-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WZuwVgsQ5upNUhBiQmiIoGQRFBELv7iTRdRPozxey2j9Mod4B/+Kotnrz3SO1cr0 xXpf1SA034cyb7VHwro5/w== /in/edgar/work/20000804/0000950148-00-001592/0000950148-00-001592.txt : 20000921 0000950148-00-001592.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950148-00-001592 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000721 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MRV COMMUNICATIONS INC CENTRAL INDEX KEY: 0000887969 STANDARD INDUSTRIAL CLASSIFICATION: [3674 ] IRS NUMBER: 061340090 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11174 FILM NUMBER: 686102 BUSINESS ADDRESS: STREET 1: 20415 NORDHOFF ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187730900 MAIL ADDRESS: STREET 1: 20415 NORDHOFF ST CITY: CHATSWORTH STATE: CA ZIP: 91311 8-K 1 e8-k.txt FORM 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 21, 2000 MRV COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation) 0-23452 06-1340090 (Commission File Number) (I.R.S. Employer Identification No.) 20415 Nordhoff Street Chatsworth, California 91311 (Address of principal executive officers) (Zip Code) 818 773-0900 Registrant's telephone number, including area code N.A. (Former name or former address, if changed since last report) 2 Item 2. Acquisition or Disposition of Assets On July 21, 2000, registrant completed an acquisition of approximately 99.9% of the outstanding capital stock of Optronics International Corporation, a Republic of China corporation ("OIC"). The purchase price paid to the shareholders of OIC, which was arrived at as the result of arms' length negotiations, consisted of 3,399,975 shares of registrant's common stock and warrants to purchase 800,000 shares of registrant's common stock. The value of registrant's shares and options issued in the transaction was approximately $103.2 million based on the closing price of registrant's common stock at the time the acquisition agreement was entered into among the parties. Item 5. Other Information On July 26, 2000, registrant issued a press release announcing the filing with the Securities and Exchange by its wholly owned subsidiary, Luminent, Inc. of a registration statement on Form S-1. A copy of that press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference. On July 27, 2000, registrant issued a press release announcing its financial results at, and for the six months ended, June 30, 2000 and other matters. A copy of that press release is attached as Exhibit 99.2 to this Form 8-K and is incorporated herein by reference Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired The following financial statements of Optronics International Corporation are filed herewith as part of this report: Independent Auditors' Report Balance Sheets at December 31, 1997, 1998 and 1999 Statements of Operations and Comprehensive Income for the years ended December 31, 1997, 1998 and 1999 Statements of Shareholders' Equity for the years ended December 31, 1997, 1998 and 1999 Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999 Notes to Financial Statements Balance Sheets at December 31, 1999 (audited) and June 30,2000 (unaudited) Statements of Operations and Comprehensive Income for the six months ended June 30, 1999 and 2000 Statements of Cash Flows for the six months ended June 30, 1999 and 2000 (unaudited) Notes to Financial Statements 2 3 (b) Pro forma Financial Information Unaudited Pro Forma Condensed Consolidated Financial Information Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2000 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 2000 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1999 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information (c) Exhibits 2.1(a) Stock Purchase Agreement by and between MRV and the shareholders of Optronics International Corp. ("OIC") dated April 23, 2000 (incorporated by reference to Exhibit 10.19 of the Registration Statement of Luminent, Inc. filed with the Securities and Exchange Commission on July 26, 2000); 2.2(b) Escrow Agreement, dated as of the 23rd day of April 2000, by and among MRV, the selling shareholders of OIC and the law firm of Baker & McKenzie, Taipei Office(incorporated by reference to Exhibit 10.19 of the Registration Statement of Luminent, Inc. filed with the Securities and Exchange Commission on July 26, 2000); 99.1 Press Release of July 26, 2000 99.2 Press Release of July 27, 2000 3 4 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Optronics International Corp. We have audited the accompanying balance sheets of Optronics International Corp. as of December 31, 1997, 1998 and 1999, and the related statements of operations and comprehensive income, changes in shareholders' equity, and cash flows for the years ended December 31, 1997, 1998 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Optronics International Corp. at December 31, 1997, 1998 and 1999 and the results of its operations and its cash flows for the years ended December 31, 1997, 1998 and 1999, in conformity with accounting principles generally accepted in the United States of America. /s/ TN Soong & Co. TN Soong & Co A Member Firm of Andersen Worldwide, SC Taipei, Taiwan, the Republic of China June 23, 2000 4 5 OPTRONICS INTERNATIONAL CORP. BALANCE SHEETS DECEMBER 31, 1997, 1998 AND 1999
DECEMBER 31, --------------------------- NOTES 1997 1998 1999 --------- ------- ------- ------- (IN THOUSAND U.S. DOLLARS EXCEPT SHARE AMOUNTS) ASSETS CURRENT ASSETS Cash.................................................... 2B $ 4,734 $ 6,510 $ 1,841 Restricted cash......................................... 2D 742 64 967 Marketable securities................................... 2B, 2E 1,607 -- 2,307 Notes and accounts receivable -- net.................... 2B, 3, 10 486 2,076 476 Inventories............................................. 2F, 4 248 694 1,046 Prepaid expenses and other current assets............... 53 39 102 ------- ------- ------- Total Current Assets.................................... 7,870 9,383 6,739 ------- ------- ------- PROPERTIES -- NET....................................... 2G, 2H, 2,741 4,920 5,197 ------- ------- ------- 5, 10 OTHER ASSETS Prepaid long-term investment............................ -- 1 -- Deferred pension cost................................... 2L, 8 33 13 -- Deferred charges -- net of accumulated amortization cost of $2 in 1999......................................... 2I -- -- 32 Refundable deposits..................................... 38 62 41 ------- ------- ------- Total Other Assets...................................... 71 76 73 ------- ------- ------- TOTAL ASSETS............................................ $10,682 $14,379 $12,009 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes and accounts payable.............................. 10 $ 97 $ 701 $ 537 Income tax payable...................................... 2M, 9 -- 14 62 Current portion of long-term debts...................... 6, 12 -- -- 253 Accrued expenses and other current liabilities.......... 520 1,809 841 ------- ------- ------- Total Current Liabilities............................... 617 2,524 1,693 LONG-TERM DEBTS -- NET OF CURRENT PORTION............... 6, 12 -- 495 253 ACCRUED PENSION COST.................................... 2L, 8 34 39 86 ------- ------- ------- Total Liabilities....................................... 651 3,058 2,032 ------- ------- ------- SHAREHOLDERS' EQUITY.................................... 7 Capital stock, $0.3 par value; Authorized -- 25,000 thousand shares in 1997 and 45,000 thousand shares in 1998 and 1999 Issued -- 20,000 thousand shares in 1997 and 35,000 thousand shares in 1998 and 1999............ 7,266 11,833 11,833 Advanced capital........................................ 4,324 -- Retained earnings: Legal reserve......................................... -- -- 50 Unappropriated earnings (Deficit)..................... (499) 365 (1,261) Cumulative translation adjustment....................... 2O (1,060) (877) (645) ------- ------- ------- Total Shareholders' Equity.............................. 10,031 11,321 9,977 ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $10,682 $14,379 $12,009 ======= ======= =======
The accompanying notes are an integral part of the financial statements. 5 6 OPTRONICS INTERNATIONAL CORP. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
YEARS ENDED DECEMBER 31, ----------------------------- NOTES 1997 1998 1999 ------ ------- ------- ------- (IN THOUSAND U.S. DOLLARS EXCEPT PER SHARE AMOUNTS) SALES................................................ $ 1,280 $ 7,940 $ 4,998 SALES RETURNS AND ALLOWANCES......................... (2) (318) (191) ------- ------- ------- NET SALES............................................ 2J, 10 1,278 7,622 4,807 COST OF SALES........................................ 2J, 10 1,164 4,336 4,388 ------- ------- ------- GROSS PROFIT......................................... 114 3,286 419 ------- ------- ------- OPERATING EXPENSES Research and development............................. 2K 888 2,086 1,453 General and administrative........................... 187 646 453 Marketing............................................ 169 638 318 ------- ------- ------- Total Operating Expenses................... 1,244 3,370 2,224 ------- ------- ------- LOSS FROM OPERATIONS................................. (1,130) (84) (1,805) ------- ------- ------- NON-OPERATING INCOME Interest revenue..................................... 67 236 206 Subsidy.............................................. 492 704 339 Gain on sale of marketable securities................ 2E 177 132 48 Unrealized holdings gains on marketable securities... 13 -- -- Foreign exchange gain................................ 2N 10 -- -- Gain on disposal of properties....................... 10 -- -- 4 Other................................................ -- 1 39 ------- ------- ------- Total Non-Operating Income................. 759 1,073 636 ------- ------- ------- NON-OPERATING EXPENSE Foreign exchange loss................................ 2N -- 15 49 Loss on decline in value and obsolescence of Inventory.......................................... -- 46 293 Loss on physical inventory........................... -- -- 3 Loss on disposal of properties....................... -- 27 -- ------- ------- ------- Total Non-Operating Expense................ -- 88 345 ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAX...................... (371) 901 (1,514) INCOME TAX EXPENSE................................... 2M, 9 -- (37) (62) ------- ------- ------- NET INCOME (LOSS).................................... $ (371) $ 864 $(1,576) ======= ======= ======= OTHER COMPREHENSIVE INCOME Translation adjustments.............................. 2O (1,060) 183 232 ------- ------- ------- COMPREHENSIVE INCOME (LOSS).......................... $(1,431) $ 1,047 $(1,344) ======= ======= ======= EARNINGS (LOSS) PER SHARE -- Based on 2Q Weighted average outstanding common stock 18,085 thousand shares in 1997, 33,125 thousand shares in 1998 and 35,000 thousand shares 1999........................ $ (0.02) $ 0.03 $ (0.05) ======= ======= =======
The accompanying notes are an integral part of the financial statements. 6 7 OPTRONICS INTERNATIONAL CORP. STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
RETAINED EARNINGS (NOTE 7) ---------------------------------- CUMULATIVE CAPITAL STOCK ISSUED UNAPPROPRIATED TRANSLATION TOTAL -------------------- ADVANCED LEGAL EARNINGS ADJUSTMENT SHAREHOLDERS' SHARES AMOUNT CAPITAL RESERVE (DEFICIT) TOTAL (NOTE 20) EQUITY ---------- ------- -------- ------- -------------- ------- ----------- ------------- (THOUSAND) (IN THOUSAND U.S. DOLLARS) BALANCE, JANUARY 1, 1997..... 14,000 $ 5,093 $ -- $-- $ (128) $ (128) $ -- $ 4,965 Issuance of capital stock for cash....................... 6,000 2,173 -- -- -- -- -- 2,173 Advanced capital............. -- -- 4,324 -- -- -- -- 4,324 Net loss for 1997............ -- -- -- -- (371) (371) -- (371) Translation adjustments...... -- -- -- -- -- -- (1,060) (1,060) ------ ------- ------- --- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1997... 20,000 7,266 4,324 -- (499) (499) (1,060) 10,031 Issuance of capital stock for cash....................... 15,000 4,567 (4,324) -- -- -- -- 243 Net income for 1998.......... -- -- -- -- 864 864 -- 864 Translation adjustments...... -- -- -- -- -- -- 183 183 ------ ------- ------- --- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1998... 35,000 11,833 -- -- 365 365 (877) 11,321 Appropriations of 1998 earnings: Legal reserve.............. -- -- -- 50 (50) -- -- -- Net loss for 1999............ -- -- -- -- (1,576) (1,576) -- (1,576) Translation adjustments...... -- -- -- -- -- -- 232 232 ------ ------- ------- --- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1999... 35,000 $11,833 $ -- $50 $(1,261) $(1,211) $ (645) $ 9,977 ====== ======= ======= === ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements. 7 8 OPTRONICS INTERNATIONAL CORP. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
YEARS ENDED DECEMBER 31, ----------------------------- 1997 1998 1999 ------- ------- ------- (IN THOUSAND U.S. DOLLARS) OPERATING ACTIVITIES Net income (loss)........................................... $ (371) $ 864 $(1,576) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization............................. 190 480 647 Loss (gain) on disposal of properties..................... -- 27 (4) Accrued pension cost...................................... 1 25 60 Unrealized holding gains on marketable securities......... (13) -- -- Gain on sale of marketable securities..................... (177) (132) (48) Transfer of properties to expense......................... 10 -- -- Changes in operating assets and liabilities Notes and accounts receivable.......................... (486) (1,590) 1,600 Inventories............................................ (248) (446) (352) Prepaid expenses and other current assets.............. (39) 14 (63) Notes and accounts payable............................. 97 604 (164) Income tax payable..................................... -- 14 48 Accrued expenses and other current liabilities......... 179 1,289 (968) ------- ------- ------- Net Cash Provided by (Used in) Operating Activities......... (857) 1,149 (820) ------- ------- ------- INVESTING ACTIVITIES Acquisitions of Properties.................................. (2,550) (2,575) (834) Decrease (increase) in restricted cash...................... (742) 678 (903) Proceeds from disposals of properties....................... 2 -- 39 Decrease (increase) in marketable securities................ 2,680 1,739 (2,259) Decrease (increase) in prepaid long-term investments........ -- (1) 1 Increase in deferred charges................................ -- (33) Decrease (increase) in refundable deposits.................. (9) (24) 21 ------- ------- ------- Net Cash Used in Investing Activities....................... (619) (183) (3,968) ------- ------- ------- FINANCING ACTIVITIES Proceeds from Issuance of capital stock................................. 6,497 243 -- Long-term debts........................................... -- 495 -- ------- ------- ------- Net Cash Provided by Financing Activities................... 6,497 738 -- ------- ------- ------- EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE................. (658) 72 119 ------- ------- ------- NET INCREASE (DECREASE) IN CASH............................. 4,363 1,776 (4,669) CASH AT BEGINNING OF YEAR................................... 371 4,734 6,510 ------- ------- ------- CASH AT END OF YEAR......................................... $ 4,734 $ 6,510 $ 1,841 ======= ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for income tax.................................... $ -- $ 24 $ 15 ======= ======= =======
The accompanying notes are an integral part of the financial statements. 8 9 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS (IN THOUSAND U.S. DOLLARS, EXCEPT SHARE AMOUNTS) 1. GENERAL Business Optronics International Corp. (the "Company") was incorporated under the Company Law of the Republic of China on November 21, 1996 and started its operations in February 1997. The Company is primarily engaged in research, development, production, manufacture and sale of visible laser diode and module, communication laser diode and module and high power laser diode and module. 2. ACCOUNTING POLICIES A. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. B. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, marketable securities and accounts receivable. Cash and marketable securities are deposited or placed with high credit quality financial institutions. The Company is exposed to credit risk in the event of default by these institutions to the extent of the amount recorded on the balance sheet. As far as the accounts receivable, the Company performs ongoing credit evaluations of its customers' financial condition and the Company maintains an allowance for doubtful accounts receivable based upon review of the expected collectibility of individual accounts receivable. C. Fair Value of Financial Instruments The Company's financial instruments, including cash, restricted cash, marketable securities, notes and accounts receivable, refundable deposits, and notes and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. Fair value of long-term debts is estimated based on current interest rates available to the Company with similar terms, degrees of risks and remaining maturities. The carrying values of long-term debts approximate their respective fair value. D. Restricted Cash Restricted cash is composed of time deposits that the Company maintains as collateral for obtaining letters of credits. E. Marketable Securities Marketable securities are open-end bond funds that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. The costs of investment sold are determined by the weighted average method. 9 10 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) F. Inventories Inventories are stated at cost using the weighted average method and are valued at the lower of cost or market value at balance sheet date. The market value of raw materials is determined based on current replacement cost, while work-in-process and finished goods are determined by net realizable value. G. Properties Properties are stated at cost less accumulated depreciation. Major additions, renewals and betterment are capitalized, while maintenance and repairs are expensed currently. Depreciation is provided on the straight-line method over the estimated useful lives that range as follows: machinery and equipment -- 3 to 8 years; computer equipment -- 3 years; office equipment -- 5 years; leasehold improvements -- 5 years; transportation equipment -- 5 years; other equipment -- 5 to 20 years. Upon sale or disposal of properties, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited or charged to income. H. Asset Impairment Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", ("SFAS No. 121") requires recognition of impairment of long-lived assets in the event the net book value of these assets exceeds the future undiscounted cash flows attributable in use to these assets. SFAS No. 121 has not had an impact on the financial statements of the Company. I. Deferred Charges Deferred charges are stated at cost and amortized on straight-line basis over the following years: tools -- 3 years. J. Recognition of Revenue, Cost and Expenses Product sales are recognized upon the transfer of title and risk of ownership to customers, which occurs on product shipment. Cost charged against revenue and expenses are recognized as incurred. K. Research and Development Research and development costs consist of expenditures incurred during the course of planned search and investigation aimed at the discovery of new knowledge that will be useful in developing new products or processes, or at significantly enhancing existing products or production processes. And the implementation of such is through design, testing of product alternatives or construction of prototypes. The Company expenses all research and development costs as they are incurred. L. Pension Costs The Company has non-contributory and funded defined benefit retirement plans covering all its regular employees. The contribution to an independent fund is deposited with the Central Trust of China, as the custodian. Net pension cost, with includes service cost, interest cost, expected return on plan assets and amortization of net asset or obligation at transition, is recognized based on an actuarial valuation. 10 11 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) M. Income Tax The Company adopted the provisions of SFAS No. 109 "Accounting for Income Tax"; the provision for income tax represents income tax paid and payable for the current year plus the changes in the deferred income tax assets and liabilities during the years. Deferred income taxes are recognized for the tax effects of temporary differences, unused tax credit and operating loss carryforwards. Valuation allowance is provided for deferred tax assets that are not certain to be realized. A deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or noncurrent. However, if a deferred asset or liability cannot be identified to an asset or a liability in the financial statements, then it should be classified as current or noncurrent based on the expected reversal date of temporary difference. N. Foreign-currency Transactions The functional currency of the Company is New Taiwan dollars. The foreign-currency transactions of the Company are recorded using their respective functional currencies at the rates of exchange in effect when the transactions occur. Gains or losses, resulting from the application of different foreign exchange rates when cash in foreign currency is converted into New Taiwan dollars, or when foreign-currency receivables and payables are settled, are credited or charged to income in the year of conversion or settlement. At the balance sheet dates, the balances of foreign-currency assets and liabilities are restated into the respective functional currencies based on prevailing exchange rates and any resulting gains or losses are credited or charged to income. O. Translation of Foreign-currency Financial Statements The financial statements are translated into U.S. dollars at the following exchange rates: assets and liabilities -- current rate; income and expenses -- weighted average rate during the year. The resulting translation adjustment is recorded as separate component of shareholders' equity. P. Comprehensive Income The Company adopted the provisions of SFAS No. 130 "Reporting Comprehensive Income"; SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. To date, the Company has only translation adjustments that are required to be reported in comprehensive income. Q. Earnings (Loss) Per Share SFAS No. 128 "Earnings Per Share", establishes standards for computing and presenting earnings per share. Basic earnings per share is calculated using the average shares of common share outstanding. Diluted earnings per share is calculated using the weighted average number of common and dilutive common equivalent shares outstanding during the period, using either as if converted method for convertible preferred share or the treasury stock method for options and warrants. Since the Company's capital structure is simple, therefore, its basic earnings per share is the same as diluted earnings per share. 11 12 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. NOTES AND ACCOUNTS RECEIVABLE -- NET
DECEMBER 31, ------------------------- 1997 1998 1999 ----- ------- ----- Receivable from related parties (Note 10)................... $ -- $ 13 $ 46 Notes receivable............................................ 207 1,676 46 Accounts receivable -- third parties........................ 397 915 861 ----- ------- ----- 604 2,604 953 Allowance for doubtful accounts............................. (118) (528) (477) ----- ------- ----- $ 486 $ 2,076 $ 476 ===== ======= =====
4. INVENTORIES
DECEMBER 31, ---------------------- 1997 1998 1999 ---- ---- ------ Finished goods.............................................. $ 34 $246 $ 233 Work in process............................................. 152 297 320 Raw materials............................................... 62 151 493 ---- ---- ------ $248 $694 $1,046 ==== ==== ======
5. PROPERTIES -- NET
DECEMBER 31, -------------------------- 1997 1998 1999 ------ ------ ------ Cost Machinery and equipment................................... $2,042 $4,090 $5,018 Computer equipment........................................ 41 47 60 Office equipment.......................................... 27 33 36 Leasehold improvements.................................... 100 71 81 Transportation equipment.................................. 41 56 58 Other equipment........................................... 24 1,167 1,230 Prepayments............................................... 632 106 33 ------ ------ ------ 2,907 5,570 6,516 ------ ------ ------ Accumulated depreciation Machinery and equipment................................... 137 558 1,076 Computer equipment........................................ 7 19 32 Office equipment.......................................... 2 8 13 Leasehold improvements.................................... 15 16 29 Transportation equipment.................................. 4 12 21 Other equipment........................................... 1 37 148 ------ ------ ------ 166 650 1,319 ------ ------ ------ $2,741 $4,920 $5,197 ====== ====== ======
12 13 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. LONG-TERM DEBTS
DECEMBER 31, --------------------- 1997 1998 1999 ---- ---- ----- Industrial Bureau -- Innovation Products Matching Fund to be repaid in installment with final payment due in October 2001 (Note 12)............................................ $ -- $495 $ 506 Current portion............................................. -- -- (253) ---- ---- ----- $ -- $495 $ 253 ==== ==== =====
As of December 31, 1999, long-term debts mature as follows:
DECEMBER 31, 1999 ------------ During the year 2000.................................... $253 During the year 2001.................................... 253
7. SHAREHOLDERS' EQUITY The Company's Articles of Incorporation provide that the following shall be appropriated from the annual net income after deducting any previously accumulated deficit and 10% legal reserve: (a) 5% - 10% special bonus to employees; (b) 1% - 3% compensation to directors and supervisors; and (c) Special retained earnings reserve and unappropriated earnings can be set aside when necessary, and the remaining amount shall be appropriated as common shareholders' bonus. The appropriations and the disposition of the remaining net income shall be resolved by the shareholders in the following year and given effect to in the financial statements of that year. The aforementioned appropriation for legal reserve shall be made until the reserve equals the Company's capital. Such reserve can only be used to offset a deficit; or, when it has reached 50% of the paid-in capital, up to 50% thereof can be transferred to capital. 8. PENSION PLAN The Company has a defined benefit pension plan for all regular employees, which provides benefits based on length of service and average monthly salary for the last six months prior to retirement. The Company makes monthly contributions, equal to 2% of salaries and wages, to a pension fund which is administered by a pension fund monitoring committee and deposited in the committee's name in the Central Trust of China which acts as trustee. 13 14 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Certain pension information are summarized as follows: The components of net periodic benefit costs are as follows: a. Net periodic pension cost
1997 1998 1999 ---- ---- ---- Service cost................................. $ 51 $ 47 $ 87 Interest cost................................ -- 4 10 Projected return on plan assets.............. -- (1) (3) Amortization of transition obligation........ -- 4 4 Amortization of unrecognized loss............ -- -- 1 ---- ---- ---- Net periodic benefit cost.................... $ 51 $ 54 $ 99 ==== ==== ====
The change in benefit obligation and plan assets and reconciliation of fund status are as follows: b. Change in benefit obligation:
1997 1998 1999 ---- ---- ---- Projected benefit obligation at beginning of year:...................................... $ -- $ 68 $148 For the years: Service cost................................ 51 47 87 Interest cost............................... -- 4 10 Actuarial loss (gain)....................... 26 26 (6) Amortization................................ -- -- 1 Foreign currency exchanges................... (9) 3 6 ---- ---- ---- Projected benefit obligation at end of year....................................... $ 68 $148 $246 ==== ==== ====
c. Change in plan assets:
1997 1998 1999 ---- ---- ---- Fair value of plan assets at beginning of year....................................... $ -- $ 12 $ 43 Contributions................................ 12 30 41 Interest income.............................. -- 1 3 ---- ---- ---- Fair value of plan assets at end of year..... $ 12 $ 43 $ 87 ==== ==== ====
d. Reconciliation of fund status
1997 1998 1999 ---- ---- ---- Funded status................................ $ 57 $105 $156 Unrecognized transition obligation........... (56) (53) (50) Unrecognized actuarial loss.................. -- (26) (20) Additional liability......................... 33 13 -- ---- ---- ---- Net amount of accrued pension cost shown in the balance sheets......................... $ 34 $ 39 $ 86 ==== ==== ====
14 15 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) e. Actuarial assumptions
1997 1998 1999 ---- ---- ---- Discount rate used in determining present values..................................... 6.75% 6.50% 6.00% Rate of long-term rate of return on plan assets..................................... 6.50% 6.25% 6.00% Rate of compensation increase................ 6.00% 6.00% 6.00%
9. INCOME TAX A. Income tax benefit and income tax payable:
DECEMBER 31, -------------------------- 1997 1998 1999 ---- ---- ---- Income tax expense -- current..................... $-- $126 $-- Income tax benefit -- deferred.................... -- (82) -- Estimated permanent differences................... -- (7) -- Additional 10% income tax on undistributed earnings........................................ -- -- 60 Adjustment of prior year's income tax............. -- -- 2 -- ---- --- Income tax expense................................ $-- $ 37 $62 == ==== ===
B. As of December 31, 1997, 1998 and 1999, deferred income tax assets and liabilities are as follows:
DECEMBER 31, --------------------------- 1997 1998 1999 ------ ------ ------- Current: Taxable temporary differences................... $ 33 $ 112 $ 119 Investment tax credits.......................... 21 156 5 Operating loss carryforward..................... 109 -- 338 ----- ----- ------- Total........................................... 163 268 462 Valuation allowance............................. (163) (268) (462) ----- ----- ------- -- -- -- ----- ----- ------- Noncurrent: Taxable temporary differences................... 33 23 31 Investment tax credits.......................... 329 -- 1,279 Operating loss carryforwards.................... -- 670 51 ----- ----- ------- Total........................................... 362 693 1,361 Valuation allowance............................. (362) (693) (1,361) ----- ----- ------- -- -- -- ----- ----- ------- $ -- $ -- $ -- ===== ===== =======
C. The Company's income tax returns through taxable year ended December 31, 1996 have been examined by the tax authorities. D. As of December 31 1999, the Company's unused investment tax credits and the tax effect of loss carryforward amounted to approximately $1,284 and $389, respectively, and are available for future use through 2003 and 2004, respectively. 15 16 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 10. RELATED PARTY TRANSACTIONS A. Name and Relationship of Related Parties
NAME AND RELATIONSHIP OF RELATED PARTIES RELATIONSHIP WITH THE COMPANY - ---------------------------------------- ----------------------------- Its chairman is the supervisor of the Wah Lee Industrial Corp. (WAH LEE)...... Company Delta Electronics Int. Ltd. (DELTA LTD.)................................. Same chairman Delta Electronics Inc. (DELTA INC.)..... Same chairman Cyntec Co., Ltd. (CYNTEC) Same chairman
B. Significant Related Party Transactions For the period
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------- 1997 1998 1999 ------------- ------------- ------------- AMOUNT % AMOUNT % AMOUNT % ------ - ------ - ------ - Sales DELTA INC. ............................. $-- -- $ 22 -- $148 3 WAH LEE................................. -- -- 274 4 95 2 -- --- ---- --- ---- --- $-- -- $296 4 $243 5 == === ==== === ==== === Purchases CYNTEC.................................. $-- -- $ 1 -- $ -- -- DELTA LTD. ............................. -- -- 121 4 265 12 -- --- ---- --- ---- --- $-- -- $122 4 $265 12 == === ==== === ==== ===
At end of period
DECEMBER 31, ----------------------------------------------- 1997 1998 1999 ------------- ------------- ------------- AMOUNT % AMOUNT % AMOUNT % ------ --- ------ --- ------ --- Receivable DELTA INC. ............................. $-- -- $ 2 -- $25 5 WAH LEE................................. -- -- 11 1 21 4 -- --- --- --- --- --- $-- -- $13 1 $46 9 == === === === === === Accounts payable -- DELTA LTD. ........... $-- -- $65 9 $52 10 == === === === === ===
a. Sales to related parties are based on normal selling prices. The collection period is 30-75 days after shipment for related parties and 15-60 days for other companies. b. The payment terms for purchases from related parties are the same as those from other suppliers. c. As of December 1999, the Company sold certain machinery and equipment to DELTA INC. for $38 and generated a gain of $4. 16 17 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 11. FINANCIAL INSTRUMENTS The Company's financial instruments are carried at cost, which approximates their fair value and are listed as follows:
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999 ----------------- ----------------- ----------------- CARRYING FAIR CARRYING FAIR CARRYING FAIR VALE VALUE VALE VALUE VALE VALUE -------- ------ -------- ------ -------- ------ Assets Cash............................... $4,734 $4,734 $6,510 $6,510 $1,841 $1,841 Restricted cash.................... 742 742 64 64 967 967 Marketable securities.............. 1,607 1,607 -- -- 2,307 2,307 Notes and accounts receivable -- net............... 486 486 2,076 2,076 476 476 Prepaid long-term investment....... -- -- 1 1 -- -- Refundable deposits................ 38 38 62 62 41 41 Liabilities Notes and accounts payable......... 97 97 701 701 537 537 Long-term debts (including current portion)........................ -- -- 495 495 506 506
12. COMMITMENTS AND CONTINGENT LIABILITIES In 1997 and 1999, the Company entered into loan agreements with Industrial Development Bureau, Ministry of Economic Affairs and Administration of Hsin-chu Science-based Industrial Park, respectively, for developing new products. Under the agreements, the Company starts to repay the loan by installment after the prototypes are completed for one year. In addition, when the new products begin to sell, the Company shall pay 2% of net sales as feedback fund each quarter for three years, but the total feedback fund should not be more than 30% of the loan. 13. SEGMENT INFORMATION The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise", replacing the "industry segment" approach with "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS 131 also requires disclosures about products and services, geographic areas and major customers. A. Industry: The Company is engaged in a single industry, which is research, development, production, manufacture and sale of visible laser diode and module, communication laser diode and module and high power laser diode and module. B. Foreign markets: Export sales were under 10% of total revenues for 1997 and 1998. Sales to Asia and other area in 1999 were $1,865 and $683, respectively. 17 18 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) C. Major customers
YEARS ENDED DECEMBER 31, ----------------------------------------------- 1997 1998 1999 ------------- ------------- ------------- CUSTOMERS AMOUNT % AMOUNT % AMOUNT % --------- ------ --- ------ --- ------ --- A................................... $484 27 $ -- -- $-- -- B................................... 276 16 -- -- -- -- C................................... -- -- 1,212 15 -- --
D. Geographic information. The Company's operations are entirely in the Republic of China. 18 19 OPTRONICS INTERNATIONAL CORP. BALANCE SHEETS DECEMBER 31, 1999 (AUDITED) AND JUNE 30, 2000 (UNAUDITED)
DECEMBER 31, JUNE 30, NOTES 1999 2000 ------------ ------------- --------- (IN THOUSAND U.S. DOLLARS EXCEPT SHARE AMOUNTS) ASSETS CURRENT ASSETS Cash................................................... 2B $ 1,841 $ 2,058 Restricted cash........................................ 2D 967 1,163 Marketable securities.................................. 2B, 2E 2,307 -- Notes and accounts receivable -- net................... 2B, 3, 9 476 1,330 Inventories............................................ 2F, 4 1,046 1,740 Prepaid expenses and other current assets.............. 102 126 ------- ------- Total Current Assets................................... 6,739 6,417 ------- ------- PROPERTIES -- NET...................................... 2G, 2H, 5, 9 5,197 5,618 ------- ------- OTHER ASSETS Prepaid long-term investment........................... -- -- Deferred pension cost.................................. 2L -- -- Deferred charges -- net of accumulated amortization cost of $2 as of December 31, 1999 and $13 as of June 30, 2000............................................. 2I 32 108 Refundable deposits.................................... 41 51 ------- ------- Total Other Assets..................................... 73 159 ------- ------- TOTAL ASSETS........................................... $12,009 $12,194 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes and accounts payable............................. 9 $ 537 $ 1,306 Income tax payable..................................... 2M, 8 62 -- Current portion of long-term debts..................... 6, 11 253 259 Accrued expenses and other current liabilities......... 841 753 ------- ------- Total Current Liabilities.............................. 1,693 2,318 LONG-TERM DEBTS -- NET OF CURRENT PORTION.............. 6, 11 253 129 ACCRUED PENSION COST................................... 2L 86 141 ------- ------- Total Liabilities...................................... 2,032 2,588 ------- ------- SHAREHOLDERS' EQUITY................................... 7 Capital stock -- $0.3 par value; Authorized -- 45,000 thousand shares................. Issued -- 35,000 thousand shares..................... 11,833 11,833 Retained earnings: Legal reserve........................................ 50 50 Unappropriated earnings (deficit).................... (1,261) (1,843) Cumulative translation adjustment...................... 2O, 2P (645) (434) ------- ------- Total Shareholders' Equity............................. 9,977 9,606 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $12,009 $12,194 ======= =======
The accompanying notes are an integral part of the financial statements. 19 20 OPTRONICS INTERNATIONAL CORP. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
SIX MONTHS ENDED JUNE 30, ------------------- NOTES 1999 2000 ----- -------- ------- (UNAUDITED) (IN THOUSAND U.S. DOLLARS EXCEPT PER SHARE AMOUNTS) NET SALES................................................... 2J, 9 $ 2,968 $3,207 COST OF SALES............................................... 9 2,117 2,917 ------- ------ GROSS PROFIT................................................ 851 290 ------- ------ OPERATING EXPENSES Research and development.................................... 2K 901 599 General and administrative.................................. 217 354 Marketing................................................... 261 143 ------- ------ Total Operating Expenses.................................... 1,379 1,096 ------- ------ LOSS FROM OPERATIONS........................................ (528) (806) ------- ------ NON-OPERATING INCOME (EXPENSE) Interest revenue............................................ 130 38 Subsidy..................................................... 235 174 Gain on sale of marketable securities....................... 2E -- 22 Unrealized holding gains on marketable securities........... -- -- Foreign exchange gain loss.................................. 2N 10 (10) Gain on disposal of properties.............................. 9 4 -- ------- ------ Total Non-Operating Income.................................. 379 224 ------- ------ LOSS BEFORE INCOME TAX...................................... (149) (582) INCOME TAX EXPENSE.......................................... 2M, 8 2 -- ------- ------ NET LOSS.................................................... $ (151) $ (582) ======= ====== OTHER COMPREHENSIVE INCOME Translation adjustments..................................... 2O (97) 211 ------- ------ COMPREHENSIVE LOSS.......................................... $ (248) $ (371) ======= ====== LOSS PER SHARE -- Based on weighted average outstanding common stock 35,000 thousand shares....................... 2Q $(0.004) $(0.02) ======= ======
The accompanying notes are an integral part of the financial statements. 20 21 OPTRONICS INTERNATIONAL CORP. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
FOR THE SIX MONTHS ENDED JUNE 30, ------------------ 1999 2000 ------- ------- (UNAUDITED) (IN THOUSAND U.S. DOLLARS) OPERATING ACTIVITIES Net loss.................................................... $ (151) $ (582) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization............................. 314 405 Gain on disposal of properties............................ (4) -- Accrued pension cost...................................... 44 55 Gain on sale of marketable securities..................... -- (22) Changes in operating assets and liabilities Notes and accounts receivable.......................... 1,564 (854) Inventories............................................ (463) (694) Prepaid expenses and other current assets.............. (281) (24) Notes and accounts payable............................. 99 769 Income tax payable (14) (62) Accrued expenses and other current liabilities......... (1,021) (88) ------- ------- Net Cash Provided by (Used in) Operating Activities......... 87 (1,097) ------- ------- INVESTING ACTIVITIES Acquisitions of properties.................................. (450) (709) Increase in restricted cash................................. (887) (196) Proceeds from disposal of properties........................ 38 -- Decrease (increase) in marketable securities................ (400) 2,329 Increase in deferred charges................................ (2) (86) Decrease (increase) in refundable deposits.................. 23 (10) ------- ------- Net Cash Provided by (Used in) Investing Activities......... (1,678) 1,328 ------- ------- FINANCING ACTIVITY Payment of long-term debts.................................. -- (124) ------- ------- EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE................. (60) 110 ------- ------- NET INCREASE (DECREASE) IN CASH............................. (1,651) 217 CASH AT BEGINNING OF PERIOD................................. 6,510 1,841 ------- ------- CASH AT END OF PERIOD....................................... $ 4,859 $ 2,058 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for income tax.................................... $ 15 $ 62 ======= =======
The accompanying notes are an integral part of the financial statements. 21 22 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSAND U.S. DOLLARS, EXCEPT SHARE AMOUNTS) 1. GENERAL Business Optronics International Corp. (the "Company") was incorporated under the Company Law of the Republic of China on November 21, 1996 and started its operations in February 1997. The Company is primarily engaged in research, development, production, manufacture and sale of visible laser diode and module, communication laser diode and module and high power laser diode and module. 2. ACCOUNTING POLICIES A. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. B. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, marketable securities and accounts receivable. Cash and marketable securities are deposited or placed with high credit quality financial institutions to the extent of the amount recorded on the balance sheet. As far as the accounts receivable, the Company performs ongoing credit evaluations of its customers' financial condition and the Company maintains an allowance for doubtful accounts receivable based upon review of the expected collectibility of individual accounts receivable. E. Fair Value of Financial Instruments The Company's financial instruments, including cash, restricted cash, marketable securities, notes and accounts receivable, refundable deposits, and notes and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. Fair value of long-term debts is estimated based on current interest rates available to the Company with similar terms, degrees of risks and remaining maturities. The carrying values of long-term debts approximate their respective fair value. F. Restricted Cash Restricted cash is composed of time deposits that the Company maintains as collateral for obtaining letters of credits. E. Marketable Securities Marketable securities are open-end bond funds that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. The costs of investment sold are determined by the weighted average method. 22 23 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) F. Inventories Inventories are stated at cost using the weighted average method and are valued at the lower of cost or market value at balance sheet date. The market value of raw materials is determined based on current replacement cost, while work-in-process and finished goods are determined by net realizable value. G. Properties Properties are stated at cost less accumulated depreciation. Major additions, renewals and betterment are capitalized, while maintenance and repairs are expensed currently. Depreciation is provided on the straight-line method over the estimated useful lives that range as follows: machinery and equipment -- 3 to 8 years; computer equipment -- 3 years; office equipment -- 5 years; leasehold improvements -- 5 years; transportation equipment -- 5 years; other equipment -- 5 to 20 years. Upon sale or disposal of properties, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited or charged to income. H. Asset Impairment Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", ("SFAS No. 121") requires recognition of impairment of long-lived assets in the event the net book value of these assets exceeds the future undiscounted cash flows attributable in use to these assets. SFAS No. 121 has not had an impact on the financial statements of the Company. I. Deferred Charges Deferred charges are stated at cost and amortized on straight-line basis over the following years: tools -- 3 years. J. Recognition of Revenue, Cost and Expenses Product sales are recognized upon the transfer of title and risk of ownership to customers, which occurs upon shipment of the product. Cost charged against revenue and expenses are recognized as incurred. K. Research and Development Research and development costs consist of expenditures incurred during the course of planned search and investigation aimed at the discovery of new knowledge that will be useful in developing new products or processes, or at significantly enhancing existing products or production processes. And the implementation of such is through design, testing of product alternatives or construction of prototypes. The Company expenses all research and development costs as they are incurred. L. Pension Costs The Company has non-contributory and funded defined benefit retirement plans covering all its regular employees. The contribution to an independent fund is deposited with the Central Trust of China, as the custodian. Net pension cost, with includes service cost, interest cost, expected return on plan assets and amortization of net asset or obligation at transition, is recognized based on an actuarial valuation. 23 24 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Company has a defined benefit pension plan for all regular employees, which provides benefits base on length of service and average monthly salary for the last six month prior to retirement. The Company makes monthly contributions, equal to 2% of salaries and wages, to a pension fund which is administered by a pension fund monitoring committee and deposited as the committee's name in the Central Trust of China which acts as trustee. M. Income Tax The Company adopted the provisions of SFAS No. 109 "Accounting for Income Tax"; the provision for income tax represents income tax paid and payable for the current year plus the changes in the deferred income tax assets and liabilities during the years. Deferred income taxes are recognized for the tax effects of temporary differences, unused tax credit and operating loss carryforwards. Valuation allowance is provided for deferred tax assets that are not certain to be realized. A deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or noncurrent. However, if a deferred asset or liability cannot be identified to an asset or a liability in the financial statements, then it should be classified as current or noncurrent based on the expected reversal date of temporary difference. N. Foreign-currency Transactions The functional currency of the Company is New Taiwan dollars. The foreign-currency transactions of the Company are recorded using their respective functional currencies at the rates of exchange in effect when the transactions occur. Gains or losses, resulting from the application of different foreign exchange rates when cash in foreign currency is converted into New Taiwan dollars, or when foreign-currency receivables and payables are settled, are credited or charged to income in the year of conversion or settlement. At the balance sheet dates, the balances of foreign-currency assets and liabilities are restated into the respective functional currencies based on prevailing exchange rates and any resulting gains or losses are credited or charged to income. O. Translation of Foreign-currency Financial Statements The financial statements are translated into U.S. dollars at the following exchange rates: assets and liabilities -- current rate; income and expenses -- weighted average rate during the year. The resulting translation adjustment is recorded as separate component of shareholders' equity. Q. Comprehensive Income The Company adopted the provisions of SFAS No. 130 "Reporting Comprehensive Income"; SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. To date, the Company has only translation adjustment that are required to be reported in comprehensive income. R. Earnings (Loss) Per Share SFAS No. 128 "Earnings Per Share", establishes standards for computing and presenting earnings per share. Basic earnings per share is calculated using the average shares of common share outstanding. Diluted earnings per share is calculated using the weighted average number of common and dilutive common equivalent shares outstanding during the period, using either as if converted method for convertible preferred share or the treasury stock method for options and warrants. Since the Company's capital structure is simple, therefore, its basic earnings per share is the same as diluted earnings per share. 24 25 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. NOTES AND ACCOUNTS RECEIVABLE -- NET
DECEMBER 31, JUNE 30, 1999 2000 ------------ -------- Receivable from related parties (Note 9).................... $ 46 $ 331 Notes receivable............................................ 46 12 Accounts receivable -- third parties........................ 861 1,474 ----- ------ 953 1,817 Allowance for doubtful accounts............................. (477) (487) ----- ------ $ 476 $1,330 ===== ======
4. INVENTORIES
DECEMBER 31, JUNE 30, 1999 2000 ------------ -------- Finished goods.............................................. $ 233 $ 323 Work in process............................................. 320 626 Raw materials............................................... 493 791 ------ ------ $1,046 $1,740 ====== ======
5. PROPERTIES -- NET
DECEMBER 31, JUNE 30, 1999 2000 ------------ -------- Cost Machinery and equipment................................... $5,018 $5,381 Computer equipment........................................ 60 85 Office equipment.......................................... 36 69 Leasehold improvements.................................... 81 176 Transportation equipment.................................. 58 59 Other equipment........................................... 1,230 1,291 Prepayments............................................... 33 292 ------ ------ 6,516 7,353 ------ ------ Accumulated depreciation Machinery and equipment................................... $1,076 $1,407 Computer equipment........................................ 32 42 Office equipment.......................................... 13 18 Leasehold improvements.................................... 29 32 Transportation equipment.................................. 21 27 Other equipment........................................... 148 209 ------ ------ 1,319 1,735 ------ ------ $5,197 $5,618 ====== ======
25 26 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. LONG-TERM DEBTS
DECEMBER 31, JUNE 30, 1999 2000 ------------ -------- Industrial Bureau -- Innovation Products Matching Fund to be repaid in installment with final payment due in October 2001 (Note 12)............................................ $ 506 $ 388 Current portion............................................. (253) (259) ----- ----- $ 253 $ 129 ===== =====
As of June 30, 2000, long-term debts mature as follows:
JUNE 30, 2000 -------- During the year 2000...................................... $259 During the year 2001...................................... 129
7. SHAREHOLDERS' EQUITY The Company's Articles of Incorporation provide that the following shall be appropriated from the annual net income after deducting any previously accumulated deficit and 10% legal reserve: (d) 5% - 10% special bonus to employees; (e) 1% - 3% compensation to directors and supervisors; and (f) Special retained earnings reserve and unappropriated earnings can be set aside when necessary, and the remaining amount shall be appropriated as common shareholders' bonus. The appropriations and the disposition of the remaining net income shall be resolved by the shareholders in the following year and given effect to in the financial statements of that year. The aforementioned appropriation for legal reserve shall be made until the reserve equals the Company's capital. Such reserve can only be used to offset a deficit; or, when it has reached 50% of the paid-in capital, up to 50% thereof can be transferred to capital. 8. INCOME TAX A. Income tax benefit: The Company expects no income tax benefits and income tax payable for the six months ended June 30, 2000. Income tax expense of $2 for the six months ended June 30, 1999 represents the prior year's income tax adjustment. 26 27 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) B. As of December 31, 1999 and June 30, 2000, deferred income tax assets and liabilities are as follows:
DECEMBER 31, JUNE 30, 1999 2000 ------------ -------- Current: Taxable temporary differences............................. $ 119 $ 105 Investment tax credits.................................... 5 -- Operating loss carryforwards.............................. 338 284 ------- ------- Total..................................................... 462 389 Valuation allowance....................................... (462) (389) ------- ------- -- -- ------- ------- Noncurrent: Taxable temporary differences............................. 31 5 Investment tax credits.................................... 1,279 1,214 Operating loss carryforwards.............................. 51 59 ------- ------- Total..................................................... 1,361 1,278 Valuation allowance....................................... (1,361) (1,278) ------- ------- -- -- ------- ------- $ -- $ -- ======= =======
C. The Company's income tax returns through taxable year ended December 31, 1996 have been examined by the tax authorities. D. As of June 30, 2000, the Company's unused investment tax credits and the tax effect of loss carryforwards amounted to approximately $1,214 and $343, respectively, and are available for future use through 2003 and 2004, respectively. 9. RELATED PARTY TRANSACTIONS A. Name and Relationship of Related Parties
NAME AND RELATIONSHIP OF RELATED PARTIES RELATIONSHIP WITH THE COMPANY ---------------------------------------- ----------------------------- Wah Lee Industrial Corp. (WAH LEE)........... Its chairman is the supervisor of the Company Delta Electronics Int. Ltd. (DELTA LTD.)..... Same chairman Delta Electronics Inc. (DELTA INC.).......... Same chairman
B. Significant Related Party Transactions For the period
FOR THE SIX MONTHS ENDED JUNE 30, ---------------------------------- 1999 2000 --------------- --------------- AMOUNT % AMOUNT % ------- ---- ------- ---- Sales DELTA INC. .............................................. $ 86 3 $314 5 WAH LEE.................................................. 86 3 176 10 ---- --- ---- --- $172 6 $490 15 ==== === ==== ===
27 28 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, ---------------------------------- 1999 2000 --------------- --------------- AMOUNT % AMOUNT % ------- ---- ------- ---- Purchases.................................................. $160 8 $ 8 -- DELTA LTD. .............................................. 2 -- -- -- ---- --- ---- --- DELTA INC. .............................................. $162 8 $ 8 -- ==== === ==== ===
At end of period
DECEMBER 31, JUNE 30, 1999 2000 ------------- ------------- AMOUNT % AMOUNT % ------ --- ------ --- Receivable DELTA INC. .............................................. $ 25 5 $272 20 WAH LEE.................................................. 21 4 59 5 ---- --- ---- --- $ 46 9 $331 25 ==== === ==== === Accounts payable -- DELTA LTD. ............................ $ 52 10 $ 1 -- ==== === ==== ===
d. Sales to related parties are based on normal selling prices. The collection period is 30-75 days after shipment for related parties and 15-60 days for other companies. e. The payment terms for purchases from related parties are the same as those from other suppliers. c. As of June 30, 1999, the Company sold certain machinery and equipment to DELTA INC. for $38 and generated a gain of $4. 10. FINANCIAL INSTRUMENTS The Company's financial instruments are carried at cost, which approximates their fair value and are listed as follows:
DECEMBER 31, 1999 JUNE 30, 2000 ------------------ ------------------ CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- ------ -------- ------ Assets Cash......................................... $1,841 $1,841 $2,058 $2,058 Restricted cash.............................. 967 967 1,163 1,163 Marketable securities........................ 2,307 2,307 -- -- Notes and accounts receivable -- net......... 476 476 1,330 1,330 Prepaid long-term investment................. -- -- -- -- Refundable deposits.......................... 41 41 51 51 Liabilities Notes and accounts payable................... 537 537 1,306 1,306 Long-term debts (including current portion).................................. 506 506 388 388
11. COMMITMENTS AND CONTINGENT LIABILITIES A. In 1997 and 1999, the Company entered into loan agreements with Industrial Development Bureau, Ministry of Economic Affairs and Administration of Hsin-chu Science-based Industrial Park, respectively, for developing new products. Under the agreements, the loans are paid in installments starting 28 29 OPTRONICS INTERNATIONAL CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) one year after the prototypes are completed. In addition, the Company shall make quarterly payment for a period of three years equivalent to 2% of net sales as feedback fund starting when sales are generated from the new products begin. However, the total feedback fund should not be more than 30% of the loan. B. As of June 30, 2000, unused letters of credit aggregate about US$129 thousand and JPY 32,683 thousand. 12. SEGMENT INFORMATION The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." FSAS 131 requires companies to disclose certain information about operating segments. Based on the criteria within SFAS 131, the Company has determined that it has one reportable segment, laser diode products. A. Foreign markets:
FOR THE SIX MONTHS ENDED JUNE 30, ------------------ AREA 1999 2000 ---- ------- ------- Asia........................................................ $1,234 $ 907 America..................................................... 94 762 Europe...................................................... 16 234 Other....................................................... -- 7 ------ ------ $1,344 $1,910 ====== ======
B. Major customers
FOR THE SIX MONTHS ENDED JUNE 30, ---------------------------------- 1999 2000 --------------- --------------- CUSTOMERS AMOUNT % AMOUNT % --------- ------- ---- ------- ---- A...................................................... $410 14 $ -- -- B...................................................... 400 13 -- -- C...................................................... -- -- 380 12 D...................................................... -- -- 314 10
C. Geographic information. The Company's operations are entirely in the Republic of China. 29 30 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION On July 21, 2000, MRV Communications, Inc. (MRV) acquired approximately 99.9% of the outstanding capital stock of Optronics International Corp. (OIC), a Republic of China corporation, in exchange for approximately 4.0 million shares of MRV's common stock and warrants to purchase common stock. MRV's management has prepared the following unaudited pro forma condensed consolidated financial information to give effect to this acquisition. The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1999 and for the six months ended June 30, 2000 give effect to the OIC acquisition as if it had taken place at the beginning of each period. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2000 gives effect to the OIC acquisition as if it had taken place on such date. The pro forma adjustments, which are based upon available information and certain assumptions that the Company believes are reasonable in the circumstances, are applied to the historical financial statements of MRV and OIC. The OIC acquisition will be accounted for using the purchase method of accounting. MRV allocation of purchase price is based upon management's current estimates of the fair value of assets acquired and liabilities assumed in accordance with Accounting Principles Board No. 16. The purchase price allocations reflected in the accompanying unaudited pro forma condensed consolidated financial statements may be different from the final allocation of the purchase price and such differences may be material. The Company expects to complete a valuation and other procedures during the fourth quarter of 2000. The accompanying unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements and the notes thereto for both MRV and OIC. The unaudited pro forma condensed consolidated financial information is provided for informational purposes only and does not purport to represent what MRV's financial position or results of operations would actually have been had the OIC acquisition occurred on such dates or to project MRV's results of operation or financial position for any future period. 30 31 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000
Pro Forma MRV OIC Adjustments Total -------- -------- ----------- -------- (in thousands) Current Assets: Cash and cash equivalents 45,207 2,058 -- 47,265 Restricted cash -- 1,163 -- 1,163 Short-term investments 3,427 -- -- 3,427 Accounts receivable 63,555 1,330 -- 64,885 Inventories 49,616 1,740 -- 51,356 Refundable income taxes -- -- -- -- Deferred income taxes 7,663 -- -- 7,663 Other current assets 5,872 126 -- 5,998 -------- -------- -------- -------- Total current assets 175,340 6,417 -- 181,757 -------- -------- -------- -------- Property and Equipment, net 48,497 5,618 1,500 (1) 55,615 Other Assets: Goodwill and intangibles 321,764 -- 93,092 (1) 414,856 U.S. Treasury notes 95,014 -- -- 95,014 Investments in partner companies 29,969 -- -- 29,969 Deferred income taxes 6,827 -- -- 6,827 Loan financing costs and other 6,655 159 -- 6,814 -------- -------- -------- -------- Total assets 684,066 12,194 94,592 790,852 ======== ======== ======== ======== Current Liabilities Current maturities of financing lease obligation 1,097 -- -- 1,097 Current maturities of long-term debt -- 259 -- 259 Accounts payable 33,485 1,306 -- 34,791 Accrued liabilities 21,744 753 -- 22,497 Short-term debt 78,801 -- -- 78,801 Income taxes payable 714 -- -- 714 Deferred revenue 1,293 -- -- 1,293 -------- -------- -------- -------- Total current liabilities 137,134 2,318 -- 139,452 -------- -------- -------- -------- Long-Term Liabilities Convertible debentures 90,000 -- -- 90,000 Capital lease obligations, net of current portion 1,589 -- -- 1,589 Long-term debt, net of current portion -- 129 -- 129 Deferred income taxes 1,213 -- -- 1,213 Accrued pension -- 141 -- 141 Other long-term liabilities 10,152 -- -- 10,152 -------- -------- -------- -------- Total long-term liabilities 102,954 270 -- 103,224 -------- -------- -------- -------- Minority Interests 2,599 -- -- 2,599 Stockholders' Equity 441,379 9,606 (9,606)(1) 441,379 (20,000)(1) (20,000) 124,198 (1) 124,198 -------- -------- -------- -------- 441,379 9,606 94,592 545,577 -------- -------- -------- -------- -------- -------- -------- -------- Total liabilities and stockholders' equity 684,066 12,194 94,592 790,852 ======== ======== ======== ========
See notes to unaudited pro forma condensed consolidated financial information 31 32 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
Pro Forma MRV OIC Adjustments Total -------- -------- ----------- -------- (Amounts in thousands, except per share data) -------- -------- -------- -------- Revenues, net 139,007 3,207 -- 142,214 -------- -------- -------- -------- Costs and Expenses Cost of goods sold 88,529 2,917 -- 91,446 Research and development 13,367 599 -- 13,966 Research and development of consolidated 13,282 -- -- 13,282 development stage enterprises Selling, general and administrative expenses 41,481 497 -- 41,978 Amortization of goodwill and other intangibles 13,069 -- 9,309(2) 22,378 Deferred compensation charges -- -- 7,200(3) 7,200 -------- -------- -------- -------- Operating (loss) (30,721) (806) (16,509) (48,036) -------- -------- -------- -------- Interest expenses related to convertible notes 2,803 -- 2,803 Other income (expense), net 1,125 224 -- 1,349 Provision (credit) for income taxes 883 -- -- 883 Minority interest 332 -- -- 332 -------- -------- -------- -------- Net (loss) (33,614) (582) (16,509) (50,705) ======== ======== ======== ======== Basic and diluted net loss per share (0.56) (0.79) ======== ======== Weighted average shares outstanding used in basic and diluted per shares calculation 59,839 4,200(6) 64,039 ======== ======== ========
See notes to unaudited pro forma condensed consolidated financial information 32 33 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
Pro Forma MRV OIC Adjustments Total -------- -------- ----------- -------- (Amounts in thousands, except per share data) -------- -------- -------- -------- Revenues, net 288,524 4,807 -- 293,331 -------- -------- -------- -------- Costs and Expenses Cost of goods sold 197,442 4,388 -- 201,830 Research and development 35,319 1,453 -- 36,772 Research and development of consolidated -- -- -- -- development stage enterprises Selling, general and administrative expenses 71,756 771 -- 72,527 Amortization of goodwill and other intangibles -- -- 18,618(4) 18,618 Deferred compensation charges -- -- 11,480(5) 11,480 -------- -------- -------- -------- Operating (loss) (15,993) (1,805) (30,098) (47,896) -------- -------- -------- -------- Interest expenses related to convertible notes 4,500 -- -- 4,500 Interest income, net 4,822 291 -- 5,113 Provision (credit) for income taxes (2,153) 62 -- (2,091) Minority interest (610) -- -- (610) -------- -------- -------- -------- Net (loss) (12,908) (1,576) (30,098) (44,582) ======== ======== ======== ======== Basic and diluted net loss per share (0.24) (0.77) ======== ======== Weighted average shares outstanding used in basic and diluted per shares calculation 53,920 4,200(6) 58,120 ======== ======== ========
See notes to unaudited pro forma condensed consolidated financial information 33 34 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following adjustments were applied to MRV's historical financial statements and those of OIC to arrive at the pro forma financial information: (1) The purchase price of OIC and the estimated allocation of the purchase price is summarized as follows (in thousands):
OIC ------- Common stock 103,198 Stock options 20,000 Other costs 1,000 ------- 124,198 ======= Allocation of purchase price - Net assets 9,606 Property, Plant and equipment 1,500 Deferred Compensation 20,000 Goodwill and other intangibles 93,092 ------- 124,198 =======
(2) The pro forma adjustment is to record the amortization of goodwill related to the acquisition as if the transaction occurred on January 1, 2000. Goodwill recorded in relation to this acquisition was approximately $93.1 million and is being amortizated on a straight-line basis over 5 years or approximately $9.3 million for the six month period ended June 30, 2000 (3) The pro forma adjustment is to record deferred stock compensation related to the acquisition as if the transaction occurred on January 1, 2000. Deferred stock compensation recorded in relation to this acquisition was approximately $20.0 million and is being amortized over 4 years or approximately $7.2 million for the six month period ended June 30, 2000 (4) The pro forma adjustment is to record the amortization of goodwill related to the acquisition as if the transaction occurred on January 1, 1999. Goodwill recorded in relation to this acquisition was approximately $93.1 million and is being amortizated on a straight-line basis over 5 years or approximately $18.6 million for the year ended December 31, 1999 (5) The pro forma adjustment is to record deferred stock compensation related to the acquisition as if the transactions occurred on January 1, 1999. Deferred stock compensation recorded in relation to this acquisition was approximately $20.0 million and is being amortized over 4 years or approximately $11.5 million for the year ended December 31, 1999. (6) Weighted average shares used to calculate pro forma basic and diluted net loss per share for the periods presented is computed using the weighted average number of common stock outstanding for the periods presented and the shares issued in conjunction with the acquisition as if such shares were outstanding at the beginning of each period presented. 34 35 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, hereunto duly authorized. Date: August 3, 2000 MRV COMMUNICATIONS, INC. By: /s/ EDMUND GLAZER --------------------------------------- Edmund Glazer Executive Vice President Finance and Administration and Chief Financial Officer 35 EX-99.1 2 ex99-1.txt EXHIBIT 99.1 1 EXHIBIT 99.1 Wednesday July 26, 12:05 pm Eastern Time Company Press Release MRV Announces Filing of Registration Statement for Initial Public Offering of Luminent Inc. CHATSWORTH, Calif.--(BUSINESS WIRE)--July 26, 2000--MRV Communications Inc. (Nasdaq:MRVC) today announced that a registration statement has been filed with the Securities and Exchange Commission (SEC) for the initial public offering of the common stock of its wholly owned subsidiary, Luminent Inc. Credit Suisse First Boston will lead manage the underwriting group, with CIBC World Markets, Robertson Stephens, U.S. Bancorp Piper Jaffray and First Security Van Kasper serving as the co-managers. Preliminary prospectuses are not currently available. When available, prospectuses may be obtained by writing to or calling Credit Suisse First Boston, 11 Madison Ave., New York, N.Y. 10010-3629, 212/325-2000. MRV currently plans, within six to 12 months after the offering, to distribute all of the shares of Luminent common stock owned by MRV to the holders of MRV's common stock, subject to certain conditions, including its receipt of a favorable tax ruling and board approval as well as market conditions. A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective. This news release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. About Luminent Luminent designs, manufactures and sells a comprehensive line of fiber-optic components that enable communications equipment manufacturers to provide optical networking solutions for the rapidly growing metropolitan and access segments of communications networks. Contact: MRV Communications Inc., Chatsworth Investor Relations, 818/886-6782 EX-99.2 3 ex99-2.txt EXHIBIT 99.2 1 EXHIBIT 99.2 FOR IMMEDIATE RELEASE MRV ANNOUNCES 2ND QUARTER RESULTS, AND THE ACQUISITION OF ASTROTERRA CORPORATION Unification of Optical Wireless Activities to Take Place Under Newly Formed Optical Access, Inc. Chatsworth - California - July 27, 2000 - MRV Communications, Inc. (Nasdaq: MRVC) today announced closing the acquisition of AstroTerra Corporation, a pioneer in the development of free-space optical wireless technology. This acquisition, together with the acquisition of JOLT, announced earlier this year, propels Optical Access, Inc. into a premier position as the leading supplier of optical wireless solutions. Newly formed Optical Access, Inc. develops, manufactures and markets optical wireless systems that enable a fundamental shift in the design of the access network. The company's products create an unconstrained optically meshed networks with intelligent switching, provisioning and aggregation Features. Together with its WDM fiber solutions, Optical Access eliminates the bottleneck between the user's premises and the backbone network. This allows a provider to bypass the incumbent carrier's copper access network, to quickly and cost-effectively establish enhanced high-speed broadband services. The Optical Access solutions enable faster deployment and increased bandwidth over competing solutions. The company's switched meshed architecture and redundant features provide service availability in all weather conditions. AstroTerra Corporation was founded in 1992 and quickly established itself as the recognized leader in the high-speed optical wireless communications field. The company's strong intellectual property includes patented technology that uses multiple transmit apertures to avoid atmospheric scintillation fade. This allows wireless optical transmission up to 5 kilometers. In partnership with Lucent Technologies, AstroTerra was the first to demonstrate a working laser communication system capable of transferring data at rates of 2.5 Gbps over a range of 2.4 kilometers. AstroTerra's new TerraLink Fusion systems combine an optical communication link with an automatic radio frequency back-up to provide 100% wireless availability, even in the worst weather conditions. AstroTerra has shown great success in developing high-speed satellite laser communications technology, most notably with the Ballistic Missile Defense Organization and US Army Space and Missile Defense Command. The Space Technology Research Vehicle -2 (STRV-2) is the first satellite-to-ground experiment capable of transmitting information at Gigabit speeds over a distance of two thousand kilometers. Dr. Eric Korevaar, president of AstroTerra, commented: "We are very excited to join forces with an innovative, forward-thinking company like MRV Communications. Combining our expertise in optical wireless 2 technology with the comprehensive solution that Optical Access offers represents a strong step forward in bringing ultra high-speed wireless solutions to the last-mile telecommunications arena." Noam Lotan, President & CEO of MRV commented: "Acquiring AstroTerra Corporation establishes Optical Access as the leader in optical wireless technology. This technology is poised to make a strong impact on the last mile broadband access. Wireless access is cheaper and faster to install than fiber and can deliver the high bandwidth that users require. With our robust product line, the experience of thousands of optical wireless installations, and substantial ownership of intellectual property, MRV stands to capitalize on the emerging opportunities in this field. We intend to file for an Initial Public Offering of Optical Access within 90 days." Separately, MRV announced closing the acquisitions of Optronics International Corporation ("OIC") and Quantum Optech Inc. ("QOI"), now part of Luminent, Inc. Organizational changes in Management The following changes took place in the management of Luminent, Inc. Dr. William R. Spivey, former President of the Network Products group of Lucent Technologies, was appointed President, Chief Executive Officer and Director of Luminent. Eric Blachno, former Managing Director of Research and a Financial Analyst for PMG, was appointed Vice President of Finance and Chief Financial Officer of Luminent. Khalid (Ken) Ahmad resigned his position as General Manager of Luminent and in so doing, is no longer an officer at MRV. Dr. Mark Heimbuch, was appointed Vice President and Chief Technology Officer of Luminent. In addition, Dan Avida, former Chairman and CEO of Electronics for Imaging, Richard S. Hill, Chairman and CEO of Novellus Systems, and Amos Wilnai, Chairman of MMC Networks, joined the newly formed Board of Directors of Luminent. The following changes in management took place at MRV and its subsidiaries. At iTouch Communications, Philippe Szwarc was appointed Chief Executive Officer, Mary Jane Gruninger was appointed Executive Vice President of Research and Development and Engineering, and Francois-Henri Worm, Founder of CES, was appointed Chief Technology Officer. Ofer Iny, Vice President of Engineering at Zuma Networks, is no longer an officer of MRV. In addition, Guy Avidan will head Optical Access, Inc. Financials Revenues for the quarter were $73,935,000, up from $73,251,000 in the second quarter of 1999. Including non-recurring charges, net loss for the second quarter of 2000 was $27,750,000 compared to net income of $525,000 in the quarter ended June 30, 1999. Including non-recurring charges, basic and diluted loss per share for the second quarter of 2000 were $0.44 compared to basic and diluted earnings per share of $0.01 in the second quarter of 1999. Excluding non-recurring charges, basic and diluted earnings per share for the second quarter of 2000 were $0.02 compared to basic earnings per share of 3 $0.08 and diluted earnings per share of $0.07 in the second quarter of 1999. Revenues for the six months ended June 30, 2000 were $ $139,007,000 compared to $143,367,000 for the corresponding six month period in 1999. Including non-recurring charges, net loss for the six months ended June 30, 2000 was $33,614,000 compared to a net loss of $384,000 for the corresponding period in 1999. Excluding non-recurring charges, net income for the six months ended June 30, 2000 was $1,502,000 compared to net income of $6,488,000 for the corresponding period in 1999. Including non-recurring charges, basic and diluted losses per share for the six months ended June 30, 2000 were $0.56 compared to basic and diluted losses per share of $0.01, for the six months ended June 30, 1999. Excluding non-recurring charges, basic earnings per share were $0.03 and diluted earnings per share were $0.02 for the six months ended June 30, 2000, compared to basic and diluted earnings per share of $0.12, for the six months ended June 30, 1999. All historical amounts reflected in these financial results have been adjusted for the 2 for one stock split that took place in May 2000. About MRV Communications, Inc. MRV Communications is a world-class leader in optical network components and systems. The company has leveraged its early leadership in fiber optic transmission into a well-focused range of solutions, integrating switching, routing, access servers and optical transmission systems. As the Internet evolves into a single global communication network, MRV has launched the development of new technologies to drive the next-generation infrastructures. Such developments encompass optical access systems, subscribers' management systems and Linux-based solutions. MRV has initiated and funded cutting-edge start-up companies including Zaffire (formerly known as New Access Communications), Charlotte's Networks, Hyperchannel, Zuma Networks and most recently RedC Optical Networks. MRV's web site is located at http://www.mrv.com. This release may contain forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by MRV with the Securities and Exchange Commission, specifically the most recent reports on Forms 10K and 10Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including potential fluctuations in operating results, dependence on new product developments, rapid technological and market changes, manufacturing risks, volatility of the company's stock price, financial risk management, and future growth subject to risks. The announcement of the anticipated filing of any registration statements contained herein does not constitute an offer of any securities for sale. CONTACT: MRV Communications Inc. Diana Hayden, 818/886-6782, Investor Relations diana@mrv.com MRV Communications, Inc. 4 MRV COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
- --------------------------------------------------------------------------------------------- June 30, December 31, 2000 1999 (unaudited) (audited) - --------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash & cash equivalents $ 45,207 $ 34,330 Short-term investments 3,427 10,141 Accounts receivable 63,555 60,637 Inventories (Including Contract in Progress of $1,682 in 2000) 49,616 35,392 Refundable Income Taxes -- 3,216 Deferred income taxes 7,663 6,907 Other current assets 5,872 6,336 - -------------------------------------------------------------------------------------------- Total current assets 175,340 156,959 PROPERTY AND EQUIPMENT - At cost, net of depreciation and amortization 48,497 19,600 OTHER ASSETS: Goodwill & Intangibles 321,764 27,214 Deferred compensation 40,795 -- U.S. Treasury notes 95,014 97,704 Investments in Partner Companies 29,969 4,232 Deferred income taxes 6,827 5,324 Loan financing costs and other 6,655 3,500 - -------------------------------------------------------------------------------------------- $724,861 $314,533 - -------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of financing lease obligations $ 1,097 $ 198 Accounts payable 33,485 33,455 Accrued liabilities 21,744 15,403 Short term debt 78,801 -- Deferred revenue 1,293 1,478 Income taxes payable 714 -- - -------------------------------------------------------------------------------------------- Total current liabilities 137,134 50,534 - -------------------------------------------------------------------------------------------- LONG-TERM LIABILITIES Convertible debentures 90,000 90,000 Capital lease obligations, net of current portion 1,589 1,481 Deferred income taxes 1,213 281 Other long-term liabilities 10,152 2,647 - -------------------------------------------------------------------------------------------- Total long term liabilities 102,954 94,409 MINORITY INTERESTS 2,599 2,775 STOCKHOLDERS' EQUITY: 482,174 166,815 - -------------------------------------------------------------------------------------------- $724,861 $314,533 - --------------------------------------------------------------------------------------------
5 MRV COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Six Months Ended, Three Months Ended - ---------------------------------------------------------------------------------------------------------------------------------- June 30, June 30, June 30, June 30, 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) REVENUES, net $ 139,007 $ 143,367 $ 73,935 $ 73,251 - -------------------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES: Cost of goods sold 88,529 93,961 45,793 47,595 Research and development expenses 13,367 12,098 7,307 5,969 Research and development expenses of consolidated development stage enterprises 13,282 4,939 7,451 2,603 Selling, general and administrative expenses 41,481 29,804 26,467 14,750 Amortization of goodwill and intangibles from acquisitions 13,069 1,933 12,055 1,142 - -------------------------------------------------------------------------------------------------------------------------------- Operating (loss) income (30,721) 632 (25,138) 1,192 Interest expense related to convertible notes 2,803 2,250 1,678 1,125 Other income, net (1) 1,125 2,660 488 1,257 Provision for income taxes 883 1,409 1,377 782 Minority interests 332 17 45 17 - -------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (33,614) $ (384) $ (27,750) $ 525 - -------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE - BASIC $ (0.56) $ (0.01) $ (0.44) $ 0.01 NET INCOME (LOSS) PER SHARE - DILUTED $ (0.56) $ (0.01) $ (0.44) $ 0.01 - -------------------------------------------------------------------------------------------------------------------------------- SHARES USED IN PER - SHARE CALCULATION - BASIC 59,839 53,358 62,754 53,472 SHARES USED IN PER - SHARE CALCULATION - DILUTED 59,839 53,358 62,754 57,621 - -------------------------------------------------------------------------------------------------------------------------------- (1) Includes cost of unconsolidated development stage enterprises of $1,437 and $951 for the six and three months ended June 30, 2000 SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED) AMORTIZATION OF INTANGIBLES FROM ACQUISITIONS, net of tax effects 13,069 1,933 12,055 1,142 DEFERRED COMPENSATION EXPENSE, net of tax effects 7,328 -- 7,328 -- DEVELOPMENT STAGE ENTERPRISES, net of tax effects 14,719 4,939 9,565 2,603 - -------------------------------------------------------------------------------------------------------------------------------- NET INCOME BEFORE AMORTIZATION OF ACQUISITION INTANGIBLES AND RECOGNIZED DEVELOPMENT STAGE ENTERPRISE COSTS $ 1,502 $ 6,488 $ 1,198 $ 4,270 - -------------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE BEFORE AMORTIZATION OF ACQUISITION INTANGIBLES AND RECOGNIZED DEVELOPMENT STAGE ENTERPRISE COSTS - BASIC $ 0.03 $ 0.12 $ 0.02 $ 0.08 EARNINGS PER SHARE BEFORE AMORTIZATION OF ACQUISITION INTANGIBLES AND RECOGNIZED DEVELOPMENT STAGE ENTERPRISE COSTS - DILUTED $ 0.02 $ 0.12 $ 0.02 $ 0.07 - -------------------------------------------------------------------------------------------------------------------------------- SHARES USED IN PER - SHARE CALCULATION - BASIC 59,839 53,358 62,754 53,472 SHARES USED IN PER - SHARE CALCULATION - DILUTED 66,767 56,391 68,925 58,326
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