-----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, I18kCq2WJSdmY5+Xum+Z9G+AfsnqHbKxLzqw7bf9WmZaMj/qeCgcv1o9AA5/Y2Dx kTrIJM2uC1Xw6xzzsfDBmg== 0000950148-96-001215.txt : 19960618 0000950148-96-001215.hdr.sgml : 19960618 ACCESSION NUMBER: 0000950148-96-001215 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960617 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MRV COMMUNICATIONS INC CENTRAL INDEX KEY: 0000887969 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 061340090 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-11174 FILM NUMBER: 96581734 BUSINESS ADDRESS: STREET 1: 8917 FULLBRIGHT AVE CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187739044 MAIL ADDRESS: STREET 1: 8943 FULLBRIGHT AVE CITY: CHATSWORTH STATE: CA ZIP: 91311 10-K405/A 1 10-K405/A 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K/A (Mark One) [X] Amended Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to ______________ Commission File Number 0-23452 MRV COMMUNICATIONS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 06-1340090 ------------------------------- ------------------------------------- (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 8917 Fullbright Ave., Chatsworth, CA 91311 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (818) 773-9044 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Name of Each Exchange Title of Each Class on Which Registered ----------------------------- ---------------------- Common Stock $0.067 par value Nasdaq National Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or by amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant based upon the closing sales price of its Common Stock on December 31, 1995 on the Nasdaq National Market was $102,473,000. The number of shares of Common Stock outstanding as of December 31, 1995; 9,524,293 DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ 3 2 MRV COMMUNICATIONS, INC. 1995 form 10-K/A AMENDED ANNUAL REPORT TABLE OF CONTENTS PART I
Page ---- Item 1 Business No change Item 2 Properties No change Item 3 Legal Proceedings No change Item 4 Submission of Matters to a Vote of Security Holders No change PART II ------- Item 5 Market for Registrant's Common Equity and Related Shareholder Matters 12 Item 6 Selected Financial Data No change Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 8 Financial Statements and Supplementary Data F-1 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure No change PART III -------- Item 10 Directors and Executive Officers of the Registrant No change Item 11 Executive Compensation No change Item 12 Security Ownership of Certain Beneficial Owners and Management No change Item 13 Certain Relationships and Certain Transactions No change PART IV ------- ITEM 14 Exhibits, Financial Statement Schedules and Report on Form 8-K No change Signatures 31
4 3 PART III ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is currently traded on the National Association of Securities Dealers Automated Quotation System's National Market under the symbol MRVC. Prior to February 28, 1994, the Company's Common Stock was traded on Nasdaq Small Cap market. The following table sets forth the high and low bid prices quoted on the Common Stock for the periods indicated. Such quotations reflect interdealer prices, without retail mark-up, mark-down or commission and do not necessarily represent actual transactions. (The stock prices below are adjusted for the stock split that was effective March 20, 1996)
First Year Ended Fiscal Year Ended December 31, 1995 December 31, 1994 ----------------- ----------------- High Low High Low ---- --- ---- --- First Quarter $ 9.83 $ 7.17 $3.46 $2.83 Second Quarter $ 8.92 $ 7.25 $4.42 $3.08 Third Quarter $14.25 $ 8.50 $6.92 $4.25 Fourth Quarter $16.92 $11.00 $8.08 $6.42
On March 22, 1996, the closing sales price of the Common Stock as reported by the Nasdaq National Market was $33.00. As of December 31, 1995, the Company had 115 registered holders of record and approximately 4200 beneficial owners. The Company has not paid dividends to its stockholders since its inception and does not plan to pay dividends in the foreseeable future. The Company intends to retain any earnings to finance the growth of the Company. [THIS SPACE INTENTIONALLY LEFT BLANK] 12 4 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION GENERAL The Company was organized and commenced operations in July 1988. Since its inception, the Company has manufactured and marketed semiconductor laser diodes and LEDs for the fiber optics industry. The Company began volume shipments of discrete lasers and LED devices in 1989. In 1990, the Company introduced lasers and LEDs mounted in industry standard fiber optic receptacles designed and manufactured by the Company. In 1991, the Company introduced a line of transmitting and receiving modules. In 1993, the Company introduced its first stand-alone product, a wavelength converter that allows the connection of certain telephone exchanges or private automatic branch exchanges over single mode fiber optic cable. In 1994, the Company expanded its stand-alone product line to include products incorporating Ethernet switching technology aimed at improving network throughput and distance enhancement in LANS. In 1995 the Company began shipment of its first Fast Ethernet (100Mb) LAN Switches. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, statements of operations data of the Company expressed as a percentage of revenues.
Year Ended December 31 --------------------------------------------- 1993 1994 1995 1995* ---- ---- ---- ---- Revenues, net 100% 100% 100% Cost of Goods Sold 53% 59% 58% Gross Profit 47% 41% 42% Operating Expenses: Research and Development 15% 12% 10% Selling, General & Administrative 17% 15% 17% Purchased technology in progress 0% 0% 16% Restructuring costs 0% 0% 4% Operating income 15% 14% (5)% 15%* Other Income (Expense), net 3% 1% 2% 2%* Income before Taxes 18% 15% (3)% 17%*
* Pro forma information reflects income excluding non recurring charges for purchased technology in progress and restructuring costs. The Company terminated its S corporation election effective January 1, 1993 and is currently taxable as a C corporation. During the year ended December 31, 1995, the Company acquired assets of Galcom and Ace 400 Communications, Ltd. YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1994. REVENUES Revenues for the year ended December 31, 1995 from products sales were $39,202,000, as compared to $17,526,000 for the year ended December 31, 1994. The changes represented an increase of $21,676,000 or 124 percent. Revenues increased primarily as a result of greater market acceptance of the Company's products, both domestically and internationally. Additional sales and marketing resources 10K 14 5 obtained in the acquisition of assets during the year ended December 31, 1995 also contributed additional revenues. International sales accounted for approximately 45% of revenues for the year ended December 31, 1995 as compared to 19% of revenues for the year ended December 31, 1994. International sales, as a percentage of total revenues increased because of greater marketing efforts in overseas markets and a larger presence of sales resources, obtained in the acquisition of assets, in those markets. GROSS PROFIT Gross profit was $16,594,000 for the year ended December 31, 1995 as compared to $7,198,000 for 1994, due to increased sales. Gross profit as a percentage of revenues increased from 41% in 1994 to 42% in 1995. RESEARCH AND DEVELOPMENT Research and development ("R&D") expenses were $4,044,000 and $2,144,000 and represented 10% and 12% respectively, of revenues for the years ended December 31, 1995 and 1994, respectively. The 89% increase in R&D spending was attributable to the continued development of the Company's fiber optic and networking products, including new stand-alone LAN products as well as to costs associated with the hiring of additional research and development personnel and consultants. The Company intends to continue to invest in the research and development of new products. Management believes that the ability of the Company to develop and commercialize new products is a key competitive factor. SELLING, GENERAL & ADMINISTRATIVE Selling, General & Administrative ("SG&A") expenses increased to $6,799,000 for the year ended December 31, 1995 from $2,615,000 for the year ended December 31, 1994. As a percentage of revenue, SG&A increased to 17% from 15%. The increase is due primarily to increased marketing and personnel costs, as well as other administrative expenses. In addition the Company increased SG&A expenses with the additional personnel and operations of its newly formed subsidiaries. PURCHASED TECHNOLOGY IN PROGRESS AND RESTRUCTURING COSTS In connection with the Company's acquisition of certain assets of Galcom and ACE Communications, Ltd. the Company acquired incomplete research and development (R&D) projects that will be included in the current R&D activities of the Company. For projects that will have no alternative future use to the Company and where technological feasibility had not yet been established, the company allocated $6,211,000 of the purchase price to technology in progress and recorded the expense during the year ended December 31, 1995. Also in connection with the Company's acquisitions, during the year ended December 31, 1995 the Company recorded $1,465,000 as restructuring costs, which primarily related to the closing of several Company facilities, a reduction of its workforce, and the settlement of distribution agreements. The total purchase price, including related costs, for ACE 400 Communications assets was approximately $4,812,000 and for Galcom assets was approximately $2,885,000. The value of the ongoing operations with existing sales of Galcom and ACE that were acquired by the Company were believed by management to be inconsequential because their sales were in rapid decline. The decline was the result of the oncoming obsolescence of the older previously-developed products being sold. Of the combined total purchase price, including related costs, of $7,697,000 approximately $6,211,000 was allocated to purchased technology in process. Subsequent to the acquisition of the in process technologies it was determined by the Company that these would not be commercially viable because of the preemptive success of an alternative technology that was also in process at the Company at the time of the acquisition. The effect on operations of the acquisitions of Galcom and ACE was that they initially necessitated a restructuring of the Company's operations so as to integrate all Local Area Network (LAN) product activities throughout the organization. The restructuring, which involved layoffs at all levels as well as office and plant closures, was essentially completed according to plan during the first part of 1996. During 1995 there were no adverse effects on the Company's liquidity or capital resources as a result of the acquisitions and the Company does not anticipate any such effects, as a result of the acquisitions, in future periods. Immediately after the acquisition of the businesses, the Company undertook a restructuring plan that called for a merger of the two operations into one and an assumption by the remaining entity of certain international and U.S. operations previously undertaken directly by MRV's LAN products into some of the sale channels developed by MRV prior to the acquisitions. This included, for example, sales by the subsidiary of MRV's LAN products into some of the sales channels developed by MRV prior to the acquisitions. Since the operating plans of the Company did not call for distinctions of these operations from those of the businesses acquired, it is not practicable to quantify their impact. The product lines of the businesses acquired are aimed at computer connecting for the IBM AS400 and mainframe environment. The Company's LAN products are aimed also at the computer connectivity environment although primarily for PCs. INVENTORIES Inventories have increased as a result of increased sales. Inventories as a percentage of assets have increased because a larger portion of the Company's business has come from LAN products which have longer production cycles than the Company's opto-electronic products. ROYALTIES Royalties are payable by both Galcom and Ace to the office of the Chief Scientist of Israel ("OCS") at the rate of 3%, in the case of Galcom and at the rate of 2-3% in the case of Ace on proceeds from the sale of products arising from the research and development activities for which OCS has provided grants for OCS. Ace has paid royalties to date to OCS of $685,000 and Galcom has paid royalties to OCS to date of $23,000. The total amount of royalties may not exceed the amount of grants. The Company does not expect that revenues from royalty bearing products will result in material obligations in the future. NET INCOME Net income decreased from $1,618,000 for the year ended December 31, 1994 to a loss of $1,273,000 for the year ended December 31, 1995. The decrease was primarily due to the write off of non recurring charges of purchased technology in progress and restructuring costs. These charges were incurred 15 6 in connection with the acquisition of assets from Galcom Networking, Ltd. and Ace Communications, Ltd. and the restructuring of those activities and those of the Company's LAN product operations. Without the non-recurring charges, net of tax effects, net income would have increase to $4,345,000. This increase is primarily due to substantially increase revenues and resulting operating efficiencies. YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO YEAR ENDED DECEMBER 31, 1993. REVENUES Revenues for the year ended December 31, 1994 from products sales were $17,526,000, as compared to $7,426,000 for the year ended December 31, 1993, an increase of 135%. International sales accounted for approximately 19% of revenues for the year ended December 31, 1994 as compared to 18% of revenues for the year ended December 31, 1993. Revenues increased primarily as a result of greater market acceptance of the Company's products, both domestically and internationally. GROSS PROFIT Gross profit was $7,198,000 for the year ended December 31, 1994 as compared to $3,490,000 for 1993, due to increased sales. Gross profit as a percentage of revenues decreased from 47% in 1993 to 41% in 1994. Gross profit as a percentage of revenues declined primarily as a result of a change in the mix of products sold to include more items with lower gross margins. RESEARCH AND DEVELOPMENT Research and development ("R&D") expenses were $2,144,000 and $1,103,000 and represented 12% and 15%, respectively, of revenues for the years ended December 31, 1994 and 1993, respectively. The 94% increase in R&D spending was attributable to the continued development of the Company's fiber optic and networking products, including new stand-alone LAN products as well as to costs associated with the hiring of additional research and development personnel and consultants. The Company intends to continue to invest in the research and development of new products. Management believes that the ability of the Company to develop and commercialize new products is a key competitive factor. SELLING, GENERAL & ADMINISTRATIVE Selling, General & Administrative ("SG&A") expenses increased to $2,615,000 for the year ended December 31, 1994 from $1,259,000 for the year ended December 31, 1993. As a percentage of revenue, SG&A decreased to 15% from 17%. The increase is primarily due to substantially increased revenues and resulting operating efficiencies. NET INCOME Net income increased to $1,618,000 for the year ended December 31, 1994 compared to $839,000 for the year ended December 31, 1993. The increase is primarily due to substantially increased revenues and resulting operating efficiencies. LIQUIDITY AND CAPITAL RESOURCES In December 1992, the Company completed an initial public offering of 488, 750 units, each unit consisting of four and a half shares of Common Stock and three IPO Warrants. The net proceeds of the initial public offering were $4,529,000. 10K 16 7 The Company used a portion of the net proceeds of its initial public offering to repay certain of its outstanding notes payable. On December 31, 1995, there were no outstanding notes payable. The Company is continuing to utilize the proceeds of its initial public offering to fund working capital, research and development activity, marketing and revenues, and planned capital expenditures. Pending utilization, proceeds have been invested in short-term and long-term interest-bearing government securities. In 1994, the Company received proceeds of approximately $5,497,000 form the issuance of 1,463,883 shares of Common Stock, upon exercise of the same number of IPO Warrants. Net cash used in operating activities for the year ended December 31, 1995 was $6,198,000 and $2,087,000, for the same period in 1994. For the year ended December 31, 1995, the funds were used for increased inventories and receivables as a result of increased revenues. Net cash provided by financing activities for the years ended December 31, 1995 and 1994 were $9,669,000 and $5,492,000. In 1995, the cash provided by financing activities resulted primarily from the issuance of 1,350,000 shares of common stock at $8.00 per share less offering costs and the issuance of 141,487 shares in connection with the exercise of stock warrants and options. For the year ended December 31, 1994, the cash provided by financing activities were the result of the exercise of IPO Warrants. Net cash used in investing activities for the year ended December 31, 1995 was $5,565,000 which resulted primarily from the restriction of the Company's cash as security against letters of credit issued by a bank on behalf of the Company. EFFECTS OF INFLATION The Company believes that the relatively moderate rate of inflation over the past few years has not had a significant impact on the Company's revenues or operating results, or on the prices of raw materials. INCOME TAXES Through December 31, 1991, the Company elected treatment as an S corporation under provisions of the Internal Revenue Code of 1986. as amended. While this election was in effect, the Company's income, whether distributed or not, was taxed at the stockholder level. Effective January 1, 1993, the Company terminated the S corporation election and became a C corporation. In February 1992, the Financial Accounting Standards Board issued a new standard with respect to the accounting for income taxes, Statement of Financial Accounting Standards No. 109 (SFAS 109). The Company has adopted this new standard effective January 1, 1992. POST-RETIREMENT BENEFITS The Company does not provide post-retirement benefits affected by SFAS 106. 10K 17 8 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995, and March 31, 1996 (unaudited): Assets F-3 Liabilities and Stockholders' Equity F-4 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1995, and the unaudited three month periods ended March 31, 1995 and 1996 F-5 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1995, and the unaudited three month period ended March 31, 1996 F-6 Consolidated Statements of Cash Flows for each of the three F-7 years in the period ended December 31, 1995, and the and unaudited three month periods ended March 31, 1995 and 1996 F-8 Notes to Consolidated Financial Statements F-9 The consolidated financial statements as of March 31, 1996, and for the three month periods ended March 31, 1995 and 1996, are unaudited. The information required by the applicable financial statement schedules has been disclosed in the financial statements and notes thereto and, accordingly, the schedules have been omitted.
- ---------- The assets acquired and liabilities assumed from Ace 400 Communications did not include those of a subsidiary named North Hills Europe on whose financial statements their auditor has issued a disclaimer of opinion. The company is not liable for resolution of liabilities related to North Hills Europe or its liquidation proceedings. North Hills Europe has no effect on an investment decision on the company's securities. Any amounts for the period January 1, 1995 to June 29, 1995, related to North Hills Europe, included in the results of ACE 400 Communications, Ltd., above, are immaterial. F-1 9 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To MRV Communications, Inc.: We have audited the accompanying consolidated balance sheets of MRV COMMUNICATIONS, INC. (a Delaware corporation) and Subsidiaries as of December 31, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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 MRV Communications, Inc. and Subsidiaries as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California February 9, 1996 F-2 10 MRV COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, DECEMBER 31, 1994 1995 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 4,045,000 $ 1,951,000 Restricted cash - 6,272,000 Short-term investments 2,736,000 1,000,000 Accounts receivable, net of allowance of $300,000 in 1994, $825,000 in 1995 and $807,000 in 1996 4,446,000 10,780,000 Loans receivable from officers 42,000 10,000 Inventories 2,666,000 8,382,000 Deferred income taxes 372,000 804,000 Other current assets 708,000 598,000 ------------ ------------ Total current assets 15,015,000 29,797,000 ------------ ------------ PROPERTY AND EQUIPMENT, at cost: Machinery and equipment 852,000 1,655,000 Furniture and fixtures 12,000 66,000 Computer hardware and software - 795,000 Leasehold improvements 27,000 102,000 ------------ ------------ 891,000 2,618,000 Less--Accumulated depreciation and amortization (295,000) (558,000) ------------ ------------ 596,000 2,060,000 ------------ ------------ OTHER ASSETS: U.S. Treasury note 1,000,000 - Deferred income taxes - 925,000 Goodwill, net of accumulated amortization of $42,000 in 1995 and $59,000 in 1996 - 525,000 Other 56,000 - ------------ ------------ 1,056,000 1,450,000 ------------ ------------ $ 16,667,000 $ 33,307,000 ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. F-3 11 MRV COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, DECEMBER 31, 1994 1995 ----------- ----------- CURRENT LIABILITIES: Current portion of capital lease obligations $ - $ 33,000 Accounts payable 2,485,000 4,342,000 Accrued liabilities 422,000 2,188,000 Income taxes payable 790,000 1,215,000 Customer deposits 15,000 - ----------- ----------- Total current liabilities 3,712,000 7,778,000 ----------- ----------- LONG-TERM LIABILITIES: Accrued severance pay - 191,000 Capital lease obligations, net of current portion - 34,000 Deferred rent 49,000 46,000 ----------- ----------- Total long-term liabilities 49,000 271,000 ----------- ----------- COMMITMENTS (Note 5) STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value: Authorized - 1,000,000 shares; no shares issued or outstanding - - Common stock, $0.0067 par value: Authorized - 20,000,000 shares Issued and outstanding - 7,605,340 shares in 1994, 9,524,293 in 1995 and 9,587,714 in 1996 51,000 63,000 Capital in excess of par value 9,878,000 23,491,000 Retained earnings 2,977,000 1,704,000 ----------- ----------- 12,906,000 25,258,000 ----------- ----------- $16,667,000 $33,307,000 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. F-4 12 MRV COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1994 1995 ------------ ------------ ------------ REVENUES, net: $7,426,000 $17,526,000 $39,202,000 COSTS AND EXPENSES: Cost of goods sold 3,936,000 10,328,000 22,608,000 Research and development expenses 1,103,000 2,144,000 4,044,000 Selling, general and administrative expenses 1,259,000 2,615,000 6,799,000 Purchased technology in progress - - 6,211,000 Restructuring costs - - 1,465,000 ---------- ----------- ----------- 6,298,000 15,087,000 41,127,000 ---------- ----------- ----------- Operating income (loss) 1,128,000 2,439,000 (1,925,000) ---------- ----------- ----------- OTHER INCOME (EXPENSE): Interest income 198,000 210,000 641,000 Interest expense - - (102,000) Other - (48,000) 115,000 ---------- ----------- ----------- 198,000 162,000 654,000 ---------- ----------- ----------- Income (loss) before provision for income taxes 1,326,000 2,601,000 (1,271,000) PROVISION FOR INCOME TAXES 487,000 983,000 2,000 ---------- ----------- ----------- NET INCOME (LOSS) $ 839,000 $ 1,618,000 $(1,273,000) ========== =========== =========== EARNINGS (LOSS) PER COMMON SHARE INFORMATION: Primary earnings (loss) per common share $ .14 $ .26 $ (.14) ========== =========== =========== Fully diluted earnings (loss) per common share $ .14 $ .25 $ (.14) ========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Primary 6,025,084 6,284,001 9,188,737 ========== =========== =========== Fully diluted 6,025,084 6,357,741 9,188,737 ========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. F-5 13 MRV COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CAPITAL IN SHARES COMMON EXCESS OF RETAINED OUTSTANDING STOCK PAR VALUE EARNINGS TOTAL --------- ------- ----------- ----------- ----------- BALANCE, December 31, 1992 5,885,625 $39,000 $ 4,393,000 $ 520,000 $ 4,952,000 Net income - - - 839,000 839,000 --------- ------- ----------- ----------- ----------- BALANCE, December 31, 1993 5,885,625 39,000 4,393,000 1,359,000 5,791,000 Issuance of common stock, due to exercise of stock warrants, net of related expenses 1,719,715 12,000 5,485,000 - 5,497,000 Net income - - - 1,618,000 1,618,000 --------- ------- ----------- ----------- ----------- BALANCE, December 31, 1994 7,605,340 51,000 9,878,000 2,977,000 12,906,000 Issuance of common stock in connection with the secondary public offering 1,350,000 9,000 9,346,000 - 9,355,000 Issuance of common stock in connection with the acquisition of ACE 400 Communications 427,465 2,000 3,908,000 - 3,910,000 Issuance of common stock, due to exercise of stock warrants and options 141,488 1,000 359,000 - 360,000 Net loss - - - (1,273,000) (1,273,000) --------- ------- ----------- ----------- ----------- BALANCE, December 31, 1995 9,524,293 $63,000 $23,491,000 $ 1,704,000 $25,258,000 ========= ======= =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-6 14 MRV COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1994 1995 ------------ ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 839,000 $ 1,618,000 $(1,273,000) Adjustments to reconcile net income (loss)to net cash provided by (used in) operating activities: Depreciation and amortization 68,000 97,000 305,000 Provision for losses on accounts receivable 50,000 270,000 525,000 Gain on sale of property and equipment - - (6,000) Realized loss on investment - 48,000 - Purchased technology in progress - - 5,691,000 Amortization of premium paid for U.S. Treasury notes 12,000 8,000 8,000 Changes in assets and liabilities, net of effects from acquisitions: Decrease (increase) in: Accounts receivable (609,000) (3,417,000) (6,859,000) Inventories (439,000) (2,077,000) (5,397,000) Deferred income taxes (44,000) (282,000) (1,357,000) Other assets (51,000) (618,000) 166,000 Increase (decrease) in: Accounts payable 111,000 1,584,000 1,457,000 Accrued liabilities 38,000 266,000 154,000 Income taxes payable 53,000 421,000 425,000 Customer deposits (46,000) (18,000) (15,000) Accrued severance pay - - (19,000) Deferred rent 36,000 13,000 (3,000) --------- ----------- ----------- Net cash provided by (used in) operating activities 18,000 (2,087,000) (6,198,000) --------- ----------- -----------
F-7 15
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1994 1995 ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (155,000) (410,000) (1,035,000) Proceeds from sale of property and equipment - - 14,000 Purchases of investments (2,965,000) (1,000,000) (22,013,000) Proceeds from sale of investments 2,474,000 1,676,000 24,741,000 Restricted cash - - (6,272,000) Net cash used in acquisitions - - (1,000,000) ----------- ----------- ------------ Net cash provided by (used in) investing activities (646,000) 266,000 (5,565,000) ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock - 5,497,000 9,715,000 Principal payments on notes payable (92,000) (42,000) - Principal payments on capital lease obligations - - (78,000) Loans receivable from officers (79,000) 37,000 32,000 ----------- ----------- ------------ Net cash provided by (used in) financing activities (171,000) 5,492,000 9,669,000 ----------- ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (799,000) 3,671,000 (2,094,000) CASH AND CASH EQUIVALENTS, beginning of period 1,173,000 374,000 4,045,000 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS, end of period $ 374,000 $ 4,045,000 $ 1,951,000 =========== =========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-8 16 MRV COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Background MRV Communications, Inc. (the Company) designs, manufactures, markets and sells semiconductor laser diodes, light emitting diodes ("LEDs") and fiber optic transmitting and receiving modules for the transmission of large amounts of information at high speeds over long distances. The Company assembles and integrates these devices into components that are sold primarily to Original Equipment Manufacturers ("OEMs") in the fiber optic market. Products incorporating these devices are used primarily in computer communication networks, voice communications devices, cable TV and fiber optic test instruments. The Company develops and markets three product lines: laser diodes and LED-based components, integrated transmitting and receiving modules, and stand-alone products. The Company markets and sells its products both domestically and internationally. In 1995, the Company acquired certain assets and the distribution business of two companies located in Israel (see Note 2). The results of operations of the acquired businesses since the acquisition dates have been included in the accompanying consolidated financial statements. The following summarized unaudited pro forma financial information assumes the acquisitions occurred on January 1, 1994 and 1995:
Year Ended December 31, --------------------------------- 1994 1995 ----------- ----------- Revenues, net $36,781,000 $47,005,000 Net income (loss) (8,627,000) 3,782,000 Earnings (loss) per common share $ (1.37) $ 0.41 =========== ===========
Pro forma net income (loss) and earnings (loss) per share amounts do not include the purchased technology in progress costs included in the accompanying 1995 Statement of Operations. The pro forma net loss in 1994 primarily related to a non-recurring write-off of inventories and accounts receivable in the amount of $7.2 million relating to an acquisition of a company by ACE 400 Communications, Ltd., a company acquired by the Company in 1995 (see Note 2). Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, N-Base Communications, Inc. and N-Base Communications Ltd. All significant intercompany transactions and accounts have been eliminated. F-9 17 Foreign Currency Translation N-Base Communication Ltd.'s (N-Base) financial statements have been prepared in U.S. Dollars as the currency of the primary economic environment in which the operations of N-Base are conducted is the U.S. dollar. Thus, the functional currency of N-Base is the U.S. dollar. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards NO. 52, and are included in determining net income or loss. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company recognizes revenue upon shipment of products. Customer deposits represent advance payments from customers which are deferred until the related revenue has been earned. The Company's three largest customers together accounted for approximately 22 percent, 13 percent and 14 percent of the Company's revenues in 1993, 1994 and 1995, respectively. At December 31, 1994, there was one customer with a significant receivable balance, which was equal to 10 percent of total receivables. There were no significant receivable balances at December 31, 1993 and 1995. Sales to foreign countries approximated 18 percent, 19 percent and 45 percent of the Company's revenues in 1993, 1994 and 1995, respectively. There have been no significant sales to any one geographical area through 1995. Purchased Technology in Progress and Restructuring Costs In connection with the Company's acquisitions (see Note 2), the Company acquired incomplete research and development (R&D) projects that will be included in the current R&D activities of the Company. For projects that will have no alternative future use to the Company and where technological feasibility had not yet been established, the Company allocated $6,211,000 of the purchase price to technology in progress and recorded the expense during the year ended December 31, 1995. Also in connection with the Company's acquisitions, during the year ended December 31, 1995, the Company recorded $1,465,000 as restructuring costs, which primarily related to the closing of several Company facilities, a reduction of its workforce, and the settlement of distribution agreements. The reduction of the workforce related to 63 employees, of which six were upper management personnel. F-10 18 The following summarizes the major restructuring costs: Accrued termination benefits $ 221,000 Accrued legal and other 201,000 ---------- Total accrued costs 422,000 ---------- Closing of facilities 179,000 Settlement of distribution agreements 205,000 Termination benefits 427,000 Other costs 232,000 ---------- Total cash paid 1,043,000 ---------- $1,465,000 ==========
Restricted Cash Balances Cash balances include restricted deposits with a bank amounting to $6,272,000 at December 31, 1995, which are given as a security against letters of credit issued by the bank on behalf of the Company (see Note 5). Investments As of December 31, 1994 and 1995, short-term investments consisted of the following, at cost:
1994 1995 ---------- ---------- Time Deposit $ 28,000 $ - U.S. Treasury notes 2,708,000 1,000,000 ---------- ---------- $2,736,000 $1,000,000 ========== ==========
During 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The adoption of this standard did not have a material impact on the Company's results of operations in 1994. As defined by the new standard, the Company has classified all investments as "held-to-maturity" investments and all investments are recorded at their amortized cost basis, which approximated their fair value at December 31, 1995. All investments mature in 1996. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of material, labor and overhead. Inventories consisted of the following as of December 31, 1994 and 1995:
1994 1995 ---------- ---------- Raw materials $ 910,000 $4,750,000 Work-in-process 307,000 2,035,000 Finished goods 1,449,000 1,597,000 ---------- ---------- $2,666,000 $8,382,000 ========== ==========
F-11 19 Property and Equipment Property and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred, while significant replacements and betterments are capitalized. Depreciation and amortization are provided using the straight-line method based upon the estimated useful lives of the related assets. Useful lives range from five to fifteen years. Goodwill The Goodwill resulted from the Company's acquisitions during 1995. It is amortized on a straight-line basis over 8 years. Warranty The Company warrants its products against defects in materials and workmanship for one to three year periods. The estimated cost of warranty obligations is recognized at the time of revenue recognition. Statements of Cash Flows For the purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Cash paid for income taxes was $450,000 in 1993, $834,000 in 1994 and $932,000 in 1995. There was no cash paid for interest in 1993 and 1994. Cash paid for interest was $102,000 in 1995. During the year ended December 31, 1995, the Company purchased property and equipment with a cost of $100,000 through a capital lease agreement. This non-cash transaction, which has been recorded in the December 31, 1995 Balance Sheet, is excluded from the December 31, 1995 Statement of Cash Flows. The 1995 Statement of Cash Flows includes an amount of $5,691,000 that represents the fair value of consideration given and net liabilities assumed for the Company's acquisitions that was allocated to purchased technology in progress. This amount differs from the amount shown on the 1995 Statement of Operations by $520,000, which represents legal, consulting and other costs which were allocated to purchased technology in progress on the Statement of Operations (see Note 2). Earnings Per Common Share Earnings per common share are based on the weighted average number of shares of common stock and common stock equivalents (dilutive stock warrants and stock options) outstanding during the related periods (adjusted retroactively for the exchange of shares described in Note 6). The weighted average number of common stock equivalent shares includes shares issuable upon the assumed exercise of stock warrants and options, less the number of shares assumed purchased with the proceeds available from such exercise. The effect of dilutive common share equivalents is not included in the loss per common share calculation for 1995. Fully diluted earnings per share differs from primary earnings per share in 1994. Reclassifications Certain reclassifications have been made to prior years' amounts to conform to the current year presentation. F-12 20 2. ACQUISITIONS AND RESTRUCTURING On May 1, 1995, the Company acquired certain assets and the distribution business of Galcom Networking, Ltd. (Galcom), a network equipment company located in Israel. The purchase price paid by the Company was approximately $900,000 in cash and the assumption of approximately $1,800,000 in liabilities and debt. On June 29, 1995, the Company acquired certain assets and the distribution business of ACE 400 Communications, Ltd. (ACE), a network equipment company located in Israel. The purchase price paid by the Company was $100,000 in cash, the assumption of $466,667 in liabilities and debt, the issuance of 284,977 shares of the Company's common stock (valued at $3,910,000), and extended a right to ACE to sell to the Company up to $400,000 of ACE's inventory. Subsequent to the acquisition dates, the Company consolidated operations in Israel and formed a new subsidiary in Israel named N-Base Communications Ltd. Each of the businesses acquired also owned a subsidiary in the United States. These operations were also consolidated and the Company formed a new subsidiary in the United States named N-Base Communications, Inc. Both acquisitions were accounted for using the purchase method of accounting, and accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values, as follows: Inventory $ 319,000 Property and equipment 600,000 Current liabilities and debt (2,267,000) ----------- Net liabilities assumed (1,348,000) Cash paid for legal, consulting and other costs (395,000) Accrued legal, consulting and others costs (125,000) Common stock issued to sellers (3,910,000) Cash paid to sellers (1,000,000) ----------- Paid or accrued (6,778,000) Allocated to purchased technology in progress 6,211,000 ----------- Goodwill $ 567,000 ===========
In connection with the acquisition of certain assets from Galcom, the Company issued warrants to Galcom to purchase 112,500 shares of common stock at prices ranging from $9.83 to $14.75 per share. The Company also issued warrants to purchase 37,500 common shares to former employees of Galcom at prices ranging from $8.50 to $9.50 per share, warrants to purchase 495,000 common shares at prices ranging from $8.50 to $9.50 per share to existing employees and consultants, warrants to purchase 22,500 common shares at $8.50 per share to an outside consultant, and warrants to purchase 18,000 common shares at $8.50 per share to a company for design services performed. All of these warrants are exercisable over a five year period. In connection with the acquisition of certain assets from ACE, the Company issued warrants to the trustee of ACE to purchase 150,000 common shares at $9.15 per share, and issued warrants to purchase 15,000 shares at $9.33 per share to an ACE employee. All of these warrants are exercisable over a five year period. F-13 21 3. INCOME TAXES In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 (SFAS 109), which was adopted by the Company in fiscal 1992. Under SFAS 109, deferred income tax assets or liabilities are computed based on temporary differences between the financial statement and income tax bases of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the deferred income tax assets or liabilities from period to period. The components of the net deferred income tax asset at December 31, 1994 and 1995 are as follows:
1994 1995 -------- ---------- Allowance for bad debts $120,000 $ 298,000 Inventory reserve 124,000 141,000 Warranty reserve 40,000 80,000 Accrued restructuring costs - 213,000 State income taxes 79,000 84,000 Other, net 9,000 (12,000) -------- ---------- Current portion 372,000 804,000 Net operating loss carryforward - 1,350,000 Valuation reserve - (425,000) -------- ---------- - 925,000 -------- ---------- $372,000 $1,729,000 ======== ==========
The provision for income taxes for the years ended December 31, 1993, 1994 and 1995 is as follows:
1993 1994 1995 -------- ---------- ---------- Current - Federal $428,000 $1,051,000 $1,112,000 - State 103,000 214,000 247,000 - Foreign - - - -------- ---------- ---------- 531,000 1,265,000 1,359,000 -------- ---------- ---------- Deferred - Federal (37,000) (252,000) (333,000) - State (7,000) (30,000) (99,000) - Foreign - - (925,000) -------- ---------- ---------- (44,000) (282,000) (1,357,000) -------- ---------- ---------- Provision for income taxes $487,000 $ 983,000 $ 2,000 ======== ========== ==========
In 1995, the Company incurred a consolidated loss before the provision for income taxes of $1,271,000, but recorded pre-tax income from its United States operations in the amount of $2,616,000. The Company's foreign operations recorded a pre-tax loss of $3,887,000. F-14 22 Differences between the provision for income taxes and income taxes at the statutory federal income tax rate based on U.S. pre-tax income for the years ended December 31, 1993, 1994 and 1995 are as follows:
1993 1994 1995 --------------------- --------------------- -------------------- Amount Percent Amount Percent Amount Percent -------- --------- -------- --------- -------- --------- Income tax provision (benefit) at statutory federal rate $451,000 34.0% $884,000 34.0% $889,000 34.0% State and local income taxes, net of federal income tax effect 81,000 6.1 159,000 6.1 160,000 6.1 Research and development credit (94,000) (7.1) (138,000) (5.3) (173,000) (6.7) Effect of foreign net operating loss carryforwards - - - - (925,000) (35.4) Other items, net 49,000 3.7 78,000 3.0 51,000 2.0 -------- ---- -------- ---- -------- ---- $487,000 36.7% $983,000 37.8% $ 2,000 - % ======== ==== ======== ==== ======== ====
The Company's subsidiary in Israel, N-Base Communications Ltd. (N-Base), is subject to the provisions of the Income Tax Law of 1985. During 1995, N-Base incurred a taxable loss of approximately $3.8 million. According to Israeli tax law, this loss may be carried forward for an indefinite period of time. The taxable loss was due to the non-recurring write-off of research and development projects in progress in the amount of approximately $6.1 million in 1995. The Company has recorded a net long-term deferred tax asset relating to the loss carryforward in the amount of $925,000 at December 31, 1995. A full reserve has not been recorded against the asset due to the probability of its recoverability. The reserve that has been recorded reflects the Company's estimate of the amount that may not be realized due to the benefit period described below. In 1995, N-Base qualified for a program under which it will be eligible for a tax exemption on its income for a period of ten years from the beginning of the benefits period. The Company estimates that the benefit period will begin in 1996 or 1997. The Company does not provide U.S. federal income taxes on the undistributed earnings of its foreign operations. The Company's policy is to leave the income permanently invested in the country of origin. Such amounts will only be distributed to the United States to the extent any federal income tax can be fully offset by foreign tax credits. 4. LOANS RECEIVABLE FROM OFFICERS During 1994 and 1995, the Company loaned certain amounts to three of its officers. The total amounts due from the officers as of December 31, 1994 and 1995 was $42,000 and $10,000, respectively. F-15 23 5. COMMITMENTS Lease Commitments In March 1993, the Company entered into an agreement to lease office and manufacturing space. The lease term is for six years, terminating in March 1999, with an average base rent of $64,000 per year. The agreement includes lease incentives, with free rent for several months of the lease term, primarily in 1993. As of December 31, 1995, the Company has recorded a deferred rent liability of $46,000 to properly reflect straight-line rent expense. The Company leases all of its facilities and certain equipment under noncancelable capital and operating leases, expiring at various dates through 2003. Minimum future obligations under such agreements at December 31, 1995 are as follows:
Capital Operating Leases Leases ------- ---------- 1996 $35,000 $ 353,000 1997 25,000 314,000 1998 11,000 316,000 1999 - 194,000 2000 - 173,000 Thereafter - 270,000 ------- ---------- 71,000 $1,620,000 ========== Less--Amount representing interest (4,000) ------- 67,000 Less--Current portion (33,000) ------- $34,000 =======
Rent expense under noncancelable operating lease agreements for the years ended December 31, 1993, 1994 and 1995 was $90,000, $115,000 and $405,000, respectively. Employment Agreements In March 1992, the Company entered into three-year employment agreements with three key officers of the Company which became effective in December 1992. The agreements specify annual salaries of $100,000 to $110,000 for each of the officers, plus annual bonuses to be determined by the Board of Directors. Consulting Agreement In March 1993, the Company entered into an agreement with a company which is affiliated with the Company's former Chief Financial Officer, to provide financial and managerial services for a fee of $2,200 per month, plus reimbursement for travel, transportation and other authorized and necessary expenses. The term of the agreement is 29 months. In addition, the consulting company received a four-year warrant to purchase up to 12,500 shares of common stock at 120 percent of the initial public offering price ($4.80 per share) and a cash bonus of $75,000 at the time of the closing of the initial public offering. As of December 31, 1995, all of these common stock warrants had been exercised and none were outstanding. F-16 24 Royalty Commitment As part of the purchase agreements referred to in Note 2, the selling companies' commitments to pay royalties to the State of Israel were assigned to the Company. The commitments arose in consequence of the participation of the Israeli Government in product development through the payment of grants. The royalties are payable at a rate of between 1.5 percent and 3.0 percent of the sales proceeds of the products developed up to 150 percent of the amount of the grants received. The balance of the commitment for royalties at December 31, 1995 amounted to $6,150,000. Letter of Credit During 1995, the Company, in connection with its acquisitions in Israel (see Note 2), entered into a stand-by letter of credit arrangement with a bank in the amount of $4,935,000. The arrangement expires in 1997. 6. EQUITY TRANSACTIONS Merger/Exchange of Shares Effective April 7, 1992, MRV Technologies, Inc. (the predecessor company, which was incorporated in California in July 1988) was merged into MRV Communications, Inc., a new Delaware corporation. All of the 5,240 issued and outstanding shares of the predecessor company were exchanged for an aggregate of 3,686,250 shares of the common stock of the Company. The financial statements for all years presented give retroactive effect to this exchange of shares and merger. In addition, the articles of incorporation for the new Delaware corporation provide for the issuance of up to 1,000,000 shares of Preferred Stock, $0.01 par value. Secondary Public Offering In January 1995, the Company completed a secondary public offering of its common stock. The Company sold 1,350,000 shares at a price of $8.00 per share. The gross and net proceeds of the offering were $10,800,000 and $9,355,000, respectively. In connection with this offering, the Company sold to the representatives of the underwriters three-year warrants to purchase 150,000 shares of common stock at a price of $11.20 per share. The warrants may be exercised beginning in January 1996 and expire in January 1999. Initial Public Offering In December 1992, the Company completed an initial public offering of its common stock. The Company sold 488,750 units, each unit consisting of four and a half shares of common stock and three redeemable common stock purchase warrants, at a price of $8.00 per unit. The gross proceeds of the initial public offering were $5,865,000. This amount, net of deferred underwriting commissions and other costs totaling $1,336,000, was recorded in common stock and capital in excess of par value in the accompanying financial statements. The three common stock purchase warrants included in the units (the IPO warrants) became immediately detachable and separately transferable. Each warrant entitled the registered holder to purchase, at any time over a five-year period, one and a half shares of common stock at a price of $3.33 per share, but were subject to redemption by the Company at $.03 per warrant on 30 days prior written notice. On October 27, 1994, the Company called for the redemption of all of these 1,466,250 outstanding warrants. As of November 25, 1994, the redemption date, 1,463,883 of these outstanding warrants were exercised at $3.33 per share, and the remaining 2,367 warrants were redeemed by the Company. F-17 25 In connection with the public offering, the Company issued to the representatives of the underwriters five-year warrants (the Underwriter warrants) to purchase 42,500 additional units (or 318,750 shares) at a price of $10.40 per unit. As of December 31, 1995, 306,750 shares relating to these warrants had been issued and warrants to purchase 12,180 shares were outstanding. These warrants expire in December 1997. The gross proceeds from the exercise of the IPO and Underwriter warrants was $5,754,000. This amount, net of underwriting fees and other costs of $257,000, was recorded in common stock and capital in excess of par value in the accompanying financial statements. Also, in connection with the public offering, the Company issued bridge loans with a face value of $140,000 and an interest rate equal to the prime rate plus two percent. During fiscal 1992, the Company repaid the bridge loans from the proceeds of the offering. In connection with the issuance of the notes, the Company issued 52,500 stock warrants to the holders of the notes. The amount attributed to the value of the warrants, $42,000, is recorded as capital in excess of par value in the accompanying financial statements. The warrants allow one and a half shares of common stock to be purchased for each $4.00 of notes. The exercise price of the warrants is $.53 per share or 20 percent of the public offering price. The warrants are exercisable for a five-year period, expiring in January 1997. As of December 31, 1995, 7,500 of these warrants were outstanding. Common Stock Purchase Warrants A summary of warrant activities is as follows:
Number Exercise of Shares Prices ---------- --------------- Balance, December 31, 1992 1,856,250 $ 0.53 to 3.41 and 1993 Issued - - Exercised 1,719,715 3.33 to 3.41 Redeemed (2,367) 3.33 ---------- --------------- Balance, December 31, 1994 134,168 0.53 to 3.41 Issued 1,050,000 8.50 to 14.75 Exercised (118,237) 0.53 to 3.41 Redeemed - - ---------- --------------- Balance, December 31, 1995 1,065,931 $ 0.53 to 14.75 ========== ===============
At December 31, 1995, warrants to purchase 1,065,931 shares were outstanding, of which 3,750 were exercisable at $0.53 per share. There were no warrants issued, exercised or redeemed during 1993. F-18 26 Stock Option Plan In March 1992, the Board of Directors and stockholders of the Company adopted a stock option plan (the Plan) that provides for the granting of options to purchase up to 450,000 shares of common stock, consisting of both incentive stock options and non-qualified options. In June 1995, the Board of Directors and stockholders of the Company authorized options to purchase an additional 450,000 shares. Incentive stock options are issuable only to employees of the Company and may not be granted at an exercise price less than the fair market value of the common stock on the date the option is granted. Non-qualified stock options may be issued to non-employee directors, consultants and others, as well as to employees, with an exercise price established by the Board of Directors. All incentive stock options granted as of December 31, 1995 have been granted at prices equal to the fair market value of the common stock on the grant date, and all options granted expire five years from the date of grant. All of the incentive stock options granted become exercisable beginning one year from the date of grant in equal installments over a three year period, while the non-qualified options become fully exercisable beginning six months from the date of the grant. There were no options granted prior to December 31, 1993. A summary of option activities under the Plan is as follows:
Number Option of Shares Prices -------- ---------------- Balance, December 31, 1993 - $ - Granted 256,050 3.08 to 6.33 Exercised - - Canceled (60,750) 3.08 to 3.83 -------- ---------------- Balance, December 31, 1994 195,300 3.08 to 6.33 Granted 405,750 7.25 to 9.50 Exercised (23,250) 3.08 to 6.33 Canceled - - -------- ---------------- Balance, December 31, 1995 577,800 $ 3.08 to 9.50 ======== ================
Escrow Agreement In 1992, the Company entered into an agreement with certain of its employee/officer stockholders under which 1,312,500 shares of common stock held by the individuals were placed in escrow for a seven-year term. The agreement specifies that a certain number of the escrow shares may be released to the stockholders periodically if the Company achieves certain income goals or if the market price of the Company's common stock reaches certain levels. As of December 31, 1994, the Company had achieved the necessary levels and all of the shares in escrow were released. 7. FOREIGN OPERATIONS The company operates principally in 4 geographic areas: the United States, the European Community, the Pacific Rim and the Middle East. Following is a summary of information by areas as of and for the year ended December 31, 1995.
United European Middle Pacific All other States Community East Rim areas Total ----------- ---------- ---------- ---------- ---------- ----------- Sales to unaffiliated customers $21,542,000 $9,702,000 $3,750,000 $2,509,000 $1,600,000 $39,202,000 Loss from operations $(1,058,000) $ (477,000) $ (184,000) $ (123,000) $ (83,000) $(1,025,000) Identifiable assets $27,660,000 $ -- $5,647,000 $ -- $ -- $33,307,000
Intercompany sales between geographic areas, which have been eliminated from sales to unaffiliated customers and which are accounted for as arms length transactions were as follows:
From the Middle East to the United States $1,734,000 From the United States to the Middle East $ 117,000
F-19 27 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant certifies that it has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on June 13, 1996. MRV COMMUNICATIONS, INC. By: /s/ Noam Lotan --------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name Capacity Date - ---- -------- ---- /s/ Noam Lotan President, Chief Executive Officer June 13, 1996 - ------------------------- (Principal Executive Officer), Director Noam Lotan /s/ Edmund Glazer Chief Financial Officer June 13, 1996 - ------------------------- (Principal Financial and Principal Edmund Glazer Accounting Officer) /s/ Shlomo Margalit Chairman of the Board June 13, 1996 - ------------------------- Shlomo Margalit /s/ Zeev Rav-Noy Director June 13, 1996 - ------------------------- Zeev Rav-Noy Director June 13, 1996 - ------------------------- Leonard Mautner Director June 13, 1996 - ------------------------- Milton Rosenberg
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