,443			23,564

See accompanying notes to the financial statements.

Optium Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

	February 2, 2008			July 28, 2007
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	47,805		$	25,359
Short-term investments	4,597			36,018
Accounts receivable, net of allowances of $34 and $46, respectively	30,345			21,853
Inventories, net	23,834			20,684
Restricted cash	68			68
Deferred tax assets	6,071			4,976
Prepaid expenses and other current assets	1,873			1,039
Total current assets	114,593			109,997
Property and equipment, net	14,482			9,124
Other assets	433			170
Intangible assets, net	1,806			2,006
Goodwill	38,509			37,923
Deferred tax assets	7,745			8,881
Total assets	$	177,568		$	168,101
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	26,756		$	20,222
Accrued expenses	5,969			4,389
Accrued warranty	392			359
Current portion of debt	41			46
Total current liabilities	33,158			25,016
Long-term debt, net of current portion	3			17
Other long-term liabilities	361			189
Total liabilities	33,522			25,222
Stockholders’ equity:
Common stock, $0.0001 par value — 100,000,000 shares authorized, 26,970,632 and 26,924,963 shares issued, respectively; 25,476,547 and 25,430,878 shares outstanding, respectively	3			3
Additional paid in capital	193,324			191,118
Deferred compensation	(674		)	(924		)
Treasury stock, 1,494,085 shares of common stock—at cost	(2,762		)	(2,762		)
Accumulated deficit	(48,370		)	(46,395		)
Accumulated other comprehensive income	2,525			1,839
Total stockholders’ equity	144,046			142,879
Total liabilities and stockholders’ equity	$	177,568		$	168,101

See accompanying notes to the financial statements.

Optium Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Six months ended
	February 2, 2008			January 27, 2007
Cash flows from operating activities
Net income (loss)	$	(1,879	)	$	6,621
Adjustments to reconcile net income (loss) to net cash used in operations:
Depreciation and amortization	2,001			1,318
Stock-based compensation	2,195			433
Provision for doubtful accounts	(13		)	38
Loss on disposal of property and equipment	—			9
Change in deferred taxes	76			—
Changes in operating assets and liabilities:
Accounts receivable	(8,591		)	(2,624		)
Inventories, net	(2,969		)	(3,801		)
Prepaid expenses and other current assets	(915		)	(741		)
Other assets	(242		)	(128		)
Accounts payable	6,455			(2,011		)
Accrued expenses	1,621			753
Other current liabilities	—			(2,640		)
Accrued warranty	32			39
Other long-term liabilities	19			127
Net cash used in operating activities	(2,210		)	(2,607		)
Cash flows from investing activities
Purchase of property and equipment	(6,873		)	(2,299		)
Proceeds from sale of property and equipment	—			30
Release of restricted cash	180			—
Purchase of short-term investments	(35,854		)	(27,819		)
Maturities and sales of short-term investments	67,275			8,384
Net cash provided by (used in) investing activities	24,728			(21,704		)
Cash flows from financing activities
Payments on line of credit	(19		)	(671		)
Net proceeds from initial public offering	—			95,378
Proceeds from exercise of employee stock options	13			38
Net cash (used in) provided by financing activities	(6		)	94,745
Effect of exchange rate changes on cash and cash equivalents	(66		)	(12		)

Net increase in cash and cash equivalents	22,446			70,422

Cash and cash equivalents, beginning of period	25,359			10,377

Cash and cash equivalents, end of period	$	47,805		$	80,799

See accompanying notes to the financial statements.

Optium Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Operations

Optium Corporation (the “Company” or “Optium”) was incorporated in the State of Delaware on September 8, 2000. The Company is a leading designer and manufacturer of high-performance optical subsystems supporting core to the edge applications for use in telecommunications and cable TV network systems. Since its founding in 2000, Optium has developed or acquired proprietary technology and products that enable transmission and switching functionality for high-bandwidth, intelligent optical networking applications. The Company supplies an extensive suite of optical subsystems, including 10Gb/s and 40Gb/s transceivers, cable TV and fiber to the home, or FTTH, transmitters, analog RF over fiber products, line cards, circuit packs and its technologically innovative wavelength selective switch reconfigurable optical add/drop multiplexer products, or WSS ROADMs. The Company’s optical subsystems are used in network systems that deliver voice, video and other data services for consumers and enterprises that are delivered in the long haul, metropolitan and access segments, referred to as the core to the edge, of telecommunications and cable TV networks. The Company’s customers are network systems vendors whose customers include wireline and wireless telecommunications service providers and cable TV operators, collectively referred to as carriers.

On November 1, 2006, the Company closed its initial public offering of 5.98 million shares of common stock, including the sale of an additional 780,000 shares to cover underwriter over-allotments. The Company’s common stock, quoted on the NASDAQ Global Market under the symbol “OPTM,” began trading on October 27, 2006. Cash proceeds to the Company, net of underwriter commissions of approximately $7.3 million and related offering expenses of approximately $4.1 million, totaled approximately $93.2 million (including approximately $1.9 million of offering expenses paid during fiscal year 2006). All preferred stock outstanding at November 1, 2006 was converted to common stock upon the completion of the initial public offering.

2. Summary of Significant Accounting Policies

Principles of consolidation

The consolidated financial statements include Optium Corporation and its wholly owned subsidiaries, Optium Australia Pty Limited, Optium Israel Limited, and Kailight Photonics Inc. All intercompany accounts and transactions have been eliminated in the consolidation.

Fiscal year

Optium operates on a 52 or 53 week fiscal year ending on the Saturday closest to July 31. Fiscal year 2008 consists of 53 weeks. Each quarter consists of 13 or 14 weeks; the second quarter of fiscal year 2008 consisted of 13 weeks.

Use of estimates and adjustments

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and loss during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods presented have been included.

Cash and cash equivalents

The Company considers all highly liquid securities purchased with original maturities of ninety days or less to be cash equivalents. Money market accounts that are classified as cash equivalents are stated at cost, which approximates market value. Other short-term investments that mature in less than ninety days and are classified as cash equivalents are reported at fair value, with resulting unrealized gains or losses reported as a separate component of stockholders’ equity.

At both February 2, 2008 and July 28, 2007, the Company had restricted cash relating to an operating lease in the form of a certificate of deposit for $68,000, which is renewed on a monthly basis. The term of the certificate of deposit extends from the commencement date of the lease (May 1, 2001) through at least ninety days after the expiration of the lease term (April 30, 2008).

Foreign currency translation

The financial statements for Optium Australia, the Company’s foreign subsidiary, are measured using the local currency (the Australian dollar) as the functional currency. Foreign assets and liabilities in the condensed consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Revenues and expenses are translated at the average exchange rate for the month. Translation adjustments do not impact the results of operations and are reported as a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included in the condensed consolidated results of operations.

Accounts receivable

The Company carries its accounts receivable at the amount that it considers to be collectible and does not require collateral from its customers. Accordingly, an allowance account is established through a charge against operations in an amount deemed adequate to absorb the uncollectible portion of such receivables. The allowance is determined through management review of outstanding amounts per customer. At February 2, 2008 and July 28, 2007, an allowance of $33,700 and $46,440 respectively, based on management’s analysis, was available to absorb any uncollectible balances.

Inventories

Inventories are valued at the lower of cost or market value. Cost is determined on a first-in, first-out method. The Company makes inventory commitments and purchase decisions based upon sales forecasts. To mitigate potential component supply constraints, the Company builds inventory levels for certain items with long supply lead times. The Company assesses the valuation of its inventory on a periodic basis and writes down the value for estimated excess and obsolete inventory based on estimates of future demand. The Company defines obsolete inventory as inventory that will no longer be used in its manufacturing processes. Excess inventory is defined as inventory in excess of projected usage and is determined using management’s best estimate, based upon information then available to the Company.

Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as additions to property and equipment. The Company provides for depreciation and amortization using the straight-line method and charges amounts to operations to allocate the cost of the assets over their estimated useful lives. Useful lives of the Company’s asset categories are: machinery and equipment of five years, computer equipment and software of three years; and furniture and office equipment of seven years. The costs of leasehold improvements on leased office and warehouse space are capitalized and amortized using the straight-line method over the shorter of the life of the applicable lease or the useful life of the improvement.

Assets held under capital leases are recorded at the lower of the fair market value of the asset or the present value of future minimum lease payments and are amortized using the straight-line method over the primary term of the relevant capital lease. The Company had no capital lease obligations as of February 2, 2008 and July 28, 2007.

Intangible assets

Intangible assets consist of intellectual property and are stated at cost less accumulated amortization. Intangible assets are amortized using the straight-line method over their estimated useful life, which is five years. Useful lives and related amortization expense are based on management’s estimate of the period that the assets will generate revenues or otherwise be used by the Company. If assets are considered impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.

Valuation of goodwill

Under the Statements of Financial Accounting Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets , goodwill is subject to annual impairment testing criteria. The Company’s policy is to compare the carrying value of a business unit’s net assets to the estimated fair value of the business unit, using a sales multiple approach to estimate the business unit’s fair value. The fair value is based on management’s estimate of future revenues to be generated by the business component. Such estimated future revenues consider factors such as future operating income and historical trends. The Company tests for impairment on an annual basis or on an interim basis if circumstances change that would indicate the possibility of impairment. The impairment review requires an analysis of future projections and assumptions about the Company’s operating performance. If such a review indicates that the assets are impaired, a charge to operations would be recorded for the amount of the impairment and the corresponding impaired assets would be reduced in carrying value. The Company did not identify an asset impairment related to the carrying value of goodwill as of February 2, 2008.

Impairment of long-lived assets

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , or SFAS 144, established accounting standards for the impairment of long-lived assets and certain identifiable intangibles related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. Long-lived assets consist primarily of property and equipment. In accordance with SFAS 144, the Company continually evaluates whether events or circumstances have occurred to indicate that the estimated remaining useful life of its long-lived assets may warrant revision or the carrying value might be impaired. The carrying value of long-lived assets is considered impaired when the total projected undiscounted cash flows from such assets are less than carrying value. The Company determined that no event or circumstance occurred that would have warranted a revision to carrying value of its long-lived assets as of February 2, 2008.

Fair value of financial instruments

Financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and notes payable. The carrying amounts of the Company’s financial instruments approximate their fair values.

Short-term investments

The Company considers all short-term investments as available-for-sale and records all short-term investments at fair value, with resulting unrealized gains or losses reported as a separate component of stockholders’ equity. Those investments with an original maturity of less than ninety days are classified as cash equivalents, while those with an original maturity of greater than ninety days and less than one year are classified as short-term investments on the Company’s condensed consolidated balance sheet.

Stock-based compensation

Effective July 30, 2006, the Company adopted SFAS No. 123R, Share-Based Payment, or SFAS 123R, which requires companies to recognize in their statement of operations all share-based payments, including grants of stock options and restricted stock units, based on the grant date fair value. The Company adopted SFAS 123R using the prospective transition method. Stock-based compensation is measured at the grant date, based on the fair value of the award, and expensed over the requisite service period. The application of SFAS 123R involves significant amounts of judgment in the determination of inputs into the Black-Scholes model which the Company uses to determine the value of stock options. Inherent in this model are assumptions related to expected stock price volatility, option life, risk free interest rate and dividend yield. While the risk free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and option life assumptions require a greater level of judgment which make them critical accounting estimates. The fair value of each stock option grant during the first six months of fiscal year 2008 was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

	Three months ended February 2, 2008	Six months ended February 2, 2008	Three months ended January 27, 2007	Six months ended January 27, 2007
Average risk-free interest rate	2.97%	3.73%	4.45%	4.74%
Expected dividend yield	0%	0%	0%	0%
Expected life	5 years	5 years	5 years	5 years
Expected volatility	82.00%	80.87%	80.00%	80.00%
Forfeiture rate	9.76%	10.01%	9.28%	9.28%

Risk-free interest rate: The Company uses the risk free interest rate of a U.S. Treasury note with a similar term on the date of the grant.

Expected dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid and does not anticipate paying dividends in the near future.

Expected life: The Company’s expected life is based on the period the options are expected to remain outstanding based on the vesting periods and expectations of future employee actions.

Expected volatility: The Company estimated the expected volatility of the stock price based on an analysis of other volatility factors exhibited in the market because of the limited history of the Company’s stock.

Forfeiture rate: The Company estimates forfeitures based on historical experience and factors of known historical or future projected work force reduction actions to anticipate the projected forfeiture rates.

Restricted stock units, or RSUs, have a fair value based on the closing price of the Company’s stock on the date of grant. The RSUs granted during the three and six months ended February 2, 2008 had a weighted average fair value of $9.69 and $9.66, respectively. The stock units have varying vesting schedules, dependent on the grant details. The total stock-based compensation associated with the RSUs will be expensed over the requisite service period of the respective grants. Forfeiture rates of 4.88% and 5.06% were used to calculate the stock-based compensation related to the restricted stock units granted during the three and six months ended February 2, 2008, respectively.

Revenue recognition

The Company derives revenue from the manufacture and sale of optical subsystem products for use in high-performance network systems. Our revenue recognition policy follows SEC Staff Accounting Bulletin No. 104, “Revenue Recognition.” Specifically, the Company recognizes product revenue when the following requirements have been met:

· Evidence of an arrangement. Persuasive evidence exists of an arrangement with a customer, typically consisting of a purchase order which details quantity, fixed schedule of delivery and agreed upon terms.

· Delivery and acceptance. Product has been shipped via third party carrier, accepted and title has transferred to the customer, under terms agreed to by the customer. The only rights of return are under our warranty policy.

· Fixed or determinable fee. The amount of revenue to which we are entitled is fixed or determinable at the time of shipment. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment.

· Collection is deemed probable. Collectability is reasonably assured and there are no uncertainties with respect to customer acceptance. We assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

The Company is required to determine whether delivery has occurred, whether items will be returned or whether the Company will be paid under normal terms. The Company specifies delivery terms and assesses each shipment against those terms and only recognizes revenue when certain that the delivery terms have been met. To the extent that one or more of the conditions are not present, the Company delays recognition of revenue until all conditions are present. Standard terms offered

to customers are payment due 30 days from the date of invoice. For certain customers, the Company has negotiated payment terms different than 30 days to conform to such customer’s standard payment terms and/or such customer’s credit standing.

The Company may offer evaluation units to our current and potential customers, at no charge, for purposes of expanding our customer base and product portfolio. Such units are expensed when shipped and are recognized as part of selling, general and administrative expense in the accompanying condensed consolidated statement of operations.

Product development costs

The costs of the development of hardware products are expensed as incurred.

Shipping and handling costs

Shipping and handling costs related to products sold are included in cost of revenue.

Income taxes

The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes , or SFAS 109. SFAS 109 requires the Company to account for income taxes using a balance sheet approach, requiring the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events having been recognized in the Company’s financial statements or tax returns. Deferred income taxes have been provided for the differences between the financial reporting carrying values and the income tax reporting basis of the Company’s assets and liabilities. These temporary differences consist of differences between the timing of the deduction of certain amounts between income tax and financial statement reporting purposes. The Company adopted Financial Accounting Standards Board, or FASB, Interpretation No. 48 Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement 109, Accounting for Income Taxe s, or FIN 48, on July 29, 2007. Under the new provisions, the Company will not recognize a tax benefit for an uncertain income tax position unless it is “more likely than not” that such position is sustainable. As a result of the implementation of FIN 48, the Company recognized a net $100,000 increase in the liability for unrecognized tax benefits, which was accounted for as an increase to the July 28, 2007 balance of the accumulated deficit.

Comprehensive income (loss)

SFAS No. 130, Reporting Comprehensive Income , requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Components of other comprehensive income (loss) that the Company currently reports are gains and losses from foreign currency translations and unrealized gains and losses from short-term investments, as follows (in thousands):

	Three months ended						Six months ended
	February 2, 2008			January 27, 2007			February 2, 2008			January 27, 2007

Net income (loss)	$	(800	)	$	3,862		$	(1,879	)	$	6,621
Other comprehensive income:
Unrealized gain (loss) on investments	(1		)	(10		)	6			(10		)
Net change in cumulative foreign currency translation adjustment	(137		)	99			680			129
Comprehensive income (loss)	$	(938	)	$	3,951		$	(1,193	)	$	6,740

Net income (loss) per share

The Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings per Share , or SFAS 128. Under the provisions of SFAS 128, basic net income (loss) per share is computed by dividing the net income (loss) applicable to common stockholders for the period by the weighted average number of shares of common stock outstanding. In accordance with SFAS 128, incremental potential common shares from the conversion of preferred stock and the exercise of stock options and warrants are included in the calculation of diluted net income (loss) per share except when the effect would be anti-dilutive. On October 10, 2006, the Company’s 1-for-12 reverse stock split of the Company’s issued common stock became effective, and all share data has been retroactively adjusted to reflect this reverse stock split.

The calculations for basic and diluted net income (loss) per share were as follows (in thousands, except per share data):

	Three months ended					Six months ended
	February 2, 2008			January 27, 2007		February 2, 2008			January 27, 2007
Numerator:
Net income (loss)	$	(800	)	$	3,862	$	(1,879	)	$	6,621

Denominator:
Weighted average common shares outstanding	25,452			24,592		25,443			13,668
Effect of dilutive shares
Stock options	—			1,403		—			1,285
Series A and C warrants	—			49		—			71
Conversion of preferred shares into common stock	—			548		—			8,540
Adjusted weighted-average common shares outstanding	25,452			26,592		25,443			23,564

Basic net income (loss) per share	$	(0.03	)	$	0.16	$	(0.07	)	$	0.48
Diluted net income (loss) per share	$	(0.03	)	$	0.15	$	(0.07	)	$	0.28

For the three and six months ended February 2, 2008, options, unvested restricted stock units and warrants to purchase 2,856,129 shares of common stock have been excluded from the calculation, as their impact would have been anti-dilutive.

Segment information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information , or SFAS 131, establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in interim financial reports issued to stockholders. Operating segments are identified as components of an enterprise about which separate financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.

Recent accounting pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement, or SFAS 157. SFAS 157 establishes a common definition to provide enhanced guidance when using fair value to measure assets and liabilities, establishes a framework for measuring fair value, and expands disclosures about such fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently determining the impact of implementing SFAS 157, which will be effective for fiscal year 2009.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB No. 115, or SFAS 159 . SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Company is currently determining the impact of implementing SFAS 159, which will be effective for fiscal year 2009.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, or SFAS 141R. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. SFAS 141R establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in the business combination. The Company is currently determining the impact of implementing SFAS 141R, which will be effective for fiscal year 2010.

issued for fiscal years beginning after December 15, 2008. SFAS 160 establishes and expands accounting and reporting standards for the noncontrolling interest in a subsidiary. The Company is currently determining the impact of implementing SFAS 160, which will be effective for fiscal year 2010.

3. Inventories

Net inventories consist of the following at (in thousands):

	February 2, 2008		July 28, 2007
Raw materials	$	17,272	$	14,545
Work in process	2,272		1,011
Finished goods	4,290		5,128
	$	23,834	$	20,684

4. Investments

The following is a summary of the Company’s available-for-sale investments as of February 2, 2008 and July 28, 2007 (in thousands):

Investment Type	Amortized cost		Gross unrealized gain		Gross unrealized loss			Fair value
As of February 2, 2008

Corporate	$	31,646	$	6	$	—		$	31,652
Government-sponsored enterprise	—		—		—			—
Municipal	7,595		—		—			7,595
Total	$	39,241	$	6	$	—		$	39,247

Reported as:
Cash equivalents	$	34,646	$	4	$	—		$	34,650
Short-term investments	4,595		2		—			4,597
Total	$	39,241	$	6	$	—		$	39,247

As of July 28, 2007
Corporate	$	22,526	$	—	$	—		$	22,526
Government-sponsored enterprise	23,221		—		(3		)	23,218
Municipal	8,825		—		—			8,825
Total	$	54,572	$	—	$	(3	)	$	54,569

Reported as:
Cash equivalents	$	18,551	$	—	$	—		$	18,551
Short-term investments	36,021		—		(3		)	36,018
Total	$	54,572	$	—	$	(3	)	$	54,569

The Company accounts for its investments pursuant to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, or SFAS 115 . All of the Company’s investments are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity. Gains and losses are not recorded in earnings until realized. The Company monitors its investments for other than temporary impairment, which results from the carrying value of the investments exceeding the fair value. If other than temporary impairment is identified, the cost basis of the security is written down to fair value and the amount of the write-down is recorded as a realized loss through earnings. In evaluating unrealized losses for other than temporary impairment, the Company considers a number of factors including the duration and significance of the loss. The Company has the ability and intent to hold those investments with unrealized losses until a recovery of fair value. As of February 2, 2008, the Company held no securities with an unrealized loss position for more than twelve months and no realized losses were recorded.

All investments mature in less than one year; those that mature in less than ninety days are classified as cash equivalents. Subsequent to February 2, 2008, some of the Company’s currently held auction rate securities experienced failed auctions. Uncertainty in credit markets has led to the amount of auction rate securities submitted for sale exceeding the amount of orders for these securities, resulting in failed auction status. The Company’s total auction rate securities have a fair value of $3,600,000 and represent approximately 7% of the Company’s total liquid assets, which consist of cash and cash equivalents and short-term investments. Because the auctions have failed the securities are no longer liquid, as the Company will not be able to access such funds until a successful future auction or these securities are redeemed. However, the Company believes its remaining cash and cash equivalents will be sufficient to meet anticipated cash needs. The auction rate securities are all AAA rated securities and the underlying assets of the Company’s auction rate securities are student loans backed by the federal government. The Company believes the securities are properly valued at their estimated fair market value on the balance sheet and has continued to classify the auction rate securities as short-term investments. The Company will continue to assess the effects of the failed auctions on the fair value of the investments. If the auctions associated with the securities the Company owns are not successful in the future and an other than temporary impairment of the security is identified, the Company may have to record an impairment charge through earnings with respect to these securities.

5. Acquisitions

Kailight Photonics Inc.

On May 15, 2007, the Company acquired Kailight Photonics, Inc. (“Kailight”), a technology leader in 40Gb/s optical transmission products, for approximately $35,877,700, including $729,000 of transaction costs associated with the acquisition and subject to certain working capital adjustments. Approximately $3,350,000 of the purchase price is being held in escrow pending the outcome of certain matters outlined in the merger agreement for which the Company is indemnified. In addition, the Company may also be required to pay up to $5,000,000 in additional future payments based on the achievement of certain performance milestones. Any such payments will be recorded as additional purchase price in the period it is probable such payment is earned. Pursuant to the merger agreement, certain outstanding Kailight stock options were converted into Optium stock options. Of the total options granted to Kailight employees and consultants, 9,652 options with an exercise price of $0.11 were fully vested and assigned a fair value of $148,776 using the Black-Scholes option pricing model and were accordingly recorded as purchase price.

The transaction was accounted for as a purchase in accordance with SFAS 141. As a result, the assets acquired and liabilities assumed were accounted for at fair value on the acquisition date, and the results of operations of Kailight are included in the Company’s consolidated results of operations from the acquisition date. Management is responsible for the valuation of net assets acquired, including in-process research and development, and considered a number of factors, including valuations and appraisals, when estimating the fair market values and estimated useful lives of the acquired assets and liabilities. The Company believes the acquisition provides synergies with existing product lines and expands on our current transceiver capabilities, resulting in an excess purchase price over the fair value of identifiable assets. The excess purchase price of $26,089,700 has been recorded as goodwill.

The Kailight purchase price was allocated as follows (in thousands):

Net assets acquired	$	(212	)
Acquired in-process research and development	10,000
Goodwill	26,090
Total purchase price	$	35,878

The following table summarizes the components of the assets acquired at fair value (in thousands):

Cash	$	489
Net fixed assets	597
Accounts receivable and other	262
Less liabilities assumed	(1,560		)
Net assets acquired	$	(212	)

Kailight’s developmental project that had not reached technological feasibility and had no future alternative use was classified as acquired in-process research and development and expensed at the acquisition date. Efforts required to develop

acquired in-process research and development into commercially viable products include the planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. The $10,000,000 of acquired in-process research and development was expensed during fiscal year 2007 through the consolidated statement of operations as a separate component of operating expenses at the acquisition date.

The acquired in-process research and development expense of $10,000,000 relates to the acquired 40Gb/s project and was determined using the income approach assuming cash flows over ten years and using risk adjusted discount rates ranging from 20% to 30% for the four defined segments of the 40Gb/s project. The discount rates were based on fundamental data for a group of market participants, as well as venture capital studies. The ten year life is based on the life expectancy of the products in the market place with an assumed growth rate of up to 314% diminishing to 10% and no assumed terminal value. We began to recognize revenue related to these products in fiscal year 2008.

Pro forma financial information

The following unaudited pro forma financial information represents the Company’s consolidated results from operations for the period indicated, as if the acquisition of Kailight had occurred at the beginning of the period presented. Unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have actually been reported had the acquisition occurred at the beginning of the periods presented, nor is it necessarily indicative of future results of operations. These pro forma results are based upon the respective historical financial statements of the respective companies, and do not incorporate, nor do they assume, any benefits from cost savings or synergies of operations of the combined Company. Unaudited pro forma results of operations are presented after giving effect to certain adjustments, including adjustments to reflect decreased interest income on the cash used to finance the acquisitions, and increased income taxes at a rate consistent with the Company’s effective tax rate in each period.

Pro forma results

	Three months ended		Six months ended
	January 27, 2007		January 27, 2007
	(in thousands, except per share data)		(in thousands, except per share data)
Pro forma revenues	$	34,168	$	64,212
Pro forma net income	$	2,666	$	3,547
Pro forma net income per share — basic	$	0.11	$	0.26
Pro forma net income per share — diluted	$	0.10	$	0.15
Reported net income	$	3,862	$	6,621
Reported net income per share — basic	$	0.16	$	0.48
Reported net income per share — diluted	$	0.15	$	0.28

Microdisplay asset s

On July 10, 2007, the Company acquired certain intellectual property assets of Microdisplay Corporation related to the design and manufacture of liquid crystal on silicon (“LCoS”) wafers used in its WSS ROADM product line. The aggregate purchase price of the transaction was approximately $2.0 million, including the assumption of certain liabilities. The purchase of these assets has been recorded as completed technology and classified as an intangible asset on the balance sheet as of the acquisition date. The acquired intangible assets will be amortized over a five year useful life. The amortization expense related to the Microdisplay assets is included in our condensed consolidated statements of operations in the selling, general and administrative expense line item for the three and six months ended February 2, 2008.

The acquisition of the LCoS integrated circuit technology was intended to strengthen the Company’s position in the ROADM product market, as the Company continues to integrate additional features into its WSS ROADM products and target new applications and market segments. The rights to the LCoS integrated circuit technology used in the Company’s WSS ROADMs are expected to drive cost efficiencies including improved flexibility to add more unique software-defined features.

The results of the Kailight acquisition have been included in the accompanying condensed consolidated financial statements since the date of acquisition.

6. Stockholders’ Equity

Common stock

The Company has authorized under its Certificate of Incorporation, as amended October 10, 2006, the issuance of 100,000,000 shares of common stock, of which 729,361 were designated Series 2 nonvoting common stock. The Series 2 nonvoting common stock automatically converted into voting common stock upon the closing of the Company’s initial public offering when the conversion of all shares of preferred stock occurred.

On October 9, 2006, the Company’s Board of Directors approved a 1-for-12 reverse stock split of the Company’s issued common stock, subject to stockholder approval. On October 10, 2006, the Company’s stockholders approved the reverse stock split. The reverse stock split became effective on October 10, 2006, upon the filing by the Company of an amendment to the Certification of Incorporation with the Delaware Secretary of State giving effect to the reverse stock split. Common share and common share-equivalents have been restated to reflect the reverse stock split for all periods presented.

Stock incentive plan

Effective July 30, 2006, the Company adopted SFAS 123R, which requires companies to recognize in their statement of operations all share-based payments, including grants of stock options, based on the grant date fair value. The Company adopted SFAS 123R using the prospective-transition method. Stock-based compensation is measured at the grant date, based on the fair value of the award, and expensed over the requisite service period. The application of SFAS 123R involves significant amounts of judgment in the determination of inputs into the Black-Scholes model, which the Company uses to determine the value of stock options. Inherent in this model are assumptions related to expected stock price volatility, option life, risk free interest rate and dividend yield. While the risk free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and option life assumptions require a greater level of judgment which make them critical accounting estimates. The fair value of each stock option grant was estimated on the date of the grant using the Black-Scholes option-pricing model and the assumptions are disclosed in the Summary of Significant Accounting Policies in Note 2.

Prior to the adoption of SFAS 123R, the Company accounted for its stock-based compensation granted to employees in accordance with the provisions of the Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees , or APB 25 . Under APB 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company’s stock and the exercise price of the option. The Company recorded stock-based compensation to the extent that the exercise price was less than the fair value of the Company’s stock on the date of grant.

Additionally, in the prior period, the Company disclosed the information required under SFAS 123, Accounting for Stock-Based Compensation , or SFAS 123, using the minimum value method. Stock issued to non-employees is accounted for under the provisions of the Emerging Issues Task Force, or EITF, consensus in issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with, Selling Goods or Services , or EITF 96-18. In accordance with SFAS 123R, options that were valued using the minimum value method under SFAS 123, for purposes of pro forma disclosure, must be transitioned to SFAS 123R using the prospective transition method. Under the prospective transition method, options granted prior to fiscal 2007 will continue to be accounted for under the same accounting principles (recognition and measurement) originally applied to those awards, which for the Company was APB 25. Accordingly, the adoption of SFAS 123R did not result in any compensation cost being recognized for the options granted prior to the adoption of SFAS 123R.

Under SFAS 123, non-employee stock-based compensation is accounted for based on the fair value of the consideration received or equity instruments issued, whichever is more readily determinable. However, SFAS 123 does not address the measurement date and recognition period. EITF 96-18 states a consensus that the measurement date should be the earlier of the date at which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete.

Under the pro forma disclosure previously required under SFAS 123, the compensation cost for the Company’s stock-based compensation plans had been determined based upon the fair value of the options at the grant date. Consistent with

the methodology prescribed under SFAS 123, the Company would have recorded approximately $102,600 and $205,200 and $106,400 and $212,900 as stock based compensation in selling, general and administrative expenses for the three and six months ended February 2, 2008 and January 27, 2007, respectively, related to the grants issued prior to the adoption of SFAS 123R, as presented below (in thousands):

	Three months ended						Six months ended
	February 2 2008			January 27, 2007			February 2, 2008			January 27, 2007

Net income (loss), as reported	$	(800	)	$	3,862		$	(1,879	)	$	6,621
Add: Stock-based compensation under APB 25	85			119			170			257
Add: Stock-based compensation under SFAS 123R	992			111			1,631			155
Less: Stock-based compensation expense determined under fair value method for all awards	(1,062		)	(212		)	(1,771		)	(358		)
Net income (loss), pro forma	$	(785	)	$	3,880		$	(1,849	)	$	6,675
Net income (loss) per share:
Reported net income (loss) per share — basic	$	(0.03	)	$	0.16		$	(0.07	)	$	0.48
Reported net income (loss) per share — diluted	(0.03		)	0.15			(0.07		)	0.28
Pro forma net income (loss) per share — basic	(0.03		)	0.16			(0.07		)	0.49
Pro forma net income (loss) per share — diluted	(0.03		)	0.15			(0.07		)	0.28

During the six months ended February 2, 2008, 214,650 stock options with a weighted average grant date fair value of $5.63 per option and 404,632 unvested restricted stock units with a grant date fair value of $9.66 were granted under the Company’s 2006 Stock Option and Incentive Plan (the “2006 Plan”). The compensation expense charged against earnings for SFAS 123R stock-based compensation for the first six months of fiscal year 2008 was approximately $2,399,200. The pre-tax impact of stock-based compensation expense was $0.09 per basic and diluted share, respectively, in the six months ended February 2, 2008. As of February 2, 2008, there was approximately $6,575,200 in unrecognized compensation expense related to non-vested stock options under the Company’s stock plans. This unrecognized expense is expected to be recognized as compensation expense over the weighted-average vesting period of four years.

In fiscal year 2000, the Company adopted the 2000 Optium Corporation Stock Incentive Plan, as amended (the “2000 Plan”), under which 3,457,073 shares of common stock were reserved for issuance. As of November 3, 2007, no shares are available for future grants under the 2000 Plan. Under the terms of the 2000 Plan, the Company could grant nonqualified or incentive stock options, restricted stock, restricted stock units or make awards of stock appreciation rights to directors, officers, employees, and consultants of the Company. Option grants under the 2000 Plan generally vest over four years and expire ten years from the date of grant. All options and shares cancelled or forfeited after October 10, 2006 (the effective date of the 2006 Plan as defined below) under the 2000 Plan are added back to the balance of shares reserved for issuance under the 2006 Plan.

Stock option transactions under the 2000 Plan for the six months ended February 2, 2008 are summarized as follows:

	Number of options		Range of exercise prices	Weighted average exercise price
Balance—July 28, 2007	1,694,314		$0.48 - $17.50	$	4.95
Granted	—		—	—
Forfeited	(3,310	)	$0.84 - $17.50	$	4.88
Exercised	(13,406	)	$0.48 - $9.24	$	0.93
Outstanding February 2, 2008	1,677,598		$0.48 - $17.50	$	4.98
Options exercisable—February 2, 2008	1,117,230		$0.48 - $17.50	$	3.55

During the six months ended February 2, 2008, certain employees exercised options to purchase 13,406 shares of the Company’s common stock for proceeds of $12,500. These option exercises had an intrinsic value of approximately $97,900 and were granted under the 2000 Plan.

The weighted average remaining life of the 2000 Plan stock options as of February 2, 2008 is 7.2 years.

During the first quarter of fiscal year 2007, the Company adopted the 2006 Optium Corporation Stock Option and Incentive Plan, as amended (the “2006 Plan”), under which 283,333 shares of common stock were reserved for issuance. The 2006 Plan provisions provide for an automatic increase at the beginning of every quarter of each fiscal year in the number of shares reserved and available for issuance under the plan by a number equal to 0.75% of the then outstanding number of shares of common stock. The 283,333 shares reserved does not include the additional 190,059, 190,146, 190,732, 190,783 and 191,074 shares reserved as of the first day of the Company’s fiscal year 2007 third and fourth quarters and fiscal year 2008 first, second and third quarters, respectively or the aggregate substitute options granted in the Kailight acquisition. In addition, the number of shares reserved for issuance under the 2006 Plan is automatically increased by the number of shares and options cancelled or forfeited under the 2000 Plan after October 10, 2006. Cancellations or forfeitures under the 2006 Plan are also added back to increase the total number of shares available for issuance under the 2006 Plan, with the exception of those options granted in connection with the Kailight acquisition. During the six months ended February 2, 2008, 19,558 cancelled or forfeited shares were added to the number of shares reserved for issuance under the 2006 Plan pursuant to these provisions. Under the terms of the 2006 Plan, the Company may grant nonqualified or incentive stock options, restricted stock, restricted stock units or make awards of stock appreciation rights to directors, officers, employees, and consultants of the Company. The exercise price for option grants shall be determined by the Board of Directors on the date of grant, but in no event shall the exercise price of incentive stock options be less than 100% of the fair market value of the common stock (110% for any incentive stock option granted to a person owning more than 10% of the total combined voting power of all classes of stock as determined by the Board of Directors on the date of grant). Option grants under the 2006 Plan generally vest over four years and expire ten years from the date of grant. As of February 2, 2008, 817,335 options for the purchase of common stock have been granted under the 2006 Plan. All options cancelled or forfeited under the 2006 Plan are added back to the balance of shares reserved for issuance under the Plan.

Stock option transactions under the 2006 Plan for the six months ended February 2, 2008 are summarized as follows:

	Number of options		Range of exercise prices	Weighted average exercise price
Balance—July 28, 2007	582,575		$0.11 - $1,110.24	$	19.20
Granted	214,650		$6.70 - $11.13	$	8.44
Forfeited	(23,476	)	$7.36 - $328.63	$	17.39
Exercised	—		—	—
Outstanding—February 2, 2008	773,749		$0.11 - $1,110.24	$	16.27
Options exercisable— February 2, 2008	20,838		$0.11 - $1,110.24	$	14.92

Pursuant to the terms of the Kailight Photonics, Inc. acquisition agreement, the Company assumed certain vested and unvested stock options outstanding with Kailight employees and consultants. The Company assumed 9,652 fully vested Kailight options with an exercise price of $0.11. Additionally, the Company assumed 222, 145, and 40 options with exercise prices of $328.63, $657.26, and $1,110.24, respectively, all of which were fully vested. The stock compensation expense related to the fully vested options with an exercise price of $0.11 was recorded as additional purchase price.

As of February 2, 2008, 1,243,262, 91,263, and 773,749 shares were authorized, available for issuance and subject to outstanding awards, respectively, under the 2006 Plan. The weighted average remaining life of the 2006 Plan stock options as of February 2, 2008 is 9.3 years. The detail of all options exercisable under the 2000 Plan and the 2006 Plan as of February 2, 2008 is as follows:

Number of options	Range of exercise prices	Weighted average exercise price		Weighted average remaining life
608,294	$0.11 - $0.96	$	0.59	5.7
103,956	$1.08 - $3.96	$	1.58	7.2
200,504	$5.25 - $5.76	$	5.52	8.1
225,108	$9.24 -$23.56	$	11.12	8.4
206	$328.63 -$1,100.24	$	711.72	9.3

The total intrinsic value of the fully vested and exercisable options above, had they been exercised on February 2, 2008, was approximately $4,487,200.

The restricted stock unit transactions under the 2006 Plan for the three months ended February 2, 2008 are summarized as follows:

	Number of restricted stock units
Balance—July 28, 2007	—
Granted	404,632
Forfeited	(2,956	)
Vested	(45,873	)
Unvested balance at February 2, 2008	355,803

The per stock unit weighted average fair value of the restricted stock units granted under the 2006 Plan for the six months ended February 2, 2008 was $9.66, which was based on the closing stock price of the Company on the date of grants. The restricted stock units have varying vesting schedules, dependent on the grant details. As of February 2, 2008, there was approximately $3,076,400 in unrecognized compensation expense related to non-vested restricted stock units. This unrecognized expense is expected to be recognized as compensation expense over the requisite service periods of the respective grants. The weighted average remaining vesting period for restricted stock units as of February 2, 2008 is 1.7 years. All forfeitures or cancellations of restricted stock units are added back to the balance of shares reserved for issuance under the 2006 Plan. Additionally, those shares that are retained by the Company to satisfy tax withholding obligations are added back to the balance of shares reserved for issuance under the 2006 Plan.

Deferred compensation

The Company’s Board of Directors has determined the fair value of all stock option grants on the dates of the grants. In April 2006, as a result of improved operating performance, the execution of a letter of intent to acquire Engana Pty Limited, or Engana, external market factors affecting the Company’s market sector, as well as feedback from investment bankers indicating that the Company was now a viable initial public offering candidate, the Board of Directors retrospectively determined the fair value of the Company’s common stock for all stock options granted during the three fiscal quarters beginning May 1, 2005 and ending January 28, 2006. As a result of the Company’s retrospective determinations of fair value of the common stock for prior option grant dates of June 23, 2005, September 21, 2005 and November 7, 2005, the Company recorded an aggregate of approximately $125,000 of deferred stock-based compensation on the balance sheet for the stock options granted on those dates. The amount of deferred stock-based compensation for each stock option grant on these dates was calculated based on the difference between the retrospectively determined fair value per share of the common stock at the date of the grant and the exercise price of the option. The Company will amortize this deferred stock-based compensation expense over the vesting period of the applicable stock option grants, subject to adjustment for any stock options which are cancelled or accelerated.

In June 2006, based on the Company’s retrospective determinations of fair value of its common stock, the Company offered to the recipients of stock option grants on June 23, 2005, September 21, 2005 and November 7, 2005, the ability to amend the terms of their stock options to increase their per share exercise price from $0.96 to $1.08 in the case of June 23, 2005 grants, from $1.20 to $2.40 in the case of the September 21, 2005 grants and from $1.20 to $3.96 in the case of the November 7, 2005 grants. All of such stock option recipients have chosen to amend their stock options to a higher exercise price in order to avoid potential adverse personal income tax consequences. There was no additional consideration offered to the employees in exchange for amending their stock options.

In relation to these amended stock options, the Company recorded deferred stock-based compensation of approximately $1.5 million in the balance sheet in addition to the approximately $125,000 in deferred stock-based compensation referenced above. The amount of additional deferred stock-based compensation for each amended stock option was calculated based upon the difference between the amended exercise price of $1.08 per share, $2.40 per share or $3.96 per share, as applicable, and $10.92 per share, the valuation by the Board of Directors of the per share fair value of our common stock as of the date of amendment of the stock options. The Company will amortize this additional deferred stock-based compensation expense over the vesting period of the applicable stock option grants, subject to adjustment for any stock options which are cancelled or accelerated. During the six months ended February 2, 2008, total stock-based compensation expense related to amortization of the deferred compensation balance was approximately $250,280.

7. Accrued Expenses

Accrued expenses consist of the following at (in thousands):

	February 2, 2008		July 28, 2007
Fees and expenses payable	$	1,651	$	1,531
Compensation and benefits	3,188		1,789
Professional services	1,073		1,012
Security deposit	57		57
	$	5,969	$	4,389

8. Accrued Warranty Costs

The Company provides a warranty on all products. Warranty expenses are charged to operations and included in the cost of revenue in the accompanying condensed consolidated statements of operations. The Company accrues warranty for expected warranty claims based on historical return figures and accrues those costs at the time revenue is recorded.

A summary of the accrued warranty costs is as follows (in thousands):

Ending balance July 29, 2006	$	223
Warranty accruals	428
Warranty repairs	(292		)
Ending balance July 28, 2007	$	359
Warranty accruals	62
Warranty repairs	(23		)
Effect of foreign currency translation adjustment	(6		)
Ending balance February 2, 2008	$	392

9. Income Taxes

In July 2006, the FASB issued FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement 109, Accounting for Income Taxes, or FIN 48. FIN 48 provides guidance on how a company should recognize, measure and disclose in its financial statements uncertain income tax positions. Under the new provisions, a company should not recognize a tax benefit for an uncertain income tax position unless it is “more likely than not” that such a position is sustainable. The Company adopted FIN 48 on July 29, 2007. As a result of the implementation of FIN 48, the Company recognized a net $100,000 increase in the liability for unrecognized tax benefits, which was accounted for as an increase to the July 28, 2007 balance of the accumulated deficit. At February 2, 2008, the Company’s total liability for unrecognized net tax benefits is $482,000. Consistent with past practice, the Company will record interest and penalties associated with uncertain tax positions in income tax expense.

At February 2, 2008, the Company had U.S. federal net operating loss, or NOL, carry forwards of approximately $21.8 million which expire through 2025. NOL carry forwards and credits are subject to review and possible adjustments by the Internal Revenue Service and may be limited by the occurrence of certain events, including significant changes in ownership interests. The Company performed an analysis to determine whether an ownership change under Section 382 of the Internal Revenue Code had occurred. The effect of an ownership change would be the imposition of an annual limitation on the use of the net operating loss carry forwards attributable to periods before the change. As of February 2, 2008, the Company believes there are no limitations on the use of these federal NOLs.

In connection with the acquisition of Engana Pty Limited in March 2006, the Company acquired Australian NOL carry forwards and credits in the amount of $4.8 million. These NOL carry forwards and credits are subject to review and possible adjustments by the Australian Taxation Office and may be limited by the occurrence of certain events, including significant changes in ownership interests or significant changes in the business of the Company. This is a factual test that can only be determined in the year in which the NOL carry forward is sought to be utilized. There is no time limit on the use of Australian NOL carry forwards. The acquired net operating losses have been fully offset by a valuation allowance. Upon utilization of such NOL carry forwards, goodwill will be reduced. Losses since the acquisition have been fully offset by a full valuation allowance due to the history of operating losses.

In connection with the Kailight Photonics, Inc. acquisition, the Company acquired U.S. federal NOL carry forwards in the amount of approximately $7.5 million. The Company will perform an analysis to determine whether a Section 382 ownership change has occurred, but the Company expects the use of these NOLs will be significantly limited. Accordingly, management in its preliminary allocation of the purchase price, recorded no value to the acquired deferred tax assets. If any of these acquired NOL carryforwards are utilized, goodwill will be reduced.

In assessing the realizability of deferred tax assets, management concluded it is “more likely than not” that some portion or all of the U.S. deferred tax assets will be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income during those periods in which those temporary differences become deductible or within the periods before NOL carry forwards expire. During the year ended July 28, 2007, based on cumulative U.S. taxable net earnings for the past three years and the expected future profitability of the U.S. operations, the company reversed the valuation allowance on its net U.S. deferred tax assets and recognized an income tax benefit of approximately $13.0 million. The current quarterly and year to date consolidated effective tax rates of (9.4)% and (7.7)%, respectively are less than the U.S. statutory rate of 35% primarily due to foreign losses for which no income tax benefit was recorded and U.S. research and development tax credits available to the Company under U.S. tax law.

A reconciliation of the consolidated income tax rate to the effective tax rate for the Company is as follows:

	Three months ended				Six months ended
	February 2, 2008		January 27, 2007		February 2, 2008		January 27, 2007
Tax at statutory rate	35.0	%	35.0	%	35.0	%	35.0	%
State taxes, net of federal	25.7		4.2		10.0		4.0
R&D credits	—		—		3.9		—
Foreign rate differential	(7.6	)	1.4		(6.8	)	1.7
Change in valuation allowance	(51.3	)	(33.7	)	(43.7	)	(34.1	)
Other	(11.2	)	0.2		(6.1	)	0.1
Effective tax rate	(9.4	)%	7.1	%	(7.7	)%	6.7	%

10. Commitments and Contingencies

Contingencies

In December 2004, the Company terminated its relationship with Appletec Limited, an Israeli company that was assisting us with our sales efforts in Israel. Beginning in February 2005 and through May 2005, the Company received correspondence from Appletec claiming it owed Appletec sales commissions. The Company does not believe that it owes any further commissions to Appletec. However, in June 2005 Optium Corporation sent a letter to Appletec’s counsel proposing a settlement. The Company did not receive a response to its proposal and Appletec filed an action in Israel against Optium and an Optium consultant alleging damages in an amount of approximately $1,800,000. The Company intends to defend itself vigorously and does not expect the ultimate outcome of this matter to have a material adverse effect on its business, financial condition, results of operations or cash flows.

On September 11, 2006, JDS Uniphase Corporation and EMCORE Corporation filed a complaint in the United States District Court for the Western District of Pennsylvania alleging that the Company’s 1550 nm HFC externally modulated transmitter, in addition to possibly “products as yet unidentified,” infringes on two U.S. patents. Since no summary judgment motions have been ruled upon, the Company is unable to determine the ultimate outcome of this litigation. On March 14, 2007, JDS Uniphase and EMCORE Corporation filed a second complaint in the United States District Court for the Western District of Pennsylvania alleging that the Company’s 1550 nm HFC quadrature amplitude modulated transmitter, in addition to possibly “products as yet unidentified,” infringes on another U.S. patent. Since discovery is currently in process, the Company is unable to determine the ultimate outcome of this second litigation. During the three and six months ended February 2, 2008, sales of the Company’s 1550 nm HFC externally modulated transmitter and 1550 nm HFC quadrature amplitude modulated transmitters, together, represented less than 5% of the Company’s revenues. The plaintiffs are seeking for the court to declare that Optium has willfully infringed on such patents and to be awarded up to three times the amount of any compensatory damages found, if any, plus any other damages and costs incurred. The Company intends to vigorously defend the claims asserted against it and believes that it has meritorious defenses.

During mid-2007, we became aware that certain of our analog RF over fiber products may, depending on end use and customization, be subject to the International Traffic in Arms Regulations, or ITAR. Accordingly, we filed a detailed voluntary disclosure with the United States Department of State, describing the details of possible inadvertent ITAR violations with respect to the export of a limited number of certain prototype products, and related technical data and defense services. We may have also made unauthorized transfers of ITAR-restricted technical data and defense services to foreign persons in our workplace. We have provided additional information upon request to the Department of State with respect to this matter. The Department of State encourages voluntary disclosures and generally affords parties mitigating credit under such circumstances. We nevertheless could be subject to continued investigation and potential regulatory consequences ranging from a no-action letter, government oversight of facilities and export transactions, monetary penalties, and in extreme cases, debarment from government contracting, denial of export privileges and criminal sanctions.

In the ordinary course of business, the Company is a party to litigation, claims and assessments in addition to those described above. Based on information currently available, management does not believe the impact of these other matters will have a material adverse effect on its business, financial condition, results of operations or cash flows of the Company.

Employment agreements

The Company has employment agreements with certain officers and key employees. The agreements are for two or three year periods that expire in April 2008, August 2008, or April 2009. According to the terms of the agreements, if there is a termination without cause, as defined, a termination for good reason, as defined, of the employee in certain situations, or if the agreements are not renewed, the Company must pay, depending on the agreement, severance of one to two years salary and bonus.

11. Major Customers

Accounts receivable potentially subject the Company to a concentration of credit risk. The Company currently derives its revenues from a variety of companies in many different geographic locations internationally and in the United States operating within the telecommunications and cable TV industry.

Revenues from direct customers, including contract manufacturers, comprising 10% or more of total revenues during the three and six months ended February 2, 2008 and January 27, 2007, respectively were as follows:

	Three months ended				Six months ended
	February 2, 2008		January 27, 2007		February 2, 2008		January 27, 2007

Customer A	16	%	10	%	15	%	7	%
Customer B	13	%	21	%	13	%	20	%
Customer C	12	%	—		10	%	2	%
Customer D	10	%	18	%	10	%	14	%
Customer E	8	%	21	%	17	%	27	%

Accounts receivable from these five customers at February 2, 2008 represented 62% of total accounts receivable.

12. Related Party Transactions

During the three and six months ended February 2, 2008 and January 27, 2007, the Company paid a sales and marketing consultant, who is the brother of the president and chief executive officer of the Company, $35,400 and $71,800 and $33,700 and $66,600, respectively, in cash compensation during such fiscal periods. In addition, during the three months ended February 2, 2008, the Company granted, for no additional consideration, 2,500 restricted shares of common stock with a fair market value of $26,000. These stock units vest quarterly over a two year period, beginning on January 1, 2008.

During the three and six months ended February 2, 2008 and January 27, 2007, the Company used Gertel Asset Management, a company that provides jet air transportation, for certain business travel by our executive officers and other employees. The Company’s chief executive officer has an ownership interest in Gertel Asset Management. Payments to Gertel Asset Management by the Company were approximately $19,200 in the six months ended February 2, 2008 and $17,600 and $37,900 in three and six months ended January 27, 2007, respectively, during such periods.

Amounts paid to related parties represented values considered fair and reasonable, reflective of an arm’s length transaction.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 2, 2008

AND COMPARABLE PERIODS ENDED JANUARY 27, 2007

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 24, 2007.

In addition to historical information, Management’s Discussion and Analysis of Financial Condition and Results of Operation and other items in this Quarterly Report on Form 10-Q contain forward-looking statements based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. When used in this document, the words “will,” “plan,” “believe,” “may,” “anticipate,” “ could”,” “seek,” “estimate,” “expect,” “continue,” “intend,” and similar expressions, variations or the negatives of these terms are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable at the time they are made, we can give no assurance that these expectations will prove to be correct. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this document.

Executive Overview

We are a leading designer and manufacturer of high-performance optical subsystems supporting core to the edge applications for use in telecommunications and cable TV network systems. Since our founding in 2000, we have developed or acquired proprietary technology and products that enable transmission and switching functionality for high-bandwidth, intelligent optical networking applications. We supply an extensive suite of optical subsystems, including 10Gb/s and 40Gb/s transceivers, cable TV and fiber to the home, or FTTH, transmitters, analog RF over fiber products, line cards, circuit packs and our technologically innovative wavelength selective switch reconfigurable optical add/drop multiplexer products, or WSS ROADMs. Our optical subsystems are used in network systems that deliver voice, video and other data services for consumers and enterprises that are delivered in the long haul, metropolitan and access segments, referred to as the core to the edge, of telecommunications and cable TV networks. Our customers are network systems vendors whose customers include wireline and wireless telecommunications service providers and cable TV operators, collectively referred to as carriers.

Background

We were incorporated on September 8, 2000 and commenced operations in October 2000. In November 2000 and April 2001, we raised approximately $7.9 million through the issuance of shares of series A convertible preferred stock. In May, June and July of 2001, we raised approximately $35.7 million through the issuance of shares of series B convertible preferred stock. We completed another round of preferred stock financing in April 2003 in which we sold shares of series C senior convertible preferred stock for an aggregate purchase price of approximately $11.9 million. In May 2004 we raised approximately $10.3 million through the issuance of shares of series D senior convertible preferred stock, bringing total funds raised by us through preferred stock financings to approximately $65.9 million.

On November 1, 2006, we closed our initial public offering of 5.98 million shares of common stock, including the sale of an additional 780,000 shares to cover underwriter over-allotments. Our common stock, quoted on the NASDAQ Global Market under the symbol “OPTM,” began trading on October 27, 2006. Cash proceeds to us, net of underwriter commissions of approximately $7.3 million and related offering expenses of approximately $4.1 million, totaled approximately $93.2 million (including approximately $1.9 million of offering expenses paid during fiscal year 2006). All preferred stock outstanding at November 1, 2006 was converted to common stock upon the completion of the initial public offering.

Critical Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted

accounting principles for complete financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and loss during the reporting period. Actual results could differ from those estimates. Operating results for the fiscal quarters presented are not necessarily indicative of the results that may be expected for the fiscal year. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. There have been no material changes to the critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 24, 2007.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement , or SFAS 157. SFAS 157 establishes a common definition to provide enhanced guidance when using fair value to measure assets and liabilities, establishes a framework for measuring fair value, and expands disclosures about such fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are currently determining the impact of implementing SFAS 157, which will be effective for fiscal year 2009.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB No. 115, or SFAS 159 . SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. We are currently determining the impact of implementing SFAS 159 which will be effective for fiscal year 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an Amendment of Accounting Research Bulletin, or ARB No. 51 , or SFAS 160. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. SFAS 160 establishes and expands accounting and reporting standards for the noncontrolling interest in a subsidiary. The Company is currently determining the impact of implementing SFAS 160, which will be effective for fiscal year 2010.

Results of operations

Comparison of Results for the Three and Six Months Ended February 2, 2008 to the Three and Six Months Ended January 27, 2007

In order to more fully understand the comparison of the results of operations for the three and six months ended February 2, 2008 to the three and six months ended January 27, 2007, it is important to note the following significant changes in our operations that occurred in fiscal year 2007:

· Effective July 10, 2007, we acquired certain intellectual property assets of Microdisplay Corporation related to the design and manufacture of liquid crystal on silicon (“LCoS”) wafers used in its next generation WSS ROADM product line, and

· Effective May 15, 2007, we acquired all of the outstanding capital stock of Kailight Photonics, Inc. (“Kailight Photonics”).

The results of operations for the Kailight acquisition have been included in the condensed consolidated statements of operations since the date of acquisition.

Revenue

Total revenue increased 18.0% to approximately $40.3 million for the three months ended February 2, 2008 from approximately $34.1 million for the three months ended January 27, 2007. Total revenue increased 19.1% to approximately $76.4 million for the six months ended February 2, 2008 from approximately $64.1 million for the six months ended January 27, 2007. This increase in revenue is primarily attributable to increases in sales of our ROADM product line of approximately $5.6 million and $8.7 million, respectively in the three and six months ended February 2, 2008, as compared to the three and six months ended January 27, 2007. Additionally, sales of approximately $1.8 million and $2.6 million of our 40Gb/s transceivers during the three and six months ended February 2, 2008, respectively, contributed to the increase in revenues. The 40Gb/s products were not released to market for sale until late fiscal year 2007 and did not contribute to revenues for the three and six months ended January 27, 2007. In addition, our ROADM sales in the three and six months ended January 27, 2007 were only $0.2 million and did not significantly contribute to our overall revenue. The increased ROADM and 40Gb/s sales in the three months ended February 2, 2008 were offset by a decrease in cable TV and analog product sales of approximately $1.0 million. An increase of 10Gb/s product sales of approximately $1.4 million in the six months ended February 2, 2008 also contributed to our increased revenues.

End customers are defined as those customers who purchase our products directly or through contract manufacturers. Revenues from end customers comprising 10% or more of total revenues during the three and six months ended February 2, 2008 and January 27, 2007, respectively, were as follows:

	Three months ended				Six months ended
	February 2, 2008		January 27, 2007		February 2, 2008		January 27, 2007

Customer A	21	%	14	%	15	%	11	%
Customer B	19	%	15	%	19	%	14	%
Customer C	17	%	24	%	17	%	23	%
Customer D	9	%	24	%	18	%	29	%

Our revenues continue to be driven by accelerating investment in bandwidth capacity expansion to support growing video transport traffic, including on-demand internet video, IPTV and expanded HD cable TV offerings, as well as G3+ and G4 cellular backhaul systems.

Gross profit

Gross profit increased 9.6% to approximately $10.9 million for the three months ended February 2, 2008 from approximately $9.9 million for the three months ended January 27, 2007. Gross profit increased 10.3% to approximately $20.6 million for the six months ended February 2, 2008 from approximately $18.6 million for the six months ended January 27, 2007. The increase in gross profit was primarily attributable to increases in revenues during the three and six months ended February 2, 2008, as compared to the three and six months ended January 27, 2007. Gross margin decreased to 27.0% from 29.1% for the three months ended February 2, 2008 as compared to the three months ended January 27, 2007. Gross margin decreased to 26.9% from 29% for the six months ended February 2, 2008 as compared to the six months ended January 27, 2007. The decreases in gross margins were due in significant part to the additional operational expenditures, capacity expansion and overhead associated with our high-growth WSS ROADM and 40Gb/s product lines.

Research and product development

Research and product development expenses increased 70.7% to approximately $6.0 million for the three months ended February 2, 2008 from approximately $3.5 million for the three months ended January 27, 2007. Research and product development expenses increased 69.5% to approximately $11.0 million for the six months ended February 2, 2008 from approximately $6.5 million for the six months ended January 27, 2007. The increases in research and product development expenses for the three and six months ended February 2, 2008, as compared to the same periods in the prior year were due to higher headcount, including our acquisition of Kailight in May 2007 and associated costs related to our decision to increase the number of engineering projects to further expand our product portfolio.

We had increases of approximately $1.6 million and $2.9 million for the three and six months ended February 2, 2008, respectively, as compared to the three and six months ended January 27, 2007, primarily attributable to research and product development efforts connected to our ROADM and 40Gb/s product lines. Additionally, we incurred increases in stock-based

compensation contained within research and product development expense of approximately $0.5 million and $0.8 million in the three and six months ended February 2, 2008, respectively, as compared to the three and six months ended January 27, 2007, primarily associated with increased headcount and our adoption of FAS 123R at the beginning of our fiscal year 2007. We experienced increased labor and associated benefits costs of approximately $0.3 million and $0.6 million in our U.S. research and product development operations in the three and six months ended February 2, 2008 as compared to the same periods in the prior year.

Our development and release of new products during our fiscal year 2008 has and will continue to significantly impact our research and product development expenses. We expect these costs to continue to increase as we undertake additional research and product development projects as we continue to expand our product suite. The expansion of research and product development both internally and as a result of acquired operations are expected to continue to expand our product suite.

Selling, general and administrative

Selling, general and administrative expenses increased 85.5% to approximately $6.2 million for the three months ended February 2, 2008 from approximately $3.4 million for the three months ended January 27, 2007. Selling, general and administrative expenses increased 103.4% to approximately $12.6 million for the six months ended February 2, 2008 from approximately $6.2 million for the six months ended January 27, 2007.

We experienced increased costs for the additional infrastructure necessary to support our revenue growth. These costs included increased labor costs as a result of additional headcount and additional legal and other professional fees, as well as additional costs of compliance with the Sarbanes-Oxley Act of 2002. Additionally, we incurred increases in stock-based compensation contained within selling, general and administrative expense of approximately $0.8 million and $1.3 million in the three and six months ended February 2, 2008, respectively as compared to the three and six months ended January 27, 2007. In the three and six months ended February 2, 2008 approximately $0.2 million and $0.3 million, respectively, of stock-based compensation expense charged to our income statement was related to restricted stock unit grants made to employees and executives under the Executive Officer and US Non-Executive Employee Fiscal Year 2008 Bonus Plans. In comparison, we incurred approximately $0.4 million and $0.9 million of bonus expense in the three and six months ended January 27, 2007, respectively.

We also incurred increases of approximately $0.5 million and $2.5 million of patent litigation expenses in the three and six months ended February 2, 2008, as compared to three and six months ended January 27, 2007. These additional legal costs are related to the defense of patent infringement lawsuits brought against us, as discussed in further detail in Part II, Item 1on this Form 10-Q. Our professional accounting fees increased approximately $0.2 million and $0.4 million in the three and six months ended February 2, 2008, respectively, as compared to the same periods in the prior year. We also experienced increases in selling, marketing and administrative costs associated with the growth of our ROADM and 40Gb/s product lines of approximately $0.7 million and $1.1 million in the three and six months ended February 2, 2008, respectively, as compared to the same periods in the prior year. We expect selling, general and administrative expenses to continue to increase in the future, as we continue to expand our product line offerings, and we expense additional stock grants under FAS 123R guidance.

Interest and other income, net

Interest and other income, net, decreased to approximately $0.6 from $1.1 million for the three months ended February 2, 2008, when compared to the three months ended January 27, 2007. Interest and other income, net, increased to approximately $1.3 million from $1.2 million for the six months ended February 2, 2008, when compared to the six months ended January 27, 2007. The decrease in the interim three month period can be attributed to a decrease in our cash and cash equivalents and short-term investments as a result of our cash purchase of Kailight in May 2007, as well as declining interest rates on many investment vehicles in recent months. The increase in the interim six month period was due to additional interest income earned on the cash and cash equivalents and short-term investments we held as a result of proceeds from our initial public offering on October 26, 2006. We expect our interest income to fluctuate as interest rates increase or decrease and our cash balances remain approximately flat.

Income tax expense

During the three months ended February 2, 2008 and January 27, 2007 we had income tax expense of approximately $69,000 and $293,000, respectively. Income tax expense was approximately $134,000 and $472,000 for the six months ended February 2, 2008 and January 27, 2007, respectively. For the three months ended February 2, 2008 and January 27, 2007 our overall effective tax rate was approximately (9.4)% and 7.1%, respectively. Our overall effective tax rate was approximately

(7.7)% and 6.7% in the six months ended February 2, 2008 and January 27, 2007, respectively. Because we report losses in our foreign jurisdictions and income in our U.S. operations, our expected quarterly consolidated effective tax rates will fluctuate significantly until our foreign operations establish a trend of profitability. Income tax expense will increase if our profits increase.

Liquidity and Capital Resources

As of February 2, 2008 and January 27, 2007, we had cash and cash equivalents of approximately $47.8 million and $80.8 million, respectively. Our working capital was approximately $81.4 million and $118.5 million at February 2, 2008 and January 27, 2007, respectively. This decrease was primarily due to our purchase of Kailight in May 2007 and additional costs related to our ramp up of production and relocation of our Australian operations. We held short-term investments of approximately $4.6 million, accounts receivable of approximately $30.3 million, and debt of approximately $44,000 as of February 2, 2008.

Operating activities

Net cash used in operating activities was approximately $2.2 million for the six months ended February 2, 2008, as compared to approximately $2.6 million for the six months ended January 27, 2007. Net cash used in operating activities for the six months ended February 2, 2008 primarily resulted from a net loss of approximately $1.9 million, adjusted for approximately $2.0 million of depreciation and amortization and approximately $2.2 million of stock-based compensation, offset by increases in accounts receivable and inventories of approximately $8.6 million and $3.0 million, respectively. Net cash used in operating activities for the six months ended January 27, 2007 primarily resulted from period to date net income of approximately $6.6 million offset by increases in accounts receivable of approximately $2.6 million, increases in inventories of approximately $3.8 million and decreases in other current liabilities of approximately $2.6 million.

Investing activities

Net cash provided by investing activities was approximately $24.7 million for the six months ended February 2, 2008 as compared to approximately $21.7 million used in investing activities in the six months ended January 27, 2007. During the six months ended February 2, 2008, approximately $67.3 million of short-term investments were sold or matured. This was offset by additional purchases of marketable securities of approximately $35.9 million and property and equipment of approximately $6.9 million. Net cash used in investing activities for the six months ended January 27, 2007 was primarily related to purchasing marketable securities with a portion of our initial public offering proceeds.

Financing activities

Net cash used in financing activities was approximately $6,000 for the six months ended February 2, 2008 as compared to approximately $94.7 million provided by financing activities for the six months ended January 27, 2007. Net cash used in financing activities for the six months ended February 2, 2008 primarily related to approximately $19,000 of debt pay down, offset by approximately $13,000 of proceeds from the issuance of common stock in connection with the exercise of employee stock options. Net cash provided by financing activities for the six months ended January 27, 2007 was primarily related to the proceeds from our initial public offering.

Sources of cash

On November 1, 2006, we completed our initial public offering of 5.2 million shares of common stock at a price to the public of $17.50 per share as well as the sale of an additional 780,000 shares to cover underwriter over-allotments. Our common stock, quoted on the Nasdaq Global Market under the symbol “OPTM,” began trading on October 27, 2006. Cash proceeds to us, net of underwriter commissions of approximately $7.3 million and related offering expenses of approximately $4.1 million, totaled approximately $93.2 million. All preferred stock outstanding at November 1, 2006 was converted to common stock upon the completion of the initial public offering.

Prior to our public offering of common stock, we had financed our operations primarily through internally generated cash flows, our lines of credit and the issuance of preferred stock.

We believe our existing cash and cash equivalents and our cash flows from operating activities will be sufficient to meet our anticipated cash needs for at least the next twelve months. Our future working capital requirements will depend on

many factors, including the rate of our revenue growth, the introduction and acceptance of new products, the rate of expansion of our production capacity, and the rate of increase in our sales and marketing and research and development activities. To the extent that our cash and cash equivalents, cash flows from operating activities, and net proceeds of this offering are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings.

We also may need to raise additional funds in the event we determine, in the future, to effect one or more acquisitions of businesses, technologies and/or products. Although there are no present understandings, commitments or agreements with respect to acquisitions of other businesses, products or technologies, we may in the future consider such transactions, which may require debt or equity financing. The issuance of debt or equity securities could be expected to have a dilutive impact on our stockholders, and there can be no assurance as to whether or when any acquired business would contribute positive operating results commensurate with the associated investment. In the event we require additional cash resources, we may not be able to obtain bank credit arrangements or affect an equity or debt financing on terms acceptable to us or at all. Any material acquisition could result in a decrease in working capital depending upon the amount, timing, and nature of the consideration paid.

Foreign Currency Exchange Risk

Our subsidiary Optium Australia is located in Sydney, Australia. As our Australian operations continue to expand, we will need to evaluate whether this growth will expose us to foreign currency exchange risks. All of our sales by the Australian operation are currently denominated in U.S. dollars, and it is our intent that sales will continue to be made in U.S. dollars. We currently do not use derivative financial instruments to mitigate this exposure. We may hedge certain foreign exchange risks through the use of currency futures or options in future periods.

Interest Rate Risk

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Some of the securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including money market funds and certificates of deposit. Our cash equivalents are not subject to market risk because the interest paid on these funds fluctuates with the prevailing interest rate. We do not believe that a 10% change in interest rates would have a significant effect on our interest income.

Off-Balance Sheet Financing Arrangements

We do not engage in any off-balance sheet financing arrangements. We do not have any interest in entities referred to as variable interest entities, which includes special purpose entities and other structured finance entities.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

In December 2004, we terminated our relationship with Appletec Limited, an Israeli company that was assisting us with our sales efforts in Israel. Beginning in February 2005 and through May 2005, we received correspondence from Appletec claiming we owed Appletec sales commissions. We do not believe that we owe any further commissions to Appletec. However, in June 2005 we sent a letter to Appletec’s counsel proposing a settlement. We did not receive a response to our proposal and Appletec filed an action in Israel against us and a consultant of ours alleging damages in an amount of approximately $1,800,000. We intend to defend ourselves vigorously and we do not expect the ultimate outcome of this matter to have material adverse effect on our business, financial condition, results of operations or cash flows.

On September 11, 2006, JDS Uniphase Corporation and EMCORE Corporation filed a complaint in the United States District Court for the Western District of Pennsylvania alleging that the Company’s 1550 nm HFC externally modulated transmitter, in addition to possibly “products as yet unidentified,” infringes on two U.S. patents. Since no summary judgment motions have been ruled upon, the Company is unable to determine the ultimate outcome of this litigation. On March 14, 2007, JDS Uniphase and EMCORE Corporation filed a second complaint in the United States District Court for the Western District of Pennsylvania alleging that the Company’s 1550 nm HFC quadrature amplitude modulated transmitter, in addition to possibly “products as yet unidentified,” infringes on another U.S. patent. Since discovery is currently in process, we are unable to determine the ultimate outcome of this second litigation. During the three and six months ended February 2, 2008, sales of our 1550 nm HFC externally modulated transmitter and our 1550 nm HFC quadrature amplitude modulated transmitters, together, represented less than 5% of our revenues. The plaintiffs are seeking for the court to declare that we have willfully infringed on such patents and to be awarded up to three times the amount of any compensatory damages found, if any, plus any other damages and costs incurred. We intend to vigorously defend the claims asserted against us and we believe that we have meritorious defenses.

In the ordinary course of business, the Company is party to a litigation, claims and assessments in addition to those described above. Based on information currently available, management does not believe the impact of these other matters will have a material adverse effect on the business, financial condition, results of operations or cash flows of the Company.

ITEM 1A. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this Form 10-Q, before deciding whether to invest in our common stock. If any of the following risks actually materializes, our business, financial condition and results of operations will suffer. The trading price of our common stock could decline as a result of any of these risks, and you might lose all or part of your investment in our common stock.

Risks Related to Our Business

If optical communications networks do not continue to expand as expected, our business will be adversely affected.

Our future success as a manufacturer of optical subsystems ultimately depends on the continued growth of the communications industry and, in particular, the continued expansion of global information networks, particularly those directly or indirectly dependent upon a fiber optics infrastructure. As part of that growth, we are relying on increasing demand for voice, video and other data delivered over high-bandwidth network systems as well as commitments by network systems vendors to

invest in the expansion of the global information network. As network usage and bandwidth demand increase, so does the need for advanced optical networks to provide the required bandwidth. Without network and bandwidth growth, the need for our optical subsystems, and hence our future growth as a manufacturer of these products, is jeopardized. Currently, while increasing demand for network services and for broadband access, in particular, is apparent, growth is limited by several factors, including, among others, an uncertain regulatory environment, reluctance from content providers to supply video and audio content over the communications infrastructure, and uncertainty regarding long term sustainable business models as multiple industries (cable TV, traditional telecommunications, wireless, satellite, etc.) offer non-complementary and competing content delivery solutions. Ultimately, if long-term expectations for network growth and bandwidth demand are not realized or do not support a sustainable business model, our business would be significantly harmed.

Our success will depend on our ability to anticipate and quickly respond to evolving technologies and customer requirements.

The market for optical networking equipment is characterized by substantial capital investment and diverse and evolving technologies. For example, the market for optical subsystems is currently characterized by a trend toward the adoption of “pluggable” modules and subsystems that do not require customized interconnections and by the development of more complex and integrated optical subsystems. Our ability to anticipate and respond to these and other changes in technology, industry standards, customer requirements and product offerings, and to develop and introduce new and enhanced products, will be significant factors in our ability to succeed. We expect that new technologies will continue to emerge as competition in the optical networking equipment industry increases and the need for higher and more cost efficient bandwidth expands. Our success, in large part, depends upon our ability to continuously and successfully introduce and market new products and technologies meeting or exceeding our customers’ expectations. The introduction of new products embodying new technologies or the emergence of new industry standards could render our existing products uncompetitive from a pricing standpoint, obsolete or unmarketable. Further, time to market with new products can provide significant competitive advantages in our industry. It is difficult to displace an existing supplier or a particular type of optical subsystems once a network systems vendor has chosen an initial optical subsystems supplier for a particular product even if a later to market product supplies superior performance and/or cost efficiency. If we are unable to make our new products commercially available quickly, we may lose existing and potential customers and our financial results would suffer.

We and our customers are each dependent upon a limited number of end customers.

Historically, we have generated most of our revenues from a limited number of end customers. For example, in the three months ended February 2, 2008 and January 27, 2007, we generated 65% and 77%, respectively, of our revenues from our four largest end customers during those periods. We may not be able to offset any decline in revenues from our existing major customers with revenues from new customers and our quarterly results may be volatile because we are dependent on large orders from these customers that may be reduced or delayed. Our dependence on a limited number of customers is due to the fact that the network systems industry is dominated by a small number of large companies, and the industry continues to consolidate, as with the recent mergers of Cisco Systems and Scientific-Atlanta, Ericsson and Marconi, Lucent and Alcatel and the network divisions of Nokia and Siemens. Similarly, our customers depend primarily on a limited number of major carrier customers to purchase their network systems products that incorporate our optical subsystems. Many major telecommunication services providers are experiencing losses from operations. The further consolidation of the industry, coupled with potential declining revenues from our major customers, may have a material adverse impact on our business.

We are subject to a number of risks with respect to our Optium Australia ROADM operations.

Our future results of operations will be substantially influenced by the success of our WSS ROADM product line, and we are subject to a number of risks and uncertainties in this regard, including the following:

· In the near term, we are expecting that our WSS ROADMs will become key components of next generation network systems demanded by the market. Any delay by network systems vendors in including our WSS ROADMs in their network systems from the timetable we expect, or any decision by such vendors not to include our WSS ROADMs in amounts we expect, would significantly alter our near term prospects for growth and harm our business and financial condition.

· We are ramping the capacity of the production line for our WSS ROADMs at our Optium Australia facility in Sydney, Australia to meet expected customer demand. This ramping of capacity will involve significant investment by us, for which we will not realize the benefit we expect if customer demand is not what we expect.

Any delay in the production line being able to provide commercial volumes in the quantities anticipated would delay and could limit our ability to realize the full benefit of the commercialization of our WSS ROADMs, which would negatively affect our revenues and competitive position. In addition, a failure to achieve manufacturing yields from such production line comparable to the yields obtained at our Horsham, Pennsylvania facility would negatively impact our margins and operating results.

· During the first half of calendar year 2008, we plan to relocate our Optium Australia operating facility. This relocation includes relocation of all of our Australian manufacturing operations, including significant capital equipment and assets. There are various risks in connection with the planned relocation, including delays and other issues caused by inclement weather, damage to our equipment, and problems in recommencing manufacturing operations after the relocation of our equipment. If we fail to properly manage this relocation to minimize manufacturing and other business interruption, our business and financial results could be materially harmed.

We are under continuous pressure to reduce the prices of our products.

The optical network equipment industry has been characterized by falling product prices over time. Many of our competitors outsource their manufacturing operations to locations with low labor costs, allowing them to offer their products at lower prices than if they used manufacturing facilities in the United States. If optical subsystem products become more standardized, the cost advantages of our embedded software approach to product customization will be reduced and our business would be significantly harmed. In addition, if we are unable to reduce our costs in connection with price reductions, our results of operations will be harmed.

Our financial results often vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.

Our quarterly revenue and other operating results have varied in the past and are likely to continue to vary significantly from quarter to quarter. This variability may lead to volatility in our stock price as equity research analysts and investors respond to these quarterly fluctuations. These fluctuations are due to numerous factors, including:

· fluctuations in demand for intelligent optical networking products;

· the timing and size of sales of our products;

· length and variability of the sales cycles of our products;

· the timing of recognizing revenue;

· new product introductions and enhancements by our competitors and ourselves;

· changes in our pricing policies or the pricing policies of our competitors;

· our ability to develop, introduce and ship new products and product enhancements that meet customer requirements in a timely manner; and

· our ability to attain and maintain production volumes and quality levels for our products.

Because of quarterly fluctuations, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Moreover, our operating results may not meet our announced guidance or expectations of equity research analysts or investors, in which case the price of our common stock could decrease significantly.

In addition, our expense levels are based, in significant part, on our expectations as to future revenue and are largely fixed in the short term. As a result, we may be unable to adjust spending in a timely manner to compensate for any unexpected shortfall in revenue. Furthermore, we intend to increase our operating expenses as we expand our manufacturing, research and development, sales and marketing, and administrative organizations. The timing of these increases and the rate at which new personnel become productive will affect our operating results. Any revenue shortfall, and the resulting decrease in operating income or increase in operating loss, could lead to volatility in the price of our common stock.

We are subject to a number of risks as a result of our Optium Israel operations.

In May 2007, we acquired Kailight Photonics, Inc. of Nes Ziona, Israel, a developer of 40Gb/s transceivers and related technologies. Our future results of operations will be substantially influenced by the operations of this new business, and we are subject to a number of risks and uncertainties related to this acquisition, including the following:

· In the near term, we are expecting that our 40Gb/s products will become key components of next generation network systems demanded by the market. We acquired Kailight Photonics, in part, based upon this expectation. Any delay by network systems vendors in including our 40Gb/s products in their network systems from the timetable we expect, or any decision by such vendors not to include our 40Gb/s products in amounts we expect, would significantly alter our near term prospects for growth and harm our business and financial condition.

· We are currently expanding our production line for our 40Gb/s products at our Horsham, Pennsylvania headquarters. This ramping of capacity will involve significant investment by us, for which we will not realize the benefit we expect if customer demand is not what we expect. Any delay in the production line being able to produce commercial volumes in the quantities anticipated would delay our ability to commercialize our 40Gb/s products, which would negatively affect our revenues and competitive position. In addition, a failure to achieve manufacturing yields from such production line comparable to the yields obtained with respect to our 10Gb/s products would negatively impact our margins and operating results.

We depend on a limited number of component suppliers who could disrupt our business if they stopped, decreased or delayed shipments, and increased demand for components generally could lead to shortages.

We depend on a limited number of suppliers of components used to manufacture certain of our products. A small number of these suppliers are sole sources. We typically have not entered into long-term agreements with our suppliers and, therefore, these suppliers generally may stop supplying materials and equipment at any time. The reliance on a sole supplier or limited number of suppliers could result in delivery problems, reduced control over product pricing and quality, and an inability to identify and qualify another supplier in a timely manner. Recently, demand for components has rapidly increased, and we rely on our suppliers to ramp production to meet our demand. Any supply deficiencies relating to the quality or quantities of components we use to manufacture our products could adversely affect our ability to fulfill customer orders or our financial results of operations.

Our success will depend on our ability to quickly adjust to changes in customer demand and lead times.

Our industry is characterized by rapidly shifting demand among various product types and requests for shorter manufacturing lead times as our customers respond to market trends. As a result, forecasts from our customers may not provide us with sufficient visibility into the breakdown of long-term demand. If we are not able to quickly adjust to shifting demand among various product types or meet the required lead times of our customers, our business could be adversely affected. Further, lower visibility into customer demand could cause our results to materially differ quarter to quarter.

We do not have long-term volume purchase contracts with our customers.

Generally, we have not entered into long-term volume purchase contracts with our customers. As a result, any of our customers may cease to purchase our products at any time. If any of our major customers stop purchasing our products for any reason, our business and results of operations would be harmed.

If we fail to retain our chief executive officer and other key personnel or if we fail to attract additional qualified personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.

Our future depends, in part, on our ability to attract and retain key personnel. Our future depends on the continued contributions of our executive officers and other key technical personnel, each of whom would be difficult to replace. In particular, Eitan Gertel, our chief executive officer, president and chairman, is critical to the management of our business and operations, as well as the development of our strategic direction. The loss of services of Mr. Gertel or other executive officers or key personnel or the inability to continue to attract qualified personnel could have a material adverse effect on our business. Competition for highly skilled technical people is extremely intense and we continue to face difficulty identifying and hiring qualified personnel in many areas of our business. We may not be able to hire and retain such personnel at compensation levels

consistent with our existing compensation and salary structure. Many of the companies with which we compete for hiring experienced employees have greater resources than we have. In addition, in making employment decisions, particularly in the high-technology industries, job candidates often consider the value of the equity they are to receive in connection with their employment. Therefore, significant volatility in the price of our stock may adversely affect our ability to attract or retain technical personnel. Furthermore, changes to accounting principles generally accepted in the United States relating to the expensing of stock options may discourage us from granting the sizes or types of stock awards that job candidates may require to accept our offer of employment.

Potential future acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and impair our financial results.

As part of our business strategy, we intend to pursue acquisitions of companies, technologies and products that we believe could accelerate our ability to compete in our core markets or allow us to enter new markets. Acquisitions involve numerous risks, any of which could harm our business, including:

· difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnel of the target company and realizing the anticipated synergies of the combined businesses;

· difficulties in supporting and transitioning customers, if any, of the target company;

· diversion of financial and management resources from existing operations;

· the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity;

· risks of entering new markets in which we have limited or no experience;

· potential loss of key employees, customers and strategic alliances from either our current business or the target company’s business;

· assumption of unanticipated problems or latent liabilities, such as problems with the quality of the target company’s products;

· inability to generate sufficient revenue to offset acquisition costs;

· equity based acquisitions may have a dilutive effect on our stock; and

· inability to successfully complete transactions with a suitable acquisition candidate.

Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results. As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate. The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results.

If we fail to manage or anticipate our long-term growth and expansion requirements, our business will suffer.

In recent years, we have experienced significant growth through among other things, internal expansion programs, product development and our acquisitions of Engana, now Optium Australia and Kailight, now Optium Israel. We currently anticipate continued growth. In connection with this growth, we will be required to expand our manufacturing operations, including hiring new personnel, purchasing additional equipment, leasing or purchasing additional facilities and developing the management infrastructure to manage any such expansion. If we fail to secure these expansion requirements and /or manage our future growth effectively, in particular during periods of industry uncertainty, our business could suffer.

Our products are complex and may take longer to develop than anticipated and we may not recognize revenues from new products until after long field testing and customer acceptance periods.

Many of our new products must be tailored to customer specifications. As a result, we are constantly developing new products and using new technologies in those products. These products often take substantial time to develop because of their complexity and because customer specifications sometimes change during the development cycle. We often incur substantial costs associated with the research and development and sales and marketing activities in connection with products that may be purchased long after we have incurred the costs associated with designing, creating and selling such products.

If our customers do not qualify our products or if our customers determine not to purchase products we have in development, our operating results could suffer.

Most of our customers do not purchase our products, other than limited numbers of evaluation units, prior to qualification of our products. Our existing products, as well as each new product, must pass through varying levels of qualification with our customers. In addition, due to the rapid technological changes in our market, a customer may cancel or modify a design project before we begin large-scale manufacture of the product and receive revenue from the customer. It is unlikely that we would be able to recover the expenses for cancelled or unutilized design projects. It is difficult to predict with any certainty the frequency with which customers will cancel or modify their projects, or the effect that any cancellation or modification would have on our results of operations.

If carriers that purchase network systems from customers fail to qualify or delay qualifications of any products sold by our customers that contain our products, our business could be harmed.

The qualification and field testing of our customers’ network system products by their carrier customers is long and unpredictable. This process is not under the control of us or our customers, and as a result timing of our revenues is unpredictable. Any delay in qualification of one of our customers’ network systems from what we anticipate could result in the delay or cancellation of orders from our customers for subsystems included in the applicable network system, which could harm our results of operations.

Delays, disruptions or quality control problems in manufacturing could result in delays in product shipments to customers and could adversely affect our business.

We may experience delays, disruptions or quality control problems in our manufacturing operations. As a result, we could incur additional costs that would adversely affect gross margins, and product shipments to our customers could be delayed beyond the shipment schedules requested by our customers, which would negatively affect our revenues, competitive position and reputations.

We may experience low manufacturing yields.

Manufacturing yields depend on a number of factors, including the volume of production due to customer demand and the nature and extent of changes in specifications required by customers for which we perform design-in work. Higher volumes due to demand for a fixed, rather than continually changing, design generally results in higher manufacturing yields, whereas lower volume production generally results in lower yields. In addition, lower yields may result, and have in the past resulted, from commercial shipments of products prior to full manufacturing qualification to the applicable specifications. Changes in manufacturing processes required as a result of changes in product specifications, changing customer needs and the introduction of new product lines have historically caused, and may in the future cause, significantly reduced manufacturing yields, resulting in low or negative margins on those products. Moreover, an increase in the rejection rate of products during the quality control process before, during or after manufacture, results in lower yields and margins. Finally, manufacturing yields and margins can also be lower if we receive or inadvertently use defective or contaminated materials from our suppliers.

We face intense competition from other providers of optical subsystems, as well as competition from providers offering alternative products, which could negatively impact our results of operations and cause our market share to decline.

We believe that a number of companies have developed or are developing optical subsystems that compete directly with our product offerings. Many current and potential competitors have substantially greater financial, marketing, research and manufacturing resources than we possess, and there can be no assurance that our current and future competitors will not be more successful than us.

In the event that the optical subsystems market expands, competition may intensify as additional competitors enter the market and current competitors expand their product lines. Companies competing with us may introduce products that are competitively priced, have increased performance or functionality, or incorporate technological advances that we have not yet developed or implemented, and may be able to react quicker to changing customer requirements and expectations. There is also the risk that network systems vendors may re-enter the subsystem market and begin to manufacture the optical subsystems incorporated in their network systems. Increased competitive pressure or a decision by any of our customers to manufacture optical subsystems for inclusion in their network systems could result in a loss of sales or market share or cause us to lower prices for our products, any of which would harm our business and operating results.

Our future operating results may be subject to volatility as a result of exposure to foreign currency exchange risks and foreign losses.

All sales of our products are made in United States dollars. Nevertheless, some of our expenses from Optium Australia and Optium Israel are derived in Australian dollars and Israeli shekels, respectively. This exposes us to foreign currency exchange rate risks. If the value of the Australian dollar and/or Israeli shekel relative to the United States dollar rises, these expenses of Optium Australia and/or Optium Israel, as applicable, will correspondingly increase. We currently do not use derivative financial instruments to mitigate this exposure. We continue to review this issue and may consider hedging certain foreign exchange risks through the use of currency futures or options in future periods.

Currently, we recognize income in our US operations and losses in our Australian and Israeli operations; the combination of domestic income and foreign losses, in addition to recognition of additional deferred tax assets, could affect our quarterly and year to date effective tax rates.

If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.

Our success depends on our ability to protect our intellectual property and other proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. Significant technology used in our products, however, is not the subject of any patent protection, and we may be unable to obtain patent protection on such technology in the future. Moreover, existing U.S. legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and may be challenged by third parties. In addition, the laws of countries other than the United States in which we market our products may afford little or no effective protection of our intellectual property. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products or otherwise obtain and use our intellectual property. If we fail to protect our intellectual property and other proprietary rights, our business, results of operations or financial condition could be materially harmed.

In addition, defending our intellectual property rights may entail significant expense. We believe that certain products in the marketplace may infringe our existing intellectual property rights. We have, from time to time, resorted to legal proceedings to protect our intellectual property and may continue to do so in the future. We may be required to expend significant resources to monitor and protect our intellectual property rights. Any of our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could result in significant expense to us and divert the attention and efforts of our management and technical employees, even if we were to prevail.

Third parties may claim we are infringing their intellectual property rights and we could be prevented from selling our products, or suffer significant litigation expense, even if these claims have no merit.

Our competitive position is driven in part by our intellectual property and other proprietary rights. Third parties, however, may claim that we or our products or operations are infringing their intellectual property rights, and we may be unaware of intellectual property rights of others that may cover some of our assets, technology and products. In that regard, JDS Uniphase Corporation and EMCORE Corporation filed a complaint on September 11, 2006 alleging that our 1550 nm HFC externally modulated transmitter, in addition to possibly “products as yet unidentified,” infringes on two U.S. patents. On March 14, 2007, JDS Uniphase and EMCORE Corporation filed a second complaint in the United States District Court for the Western

District of Pennsylvania alleging that the Company’s 1550 nm HFC quadrature amplitude modulated transmitters, in addition to possibly “products as yet unidentified”, infringe on another U.S. patent. The plaintiffs in both cases are seeking for the court to declare that we have willfully infringed on such patents and to be awarded up to three times the amount of any compensatory damages found, if any, plus any other damages or costs incurred. Any litigation regarding patents, trademarks, copyrights or other intellectual property rights, even those without merit, could be costly and time consuming, and divert our management and key personnel from operating our business. The complexity of the technology involved and inherent uncertainty and cost of intellectual property litigation increases our risks. If any third party has a meritorious or successful claim that we are infringing its intellectual property rights, we may be forced to change our products or manufacturing processes, which may be costly or impractical. This also may require us to stop selling our products as currently engineered, which could harm our competitive position. We also may be subject to significant damages or injunctions that prevent the further development of certain of our products or services.

If we fail to obtain the right to use the intellectual property rights of others necessary to operate our business, our ability to succeed will be adversely affected.

Numerous patents in our industry are held by others, including academic institutions and our competitors. Optical subsystem suppliers may seek to gain a competitive advantage or other third parties may seek an economic return on their intellectual property portfolios by making infringement claims against us. In the future, we may need to obtain license rights to patents or other intellectual property held by others to the extent necessary for our business. Unless we are able to obtain those licenses on commercially reasonable terms, patents or other intellectual property held by others could inhibit our development of new products for our markets. Licenses granting us the right to use third party technology may not be available on commercially reasonable terms, if at all. Generally, a license, if granted, would include payments of up-front fees, ongoing royalties or both. These payments or other terms could have a significant adverse impact on our operating results. Our larger competitors may be able to obtain licenses or cross-license their technology on better terms than we can, which could put us at a competitive disadvantage.

We incur significant increased costs as a result of operating as a public company, our management is required to devote substantial time to compliance initiatives, and if we have deficiencies in our internal controls over financial reporting or other compliance controls, the market price of our stock could decline and we could be subject to sanctions or investigations .

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, or SEC, and the NASDAQ Global Market, has imposed various new requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, under current rules, commencing with respect to our fiscal year ending August 2, 2008, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues. We will evaluate the need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting, the market price of our stock could decline and we could be subject to sanctions or investigations by the NASDAQ Global Market, the SEC or other regulatory authorities, which would require additional financial and management resources.

We will lose sales if we are unable to obtain government authorization to export certain of our products, and we would be subject to legal and regulatory consequences if we do not comply with applicable laws and regulations.

Exports of our products are subject to export controls imposed by the U.S. Government and administered by the U.S. Departments of State and Commerce. In certain instances, these regulations may require pre-shipment authorization from the administering department. For products subject to the Export Administration Regulations, or EAR, administered by

the Department of Commerce’s Bureau of Industry and Security, the requirement for a license is dependent on the type and end use of the product, the final destination, the identity of the end user and whether a license exception might apply. Virtually all exports of products subject to the International Traffic in Arms Regulations, or ITAR, administered by the Department of State’s Directorate of Defense Trade Controls, require a license. Most of our fiber optics products are subject to EAR; certain of our RF over fiber products are currently subject to ITAR.

Given the current global political climate, obtaining export licenses can be difficult and time-consuming. Failure to obtain export licenses for these shipments could significantly reduce our revenue and could materially adversely affect our business, financial condition and results of operations. Compliance with U.S. Government regulations may also subject us to additional fees and costs. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position.

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.

We anticipate that our current cash, cash equivalents, and cash provided by operating activities will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months. We operate in a market, however, that makes our prospects difficult to evaluate. It is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs. If this occurs, we may need additional financing to execute on our current or future business strategies, including to:

· acquire complementary businesses or technologies;

· enhance our operating infrastructure;

· develop new products;

· hire additional technical and other personnel; or

· otherwise respond to competitive pressures.

If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products, or otherwise respond to competitive pressures could be significantly limited.

We may be faced with product liability claims.

Despite quality assurance measures, there remains a risk that defects may occur in our products. The occurrence of any defects in our products could give rise to liability for damages caused by such defects. They could, moreover, impair the market’s acceptance of our products. Both could have a material adverse effect on our business and financial condition. Although we carry product liability insurance, we cannot assure investors that this insurance would adequately cover our costs arising from defects in our products.

Business disruptions resulting from international uncertainties could negatively impact our profitability.

We derive, and expect to continue to derive, a significant portion of our revenue from international sales in various markets. In addition, we have operations in Sydney, Australia and Nes Ziona, Israel. Our international revenue and operations are subject to a number of material risks, including, but not limited to:

· difficulties in staffing, managing and supporting operations in more than one country;

· difficulties in enforcing agreements and collecting receivables through foreign legal systems;

· fewer legal protections for intellectual property;

· foreign and U.S. taxation issues and international trade barriers;

· difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;

· fluctuations in foreign economies;

· fluctuations in the value of foreign currencies and interest rates;

· general economic and political conditions in the markets in which we operate;

· domestic and international economic or political changes, hostilities and other disruptions in regions where we currently operate or may operate in the future; and

· different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future.

Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulties in producing and delivering our products, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales, including sales to customers outside the United States, are denominated in U.S. dollars, and downward fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products more expensive than other products, which could harm our business.

We may be unable to utilize our net operating loss carryforwards to reduce our income taxes.

As of February 2, 2008, we had U.S. net operating loss, or NOL, carryforwards of approximately $21.8 million for federal and $8.3 million for state income tax purposes expiring through fiscal year ending July 2025. These NOL carryforwards represent an asset to the extent they can be utilized to reduce future cash income tax payments. Utilization of our NOL carryforwards depends on the timing and amount of taxable income earned in the future, which we are unable to predict. We have performed an analysis to determine whether an ownership change under Section 382 of the Internal Revenue Code has occurred. The effect of an ownership change would be the imposition of an annual limitation on the use of the U.S. NOL carry forwards attributable to periods before the change. The review determined we have no current limitations related to the NOL carryforwards.

We have NOLs in the United States, Australia and Israel. Currently, we recognize income in our U.S. operations and losses in our Australian and Israeli operations, and the complexity of the application of the NOLs in consolidation may adversely affect our future effective tax rate.

In the year ended July 28, 2007, we recorded a U.S. deferred tax asset, by removing a valuation allowance, of approximately $13.9 million. This one time recognition positively affected our net income for fiscal year 2007. We recognized the U.S. deferred tax asset when it met a “more likely than not” recognition threshold in connection with likely future taxable

income realization. In the future, we may recognize additional deferred tax assets should our foreign operations meet the “more likely than not” recognition threshold in connection with likely future taxable income realization.

Risks Related to Ownership of Our Common Stock

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business. The price of our stock could decline if one or more securities analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

Some of the factors that may cause the market price of our common stock to fluctuate include:

· fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

· changes in estimates of our financial results or recommendations by securities analysts;

· failure of any of our products to achieve or maintain market acceptance;

· changes in market valuations of similar companies;

· success of competitive products;

· changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

· announcements by us or our competitors of significant products, contracts, acquisitions or strategic alliances;

· regulatory developments in the United States, foreign countries or both;

· litigation involving our company, our general industry or both;

· additions or departures of key personnel;

· investors’ general perception of us;

· changes in general economic, industry and market conditions; and

· changes in regulatory and other dynamics.

In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

A significant portion of our total outstanding shares may be sold into the public market, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These shares are able to be sold, subject to any applicable volume limitations under federal securities laws, at any time. These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.

In addition, as of March 11, 2008 there were 48,979 shares subject to outstanding warrants, 2,447,650 shares subject to outstanding options, and 521,218 unvested restricted stock units. Additional shares will be available for issuance under our stock option plans. These shares are eligible for sale in the public market to the extent permitted by any applicable vesting requirements. Moreover, holders who, at the time of our initial public offering, held an aggregate of approximately 17 million shares of our common stock have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have also registered all shares of common stock that we may issue under our employee benefit plans. Once we register these shares, they can be freely sold in the public market upon issuance.

Our directors, management and entities associated with them will exercise significant control over our company, which will limit your ability to influence corporate matters.

Our executive officers and directors and entities associated with them, over which one or more of them has voting or dispositive power, collectively beneficially own approximately 49% of our outstanding common stock as of March 11, 2008. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might negatively affect the market price of our common stock.

Provisions in our certificate of incorporation and by-laws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Provisions of our certificate of incorporation and by-laws and Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:

· limitations on the removal of directors;

· a classified board of directors so that not all members of our board are elected at one time;

· advance notice requirements for stockholder proposals and director nominations;

· the inability of stockholders to act by written consent or to call special meetings;

· the ability of our board of directors to make, alter or repeal our by-laws; and

· the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval.

The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote is necessary to amend or repeal the above provisions of our certificate of incorporation. In addition, absent approval of our board of directors, our by-laws may only be amended or repealed by the affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote.

In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Submission of Matters to a Vote of Security Holders

The Company’s annual meeting of stockholders was held on Monday, December 17, 2007, at the offices of DrinkerBiddle & Reath, LLP located at One Logan Square, 18 ^th & Cherry Streets, Philadelphia, Pennsylvania, 19103-6996, at which the following matters were submitted to a vote of the stockholders.

(a) votes regarding the election of two (2) class I members, Steven Foster and Russell Johnson, to the board of directors as directors each to serve for a three-year term until his successor has been duly elected and qualified or until his earlier resignation or removal, were as follow:

	For	Withheld
Steven Foster	22,456,412	293,251
Russell Johnson	22,456,412	293,251

(b) votes regarding the ratification of the selection of the accounting firm of Ernst & Young, LLP as the Company’s independent registered public accountants for the current fiscal year, were as follows:

FOR		AGAINST		ABSTAIN
22,499,463		16,212		233,988

ITEM 5. Other Information

None.

ITEM 6. Exhibits

(a) Exhibit Index .

10.1 Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and Eitan Gertel.

10.2 Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and Christopher Brown.

10.3 Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and Mark Colyar.

10.4 Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and Anthony Musto.

10.4 Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and David Renner.

10.5 First Amendment to lease for 200 Precision Road, Horsham, PA by and between Horsham Property Assoc., L.P. and Optium Corporation.

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 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.

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.

		OPTIUM CORPORATION.


Dated:	March 13, 2008	/s/ Eitan Gertel
		Eitan Gertel
		President and Chief Executive Officer

Dated:	March 13, 2008	/s/ David Renner
		David Renner
		Vice President of Finance and
		Chief Financial Officer

Exhibit 10.1

DEFERRED STOCK AWARD AGREEMENT

UNDER THE OPTIUM CORPORATION

2006 STOCK OPTION AND INCENTIVE PLAN

Name of Grantee: Eitan Gertel
No. of Restricted Stock Units Granted: 41,633

Grant Date: 11-Mar-2008

Pursuant to the Optium Corporation 2006 Stock Option and Incentive Plan (the “Plan”) as amended through the date hereof, Optium Corporation (the “Company”) hereby grants a Deferred Stock Award (an “Award”) consisting of the number of phantom stock units listed as “Restricted Stock Units” above (the “Restricted Stock Units”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $.01 per share (the “Stock”) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan.

1. Restrictions on Transfer of Award . The Award shall not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee, until (i) the Restricted Stock Units have vested as provided in Section 2 of this Award Agreement, and (ii) shares have been issued pursuant to Section 4 of this Award Agreement.

2. Vesting of Restricted Stock Units . The Restricted Stock Units shall vest in accordance with the schedule set forth below, provided in each case that the Grantee is then, and since the Grant Date has continuously remained, in a service relationship (in the capacity of an employee, officer, director or consultant) with the Company or its Subsidiaries.

Incremental (Aggregate) Number of Restricted Stock Units Vested		Vesting Date
25%		May 1, 2008
25%		August 1, 2008
25%		November 1, 2008
25%		February 1, 2009

In the event of an Acquisition (as defined in the Plan) or upon any involuntary termination of employment of the Grantee (other than an involuntary termination for “cause” (as determined by the Company in its absolute discretion)), any Restricted Stock Units that remain unvested at the time of such Acquisition shall become fully vested at such time. The Committee may at any time accelerate the vesting schedule specified in this Section 2.

3. Forfeiture . If the Grantee’s employment with the Company and its Subsidiaries is voluntarily terminated by the Grantee or involuntarily terminated for “cause” (as determined by the Company in its absolute discretion) prior to vesting of Restricted Stock Units granted herein, all Restricted Stock Units shall immediately and automatically be forfeited and returned to the Company.

4. Issuance of Shares of Stock; Rights as Stockholder .

(a) As soon as practicable following each vesting date, but in no event later than 30 days after each such vesting date, the Company shall direct its transfer agent to issue to the Grantee in book entry form the number of shares of Stock equal to the number of Restricted Stock Units credited to the Grantee that have vested pursuant to Section 2 of this Award Agreement on such date in satisfaction of such Restricted Stock Units. Such issuance may be effected by the Company directing its transfer agent to deposit such shares of Stock into the Grantee’s brokerage account. The Grantee’s cost basis in any shares of Stock issued hereunder shall be $0.00.

(b) In each instance above, the issuance of shares of Stock shall be subject to the payment by the Grantee by cash or other means acceptable to the Company of any federal, state, local and other applicable taxes required to be withheld in connection with such issuance in accordance with Section 7 of this Award Agreement.

(c) The Grantee understands that (i) the Grantee shall have no rights with respect to the shares of Stock underlying the Restricted Stock Units, such as voting rights, dividend rights and dividend equivalent rights, unless and until such shares of Stock have been issued to the Grantee as specified in Section 4(a) hereof and (ii) once shares have been delivered by book entry to the Grantee in respect of the Restricted Stock Units, the Grantee will be free to sell such shares of Stock, subject to applicable requirements of federal and state securities laws and Company policy.

5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee set forth in Section 2(b) of the Plan. Capitalized terms in this Award Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Transferability of this Award Agreement . This Award Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Tax Withholding . This Section 7 applies only to Grantees who are subject to U.S. Federal tax withholding. The Grantee shall, not later than the date (the “Taxation Date”) as of which the receipt of this Award becomes a taxable event for U.S. Federal income tax purposes (if applicable to Grantee), pay to the Company or make arrangements satisfactory to the Committee for payment of any U.S. Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Grantee may elect to have the required minimum tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued, or (ii) transferring to the Company, a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due. Unless the Grantee shall have otherwise notified the Company in writing to it Chief Financial Officer at least 30 days prior to a Taxation Date, the Grantee shall be deemed to have elected to satisfy such obligation in the manner set forth in clause (i) of the prior sentence. Notwithstanding the

2 foregoing, the Company may require that such obligation be satisfied in cash by the Grantee upon notice to Grantee at least 30 days prior to the Taxation Date.

8. No Obligation to Continue Service Relationship . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Award Agreement to continue the Grantee in employment or other service relationship and neither the Plan nor this Award Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment or other service relationship of the Grantee at any time.

9. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

			OPTIUM CORPORATION




			By:

			/s/ David Renner
			Name: David Renner
			Title: CFO
			Address: 200 Precision Road, Horsham, PA 19044


The foregoing Award Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.


Dated:			/s/ Eitan Gertel
			Eitan Gertel

			Grantee’s name and address:

			Eitan Gertel
			P.O. Box 38
			Gwynedd, PA 19436

Exhibit 10.2

DEFERRED STOCK AWARD AGREEMENT
UNDER THE OPTIUM CORPORATION
2006 STOCK OPTION AND INCENTIVE PLAN

Name of Grantee: Christopher Brown
No. of Restricted Stock Units Granted: 6,813
Grant Date: 11-Mar-2008

1. Restrictions on Transfer of Award . The Award shall not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee, until (i) the Restricted Stock Units have vested as provided in Section 2 of this Award Agreement, and (ii) shares have been issued pursuant to Section 4 of this Award Agreement.

2. Vesting of Restricted Stock Units . The Restricted Stock Units shall vest in accordance with the schedule set forth below, provided in each case that the Grantee is then, and since the Grant Date has continuously remained, in a service relationship (in the capacity of an employee, officer, director or consultant) with the Company or its Subsidiaries.

Incremental (Aggregate) Number of Restricted Stock Units Vested		Vesting Date
25%		May 1, 2008
25%		August 1, 2008
25%		November 1, 2008
25%		February 1, 2009

3. Forfeiture . If the Grantee’s employment with the Company and its Subsidiaries is voluntarily terminated by the Grantee or involuntarily terminated for “cause” (as determined by the Company in its absolute discretion) prior to vesting of Restricted Stock Units granted herein, all Restricted Stock Units shall immediately and automatically be forfeited and returned to the Company.

4. Issuance of Shares of Stock; Rights as Stockholder .

(a) As soon as practicable following each vesting date, but in no event later than 30 days after each such vesting date, the Company shall direct its transfer agent to issue to the Grantee in book entry form the number of shares of Stock equal to the number of Restricted Stock Units credited to the Grantee that have vested pursuant to Section 2 of this Award Agreement on such date in satisfaction of such Restricted Stock Units. Such issuance may be effected by the Company directing its transfer agent to deposit such shares of Stock into the Grantee’s brokerage account. The Grantee’s cost basis in any shares of Stock issued hereunder shall be $0.00.

(b) In each instance above, the issuance of shares of Stock shall be subject to the payment by the Grantee by cash or other means acceptable to the Company of any federal, state, local and other applicable taxes required to be withheld in connection with such issuance in accordance with Section 7 of this Award Agreement.

(c) The Grantee understands that (i) the Grantee shall have no rights with respect to the shares of Stock underlying the Restricted Stock Units, such as voting rights, dividend rights and dividend equivalent rights, unless and until such shares of Stock have been issued to the Grantee as specified in Section 4(a) hereof and (ii) once shares have been delivered by book entry to the Grantee in respect of the Restricted Stock Units, the Grantee will be free to sell such shares of Stock, subject to applicable requirements of federal and state securities laws and Company policy.

5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee set forth in Section 2(b) of the Plan. Capitalized terms in this Award Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Transferability of this Award Agreement . This Award Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Tax Withholding . This Section 7 applies only to Grantees who are subject to U.S. Federal tax withholding. The Grantee shall, not later than the date (the “Taxation Date”) as of which the receipt of this Award becomes a taxable event for U.S. Federal income tax purposes (if applicable to Grantee), pay to the Company or make arrangements satisfactory to the Committee for payment of any U.S. Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Grantee may elect to have the required minimum tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued, or (ii) transferring to the Company, a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due. Unless the Grantee shall have otherwise notified the Company in writing to it Chief Financial Officer at least 30 days prior to a Taxation Date, the Grantee shall be deemed to have elected to satisfy such obligation in the manner set forth in clause (i) of the prior sentence. Notwithstanding the

2 foregoing, the Company may require that such obligation be satisfied in cash by the Grantee upon notice to Grantee at least 30 days prior to the Taxation Date.

8. No Obligation to Continue Service Relationship . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Award Agreement to continue the Grantee in employment or other service relationship and neither the Plan nor this Award Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment or other service relationship of the Grantee at any time.

9. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

	OPTIUM CORPORATION

	By:

	/s/ Eitan Gertel
	Name: Eitan Gertel
	Title: CEO, President & Chairman
	Address: 200 Precision Road, Horsham, PA 19044

The foregoing Award Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.

Dated:			/s/ Chris Brown
			Chris Brown

			Grantee’s name and address:

			Christopher Brown
			1432 Knightsbridge Rd.
			Blue Bell, PA 19432

Exhibit 10.3

DEFERRED STOCK AWARD AGREEMENT
UNDER THE OPTIUM CORPORATION
2006 STOCK OPTION AND INCENTIVE PLAN

Name of Grantee: Mark Colyar
No. of Restricted Stock Units Granted: 7,324
Grant Date: 11-Mar-2008

1. Restrictions on Transfer of Award . The Award shall not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee, until (i) the Restricted Stock Units have vested as provided in Section 2 of this Award Agreement, and (ii) shares have been issued pursuant to Section 4 of this Award Agreement.

2. Vesting of Restricted Stock Units . The Restricted Stock Units shall vest in accordance with the schedule set forth below, provided in each case that the Grantee is then, and since the Grant Date has continuously remained, in a service relationship (in the capacity of an employee, officer, director or consultant) with the Company or its Subsidiaries.

Incremental (Aggregate) Number of Restricted Stock Units Vested		Vesting Date
25%		May 1, 2008
25%		August 1, 2008
25%		November 1, 2008
25%		February 1, 2009

3. Forfeiture . If the Grantee’s employment with the Company and its Subsidiaries is voluntarily terminated by the Grantee or involuntarily terminated for “cause” (as determined by the Company in its absolute discretion) prior to vesting of Restricted Stock Units granted herein, all Restricted Stock Units shall immediately and automatically be forfeited and returned to the Company.

4. Issuance of Shares of Stock; Rights as Stockholder .

(a) As soon as practicable following each vesting date, but in no event later than 30 days after each such vesting date, the Company shall direct its transfer agent to issue to the Grantee in book entry form the number of shares of Stock equal to the number of Restricted Stock Units credited to the Grantee that have vested pursuant to Section 2 of this Award Agreement on such date in satisfaction of such Restricted Stock Units. Such issuance may be effected by the Company directing its transfer agent to deposit such shares of Stock into the Grantee’s brokerage account. The Grantee’s cost basis in any shares of Stock issued hereunder shall be $0.00.

(b) In each instance above, the issuance of shares of Stock shall be subject to the payment by the Grantee by cash or other means acceptable to the Company of any federal, state, local and other applicable taxes required to be withheld in connection with such issuance in accordance with Section 7 of this Award Agreement.

(c) The Grantee understands that (i) the Grantee shall have no rights with respect to the shares of Stock underlying the Restricted Stock Units, such as voting rights, dividend rights and dividend equivalent rights, unless and until such shares of Stock have been issued to the Grantee as specified in Section 4(a) hereof and (ii) once shares have been delivered by book entry to the Grantee in respect of the Restricted Stock Units, the Grantee will be free to sell such shares of Stock, subject to applicable requirements of federal and state securities laws and Company policy.

5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee set forth in Section 2(b) of the Plan. Capitalized terms in this Award Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Transferability of this Award Agreement . This Award Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Tax Withholding . This Section 7 applies only to Grantees who are subject to U.S. Federal tax withholding. The Grantee shall, not later than the date (the “Taxation Date”) as of which the receipt of this Award becomes a taxable event for U.S. Federal income tax purposes (if applicable to Grantee), pay to the Company or make arrangements satisfactory to the Committee for payment of any U.S. Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Grantee may elect to have the required minimum tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued, or (ii) transferring to the Company, a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due. Unless the Grantee shall have otherwise notified the Company in writing to it Chief Financial Officer at least 30 days prior to a Taxation Date, the Grantee shall be deemed to have elected to satisfy such obligation in the manner set forth in clause (i) of the prior sentence. Notwithstanding the

2 foregoing, the Company may require that such obligation be satisfied in cash by the Grantee upon notice to Grantee at least 30 days prior to the Taxation Date.

8. No Obligation to Continue Service Relationship . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Award Agreement to continue the Grantee in employment or other service relationship and neither the Plan nor this Award Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment or other service relationship of the Grantee at any time.

9. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

	OPTIUM CORPORATION



	By

/s/ Eitan Gertel

	Name: Eitan Gertel
	Title: CEO, President & Chairman
	Address: 200 Precision Road, Horsham, PA 19044

The foregoing Award Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.

Dated:

/s/ Mark Colyar

	Mark Colyar


	Grantee’s name and address:

	Mark Colyar
	203 Wecks Pond Rd.
	New Hope, PA 18938

Exhibit 10.4

DEFERRED STOCK AWARD AGREEMENT
UNDER THE OPTIUM CORPORATION
2006 STOCK OPTION AND INCENTIVE PLAN

Name of Grantee: Anthony Musto
No. of Restricted Stock Units Granted: 6,983
Grant Date: 11-Mar-2008

1. Restrictions on Transfer of Award . The Award shall not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee, until (i) the Restricted Stock Units have vested as provided in Section 2 of this Award Agreement, and (ii) shares have been issued pursuant to Section 4 of this Award Agreement.

2. Vesting of Restricted Stock Units . The Restricted Stock Units shall vest in accordance with the schedule set forth below, provided in each case that the Grantee is then, and since the Grant Date has continuously remained, in a service relationship (in the capacity of an employee, officer, director or consultant) with the Company or its Subsidiaries.

Incremental (Aggregate) Number of Restricted Stock Units Vested		Vesting Date
25%		May 1, 2008
25%		August 1, 2008
25%		November 1, 2008
25%		February 1, 2009

3. Forfeiture . If the Grantee’s employment with the Company and its Subsidiaries is voluntarily terminated by the Grantee or involuntarily terminated for “cause” (as determined by the Company in its absolute discretion) prior to vesting of Restricted Stock Units granted herein, all Restricted Stock Units shall immediately and automatically be forfeited and returned to the Company.

4. Issuance of Shares of Stock; Rights as Stockholder .

(a) As soon as practicable following each vesting date, but in no event later than 30 days after each such vesting date, the Company shall direct its transfer agent to issue to the Grantee in book entry form the number of shares of Stock equal to the number of Restricted Stock Units credited to the Grantee that have vested pursuant to Section 2 of this Award Agreement on such date in satisfaction of such Restricted Stock Units. Such issuance may be effected by the Company directing its transfer agent to deposit such shares of Stock into the Grantee’s brokerage account. The Grantee’s cost basis in any shares of Stock issued hereunder shall be $0.00.

(b) In each instance above, the issuance of shares of Stock shall be subject to the payment by the Grantee by cash or other means acceptable to the Company of any federal, state, local and other applicable taxes required to be withheld in connection with such issuance in accordance with Section 7 of this Award Agreement.

(c) The Grantee understands that (i) the Grantee shall have no rights with respect to the shares of Stock underlying the Restricted Stock Units, such as voting rights, dividend rights and dividend equivalent rights, unless and until such shares of Stock have been issued to the Grantee as specified in Section 4(a) hereof and (ii) once shares have been delivered by book entry to the Grantee in respect of the Restricted Stock Units, the Grantee will be free to sell such shares of Stock, subject to applicable requirements of federal and state securities laws and Company policy.

5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee set forth in Section 2(b) of the Plan. Capitalized terms in this Award Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Transferability of this Award Agreement . This Award Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Tax Withholding . This Section 7 applies only to Grantees who are subject to U.S. Federal tax withholding. The Grantee shall, not later than the date (the “Taxation Date”) as of which the receipt of this Award becomes a taxable event for U.S. Federal income tax purposes (if applicable to Grantee), pay to the Company or make arrangements satisfactory to the Committee for payment of any U.S. Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Grantee may elect to have the required minimum tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued, or (ii) transferring to the Company, a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due. Unless the Grantee shall have otherwise notified the Company in writing to it Chief Financial Officer at least 30 days prior to a Taxation Date, the Grantee shall be deemed to have elected to satisfy such obligation in the manner set forth in clause (i) of the prior sentence. Notwithstanding the

2 foregoing, the Company may require that such obligation be satisfied in cash by the Grantee upon notice to Grantee at least 30 days prior to the Taxation Date.

8. No Obligation to Continue Service Relationship . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Award Agreement to continue the Grantee in employment or other service relationship and neither the Plan nor this Award Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment or other service relationship of the Grantee at any time.

9. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

	OPTIUM CORPORATION



	By

/s/ Eitan Gertel

	Name: Eitan Gertel
	Title: CEO, President & Chairman
	Address: 200 Precision Road, Horsham, PA 19044

The foregoing Award Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.

Dated:

/s/ Anthony Musto

	Anthony Musto


	Grantee’s name and address:

	Anthony Musto
	7 Cavalier Court
	Ringoes, NJ 08551

Exhibit 10.5

DEFERRED STOCK AWARD AGREEMENT
UNDER THE OPTIUM CORPORATION
2006 STOCK OPTION AND INCENTIVE PLAN

Name of Grantee: David Renner
No. of Restricted Stock Units Granted: 6,472

Grant Date: 11-Mar-2008

1. Restrictions on Transfer of Award . The Award shall not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee, until (i) the Restricted Stock Units have vested as provided in Section 2 of this Award Agreement, and (ii) shares have been issued pursuant to Section 4 of this Award Agreement.

2. Vesting of Restricted Stock Units . The Restricted Stock Units shall vest in accordance with the schedule set forth below, provided in each case that the Grantee is then, and since the Grant Date has continuously remained, in a service relationship (in the capacity of an employee, officer, director or consultant) with the Company or its Subsidiaries.

Incremental (Aggregate) Number of Restricted Stock Units Vested		Vesting Date
25%		May 1, 2008
25%		August 1, 2008
25%		November 1, 2008
25%		February 1, 2009

3. Forfeiture . If the Grantee’s employment with the Company and its Subsidiaries is voluntarily terminated by the Grantee or involuntarily terminated for “cause” (as determined by the Company in its absolute discretion) prior to vesting of Restricted Stock Units granted herein, all Restricted Stock Units shall immediately and automatically be forfeited and returned to the Company.

4. Issuance of Shares of Stock; Rights as Stockholder .

(a) As soon as practicable following each vesting date, but in no event later than 30 days after each such vesting date, the Company shall direct its transfer agent to issue to the Grantee in book entry form the number of shares of Stock equal to the number of Restricted Stock Units credited to the Grantee that have vested pursuant to Section 2 of this Award Agreement on such date in satisfaction of such Restricted Stock Units. Such issuance may be effected by the Company directing its transfer agent to deposit such shares of Stock into the Grantee’s brokerage account. The Grantee’s cost basis in any shares of Stock issued hereunder shall be $0.00.

(b) In each instance above, the issuance of shares of Stock shall be subject to the payment by the Grantee by cash or other means acceptable to the Company of any federal, state, local and other applicable taxes required to be withheld in connection with such issuance in accordance with Section 7 of this Award Agreement.

(c) The Grantee understands that (i) the Grantee shall have no rights with respect to the shares of Stock underlying the Restricted Stock Units, such as voting rights, dividend rights and dividend equivalent rights, unless and until such shares of Stock have been issued to the Grantee as specified in Section 4(a) hereof and (ii) once shares have been delivered by book entry to the Grantee in respect of the Restricted Stock Units, the Grantee will be free to sell such shares of Stock, subject to applicable requirements of federal and state securities laws and Company policy.

5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee set forth in Section 2(b) of the Plan. Capitalized terms in this Award Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Transferability of this Award Agreement . This Award Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Tax Withholding . This Section 7 applies only to Grantees who are subject to U.S. Federal tax withholding. The Grantee shall, not later than the date (the “Taxation Date”) as of which the receipt of this Award becomes a taxable event for U.S. Federal income tax purposes (if applicable to Grantee), pay to the Company or make arrangements satisfactory to the Committee for payment of any U.S. Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Grantee may elect to have the required minimum tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued, or (ii) transferring to the Company, a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due. Unless the Grantee shall have otherwise notified the Company in writing to it Chief Financial Officer at least 30 days prior to a Taxation Date, the Grantee shall be deemed to have elected to satisfy such obligation in the manner set forth in clause (i) of the prior sentence. Notwithstanding the

2 foregoing, the Company may require that such obligation be satisfied in cash by the Grantee upon notice to Grantee at least 30 days prior to the Taxation Date.

8. No Obligation to Continue Service Relationship . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Award Agreement to continue the Grantee in employment or other service relationship and neither the Plan nor this Award Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment or other service relationship of the Grantee at any time.

9. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

			OPTIUM CORPORATION



			By:


			/s/ Eitan Gertel
			Name: Eitan Gertel
			Title: CEO, President & Chairman
			Address: 200 Precision Road, Horsham, PA 19044


The foregoing Award Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.


Dated:			/s/ David Renner
			David Renner


			Grantee’s name and address:

			David Renner
			112 Usher Lane
			North Wales, PA 19454

Exhibit 10.6

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (“ First Amendment ”) is entered into as of this 4 ^th day of January, 2008 (the “Effective Date” ), by and between HORSHAM PROPERTY ASSOCIATES, LP, (“ Landlord ”) and OPTIUM CORPORATION (“ Tenant ”).

Recitals

A. 200 Precision Drive Investors, LLC ( “Precision” ) and Tenant entered into that certain Lease dated September 29, 2006, as confirmed in that certain letter agreement date September 29, 2006 (collectively hereinafter the “Lease” ), demising certain space consisting of approximately of sixty-three thousand seven hundred fifty-seven (63,757) rentable square feet (the “Current Premises” ) in the building located at 200 Precision Drive, Horsham, Pennsylvania (the “Building” ). Landlord is successor in interest to Precision.

B. Tenant now desires to expand the Current Premises by leasing from Landlord approximately seventeen thousand two hundred eighteen (17,218) rentable square feet of space within the Building, (the “Expansion Premises” ), and Landlord desires to lease to Tenant the Expansion Premises. The Current Premises and the Expansion Premises are collectively referred to herein as the “New Premises” . The New Premises will consist of approximately eighty thousand nine hundred seventy-five (80,975) rentable square feet of space, as depicted on Exhibit “A” , attached hereto and made a part hereof.

C. Landlord and Tenant now desire to amend the Lease to (i) increase the square footage of the Current Premises, (ii) provide for a revised rental amount, and (iii) recast and extend the Term of the Lease, all upon the terms and conditions as hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties mutually covenant and agree as follows:

1. Capitalized Terms; Effect . Capitalized terms used in this First Amendment which are not specifically defined herein shall have the meanings given such terms in the Lease.

2. Expansion Premises . Effective as of the Expansion Premises Commencement Date, defined below, Landlord hereby leases to Tenant, and Tenant hereby accepts from Landlord, the Expansion Premises to be used by Tenant solely for the use set forth in the Lease. All terms and conditions of the Lease (as amended hereby) shall apply to the lease of the Expansion Premises except as specifically set forth herein.

3. Expansion Premises Term . The Term of the Lease is hereby recast and extended for an additional period of five (5) years and three (3) months, commencing on the Expansion Premises Commencement Date and ending on the date (the “Expiration Date” ) which is (i) the day immediately preceding the five (5) year, three (3) month anniversary of the Expansion Premises Commencement Date, if the Expansion Premises Commencement Date is the first day of a calendar month, or (ii) the last day of the calendar month in which the five (5) year, three (3) month anniversary of the Expansion Premises Commencement Date occurs, if the Expansion Premises Commencement Date is any day other than the first day of a calendar month (the “Expansion Premises Term” ).

4. Expansion Premises Commencement Date . The Expansion Premises Term shall commence on the earlier of (i) the date Tenant commences occupancy of all or any portion of Expansion Premises (including, without limitation, occupancy for the purpose of installing Tenant’s furniture, cabling or equipment), and (ii) the Delivery Date, defined below (the “Expansion Premises Commencement Date” ) .

“Delivery Date” shall mean the date on which the Tenant Improvements are “Substantially Completed” pursuant to the terms of Paragraph 7 below. Following the determination of the Expansion Premises Commencement Date, and as a pre-condition of Tenant’s occupancy of the Expansion Premises, Landlord and Tenant shall enter into a Commencement Date Memorandum in the form attached hereto as Exhibit “B” to this Lease confirming the Expansion Premises Commencement Date.

5. Minimum Annual Rent . Notwithstanding anything to the contrary contained in the Lease, the Minimum Annual Rent payable by the Tenant during the Expansion Premises Term for the entire New Premises shall be as follows:

Lease Year (in months)	Minimum Annual Rent		Monthly Rental Installment					Minimum Annual Rent/RSF
*Expansion Premises Commencement Date — December 31, 2008	$	769,262.50	$			64,105.21	**	$9.50 NNN for New Premises
January 1, 2009 — December 31, 2009	$	809,750.00	$		67,479.17			$10.00 NNN for New Premises
January 1, 2010 — December 31, 2010	$	850,237.50	$		70,853.13			$10.50 NNN for New Premises
January 1, 2011 — December 31, 2011	$	890,725.00	$	74,227.08				$11.00 NNN for New Premises
January 1, 2012 — Expiration Date	$	931,212.50	$	77,601.04				$11.50 NNN for New Premises

*Until the Expansion Premises Commencement Date, Tenant shall continue to pay Minimum Annual Rent and all Additional Rent for the Current Premises in accordance with the terms and conditions of the Lease.

**For the first three (3) full calendar months, Tenant shall receive a monthly credit towards its Monthly Rental Installment in the amount of $13,630.92.

6. Tenant’s Proportionate Share . During the Expansion Premises Term, Tenant’s Proportionate Share shall be increased from 50.40% by 13.61%, being that attributable to the Expansion Premises, to an aggregate of 64.01%.

7. Tenant Improvements .

(a) Landlord shall, in a good and workmanlike manner, construct certain improvements (the “Tenant Improvements” ) to the Expansion Premises in accordance with the construction plan attached hereto as Exhibit “C” and the construction standards attached hereto as Exhibit “C-1” hereof (collectively, the “Tenant’s Plans” ), reserving the right to: (a) make substitutions of material of equivalent grade and quality when and if any specified material shall not be readily and reasonably available; and (b) make changes necessitated by conditions met during the course of construction, provided that Tenant’s approval of any substantial change (and any reduction of cost incident thereto) shall first be obtained (which approval shall not be unreasonably withheld).

(b) All changes in the Tenant’s Plans shall be subject to the approval of Landlord. If Landlord approves any change in the Tenant’s Plans, Landlord shall construct the Tenant Improvements in accordance with such change, and Tenant shall pay any increase in the cost of constructing the Tenant Improvements resulting from such change.

Any delay in the date of Substantial Completion (as hereinafter defined) by reason of any change in the Tenant’s Plans shall be deemed a Tenant Construction Delay under subparagraph (d) of this Section.

(c) Upon Substantial Completion of the Tenant Improvements except for items described in subparagraph (d)(i) below, Landlord shall notify Tenant, and Tenant shall inspect the Expansion Premises with Landlord within three (3) business days after Tenant’s receipt of Landlord’s notice. Upon completion of the inspection to the reasonable satisfaction of Tenant in accordance with Exhibits “C” and “C-1” , it shall be presumed that all work theretofore performed by or on behalf of Landlord was satisfactorily performed in accordance with, and meeting the requirements of this Lease. The foregoing presumption shall not apply, however: (i) to required work not actually completed by Landlord, which Landlord agrees it shall complete with reasonable speed and diligence and which is identified at the time of the inspection on a list prepared by the construction representatives of Landlord and Tenant, or (ii) to latent defects in such work which could not reasonably have been discovered at the time of the inspection; provided Tenant notifies Landlord of such defects within ninety (90) days from the date of the inspection. Landlord will correct any defects or deficiencies of which it is notified within the required period with reasonable speed and diligence.

(d) The Tenant Improvements shall be deemed to be “Substantially Completed” when the following have occurred:

(i) The work shown on the Tenant’s Plans has been completed except for the following:

a. Any improvements or work to be performed by Tenant; and

b. Minor punch-list items or insubstantial details of construction, mechanical adjustments, or finishing touches like plastering or painting, which items shall not adversely affect Tenant’s conduct of its ordinary business activities in the Expansion Premises; and

c. Items not then completed because of:

1. failure by Tenant to promptly make changes in the Tenant’s Plans reasonably required by Landlord in connection with the approval thereof; or

2. changes in the Tenant’s Plans requested by Tenant; or

3. the performance of any work or activity in the Expansion Premises by Tenant or any of its employees, agents or contractors.

(each of the items listed in 1-3 above, shall be referred to as “Tenant Construction Delay” )

(ii) If required under the applicable code or ordinance of the municipality in which the Building is located, the municipality has approved the work completed as part of the Tenant Improvements, or would have approved the same but for a delay as described in subparagraph (d) above.

(e) The date determined in accordance with subparagraph (d) is herein called the date of “Substantial Completion” . In the event of any delay as described in subparagraph (d) above, Tenant acknowledges that the Commencement Date and Tenant’s obligations to pay rent hereunder may begin before the Tenant Improvements have been completed.

8. Delay in Possession . Landlord currently anticipates that the Expansion Premises Commencement Date hereunder will occur on or about six (6) weeks after the Effective Date hereof (the “Estimated Commencement Date” ). If the Expansion Premises Commencement Date has not occurred by the Estimated Commencement Date because of the holding over or retention of possession of any tenant or occupant, or if any repairs, improvements or decoration of the Expansion Premises are not completed, or for any other reason, Landlord shall not be subject to any liability to Tenant. Under such circumstances, the rent reserved and covenanted to be paid herein shall not commence until the Expansion Premises Commencement Date, and no such failure to deliver possession shall in any other respect affect the validity of this First Amendment.

9. Right of First Refusal . Provided that Tenant (i) has not been in monetary default more than twice during the Lease Term and (ii) is not in default under the terms of this Lease beyond any applicable cure period at the time Tenant exercises its right of first refusal, Tenant shall have a right of first refusal to lease the contiguous space consisting of approximately forty-five thousand five hundred twenty-five (45,525) rentable square feet located adjacent to the New Premises (the “First Refusal Space” ) as depicted on Exhibit “D” , attached hereto and made a part hereof, upon the following terms and conditions:

(a) In the event that Landlord receives or intends to send a written offer to lease all or any portion of the First Refusal Space (the “ First Refusal Offered Space ”) to any third party on or before April 30, 2008, Landlord shall provide Tenant with a copy of said proposal (the “ Written Proposal ”), which Written Proposal shall set forth the terms and conditions (including, without limitation, the rental rate) upon which Landlord is willing to lease the First Refusal Offered Space. The Minimum Annual Rent for the First Refusal Offered Space (the “First Refusal Rent” ) shall be the lesser of (i) Nine and 50/100 Dollars ($9.50) per rentable square foot or (ii) the rental rate of the Written Proposal-; provided, that in no event shall the First Refusal Rent be greater than Eleven and 50/100 Dollars ($11.50) per rentable square foot if Tenant accepts the terms of the Written Proposal on or before April 30, 2008.

(b) Notwithstanding the foregoing, if Tenant exercises the Right of First Refusal:

(i) the First Refusal Rent shall be abated from the First Refusal Commencement Date (defined below) through April 30, 2009, and

(ii) the term of the Lease for the First Refusal Additional Space (defined below) and the New Premises shall be extended thereafter commencing on May 1, 2009 and continuing until April 30, 2015 (the “First Refusal Term” ) on the terms and conditions of subsection (d) below.

(c) Within five (5) business days after Tenant’s receipt of the Written Proposal, Tenant must give Landlord written notice pursuant to which Tenant shall elect either: (i) to lease the entire First Refusal Offered Space at the First Refusal Rent and for the First Refusal Term, or (ii) to decline to lease the First Refusal Offered Space. If Tenant fails to elect clause (i) within such five (5) business day period, then Tenant shall be deemed to have declined to lease the First Refusal Offered Space. In the event that Tenant declines (or is deemed to have declined) to lease the First Refusal Offered Space, then Landlord shall be free to lease the First Refusal Offered Space to any other party(ies) without any further obligation to Tenant hereunder; however, Tenant shall retain its first refusal rights hereunder with respect to any part of the First Refusal Space that was not: (i) covered by the Written Proposal; or (ii) covered by any previous Written Proposal.

(d) If Tenant elects to lease the First Refusal Offered Space in accordance with subparagraph (c) above (upon such election, the “ First Refusal Additional Space ”), then Landlord and Tenant shall execute an amendment to the Lease to provide for the inclusion of the First Refusal Additional Space under the terms and conditions set forth herein. All other terms and conditions of the Lease shall apply to the First Refusal Additional Space except that: (i) Tenant’s Proportionate Share shall be increased to take into account the square footage of the First Refusal Additional Space and all other terms of the Lease affected by the addition of such square footage shall be adjusted accordingly; (ii) Landlord shall not be required to perform any improvements to the First Refusal Additional Space unless specifically provided for in the Written Proposal; and (iii) Tenant shall not be entitled to any allowances, credits, options or other concessions with respect to the First Refusal Additional Space unless specifically provided for in the Written Proposal; and (iv) the Minimum Annual Rent for the First Refusal Additional Space shall be increased by Fifty Cents ($0.50) per rentable square foot on each successive January 1 ^st . Notwithstanding the foregoing, in no event shall the Minimum Annual Rent (for either the New Premises or the First Refusal Additional Space) exceed Eleven and 50/100 Dollars ($11.50) per rentable square foot during the First Refusal Term.

(e) The effective date of the addition of the First Refusal Additional Space to the Premises shall be the date that Landlord delivers possession of the First Refusal Additional Space to Tenant in accordance with the terms of the Written Proposal (the “First Refusal Commencement Date” ).

(f) Except as otherwise provided in the Written Proposal, Tenant agrees to accept the First Refusal Additional Space in its “AS IS” condition, in the then current physical state and condition thereof, without any representation or warranty by Landlord.

10. Notices . All notices and rent payments to Landlord shall be sent to:

HORSHAM PROPERTY ASSOCIATES, LP

c/o Endurance Real Estate Group

One Bala Avenue, Suite 502

Bala Cynwyd, PA 19004

Attn: Benjamin Cohen or William A. White

with a copy to:

Maury B. Reiter, Esquire

Kaplin Stewart Meloff Reiter & Stein, P.C.

Union Meeting Corporate Center

910 Harvest Drive

Blue Bell, PA 19422

11. Brokers . Tenant represents and warrants to Landlord that Tenant has dealt with no broker, agent or other intermediary in connection with this First Amendment other than CB Richard Ellis ( “Landlord’s Broker” ) and Penn’s Grant ( “Tenant’s Broker” ), and that insofar as Tenant knows, no other broker, agent or other intermediary negotiated this First Amendment. Tenant agrees to indemnify, defend and hold Landlord and its partners, employees, agents, their officers and partners, harmless from and against any claims made by any broker, agent or other intermediary other than Landlord’s Broker or Tenant’s Broker, with respect to a claim for broker’s commission or fee or similar compensation brought by any person in connection with this First Amendment, provided that Landlord has not in fact retained such broker, agent or other intermediary. Landlord agrees to pay all commissions payable to Landlord’s Broker and Tenant’s Broker pursuant to separate agreements between Landlord and Landlord’s Broker and Landlord and Tenant’s Broker.

12. Reaffirmation of Warrant of Attorney . Tenant hereby ratifies, confirms and reaffirms in all respects and without condition, the right of Landlord to CONFESS JUDGMENT against Tenant in accordance with the terms of the Lease.

13. Counterparts . This First Amendment may be executed in one or more counterparts, each of which shall be deemed an original hereof, but all of which shall constitute one and the same First Amendment.

14. Confirmation of Lease . Except as otherwise set forth in this First Amendment, the Lease shall remain in full force and effect in accordance with its original terms and be binding on Landlord and Tenant, their respective heirs, executors, administrators, successors and assigns.

[Signatures on next page]

IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the day and year first above written.

LANDLORD:

HORSHAM PROPERTY ASSOCIATES, LP,

a Pennsylvania limited partnership

By:

Witness:

/s/ Illegible

By:

/s/ William A. White

Name:

William A. White

Title:

Managing Member of the General Partner of the General Partner

TENANT:

OPTIUM CORPORATION,

a Delaware corporation

Witness:

/s/ Christopher Brown

By:

/s/ David Renner

Name:

David Renner

Title:

Chief Financial Officer

EXHIBIT 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Eitan Gertel, President and Chief Executive Officer of Optium Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Optium 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 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 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.

Date: March 13, 2008
		/s/ Eitan Gertel
		Eitan Gertel
		President and CEO
		Principal Executive Officer

EXHIBIT 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David Renner, Vice President of Finance and Chief Financial Officer of Optium Corporation, certify that:

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

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.

Date: March 13, 2008
		/s/ David Renner
		David Renner
		Vice President of Finance and CFO
		Principal Financial Officer

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 Optium Corporation. (the “Company”) on Form 10-Q for the period ended February 2, 2008 (the “Report”), I, Eitan Gertel, President and Chief Executive Officer of the Company and I, David Renner, Vice President of Finance and Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

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

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

		/s/ Eitan Gertel
		Eitan Gertel
		President and CEO
		Principal Executive Officer
		March 13, 2008

		/s/ David Renner
		David Renner
		Vice President of Finance and CFO
		Principal Financial Officer
		March 13, 2008

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.