OPTICAL ACCESS INC, S-1/A, 2000-12-18

OPTICAL ACCESS INC
S-1/A, 2000-12-18
SEMICONDUCTORS & RELATED DEVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 2000

REGISTRATION NO. 333-47456
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--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

OPTICAL ACCESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3674 95-4810674
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
</TABLE>

20415 NORDHOFF STREET
CHATSWORTH, CA 91311
(818) 407-1801
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

CHIEF EXECUTIVE OFFICER
GUY AVIDAN
20415 NORDHOFF STREET
CHATSWORTH, CA 91311
(818) 407-1801
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
THOMAS J. POLETTI, ESQ. JOHN F. DELLA GROTTA, ESQ.
MARK A. KLEIN, ESQ. STEPHEN D. COOKE, ESQ.
TED WEITZMAN, ESQ. KURT E. SCHEUERMAN, ESQ.
KIRKPATRICK & LOCKHART LLP PAUL, HASTINGS, JANOFSKY & WALKER LLP
9100 WILSHIRE BLVD., 8TH FLOOR EAST 695 TOWN CENTER DRIVE, 17TH FLOOR
BEVERLY HILLS, CALIFORNIA 90212 COSTA MESA, CALIFORNIA 92626
TELEPHONE (310) 273-1870 TELEPHONE (714) 668-6200
FACSIMILE (310) 274-8293 FACSIMILE (714) 979-1921
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION DATED DECEMBER 18, 2000

PROSPECTUS
5,000,000 SHARES

[OPTICAL ACCESS, INC. LOGO]
COMMON STOCK
------------------------
This is an initial public offering of 5,000,000 shares of common stock of
Optical Access, Inc. We are selling all of the shares of common stock offered
under this prospectus. We anticipate that the initial public offering price will
be between $11.00 and $13.00 per share.

There is currently no public market for our shares. We have applied to have our
common stock approved for listing on the Nasdaq National Market under the symbol
"OPXS."

SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

------------------------

<TABLE>
<CAPTION>
PER
SHARE TOTAL
----------- -----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>

------------------------

We have granted the underwriters a 30-day option to purchase up to an additional
750,000 shares of common stock from us at the initial public offering price less
the underwriting discount.

The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares in New York, New York, on
.

------------------------

BEAR, STEARNS & CO. INC.

CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
FIRST SECURITY VAN KASPER
The date of this prospectus is , 2000.
<PAGE> 3

Inside Front Cover

The inside front cover page of the prospectus contains a drawing depicting six
buildings networked by the Terescope products. The caption at the top of the
page reads "Optical Access Sample Deployment."

As a component of the TereScope on a building on the left side of the page,
there is a drawing of OptiSwitch product. There is also an enlarged picture of
the OptiSwitch product. A caption pointing to the product reads:
"OptiSwitch in each building enable switching and other value added services."

On the right side of the page there is an enlarged picture of the TereScope
product. There is a caption on the right side of the page which points to the
lines depicting a connection between center and outside building and a
connection between two outside buildings which states: "Multiple optical
wireless links enable redundancy in a mesh architecture."

On the bottom right hand corner there is an enlarged picture of a computer
monitor, hard drive and key board which displays the MegaVision product. A
caption next to this picture states: "MegaVision provides user friendly
graphical interface to manage the network from a remote location."
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 16
Our Relationship with MRV Communications after the
Offering.................................................. 16
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 33
Management.................................................. 44
Certain Transactions........................................ 50
Arrangements between Optical Access and MRV
Communications............................................ 50
Principal Stockholders...................................... 59
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 61
Underwriting................................................ 63
Legal Matters............................................... 66
Experts..................................................... 66
Where You Can Find More Information about Optical Access.... 66
Index to Financial Statements............................... F-1
</TABLE>

------------------------

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.

UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE> 5

PROSPECTUS SUMMARY

This summary highlights selected information in this prospectus, but it may
not contain all of the information that is important to you. To better
understand this offering, and for a more complete description of the offering,
you should read this entire prospectus carefully, including the "Risk Factors"
section and the financial statements and the notes to those statements, which
are included elsewhere in this prospectus.

OPTICAL ACCESS

We design, manufacture and market optical wireless products that deliver
high-speed communications traffic to the portion of the communications network
commonly known as the last mile, which extends from the end user to the service
provider's central office. We believe our products enable a fundamental shift in
the design of the last mile by allowing service providers to quickly and
cost-effectively bypass traditional copper-based networks and offer high-speed
communication services to business users. Our target customers include existing
and emerging telecommunications carriers and service providers seeking a
comprehensive last-mile solution. Our newly developed optical wireless products
are designed to be deployed in a switched mesh architecture, which means that
our products allow transmission of data between any two points on the network
and enable full re-routing of traffic around a transmission link or equipment
failure. This switched mesh configuration increases the sustained connectivity
of the optical wireless transmission link.

The volume of high-speed traffic across communications networks has grown
dramatically as the public Internet and private corporate intranets have become
essential for communication and e-commerce. According to Ryan, Hankin and Kent,
a market research firm, Internet and other data traffic will increase over 4000%
between 1999 and 2003. Although service providers are rapidly upgrading their
fiber optic network infrastructure in the portion of the network connecting
large cities or regions to their central offices, upgrades to the last mile have
been slow and remain cost prohibitive, resulting in a bottleneck for the
transmission of data traffic. To date, attempts to address this last mile
bottleneck have included copper-based alternatives and wireless radio frequency
alternatives which have proved only partially successful due to inherent
deficiencies of these technologies. We believe optical wireless technology is
the only alternative capable of meeting the growing demand for bandwidth, or
transmission capacity, in a timely and cost-effective manner to address the last
mile bottleneck.

Our product offerings primarily consist of our TereScope and OptiSwitch(TM)
family of products. Our TereScope products provide the optical wireless links
and our OptiSwitch(TM) products aggregate and direct communications traffic. Our
products allow service providers to offer numerous value-added services,
including the ability to immediately alter bandwidth allocations and to
prioritize streams of delay-sensitive data communication, such as the
transmissions of streaming video. Our wireless devices can be installed within a
few hours since installation is not dependent on obtaining rights-of-way,
government licenses and other permits. In addition, our products are scalable,
which permits service providers to install new equipment as new subscribers are
added on a pay-as-you-grow basis without sacrificing their initial investment.
We currently have over 3,000 installations of our TereScope system, most of
which are direct connections between two sites, otherwise known as
point-to-point connections, in Europe.

Since beginning operations, we have incurred significant expenses as we
have developed our products and strategy. We had net losses of $3.2 million for
the period from April 1, 1998, the date of our inception, through December 31,
1998, $2.3 million for the year ended December 31, 1999 and $31.3 million for
the nine months ended September 30, 2000. We expect to incur increasing
manufacturing, research and development, sales and marketing, administrative and
other expenses. As a result, we expect to operate at a loss for the foreseeable
future. Furthermore, we face intense competition from a number of competitors,
including TeraBeam Networks, AirFiber and Canon with respect to our TereScope
products and Cisco Systems, Extreme Networks, Foundry Networks and Nortel
Networks with respect to our OptiSwitch(TM) products.

1
<PAGE> 6

OUR RELATIONSHIP WITH MRV COMMUNICATIONS

We are currently a wholly-owned subsidiary of MRV Communications, Inc., a
Delaware corporation. After the completion of this offering, MRV Communications
will own approximately 89% of the outstanding shares of our common stock or
approximately 88% if the underwriters exercise their over-allotment option in
full. MRV Communications has advised us that at some time after this offering it
may apply for a private letter ruling from the Internal Revenue Service and
permission from the Israeli tax authority in connection with a proposed
distribution to its stockholders of all of our common stock held by MRV
Communications. One condition to the proposed distribution is the receipt of
favorable rulings from these agencies to treat the distribution as a tax-free
transaction. MRV Communications has not advised us as to the timing of the
distribution and we cannot assure you as to whether or when it will occur.

Prior to the completion of this offering, we will enter into agreements
with MRV Communications that govern the separation of our business operations
from MRV Communications. The agreements between MRV Communications and us also
govern our various interim and ongoing relationships. All of the agreements
providing for our separation from MRV Communications were made in the context of
a parent-subsidiary relationship and were negotiated in the overall context of
our separation from MRV Communications. The parties believe that the terms of
these agreements are consistent with market-based terms. However, the terms of
these agreements may be more or less favorable to us than if they had been
negotiated with unaffiliated third parties. See "Risk Factors -- Risks Related
to Our Relationship with MRV Communications."

RECENT ACQUISITIONS

We recently benefited from two acquisitions by MRV Communications. On May
1, 2000, MRV Communications acquired all of the outstanding capital stock of
Jolt Limited, an Israeli developer and manufacturer of optical wireless
products, for approximately $57.7 million in MRV Communications common stock and
options to purchase MRV Communications common stock. On July 12, 2000, MRV
Communications acquired all of the outstanding capital stock of AstroTerra
Corporation, a San Diego-based developer and manufacturer of optical wireless
products, for approximately $160.3 million in MRV Communications common stock
and options to purchase MRV Communications common stock. MRV Communications is
contributing the capital stock of each of these acquired corporations and all of
the assets of the optical access division of MRV Communications to us as part of
one overall plan to effect our separation from MRV Communications. The
acquisitions of Jolt Limited and AstroTerra Corporation have brought new
research and development and manufacturing facilities, our TereScope line of
products and significant additions to our employee base. As a result of the
acquisitions, we added three facilities and over 70 employees to our operations.
For further information on these acquisitions and the contribution of the
acquired stock and assets to us, please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"Arrangements between Optical Access and MRV Communications" later in this
prospectus.

CORPORATE INFORMATION

We were incorporated in Delaware in December 1999. Our principal executive
offices are located at 20415 Nordhoff Street, Chatsworth, California, 91311. Our
telephone number is (818) 407-1801. Our worldwide web site address is
www.opticalaccess.com. The information in the web site is not incorporated by
reference into this prospectus.

OptiSwitch(TM) is our trademark. All other names or trademarks appearing
herein are the property of their holders.

2
<PAGE> 7

THE OFFERING

Common stock offered.......... 5,000,000 shares

Common stock to be outstanding
after the offering............ 46,667,000 shares

Use of proceeds............... Product development, working capital and
general corporate purposes. See "Use of
Proceeds" on page 17.

The number of shares of our common stock that will be outstanding after
this offering is based on the number of shares of common stock outstanding on
September 30, 2000. Unless otherwise indicated, the number of shares that will
be outstanding after this offering excludes:

- 4,500,000 shares of common stock available as of September 30, 2000 for
future issuance under our 2000 Stock Plan; and

- 750,000 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.

All share and per share information in this prospectus gives effect to:

- a 41,667-for-one stock split effective as of November 16, 2000; and

- the contribution by MRV Communications to us of the capital stock of Jolt
Limited and AstroTerra Corporation and all of the assets of MRV
Communications' optical access division to effect our separation from MRV
Communications.

Except where the context indicates otherwise, information in this
prospectus concerning the percentage ownership of MRV Communications upon
completion of this offering assumes no exercise of outstanding options at or
prior to that time. Unless otherwise indicated, this prospectus assumes that the
underwriters have not exercised their over-allotment option.

3
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth summary financial data for Optical Access.
This information should be read in conjunction with the financial statements and
the notes to those financial statements appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1998
(DATE OF
INCEPTION) YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
THROUGH -------------------------- ---------------------------------------
DECEMBER 31, PRO FORMA PRO FORMA
1998 1999 1999(1) 1999 2000 2000(1)
------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.......................... $ -- $ 8,473 $ 14,596 $ 4,518 $ 14,708 $ 17,676
Cost of sales(2)................... -- 4,555 15,607 2,584 11,800 13,770
------- ------- -------- ------- -------- --------
Gross profit....................... -- 3,918 (1,011) 1,934 2,908 3,906
Operating costs and expenses:
Selling, general and
administrative(2).............. -- 1,688 18,229 902 11,255 12,667
Research and development(2)...... 3,213 4,543 27,759 3,386 14,781 13,080
Amortization of goodwill......... -- -- 28,241 -- 8,172 21,216
------- ------- -------- ------- -------- --------
Total operating costs.............. 3,213 6,231 74,229 4,288 34,208 46,963
------- ------- -------- ------- -------- --------
Operating loss..................... (3,213) (2,313) (75,240) (2,354) (31,300) (43,057)
------- ------- -------- ------- -------- --------
Net loss........................... $(3,213) $(2,313) $(75,405) $(2,354) $(31,346) $(43,267)
======= ======= ======== ======= ======== ========
Loss per share:(3)
Basic and diluted loss per
share.......................... $ (0.08) $ (0.06) $ (1.81) $ (0.06) $ (0.75) $ (1.04)
Basic and diluted weighted
average shares................. 41,667 41,667 41,667 41,667 41,667 41,667
======= ======= ======== ======= ======== ========
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
--------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 567 $ 54,367
Working capital............................................. 4,491 58,291
Total assets................................................ 146,601 200,401
Long-term debt, net of current portion...................... 715 715
Parent company investment/Stockholders' equity.............. 139,448 193,248
</TABLE>

---------------

(1) The pro forma selected statements of operations for the year ended December
31, 1999 and nine months ended September 30, 2000 and pro forma balance
sheet data at September 30, 2000 were derived from the financial statements
of Optical Access, Jolt Limited and AstroTerra Corporation included later in
this prospectus. The Unaudited Pro Forma Condensed Consolidated Statements
of Operations assumes that the Jolt Limited and AstroTerra Corporation
acquisitions occurred on January 1, 1999 and consolidates our consolidated
statements of operations for the year ended December 31, 1999 and nine
months ended September 30, 2000 with the statements of operations for those
periods of Jolt Limited and AstroTerra Corporation. See "Unaudited Pro Forma
Condensed Consolidated Financial Statements" included herein.

(2) Includes amounts of deferred stock compensation relating to the acquisitions
of Jolt Limited and AstroTerra Corporation of: $6.4 million, $3.5 million
and $2.9 million presented in cost of sales; $13.8 million, $6.3 million and
$5.4 million presented in selling, general and administrative; $22.9
million, $9.8 million and $7.0 million presented in research and
development; for the pro forma presentation of the year ended December 31,
1999, the nine months ended September 30, 2000 and the pro forma
presentation of the nine months ended September 30, 2000, respectively.

(3) See note 2 of notes to consolidated financial statements for an explanation
of how the number of shares used in calculating this per share data was
determined.
(4) The as adjusted amounts give effect to the sale of shares of common stock in
this offering at an assumed initial public offering price of $12.00 per
share, less estimated underwriting discounts and commissions, estimated
offering expenses and the application of the proceeds to working capital.

4
<PAGE> 9

RISK FACTORS

This offering and an investment in our common stock involve a high degree
of risk. You should consider carefully the risks described below before you
decide to buy our common stock. If any of the following risks were to occur, our
business, financial condition or results of operations would likely suffer. In
that event, the trading price of our common stock could decline, and you could
lose all or part of your investment.

RISKS RELATED TO OUR FINANCIAL RESULTS

OUR FUTURE REVENUES ARE UNPREDICTABLE, OUR OPERATING RESULTS ARE LIKELY TO
FLUCTUATE FROM QUARTER TO QUARTER, AND IF WE FAIL TO MEET THE EXPECTATIONS OF
SECURITIES ANALYSTS OR INVESTORS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY.

Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future due to a variety of factors,
some of which are outside of our control. Accordingly, we believe that
period-to-period comparisons of our results of operations are not meaningful and
should not be relied upon as indications of future performance. Some of the
factors that could cause our quarterly or annual operating results to fluctuate
include market acceptance of our products, product development and production,
competitive pressures and customer retention.

We may experience a delay in generating or recognizing revenues for a
number of reasons. Orders at the beginning of each quarter typically do not
equal expected revenues for that quarter and are generally cancelable at any
time. Failure to ship these products by the end of a quarter may adversely
affect our operating results. Furthermore, our customer agreements typically
provide that the customer may delay scheduled delivery dates and cancel orders
within specified time frames without significant penalty. Because we base our
operating expenses on anticipated revenue trends and a high percentage of our
expenses are fixed in the short term, any delay in generating or recognizing
forecasted revenues could significantly harm our business.

It is likely that in some future quarters our operating results may fall
below the expectations of securities analysts and investors. In this event, the
trading price of our common stock would significantly decline.

DUE TO THE LONG SALES CYCLE FOR OUR PRODUCTS, THE TIMING OF REVENUE IS
DIFFICULT TO PREDICT AND MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE
UNEXPECTEDLY.

The sales and deployment cycle for our products is lengthy and may extend
for six months or more. The length of our sales cycle may cause our revenue and
operating results to vary unexpectedly from quarter to quarter. A customer's
decision to purchase our products involves a significant commitment of its
resources and a lengthy evaluation and product qualification process.
Consequently, we may incur substantial expenses and devote senior management
attention to potential relationships that never materialize, in which event our
investments will largely be lost and we may miss other opportunities. In
addition, our lengthy sales cycle makes it difficult to predict the quarter in
which we may recognize revenue from any sale.

WE HAVE INCURRED A NET LOSS IN THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
FOR 1999 AND 1998. WE EXPECT TO CONTINUE TO INCUR NET LOSSES FOR THE FORESEEABLE
FUTURE.

We reported a net loss of $3.2 million for the period from April 1, 1998,
the date of our inception, through December 31, 1998, a net loss of $2.3 million
for the year ended December 31, 1999 and a net loss of $31.3 million for the
nine months ended September 30, 2000. The net loss for the nine months ended
September 30, 2000 was primarily due to amortization of goodwill and deferred
stock compensation related to our acquisition of Jolt Limited effective May 1,
2000 and our acquisition of AstroTerra Corporation effective July 12, 2000. As a
consequence of these goodwill amortization charges and compensation expenses, we
do not expect to report net income in the foreseeable future.

5
<PAGE> 10

In connection with the acquisitions of Jolt Limited and AstroTerra
Corporation, we have recorded a significant amount of goodwill, the amortization
of which will significantly and adversely affect our operating results. As
indicated in the consolidated balance sheet as of September 30, 2000 included
elsewhere in this prospectus, goodwill equaled approximately $141.3 million,
which is being amortized over a five-year period. To the extent that we cannot
generate sufficient cash flow to recover the amount of the investment recorded,
the investment may be considered impaired and could be subject to an immediate
write-down of up to the full amount of the investment. In this event, our net
loss in any given period could be greater than anticipated and the market price
of our stock could be adversely affected.

RISKS RELATED TO OUR BUSINESS

OUR SUCCESS IS DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE OPTICAL
NETWORK MARKETS.

Widespread adoption of optical wireless networks and the adoption of
optical wireless technology for network applications is critical to our future
success. The markets for optical networks have only recently begun to develop
and are rapidly evolving. Our optical wireless products compete with other
high-speed broadband technologies such as digital subscriber lines, fiber optic
cable and satellite links. Many of these alternative technologies can take
advantage of existing installed infrastructure and have achieved significantly
greater market acceptance and penetration than optical wireless technologies,
including our technology. By comparison, we must undertake substantial marketing
efforts to make prospective customers aware of our products and to persuade
their engineering organizations to accept a new technological approach. As the
demand for broadband access continues to grow, we expect high-speed broadband
technologies, including optical wireless networks and optical wireless
technology for network applications, to face increasing competitive pressures
from both current and future alternative technologies. In light of these
factors, many service providers may be reluctant to invest heavily in optical
wireless solutions and, accordingly, the market for these solutions may fail to
develop or may develop more slowly than we expect. Either outcome would limit
sales opportunities, and if our optical wireless products do not achieve
widespread market acceptance in these markets, our business would be
significantly harmed.

THE BENEFITS OF OUR OPTICAL WIRELESS SOLUTION ARE LIMITED BY ADVERSE
WEATHER CONDITIONS AND LINE-OF-SIGHT LIMITATIONS.

Current high-speed broadband optical wireless technology, including ours,
has inherent technical limitations that may inhibit its widespread adoption in
many areas, including reduced communication distance in adverse weather
conditions such as fog and heavy rain and the need for wireless links to be
visible to each other, otherwise known as line-of-sight. In most of our
installations, line-of-sight restrictions may require our customers to install
our TereScope products either on the rooftop or the side of a building or other
tall structure. These customers must generally secure roof rights from the
owners of each building or other structure on which they install our TereScope
products.

OUR PROFITABILITY DEPENDS IN PART ON OUR ABILITY TO SUCCESSFULLY INTEGRATE
THE OPERATIONS OF JOLT LIMITED AND ASTROTERRA CORPORATION.

Our business has grown in part because of MRV Communications' acquisitions
of Jolt Limited in May 2000 and AstroTerra Corporation in July 2000 and its
contribution of the capital stock of these companies to us. The acquisitions of
Jolt Limited and AstroTerra Corporation have brought new research and
development and manufacturing facilities, and we face significant challenges in
integrating these facilities before we can realize benefits from these
acquisitions. Also, our TereScope line of products was established through these
acquisitions and successful integration of this product line is essential to our
business. We cannot assure you that we will be able to successfully integrate
the businesses, products, technologies or personnel of Jolt Limited or
AstroTerra Corporation, or those of companies that we might acquire in the
future, and our failure to successfully integrate these operations would harm
our business.

6
<PAGE> 11

BECAUSE WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS, OUR
CUSTOMERS MAY CEASE PURCHASING OUR PRODUCTS AT ANY TIME IF WE FAIL TO MEET OUR
CUSTOMERS' NEEDS.

We do not have long-term contracts with our customers. As a result, our
agreements with our customers do not provide any assurance of future sales.
Accordingly:

- our customers can stop purchasing our products at any time without
penalty;

- our customers are free to purchase products from our competitors; and

- our customers are not required to make minimum purchases.

Sales are typically made pursuant to individual purchase orders, often with
extremely short lead times. If we are unable to fulfill these orders in a timely
manner, we will lose sales and customers.

OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND TO COMPETE
EFFECTIVELY, WE MUST CONTINUALLY INTRODUCE NEW PRODUCTS THAT ACHIEVE MARKET
ACCEPTANCE.

The markets for our products are characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. We expect that new technologies will emerge as
competition and the need for higher and more cost effective transmission
capacity, or bandwidth, increases. Our future performance will depend on the
successful development, introduction and market acceptance of new and enhanced
products that address these changes as well as current and potential customer
requirements. The introduction of new and enhanced products may cause our
customers to defer or cancel orders for existing products. We have in the past
experienced delays in product development and such delays may occur in the
future. Therefore, to the extent customers defer or cancel orders in the
expectation of a new product release or there is any delay in development or
introduction of our new products or enhancements of our products, our operating
results would suffer. We also may not be able to develop the underlying core
technologies necessary to create new products and enhancements, or to license
these technologies from third parties. Product development delays may result
from numerous factors, including:

- changing product specifications and customer requirements;

- difficulties in hiring and retaining necessary technical personnel;

- difficulties in reallocating engineering resources and overcoming
resource limitations;

- difficulties with contract manufacturers;

- changing market or competitive product requirements; and

- unanticipated engineering complexities.

The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation and highly skilled
engineering and development personnel, as well as the accurate anticipation of
technological and market trends. In order to compete, we must be able to deliver
products to a provider that are highly reliable, operate with its existing
equipment, lower the provider's costs of acquisition, installation and
maintenance, and provide an overall cost-effective solution. We cannot assure
you that we will be able to identify, develop, manufacture, market or support
new or enhanced products successfully, if at all, or on a timely basis. Further,
we cannot assure you that our new products will gain market acceptance or that
we will be able to respond effectively to product announcements by competitors,
technological changes or emerging industry standards. Any failure to respond to
technological change would significantly harm our business.

CONTINUED COMPETITION IN OUR MARKETS MAY LEAD TO A REDUCTION IN OUR PRICES,
REVENUES AND MARKET SHARE.

Our current competitors include a number of domestic and international
companies, including traditional network vendors and other optical and wireless
companies, many of which have substantially greater financial, technical,
marketing, distribution resources and brand name recognition than we have.

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Direct competitors for our optical wireless technology include AirFiber, Canon
and TeraBeam. Indirect competitors include companies that provide radio
frequency wireless solutions, such as Netro, Ceragon Networks and Adaptive
Broadband. In addition, we believe companies in emerging industries attempting
to address the last mile bottleneck, such as those in the passive optical
networking industry, could be future competitors. Direct competitors for our
switching products include Cisco Systems, Extreme Networks, Foundry Networks and
Nortel Networks. We expect that more companies, including some of our customers,
will enter the market for optical subsystems and network performance test
systems. We may not be able to compete successfully against either current or
future competitors. Increased competition could result in significant price
erosion, reduced revenue, lower margins or loss of market share, any of which
would significantly harm our business. Furthermore, larger companies in other
related industries, such as the telecommunications industry, may develop or
acquire technologies and apply their significant resources, including their
distribution channels and brand name recognition, to capture significant market
share.

WE DEPEND ON CONTRACT MANUFACTURERS FOR SUBSTANTIALLY ALL OF OUR ASSEMBLY
REQUIREMENTS FOR OUR OPTISWITCH(TM) PRODUCTS, AND IF THESE MANUFACTURERS FAIL TO
PROVIDE US WITH ADEQUATE SUPPLIES OF HIGH-QUALITY PRODUCTS, OUR COMPETITIVE
POSITION, REPUTATION AND BUSINESS COULD BE HARMED.

We currently rely on a limited number of contract manufacturers for
substantially all of our assembly requirements for our OptiSwitch(TM) products,
and approximately 60% of these assembly requirements were provided by one
contract manufacturer for the first nine months of 2000. We do not have
long-term contracts with any of these manufacturers. We have experienced delays
in product shipments from contract manufacturers in the past, which in turn
delayed product shipments to our customers. We may in the future experience
similar delays or other problems, such as inferior quality and insufficient
quantity of product, any of which could significantly harm our business. We
cannot assure you that we will be able to effectively manage our contract
manufacturers or that these or other manufacturers will meet our future
requirements for timely delivery of products of sufficient quality and quantity.
Qualifying contract manufacturers is a long process and will consume the time of
technical professional personnel that may disrupt our business for a period of
time. We intend to regularly introduce new products and product enhancements,
which will require that we rapidly achieve volume production by coordinating our
efforts with those of our suppliers and contract manufacturers. The inability of
our contract manufacturers to provide us with adequate supplies of high-quality
products or the loss of any of our contract manufacturers would cause a delay in
our ability to fulfill orders while we obtain a replacement manufacturer and
would significantly harm our business.

WE DEPEND ON OUR OWN MANUFACTURING FACILITIES FOR OUR TERESCOPE PRODUCTS
ASSEMBLY AND TESTING REQUIREMENTS, AND IF WE ARE UNABLE TO EXPAND OUR
MANUFACTURING CAPACITY IN A TIMELY MANNER, WE MAY HAVE INSUFFICIENT CAPACITY AND
OUR COMPETITIVE POSITION, REPUTATION AND NET SALES COULD BE HARMED.

We currently depend on our own manufacturing facilities located in San
Diego and Jerusalem for our TereScope products assembly and testing
requirements, and we have devoted significant resources to expanding our
manufacturing capacity at these facilities. We do not plan to rely on contract
manufacturers for these assembly and testing requirements due to concerns
regarding quality control. We could experience difficulties and disruptions in
the assembly and testing of our products, which could prevent us from achieving
timely delivery of products and could result in lost net sales. We could also
face the inability to procure and install additional capital equipment, a
shortage of raw materials we use in our products, a lack of availability of
assembly and testing personnel to work in our facilities, difficulties in
achieving adequate yields from new manufacturing lines and an inability to
predict future order volumes. We may experience delays, disruptions, capacity
constraints or quality control problems in our manufacturing operations and, as
a result, product shipments to our customers could be delayed, which would
negatively impact our net sales, competitive position and reputation. If we are
unable to expand our manufacturing capacity in a timely manner, or if we do not
accurately project demand, we will have insufficient capacity, which could
seriously harm our results of operations.

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WE MAY LOSE SALES IF OUR SUPPLIERS FAIL TO MEET OUR NEEDS.

We currently purchase several key components used in the manufacture of our
products from single or limited sources including networking components from
Intel, Galileo and AMCC. In addition, we rely on optical component suppliers
including active and passive components from Luminent, a company substantially
owned by MRV Communications. We depend on these sources to meet our needs.
Moreover, we depend on the quality of the products supplied to us over which we
have limited control. We have encountered shortages and delays in obtaining
components in the past and expect to encounter shortages and delays in the
future. If we cannot supply products due to a lack of components, or are unable
to redesign products with other components in a timely manner, our business will
be significantly harmed. We have no long-term or short-term contracts for any of
our components. As a result, a supplier can discontinue supplying components to
us without penalty. If a supplier discontinued supplying a component, our
business may be harmed by the resulting product manufacturing and delivery
delays.

RAPID GROWTH WILL STRAIN OUR OPERATIONS AND REQUIRE US TO INCUR COSTS TO
UPGRADE OUR INFRASTRUCTURE.

We plan to continue to expand our operations significantly. This
anticipated growth will place a significant strain on our management and
operational resources. For example, as orders for our products grow, we may
experience delays in the installation and configuration of our products in a
provider's network. These interruptions would lengthen the sales cycle, causing
anticipated revenue to be recognized at a later period than anticipated or could
cause customers to cancel existing orders. In order to manage our growth
effectively, we must implement and improve our operational systems, procedures
and controls on a timely basis. If we cannot manage growth effectively, our
business could be significantly harmed.

IF WE ARE UNABLE TO EXPAND OUR DIRECT SALES OPERATION AND RESELLER
DISTRIBUTION CHANNELS OR SUCCESSFULLY MANAGE OUR EXPANDED SALES ORGANIZATION,
OUR ABILITY TO INCREASE OUR REVENUES WILL BE HARMED.

Historically, we have relied primarily on a limited direct sales
organization, supported by third party manufacturers' representatives and
distributors, including iTouch Communications, a subsidiary of MRV
Communications, to sell our products. For 1999, 28% of net sales were to iTouch
Communications compared to 16% for the nine months ended September 30, 2000. Our
distribution strategy focuses in part on developing and expanding our direct
sales organization. We may not be able to successfully expand our direct sales
organization and the cost of any expansion may exceed the revenue generated. To
the extent that we are successful in expanding our direct and indirect sales
organization, we cannot assure you that we will be able to compete successfully
against the significantly larger and well-funded sales and marketing operations
of many of our current or potential competitors. In addition, if we fail to
develop relationships with significant resellers, distributors or manufacturers'
representatives, of if these resellers, distributors or representatives are not
successful in their sales or marketing efforts, sales of our products may
decrease and our business would be significantly harmed. Our resellers,
distributors and representatives may not market our products effectively or
continue to devote the resources necessary to provide us with effective sales,
marketing and technical support. Our inability to effectively manage the
expansion of our domestic sales and support staff or maintain existing or
establish new relationships with manufacturer representatives, distributors and
resellers would harm our business.

FUTURE ACQUISITIONS MAY HAVE AN ADVERSE EFFECT ON OUR FINANCIAL RESULTS
SIMILAR TO THE EFFECTS OF THE ACQUISITIONS OF JOLT LIMITED AND ASTROTERRA
CORPORATION.

We may acquire complementary technology businesses. Future acquisitions
involve numerous risks that could adversely affect our business, including:

- problems integrating the acquired operations, technologies or products;

- unanticipated costs, capital expenditures or liabilities or charges;

- diversion of management's attention from our core business;

- harm to our existing business relationships with suppliers and customers;

- risks associated with entering markets in which we have no or limited
prior experience; and

- potential loss of key employees, particularly those of the acquired
organizations.

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<PAGE> 14

In the event we make future acquisitions, we could:

- issue stock that would dilute our current stockholders' percentage
ownership, like the dilution MRV Communications' stockholders incurred
when MRV Communications issued an aggregate of approximately 4.3 million
shares of its common stock, on a fully converted basis, in connection
with the acquisitions of Jolt Limited and AstroTerra Corporation;

- incur debt such as the $1.1 million of consolidated debt incurred in
connection with the acquisitions of Jolt Limited and AstroTerra
Corporation;

- incur additional liabilities such as the $3.8 million of additional
consolidated liabilities incurred in connection with the acquisitions of
Jolt Limited and AstroTerra Corporation; or

- incur expenses related to the amortization of goodwill and other
intangible assets and deferred compensation, like the expenses related to
goodwill and other intangible assets aggregating $141.3 million and
deferred compensation charges aggregating $75.0 million incurred in
connection with the acquisitions of Jolt Limited and AstroTerra
Corporation.

WE MAY BE REQUIRED TO BRING LITIGATION TO ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH MAY RESULT IN SUBSTANTIAL EXPENSE.

We rely on a combination of patents, trademarks, copyrights, trade secrets,
and contractual provisions to protect our intellectual property rights in the
United States and internationally. We currently own six issued United States
patents, five issued foreign patents, and thirteen patents pending in the United
States on our technological systems and methods. The strength of this
protection, however, is uncertain. The process of seeking patent protection and
trademark registrations can be long and expensive, and we cannot assure you that
our current patents are or any new patents that may be issued will be of
sufficient scope or strength to provide any meaningful protection or any
competitive advantage to us. In particular, it is uncertain that:

- our patents and pending patent applications disclose technology that we
invented first;

- we were the first to file patent applications for our inventions;

- others will not independently develop similar or alternative technologies
or duplicate our technologies;

- any of our pending patent applications will result in issued patents;

- our already-granted patents may be reexamined, reissued or invalidated;
and

- any patents issued to us will provide a basis for commercially viable
products, will provide us with any competitive advantages or will not
face third party challenges or be the subject of further proceedings
limiting their scope.

We may become involved in interference proceedings in the U.S. Patent and
Trademark Office to determine the priority of our inventions. In addition,
costly litigation could be necessary to protect our patent, trade secret and
trademark position. We may not prevail in any lawsuit or, if we do prevail, we
may not receive commercially valuable remedies. Similarly, disputes may arise
concerning the ownership of intellectual property. There is no guarantee that
such disputes will be resolved in our favor. Failure to protect our intellectual
property rights could harm us.

Intellectual property law and practice differs in foreign jurisdictions,
and it may prove difficult or impossible for us to protect our rights in foreign
countries. We could become involved in opposition proceedings in foreign
countries challenging the validity of our patents. If we are unable to protect
our intellectual property adequately in foreign jurisdictions, we could face
increased competition in the market for our products and technologies, which
could harm our business and commercial prospects.

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<PAGE> 15

EVEN IF WE ARE ABLE TO OBTAIN INTELLECTUAL PROPERTY PROTECTION, OUR
PRODUCTS COULD NONETHELESS INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
THIS MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL,
COULD CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT US FROM SELLING OUR
PRODUCTS.

Even if we are able to obtain strong intellectual property rights
protecting our technology and products, these rights may not necessarily serve
as a defense against third parties possessing superior intellectual property
rights. If third parties own patent, trademark, copyright or other intellectual
property rights which cover our technology or products, the third parties may
assert intellectual property claims against us. We may be required to pay
substantial damages, including but not limited to treble damages, for past
infringement if it is ultimately determined that our products infringe rights of
a third party.

We expect we will increasingly be subject to license offers and
infringement claims as the number of products and competitors in our market
grows and the functioning of products overlaps. In this regard in July 2000,
representatives of Nbase-Xyplex, an affiliate of MRV Communications, received a
written notice from Nortel Networks, Inc., in which Nortel claimed to have
patent rights in technology related to our OptiSwitch(TM) products which were
transferred to us in October 2000. Representatives of MRV Communications met
with Nortel in late October 2000 to discuss this claim. In November 2000, Nortel
more formally memorialized its assertions. We are presently seeking to determine
whether we may have violated the patents and the extent of our usage of, and
related revenues derived from, technology covered by Nortel's patents. Based on
our evaluation to date, we have concluded that Nortel's claim relates to an
aspect of our OptiSwitch(TM) products. The parties have discussed terms pursuant
to which Nortel's patents could be licensed to MRV Communications and Optical
Access. Net sales of our OptiSwitch(TM) products accounted for 100% of our net
sales for 1999 and 88% of our net sales for the nine months ended September 30,
2000.

Our OptiSwitch(TM) and other of our products may ultimately be determined
to infringe the Nortel patent, or those of other companies. Nortel or other
companies may pursue litigation with respect to their or other claims. The
results of any litigation are inherently uncertain. In the event of an adverse
result in any litigation with respect to intellectual property rights relevant
to our products that could arise in the future, we could be required to obtain
licenses to the infringement technology, to pay substantial damages under
applicable law, to cease the manufacture, use and sale of infringing products or
to expend significant resources to develop non-infringing technology. Licenses
may not be available from third parties, including Nortel, either on
commercially reasonable terms or at all. In addition, litigation frequently
involves substantial expenditures and can require significant management
attention, even if we ultimately prevail. Accordingly, any infringement claim or
litigation against us could significantly harm our business, operating results
and financial condition.

NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR
MAY BE VERY EXPENSIVE, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO MANUFACTURE
AND SELL OUR PRODUCTS.

From time to time we may be required to license technology from third
parties to develop new products or products enhancements or to resolve
infringement claims with respect to intellectual property rights in our existing
products. We cannot assure you that third-party licenses such as from Nortel
will be available to us on commercially reasonable terms, if at all. The
inability to obtain any third-party license required to develop new products and
product enhancements or to resolve infringement claims on our existing products
could require us to obtain substitute technology of lower quality or performance
standards or at greater cost, either of which could seriously harm our ability
to manufacture and sell our products.

IF WE ARE UNABLE TO USE THE NAME OPTICAL ACCESS IN OUR MARKETS, OUR
OPERATIONS COULD BE ADVERSELY AFFECTED.

We are aware of entities that may offer services that compete with ours
using the name "Optical Access," some of which may have begun using that name as
a mark in commerce prior to our first use of Optical Access. Some of these
entities offer telecommunication products or services. Any of these parties

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<PAGE> 16

could challenge our continuing right to use Optical Access in their market or
require us to obtain a license to use it in their market.

BECAUSE SOME OUR TARGET CUSTOMERS ARE NEW COMPANIES WITH LIMITED FINANCIAL
RESOURCES, WE ARE EXPOSED TO THE RISKS RELATED TO SUCH CUSTOMERS' ABILITY TO PAY
FOR OUR PRODUCTS, UNCERTAIN PROSPECTS FOR PROFITABILITY OF SUCH CUSTOMERS AND
THE RISK THAT THESE COMPANIES MAY NOT SUCCEED IN AN EVOLVING DEREGULATED
TELECOMMUNICATIONS MARKET.

Many of our target customers are new service providers known as competitive
local exchange carriers who generally have access to limited financial
resources, do not have sustained operating histories and are conducting their
businesses in a rapidly changing and competitive telecommunications market which
is experiencing worldwide deregulation.

We face credit risks including slow payments or nonpayment from these
target customers. Many of these competitive local exchange carriers may not be
able to obtain financing for significant networking infrastructure deployments.
Since we provide customer financing for our products including the extension of
credit in the ordinary course of our business, we are exposed to greater credit
risks related to slow payment or nonpayment because we are putting more of our
capital at risk over a longer period of time.

Some of these carriers may operate and/or deploy our products in third
world developing countries, such as portions of Eastern Europe or South America
or in parts of the world which have had a history of political unrest, such as
the Middle East. In these instances, we may face additional credit risk because
traditional financing may not be available to these carriers to purchase our
products and the overall economic conditions in those areas in which these
carriers operate may adversely affect the growth and profitability of these new
service providers. At September 30, 2000, we provided financing of approximately
$906,000 to one customer located in Brazil.

Our prospects for growth will be due, in part, to the successful
implementation of the business models of these carriers and our ability to
monitor and manage the related credit risks. To the extent that these businesses
do not achieve their financial goals and/or we are not able to effectively
manage the credit risks associated with these companies and their projects, our
business, operating results and financial results may be adversely affected or
may fluctuate unpredictably.

OUR INTERNATIONAL OPERATIONS MAY BE HARMED BY POLITICAL UNREST AND ECONOMIC
UNCERTAINTIES SUCH AS EXCHANGE RATE FLUCTUATIONS, HIGHER TAX RATES AND ADVERSE
GOVERNMENTAL REGULATIONS.

Some of our offices and manufacturing and research and development
facilities are located in Israel. We could be adversely affected by any major
hostilities or political unrest involving Israel, the interruption or
curtailment of trade between Israel and its trading partners, a significant
increase in inflation, or a significant downturn in the economic or financial
condition of Israel. Restrictive laws or policies directed towards Israel or
Israeli businesses could adversely affect us.

Our international operations are subject to additional risks including:

- Exchange rate fluctuations which could result in increased operating
expenses and reduced revenue;

- Difficulty in collecting accounts receivables;

- Difficulty in enforcing or adequately protecting our intellectual
property; and

- Foreign taxes and regulations.

We cannot assure you that the additional risks associated with our
international operations will not materially affect our business, financial
condition and our operations.

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RISKS RELATED TO OUR RELATIONSHIP WITH MRV COMMUNICATIONS

WE WILL BE CONTROLLED BY MRV COMMUNICATIONS SO LONG AS IT OWNS A MAJORITY
OF OUR COMMON STOCK AND OUR OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE
OUTCOME OF STOCKHOLDER VOTING DURING SUCH TIME.

After the completion of this offering, MRV Communications will own
approximately 89% of our outstanding common stock. As long as MRV Communications
owns a majority of our outstanding common stock, MRV Communications will
continue to be able to elect our entire Board of Directors and to remove any
director, with or without cause, without calling a special meeting, and control
the outcome of any stockholder vote. As a result, MRV Communications will
control all matters affecting us, including:

- The composition or our Board of Directors and, through it, any
determination with respect to our business direction and policies,
including the appointment and removal of officers;

- The allocation of business opportunities that may be suitable for us and
MRV Communications;

- A determination with respect to mergers or other business combinations;

- Our acquisition or disposition of assets;

- Our financing;

- Changes to the agreements providing for our separation from MRV
Communications;

- The payment of dividends on our common stock; and

- Determinations with respect to our tax returns.

MRV Communications has advised us that at some time after this offering it
may apply for a private letter ruling from the Internal Revenue Service and
permission from the Israeli tax authority in connection with a proposed
distribution to its stockholders of all of our common stock held by it. One
condition to the proposed distribution is the receipt of favorable rulings from
these agencies to treat the distribution as a tax-free transaction. MRV
Communications has not advised us as to the timing of the distribution and we
cannot assure you as to whether or when it will occur. Until this distribution
occurs, if ever, the risks discussed above relating to MRV Communications
control of us and the potential business conflicts of interest between MRV
Communications and us will continue to be relevant to our stockholders.

MRV COMMUNICATIONS COULD SELL A CONTROLLING INTEREST IN US TO A THIRD PARTY
PREVENTING THE PLANNED DISTRIBUTION OF OUR COMMON STOCK.

MRV Communications has agreed with the underwriters not to offer or sell
any shares of our common stock for a period of 180 days after the date of this
prospectus, without the prior written consent of the underwriters. After the
180-day period, however, MRV Communications is not prohibited from selling a
controlling interest in us to a third party. A sale of a controlling interest in
us by MRV Communications would prevent the distribution of our shares to MRV
Communications' shareholders as currently planned and could have a depressive
effect of the market price of our common stock. Moreover, because MRV
Communications can dispose of all or a portion of its ownership of our common
stock at some future date, it may transfer a controlling interest in us without
allowing you to participate or realize a premium.

IF MRV COMMUNICATIONS OWNS MORE THAN 90% OF OUR OUTSTANDING CAPITAL STOCK,
IT MAY MERGE US INTO MRV COMMUNICATIONS AT ANY TIME.

Under Delaware law, a parent corporation that owns at least 90% of the
outstanding capital stock of a subsidiary corporation may merge the subsidiary
into the parent without the vote of the subsidiary's stockholders. After
completion of the offering, MRV Communications will own approximately 89% of the
outstanding shares of our common stock or approximately 88% if the underwriters
exercise their over-allotment option in full. However, if MRV Communications at
some time in the future after the offering owns 90% or more of our outstanding
capital stock, it may merge us into itself without the vote of our stockholders.
In such event, our outstanding shares of common stock would be converted into
shares of common stock of MRV Communications at an exchange ratio to be
determined at the time of the transaction. Our stockholders would be entitled to
appraisal rights under Delaware law, but these rights

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<PAGE> 18

may not entitle our stockholders to receive consideration equivalent to the
price they paid for our common stock.

WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH MRV
COMMUNICATIONS WITH RESPECT TO PAST AND ONGOING RELATIONSHIPS THAT COULD HARM
OUR BUSINESS OPERATIONS.

Conflicts of interest may arise between MRV Communications and us in a
number of areas relating to our past and ongoing relationships, including:

- labor, tax, employee benefit, indemnification and other matters arising
from our separation from MRV Communications;

- intellectual property matters;

- employee retention and recruiting;

- major business combinations involving us;

- sales or distributions by MRV Communications of all or any portion of its
ownership interest in us;

- the nature, quality and pricing of transitional services MRV
Communications has agreed to provide us; and

- business opportunities that may be attractive to both MRV Communications
and us.

In addition to the conflicts of interests relating to the separation of our
operations from MRV Communications as described above, we also may face business
conflicts of interest with MRV Communications because divisions and subsidiaries
of MRV Communications purchase substantial quantities of our products. These
customers accounted for sales of $3.8 million for the year ended December 31,
1999 and $6.3 million during the nine months ended September 30, 2000. Like
other customers, we do not have long-term contracts with MRV Communications for
the purchase of our components. Because MRV Communications controls all matters
relating to us, MRV Communications may be able to require us to enter into a
customer relationship with it or one of its subsidiaries on terms that are less
favorable to us than those we could negotiate with an unrelated customer,
however, we believe terms of such agreements would be consistent with
market-based terms. Nothing restricts MRV Communications from competing with us.

The terms of any arrangement or agreement outside of the ordinary course of
business between us and MRV Communications or any of its affiliates requires the
approval of a committee consisting of our independent board members. However, we
may not be able to resolve any potential conflicts, and even if we do, the
resolution may be less favorable than if we were dealing with an unaffiliated
party. The agreements we have entered into with MRV Communications may be
amended upon agreement between the parties. While we are controlled by MRV
Communications, MRV Communications may be able to require us to agree to
amendments to these agreements that may be less favorable to us than the current
terms of the agreement. However, we believe terms of such agreements would be
consistent with market-based terms.

WE WILL NOT BE ABLE TO RELY ON MRV COMMUNICATIONS TO FUND OUR FUTURE
CAPITAL REQUIREMENTS, AND FINANCINGS FROM OTHER SOURCES MAY NOT BE AVAILABLE ON
FAVORABLE TERMS OR AT ALL.

In the past, our capital needs have been satisfied by MRV Communications
and will continue to be satisfied by MRV Communications for a minimum of the
next 12 months or until this offering is completed, if earlier. However,
following this offering, MRV Communications does not intend to continue to
provide funds to finance our working capital or other cash requirements. We
cannot assure you that financing from other sources, if needed, will be
available on favorable terms or at all.

We believe our capital requirements will vary greatly from quarter to
quarter, depending on, among other things, capital expenditures, fluctuations in
our operating results, financing activities, acquisitions and investments, and
inventory and receivables management. We believe that the net proceeds from this
offering, along with our future cash flow from operations, will be sufficient to
satisfy our working capital, capital expenditure and research and development
requirements for at least the next 12 months. However,

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<PAGE> 19

we may require or choose to obtain additional debt or equity financing in order
to finance acquisitions or other investments in our business, or otherwise.
Future equity financings would be dilutive to the existing holders of our common
stock. Future debt financings could involve restrictive covenants. We will
likely not be able to obtain financing with interest rates as favorable as those
that MRV Communications could obtain.

SOME OF OUR DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE CONFLICTS OF INTEREST
BECAUSE THEY HAVE A SUBSTANTIAL AMOUNT OF THEIR PERSONAL FINANCIAL PORTFOLIOS IN
MRV COMMUNICATIONS COMMON STOCK AND STOCK OPTIONS.

Some of our directors, officers and other employees have a substantial
amount of their personal financial portfolios in MRV Communications common stock
and options to purchase MRV Communications common stock. Ownership of MRV
Communications common stock by our directors and officers after our separation
from MRV Communications could create, or appear to create, potential conflicts
of interest when directors and officers are faced with decisions that could have
different implications for MRV Communications and us.

BECAUSE WE HAVE BEEN CARVED OUT OF THE OPERATIONS OF MRV COMMUNICATIONS,
OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS
A SEPARATE, STAND-ALONE COMPANY.

The historical financial information we have included in this prospectus
has been carved out from MRV Communications consolidated financial statements
and does not reflect what our financial position, results of operations and cash
flows might have been had we been a separate, stand-alone entity for the periods
presented. In addition, the historical information is not necessarily indicative
of what our results of operations, financial position and cash flows will be in
the future. We have not made adjustments to reflect many significant changes
that will occur in our cost structure, funding and operations as a result of our
separation from MRV Communications including changes in our employee base,
changes in our tax structure, increased costs associated with reduced economies
of scale, increased marketing expenses related to establish a new brand identity
and increased costs associated with being a public, stand-alone company.

IF WE ARE UNABLE TO NEGOTIATE FAVORABLE SERVICE AGREEMENTS WITH THIRD
PARTIES AFTER OUR TRANSITIONAL PERIOD WITH MRV COMMUNICATIONS, OUR FINANCIAL
RESULTS COULD BE HARMED.

We have entered into various agreements related to interim and ongoing
relationships with MRV Communications. These agreements generally provide for
reciprocal transitional services and support for a period of up to one year from
the date of our separation from MRV Communications. These services include
accounting, financial management, tax, payroll, stockholder and public
relations, legal, procurement, and other administrative functions. We cannot
assure you that these fees provided for in the agreements necessarily reflect
the costs of obtaining the services from unrelated third parties or of our
providing these services internally. Upon the expiration of these transitional
agreements, we must either negotiate an extension with MRV Communications,
negotiate new or revised agreements with various third parties as a separate,
stand-alone entity or make appropriate provisions to provide the services
ourselves. We cannot assure you that the terms we will be able to negotiate will
be as favorable as those that we enjoyed as part of MRV Communications. In
addition, as part of MRV Communications, we benefited from various economies of
scale including shared global administrative functions, facilities and volume
purchase discounts. We expect our costs will increase as a result of the loss or
renegotiation of these arrangements which could adversely affect our financial
results.

RISKS RELATED TO THIS OFFERING

THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND A PUBLIC MARKET
FOR OUR SECURITIES MAY NOT DEVELOP OR BE SUSTAINED, WHICH COULD CAUSE OUR STOCK
PRICE TO FALL BELOW THE INITIAL PUBLIC OFFERING PRICE.

Prior to this offering, you could not buy or sell our common stock
publicly. An active public market in our common stock may not develop or be
sustained after this offering, and the market price might fall below the initial
public offering price. The initial public offering price may bear no
relationship to the price

15
<PAGE> 20

which the common stock will trade upon completion of this offering. The initial
public offering price will be determined based on negotiations between the
representatives of the underwriters and us, based on factors that may not be
indicative of future market performance.

SUBSTANTIAL NUMBERS OF SHARES OF OUR COMMON STOCK WILL BECOME AVAILABLE FOR
SALE IN THE PUBLIC MARKET SIMULTANEOUSLY, WHICH COULD CAUSE THE MARKET PRICE OF
OUR STOCK TO DECLINE.

Sales of substantial amounts of our common stock in the public market
following this offering, or the appearance that a large number of shares is
available for sale, could cause the market price of our common stock to decline.
The number of shares of common stock available for sale in the public market
will be limited by lock-up agreements under which MRV Communications and all of
our officers and directors will agree not to sell or otherwise dispose of any of
their shares for 180 days after the date of this prospectus without the prior
written consent of Bear, Stearns & Co. Inc. As of September 30, 2000, MRV
Communications owned 41,667,000 shares of our common stock.

Bear, Stearns & Co. Inc. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. In addition to the adverse effect a price decline could have on
holders of common stock, that decline would likely impede our ability to raise
capital through the issuance of additional shares of common stock or other
equity securities.

OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY BE UNABLE TO RESELL YOUR SHARES
AT OR ABOVE THE OFFERING PRICE.

The stock market in general, and the Nasdaq National Market and stocks of
technology companies in particular, have experienced extreme price and volume
fluctuations. This volatility is often unrelated or disproportionate to the
operating performance of these companies. Broad market and industry factors may
adversely affect the market price of our common stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been initiated against these companies. This litigation, if initiated,
could result in substantial costs and a diversion of management's attention and
resources, which would significantly harm our business.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms by other
comparable terminology.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.

OUR RELATIONSHIP WITH MRV COMMUNICATIONS AFTER THE OFFERING

OVERVIEW

We are currently a wholly-owned subsidiary of MRV Communications. After the
completion of this offering, MRV Communications will own approximately 89% of
our outstanding common stock or approximately 88% if the underwriters exercise
their over-allotment option in full. Until MRV

16
<PAGE> 21

Communications holds less than a majority of the voting power of our outstanding
common stock, MRV Communications will be able to control the vote on all matters
submitted to stockholders, including the election of directors and the approval
of extraordinary corporate transactions.

ANTICIPATED BENEFITS OF THE SEPARATION

We believe that we will realize a number of benefits from our anticipated
separation from MRV Communications, including the following:

Greater Strategic Focus. We expect to have a sharper focus on Optical
Access' business and strategic opportunities as a result of our Board of
Directors and management team focusing only on our businesses. We will also
have greater ability to modify business processes to better fit the needs
of our customers, business units and employees.

Direct Access to Capital Markets. As a separate company, we will be
able to directly access the capital markets to issue debt or equity
securities, and we will be able to more readily grow through acquisitions.

Increased Speed and Responsiveness. As a separate company, we expect
to be able to make decisions more quickly, deploy resources more rapidly
and efficiently and operate with more agility than when we were a part of
MRV Communications. In addition, we expect to enhance our responsiveness to
customers and partners.

Facilitate Customer Relationships and Future Partnerships. MRV
Communications competes with several of our customers in supplying optical
networking products. As a separate company, we believe we can expand our
business with existing and potential customers which may be unwilling to do
business with us due to our relationship with MRV Communications. In
addition, we believe we will have a greater ability to partner with other
companies. In particular, some companies that compete with MRV
Communications directly in the sale of products not currently developed or
sold by us may be more willing to enter into arrangements with us as a
separate company.

Better Incentives for Employees and Greater Accountability. We expect
the motivation of our employees and the focus of our management will be
strengthened by incentive compensation programs tied to the market
performance of our common stock. The separation will enable us to offer our
employees compensation directly linked to the performance of Optical
Access' business, which we expect to enhance our ability to attract and
retain qualified personnel.

SEPARATION AND TRANSITIONAL ARRANGEMENTS

Prior to completion of this offering, we will enter into agreements with
MRV Communications that govern the separation of our business operations from
MRV Communications. These agreements generally provide for, among other things:

- the transfer from MRV Communications to us of assets and the assumption
by us of liabilities relating to our business;

- the allocation of intellectual property between MRV Communications and
us; and

- various interim and ongoing relationships between MRV Communications and
us.

All of the agreements providing for our separation from MRV Communications
were made in the context of a parent-subsidiary relationship and were negotiated
in the overall context of our separation from MRV Communications. We believe the
terms of these arrangements are consistent with market-based terms. However, the
terms of these agreements may be more or less favorable to us than if they had
been negotiated with unaffiliated third parties.

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<PAGE> 22

POTENTIAL DISTRIBUTION BY MRV COMMUNICATIONS OF OUR COMMON STOCK

MRV Communications has advised us that at some time after this offering it
may apply for a private letter filing from the Internal Revenue Service and
permission from the Israeli tax authority in connection with a proposed
distribution to its stockholders of all of our common stock held by it. One
condition to the proposed distribution is the receipt of favorable rulings from
these agencies to treat the distribution as a tax-free transaction. MRV
Communications has not advised us as to the timing of the distribution and we
cannot assure you as to whether or when it will occur. We have no current plans
to issue any securities in connection with this distribution.

AFFILIATE COMMITTEE

A committee of our Board of Directors, consisting of outside independent
board members, shall approve the terms of any arrangement or agreement outside
of the ordinary course of business (as defined by such independent committee)
between us and MRV Communications or any of its affiliates.

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the shares of common
stock we are offering will be approximately $53.8 million, or $62.2 million if
the underwriters exercise their over-allotment option in full, based on an
assumed initial public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses. The
primary purposes of this offering are to obtain additional equity capital,
create a public market for our common stock and facilitate future access to
public markets.

We intend to use the net proceeds we receive from this offering for product
development, working capital and general corporate purposes. We have no capital
commitments and have not determined the amount of net proceeds that we will use
for each of these purposes. Accordingly, we will have broad discretion to use
the proceeds as we see fit. Although we may use a portion of the net proceeds to
acquire technology or businesses that are complementary to our business, we have
no current plans to do so. Pending their use, we plan to invest the net proceeds
of the offering in interest-bearing, investment grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business, and we do not expect to pay any cash dividends in the foreseeable
future.

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<PAGE> 23

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2000:

- on an actual basis (after giving effect to the acquisition of Jolt
Limited on May 1, 2000, the acquisition of AstroTerra Corporation on July
12, 2000, the amendment of our restated certificate of incorporation to
split the outstanding shares, increase our authorized capital stock and
authorize a class of preferred stock on November 16, 2000 and the
transfer of the net assets of MRV Communications' optical access division
to Optical Access;

- on an as adjusted basis to reflect our receipt of the net proceeds from
the sale of the shares of common stock in this offering at an assumed
initial public offering price of $12.00 per share, after deducting the
underwriting discounts and commissions and estimated offering expenses.

You should read this table with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Description of Capital Stock"
and the financial statements and the related notes.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
--------------------------
ACTUAL AS ADJUSTED
---------- ------------
(IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C>
Long-term debt, net of current portion...................... $ 715 $ 715
--------- --------
Stockholder's equity:
Preferred stock, $0.001 par value, (20,000,000 shares
authorized, none issued actual and as adjusted)........ -- --
Common stock, $0.001 par value, (200,000,000 shares
authorized, 41,667,000 shares issued actual, 46,667,000
issued as adjusted).................................... 42 47
Additional paid-in capital................................ 194,807 248,602
Deferred stock compensation............................... (55,401) (55,401)
--------- --------
Total stockholder's equity.................................. 139,448 193,248
--------- --------
Total capitalization........................................ $ 140,163 $193,963
========= ========
</TABLE>

The total number of outstanding shares of our common stock as of September
30, 2000 was 41,667,000, excluding

- 4,500,000 shares of common stock available as of September 30, 2000 for
future issuance under our 2000 Stock Plan;

- 5,000,000 shares of common stock to be issued in this offering; and

- 750,000 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.

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<PAGE> 24

DILUTION

Our net tangible book value at September 30, 2000, was $5.9 million, or
$0.14 per share, based on 41,667,000 shares of our common stock outstanding.

Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of our common stock in this offering and the
pro forma net tangible book value per share of common stock immediately after
completion of this offering. After giving effect to the sale of the shares of
common stock by us at the assumed initial public offering price of $12.00 per
share, less the underwriting discounts and commissions and our estimated
offering expenses, our pro forma net tangible book value at September 30, 2000,
would be $59.7 million, or $1.28 per share. This represents an immediate
increase in the pro forma net tangible book value of $1.12 per share to existing
stockholders and an immediate dilution of $10.57 per share to new investors
purchasing shares at the assumed initial public offering price of $12.00 per
share. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share at September
30, 2000............................................... $0.14
Increase per share attributable to new investors.......... 1.14
-----
Pro forma net tangible book value per share after this
offering.................................................. $ 1.28
------
Dilution per share to new investors in this offering........ 10.72
======
</TABLE>

If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the offering would be $1.44 per
share, the increase in net tangible book value per share attributable to new
investors would be $1.30 per share and the dilution per share to new investors
in this offering would be $10.56 per share.

The following table sets forth, at September 30, 2000 on a pro forma basis,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price paid per share by the existing stockholder and
by new investors purchasing common stock in this offering:

<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES ISSUED (IN THOUSANDS)
------------------------ ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder............. 41,667,000 89% $194,849 76% $ 4.68
New investors.................... 5,000,000 11 60,000 24 $12.00
---------- ----- -------- -----
Total............................ 46,667,000 100.0% 254,849 100.0%
========== ===== ======== =====
</TABLE>

The above information is based on pro forma shares outstanding as of
September 30, 2000. It excludes an aggregate of 4,500,000 shares available for
issuance under our 2000 Stock Plan.

Our sale of additional shares of common stock upon exercise in full of the
underwriters' over-allotment option would reduce the percentage of common stock
held by our existing stockholder to 88% of the total number of shares of common
stock to be outstanding upon completion of this offering and will increase the
number of shares of common stock held by new investors to 5,750,000 shares or
12% of the total number of shares of common stock to be outstanding upon
completion of this offering.

20
<PAGE> 25

SELECTED FINANCIAL DATA

The following selected statement of operations data for the period from
April 1, 1998, the date of our inception, through December 31, 1998 and the year
ended December 31, 1999 and the balance sheet data as of December 31, 1998 and
1999 were derived from our consolidated financial statements and notes thereto
included later in this prospectus which have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their report included with
such financial statements. The unaudited pro forma selected statement of
operations data for the year ended December 31, 1999 and the nine months ended
September 30, 2000 were derived from the unaudited pro forma financial
statements of Optical Access, which are included later in this prospectus. The
selected statement of operations data for the nine months ended September 30,
1999 and 2000 and the balance sheet data at September 30, 2000 were derived from
our unaudited consolidated financial statements, which are included later in
this prospectus. In our opinion, all necessary adjustments, consisting only of
normal recurring adjustments, have been included to present fairly the financial
position and results of operations for each of the periods presented in our
unaudited financial statements. Historical results are not necessarily
indicative of results that may be expected for any future period. The following
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our Consolidated Financial
Statements and the Unaudited Pro Forma Condensed Consolidated Financial
Statements of Optical Access, including the related footnotes.

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1998
(DATE OF YEAR ENDED NINE MONTHS ENDED
INCEPTION) DECEMBER 31, SEPTEMBER 30,
THROUGH -------------------- ------------------------------
DECEMBER 31, PRO FORMA PRO FORMA
1998 1999 1999(1) 1999 2000 2000(1)
------------- -------- --------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $ -- $ 8,473 $ 14,596 $ 4,518 $ 14,708 $ 17,676
Cost of sales(2)................................... -- 4,555 15,607 2,584 11,800 13,770
-------- -------- -------- ------- -------- --------
Gross profit....................................... -- 3,918 (1,011) 1,934 2,908 3,906
Operating costs and expenses:
Selling, general and administrative(2)........... -- 1,688 18,229 902 11,255 12,667
Research and development(2)...................... 3,213 4,543 27,759 3,386 14,781 13,080
Amortization of goodwill......................... -- -- 28,241 -- 8,172 21,216
-------- -------- -------- ------- -------- --------
Total operating costs.............................. 3,213 6,231 74,229 4,288 34,208 46,963
-------- -------- -------- ------- -------- --------
Operating loss..................................... (3,213) (2,313) (75,240) (2,354) (31,300) (43,057)
Other expense, net............................... -- -- (134) -- (46) (210)
-------- -------- -------- ------- -------- --------
Loss before taxes.................................. (3,213) (2,313) (75,374) (2,354) (31,346) (43,267)
-------- -------- -------- ------- -------- --------
Provision for income taxes......................... -- -- 31 -- -- --
-------- -------- -------- ------- -------- --------
Net loss........................................... $ (3,213) $ (2,313) $(75,405) $(2,354) $(31,346) $(43,267)
======== ======== ======== ======= ======== ========
Loss per share:(3)
Basic and diluted loss per share................. $ (0.08) $ (0.06) $ (1.81) $ (0.06) $ (0.75) $ (1.04)
Basic and diluted weighted average shares........ 41,667 41,667 41,667 41,667 41,667 41,667
======== ======== ======== ======= ======== ========
</TABLE>

21
<PAGE> 26

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1998 1999 2000
------ ------ -------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $ 141 $ 567
Working capital............................................. 832 3,301 4,491
Total assets................................................ 1,989 6,235 146,601
Long-term debt, net of current portion...................... -- -- 715
Parent company investment................................... 1,379 4,612 139,448
</TABLE>

---------------

(1) The pro forma selected statements of operations for the year ended December
31, 1999 and nine months ended September 30, 2000 were derived from the
financial statements of Optical Access, Jolt Limited and AstroTerra
Corporation included later in this prospectus. The unaudited pro forma
condensed consolidated statements of operations assume that the Jolt Limited
and AstroTerra Corporation acquisitions occurred on January 1, 1999 and
consolidates our consolidated statements of operations for the year ended
December 31, 1999 and nine months ended September 30, 2000 with the
statements of operations for those periods of Jolt Limited and AstroTerra
Corporation. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements" included herein.

(3) See note 2 of notes to consolidated financial statements for an explanation
of how the number of shares used in calculating this per share data was
determined.

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<PAGE> 27

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Financial Data" and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. The actual results
may differ materially from those anticipated in these forward-looking statements
as a result of several factors, including, but not limited to, those presented
under "Risk Factors" on page 5 and elsewhere in this prospectus.

OVERVIEW

We design, manufacture and market optical wireless products. From inception
in April 1998 until our separation from MRV Communications in October 2000, we
have operated as part of a wholly-owned subsidiary of MRV Communications and
have conducted business using MRV Communications' trade names. In July 2000, we
began doing business under the Optical Access trade name. After the completion
of this offering, MRV will own approximately 89% of the outstanding shares of
our common stock, or approximately 88% if the underwriters exercise their
over-allotment option in full.

Our principal net assets consist of net assets contributed to us by MRV
Communications. The effective date of MRV Communications' contribution and
transfer to us of our business was October 31, 2000. These net assets consist of
the outstanding capital stock of Jolt Limited and AstroTerra Corporation and
substantially all of the net assets of MRV Communications' optical access
division which primarily resided in the MRV Communications subsidiary
NBase-Communications, Ltd. NBase-Communications was incorporated by MRV
Communications in Israel in 1995 as a data communications entity. In October
1998, MRV Communications acquired Xyplex Inc., a company engaged in routing and
out of band management activities, and consolidated the activities of Xyplex
with NBase-Communications. NBase-Communications continues to operate as a
wholly-owned subsidiary of MRV Communications primarily engaged in carrier-class
networking products.

On May 1, 2000, MRV Communications acquired all of the outstanding capital
stock of Jolt Limited, an Israeli developer and manufacturer of optical wireless
solutions. The purchase price paid was approximately $57.7 million in common
stock of MRV Communications and options to purchase common stock of MRV
Communications. The acquisition was accounted for using the purchase method. For
purposes of the presentations set forth herein, we have assumed that the
outstanding capital stock of Jolt Limited purchased by MRV Communications has
been contributed to us as of the date of acquisition. Therefore, the results of
operations of Jolt Limited have been included in our consolidated financial
statements from May 1, 2000. On July 12, 2000, MRV Communications acquired all
of the outstanding capital stock of AstroTerra Corporation, a San Diego,
California developer and manufacturer of optical wireless communication systems.
The purchase price paid was approximately $160.3 million in common stock of MRV
Communications and options to purchase common stock of MRV Communications. For
purposes of the presentations set forth herein, we have assumed that the
acquisition of AstroTerra Corporation was also contributed to us by MRV
Communications effective as of the date of its acquisition. The acquisition was
accounted for using the purchase method. The results of operations of AstroTerra
Corporation have been included in our consolidated financial statements from
July 12, 2000. Both of the acquisitions were made to expand our product
offerings and enhance our technology expertise. These acquisitions have brought
new research and development manufacturing facilities, our TereScope line of
products and significant additions to our employee base. As a result of these
acquisitions, we added three facilities and over 70 employees to our operations.
Historically, substantially all of our operations were located in Israel. In
connection with the acquisition of AstroTerra Corporation in July 2000, we
obtained our first significant United States operations.

In connection with the acquisitions of Jolt Limited and AstroTerra
Corporation, employees received options to purchase the common stock of MRV
Communications. These options had fair values of approximately $25.0 million and
$50.0 million for Jolt Limited and AstroTerra Corporation, respectively,

23
<PAGE> 28

which have been recorded as deferred stock compensation at the date of grant.
Deferred stock compensation amortization expense for the nine months ended
September 30, 2000 relating to these stock options was approximately $19.6
million. We expect to incur additional compensation expense totaling
approximately $55.4 million, which will be fully amortized by 2004. Deferred
stock compensation is being amortized using the graded method over an estimated
employment period of four years.

Goodwill resulting from the Jolt Limited and AstroTerra Corporation
acquisitions totaled $32.7 million and $108.6 million, respectively. For the
nine months ended September 30, 2000, we recorded amortization of goodwill of
$8.2 million. We expect to record amortization of goodwill charges of
approximately $7.1 million per quarter until they are fully amortized in 2005.

AstroTerra Corporation derives revenues from both product shipments and
research and development contracts. AstroTerra Corporation has had substantial
sales to government agencies. For fiscal 1997, 1998, and 1999 and the nine
months ended September 30, 2000, revenues from governmental customers
represented 85%, 79%, 44% and 27% of AstroTerra Corporation's net sales,
respectively. It is anticipated that revenues from research and development
contracts and from governmental customers will constitute a substantially lower
percentage of net sales on a future basis when these contracts expire and as
AstroTerra Corporation focuses on product sales to commercial customers.

Jolt Limited has been granted status as an approved enterprise under the
Laws of the State of Israel. As an approved enterprise, Jolt Limited is eligible
for a ten year exception from taxation commencing in the first year Jolt Limited
has taxable income, after deduction of tax loss carry forwards, subject to
certain time restrictions. The benefits period has not yet commenced. As a
result, the operations of Jolt Limited will not be subject to Israeli tax during
the tax exception period.

Divisions and subsidiaries of MRV Communications are our customers and
purchase substantial quantities of our products. The majority of these sales are
made to iTouch Communications, a subsidiary of MRV Communications, which we
utilize as a non-exclusive distributor of our products. Sales to iTouch
Communications were $2.4 million in 1999 and $2.3 million for the nine months
ended September 30, 2000. We have a one year non-exclusive distribution
agreement with iTouch Communications, renewable at the mutual consent of the
parties. Total sales to MRV Communications divisions and subsidiaries, virtually
all which were for reseller purposes, were $3.8 million in 1999 and $6.3 million
for the nine months ended September 30, 2000. In addition, Luminent, Inc., a
company substantially owned by MRV Communications, provides us with active and
passive optical components. For 1999, we purchased $144,000 of components from
Luminent compared to $331,000 for the nine months ended September 30, 2000. No
purchases were made for the period from April 1, 1998, the date of our
inception, through December 31, 1998. Like other customers and suppliers, sales
to and purchases from MRV Communications-related customers and suppliers are
based on purchase orders and, other than our arrangement with iTouch
Communications, we have no long-term arrangements with them. We expect these
relationships with MRV Communications and its affiliates to continue following
this offering. We believe that our sales to and purchases from MRV
Communications-related customers and suppliers have been on terms no more
favorable that those we provide to or obtain from our other customers and
suppliers.

We reported a net loss of $3.2 million, $2.3 million and $31.3 million for
the period from April 1, 1998, the date of our inception, through December 31,
1998, the year ended December 31, 1999 and the nine months ended September 30,
2000, respectively. In addition, as discussed above, we will record amortization
of goodwill and deferred stock compensation relating to our acquisitions of Jolt
Limited and AstroTerra Corporation going forward. As a consequence of these
amortization of goodwill charges and deferred stock compensation charges, we do
not expect to report net income in the foreseeable future.

We have entered into various agreements related to interim and ongoing
relationships with MRV Communications. These agreements provide for reciprocal
transitional services and support in the areas of data processing and
telecommunications services (such as voice telecommunications and data
transmission, information technology support services, and sales and marketing
services) for functions including accounting, financial management, tax,
payroll, stockholder and public relations, legal, procurement and

24
<PAGE> 29

other administrative functions. Services are generally cost plus 5%, but
increase to cost plus 10% if the services extend beyond a one-year period. The
transition period varies depending on the agreement but is generally one year.
Although the fees provided for in the agreements are intended to represent the
fair market value of these services, we cannot assure you that these fees
necessarily reflect the costs of obtaining the services from unrelated third
parties or of our providing these services internally. However, we believe that
purchasing these services from MRV Communications provides an efficient means of
obtaining these services during the transition period. We must also negotiate
new or revised agreements with various third parties as a separate, stand-alone
entity. We cannot assure you that the terms we will be able to negotiate will be
as favorable as those that we enjoyed as part of MRV Communications. In
addition, as part of MRV Communications, we benefited from various economies of
scale including shared global administrative functions, facilities and volume
purchase discounts. We expect our costs will increase as a result of the loss or
renegotiation of these arrangements, although the amount of the cost increase is
not determinable at this time.

25
<PAGE> 30

BASIS OF PRESENTATION

Our consolidated financial statements have been carved out from the
consolidated financial statements of MRV Communications using the historical
results of operations and historical bases of the assets and liabilities of the
MRV Communications business that our company comprises. There has been no
interest charge reflected in our accompanying consolidated financial statements
from fundings provided by MRV Communications. Costs and expenses for corporate
activities of MRV Communications such as legal, accounting, employee benefits,
real estate, insurance services, information technology services, treasury and
other MRV Communications corporate and infrastructure costs have not been
significant. For purposes of the financial information set forth herein, we have
assumed that the outstanding capital stock of Jolt Limited and AstroTerra
Corporation purchased by MRV Communications has been contributed to us as of the
respective dates of acquisition.

The financial information presented in this prospectus is not indicative of
our financial position, results of operations or cash flows in the future nor is
it necessarily indicative of what our financial position, results of operations
or cash flows would have been had we been a separate, stand-alone entity for the
periods presented.

26
<PAGE> 31

RESULTS OF OPERATIONS

The following table reflects selected consolidated historical and pro forma
financial data for the periods presented. The table presents actual and pro
forma results, which include the amortization of goodwill and deferred stock
compensation related to the acquisitions of Jolt in May 2000 and AstroTerra
Corporation in July 2000. During the nine months ended September 30, 2000, we
incurred amortization of goodwill and deferred stock compensation of $2.7
million and $8.3 million, respectively, related to the acquisition of Jolt and
$5.4 million and $11.3 million, respectively, related to the acquisition
AstroTerra Corporation. We expect to incur amortization of goodwill from the
Jolt Limited and AstroTerra Corporation acquisitions of approximately $1.6
million and $5.4 million, respectively, each quarter through 2005. We expect to
report additional deferred stock compensation expense totaling approximately
$16.7 million and $38.7 million through 2004 for Jolt Limited and AstroTerra
Corporation, respectively. Deferred stock compensation is amortized using the
graded method over the related expected employee service period, in this case
four years. The acquisitions of Jolt Limited and AstroTerra Corporation have
brought new research and development manufacturing facilities, our TereScope
line of products and significant additions to our employee base. As a result of
these acquisitions, we added three facilities and over 70 employees to our
operations.

<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
APRIL 1, 1998 DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
(DATE OF INCEPTION) -------------------------- ---------------------------------------
THROUGH DECEMBER 31, PRO FORMA PRO FORMA
1998 1999 1999 1999 2000 2000
-------------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Net sales..................... -- 100% 100% 100% 100% 100%
Cost of sales................. -- 54 107 57 80 78
----------- ------------ ----------- ----------- ----------- -----------
Gross profit.................. -- 46 (7) 43 20 22
----------- ------------ ----------- ----------- ----------- -----------
Operating costs and expenses:
Selling, general and
administrative............ -- 20 125 20 77 72
Research and development.... -- 54 190 75 100 74
Amortization of goodwill.... -- -- 193 -- 56 120
----------- ------------ ----------- ----------- ----------- -----------
Total operating costs......... -- 74 509 95 233 266
----------- ------------ ----------- ----------- ----------- -----------
Operating loss................ -- (27) (516) (52) (213) (244)
----------- ------------ ----------- ----------- ----------- -----------
Net loss...................... -- (27)% (517)% (52)% (213)% (245)%
----------- ------------ ----------- ----------- ----------- -----------
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

NET SALES. We generally recognize revenue upon shipment of our products.
Net sales for the nine months ended September 30, 2000, increased 226%, to $14.7
million from $4.5 million for the nine months ended September 30, 1999. Our
growth is a result of increased penetration within the network carrier market
and improved product offerings. Approximately $1.0 million of this increase was
due to the contribution of Jolt Limited's net sales for the period from May 1,
2000 through September 30, 2000 and $1.4 million of this increase was due to the
contribution of AstroTerra Corporation's net sales for the period from July 12,
2000 through September 30, 2000. Sales to iTouch Communications, a subsidiary of
MRV Communications, for the nine months ended September 30, 2000 were $2.3
million as compared to $1.5 million for the nine months ended September 30,
1999.

GROSS PROFIT. Gross profit is equal to our net sales less our cost of
sales. Our cost of sales includes material, direct labor, overhead and deferred
stock compensation associated with acquisitions. Cost of inventory is determined
by the first in first out method. Gross profit for the nine months ended
September 30, 2000 increased 50%, to $2.9 million from $1.9 million for the nine
months ended September 30, 1999 as a result of increased sales. Our gross
margins, defined as gross profit as a percentage of net sales, are generally
affected by product mix and competitive factors. Prices for existing products
are generally expected to continue to decrease over their respective life
cycles.

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<PAGE> 32

Our gross margin decreased to 20% for the nine months ended September 30,
2000 from 43% for the nine months ended September 30, 1999. Excluding deferred
stock compensation, gross margin for the nine months ended September 30, 2000
would have been 44%. The increase was a result of spreading overhead costs over
a larger base of sales. In the short-term, we expect margins to be adversely
affected as a result of amortization of deferred stock compensation expense
presented in costs of sales and as we fully integrate the operations of Jolt
Limited and AstroTerra Corporation.

OPERATING COSTS AND EXPENSES. Operating costs and expenses generally
consist of selling, general and administrative expenses, research and
development costs, costs associated with acquisitions, and other operating
related charges. Operating costs and expenses were $34.2 million, or 233% of net
sales, for the nine months ended September 30, 2000, as compared to $4.3
million, or 95% of net sales, for the nine months ended September 30, 1999.
Operating costs and expenses in total dollars increased for the nine months
ended September 30, 2000 due to the amortization of goodwill and deferred stock
compensation in the amount of $24.2 million, the inclusion of Jolt Limited and
AstroTerra Corporation, greater focus on direct selling and marketing efforts
which increased such costs by $5.0 million and an increase in spending on
research and development of $5.0 million. Jolt Limited and AstroTerra
Corporation accounted for $616,000 and $963,000, respectively, of operating
costs and expenses for the nine months ended September 30, 2000. We expect
operating expenses to increase in total dollars but to decrease as a percentage
of net sales as we increase sales of our products.

Selling, general and administrative expenses increased to $11.3 million, or
77% of net sales, during the nine months ended September 30, 2000, from
$902,000, or 20% of net sales, for the nine months ended September 30, 1999.
This increase was a result of deferred stock compensation and increased
personnel costs which reflects the investment we made in hiring additional sales
and administrative personnel. Excluding deferred stock compensation, selling,
general and administrative expenses for the nine months ended September 30, 2000
would have been $5.0 million, or 34% of net sales. We expect selling, general
and administrative expenses to continue to increase as we expand our sales
function and from costs associated with becoming a public company and
amortization of deferred stock compensation expense.

Research and development expenses increased to $14.8 million, or 100% of
net sales, during the nine months ended September 30, 2000, from $3.4 million,
or 75% of net sales, for the nine months ended September 30, 1999. Excluding
deferred stock compensation, research and development expenses for the nine
months ended September 30, 2000, would have been $5.0 million, or 34% of net
sales. Research and development expenses as a percentage of net sales, excluding
the effects of deferred stock compensation, decreased primarily due to the
significantly increased level of sales. During the nine months ended September
30, 2000, we began development of our next generation products designed to
enable our higher margin mesh architecture solutions. We continue to invest
heavily in areas targeted at broadening our customer base and product lines and
therefore we expect research and development expenses to continue to increase
due to hiring additional technical personnel, expanding our current product
lines and developing new product offerings.

During the nine months ended September 30, 2000, we incurred amortization
of goodwill and deferred stock compensation of $2.7 million and $8.3 million,
respectively, related to the acquisition of Jolt Limited and $5.4 million and
$11.3 million, respectively, related to the acquisition of AstroTerra
Corporation. We expect to incur amortization of goodwill from the Jolt Limited
and AstroTerra Corporation acquisition of approximately $1.6 million and $5.4
million, respectively, each quarter through 2005. We expect to report additional
deferred stock compensation expense totaling approximately $16.7 million and
$38.7 million through 2004 for Jolt Limited and AstroTerra Corporation,
respectively.

PROVISION FOR INCOME TAXES. We have generated losses since our inception in
1998. Our losses were generated primarily by subsidiaries located outside the
United States. No provision for income taxes has been provided due to such
losses for the nine months ended September 30, 1999 and 2000.

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<PAGE> 33

YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM APRIL 1, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998

NET SALES. Net sales for 1999 were $8.5 million compared to zero in 1998.
We commenced selling our OptiSwitch(TM) line of products in 1999. Sales to
iTouch Communications, a subsidiary of MRV Communications, for 1999 were $2.4
million compared to zero in 1998.

GROSS PROFIT. Gross profit for 1999 was $3.9 million, or 46% of net sales.

OPERATING COSTS AND EXPENSES. Operating costs and expenses for 1999
increased to $6.2 million, or 74% of net sales, from $3.2 million in 1998. This
was primarily due to the costs associated with increased sales and an increase
in research and development expenditures of $1.3 million.

Selling, general and administrative expenses were $1.7 million, or 20% of
net sales, in 1999 compared to zero in 1998. The increase in selling, general
and administrative expenses in 1999 was due to increased personnel costs of
$350,000 associated with hiring additional sales and marketing personnel.

In 1999 we spent approximately $4.5 million, or 54% of net sales, on
research and development compared to $3.2 million in 1998. The increase of $1.3
million reflects increased personnel costs of $800,000 associated with hiring
additional personnel and an increase in engineering expenses of $500,000
primarily related to design, development and testing expenses.

PROVISION FOR INCOME TAXES. We have generated losses since our inception
in 1998. Our losses were generated primarily by subsidiaries located outside the
United States. No provision for income taxes has been provided due to such
losses for the period from April 1, 1998, the date of inception through December
31, 1998 and the year ended December 31, 1999.

29
<PAGE> 34

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth our unaudited consolidated statements of
operations data for each of the seven quarterly periods preceding and including
the period ended September 30, 2000. You should read this information in
conjunction with our consolidated financial statements and related notes
appearing elsewhere in this prospectus. We have prepared this unaudited
consolidated information on a basis consistent with our audited consolidated
financial statements, and in the opinion of our management, it reflects all
normal recurring adjustments that we consider necessary for a fair presentation
of our financial position and operating results for the quarters presented. You
should not draw any conclusions about our future results from the operating
results for any quarter.

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1999 1999 1999 1999 2000 2000 2000
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 284 $1,451 $2,783 $3,955 $3,313 $ 4,605 $ 6,790
Cost of sales(1)................ 153 835 1,595 1,972 1,674 3,213 6,913
------- ------ ------ ------ ------ ------- --------
Gross profit.................... 131 616 1,188 1,983 1,639 1,392 (123)
Operating costs and expenses:
Selling, general and
administrative(1).......... 38 312 553 785 1,127 1,995 8,133
Research and development(1)... 1,520 1,003 862 1,158 1,327 4,408 9,046
Amortization of goodwill...... -- -- -- -- -- 1,091 7,081
------- ------ ------ ------ ------ ------- --------
Total operating costs........... 1,558 1,315 1,415 1,943 2,454 7,494 24,260
------- ------ ------ ------ ------ ------- --------
Operating income (loss)......... $(1,427) $ (699) $ (227) $ 40 $ (815) $(6,102) $(24,383)
======= ====== ====== ====== ====== ======= ========
</TABLE>

---------------
(1) Includes amounts relating to deferred stock compensation of $553,000,
$594,000 and $3.0 million presented in cost of sales, selling, general and
administrative and research and development, respectively, for the three
months ended June 30, 2000 and $2.9, $5.7 and $6.8 million, respectively,
for the three months ended September 30, 2000.

Our net sales increased quarter over quarter in all periods presented above
except for the three months ended March 31, 2000. During the quarter ended
December 31, 1999 we received a large order from a single customer, iTouch
Communications, a subsidiary of MRV Communications, that accounted for the
majority of the increase in the net sales from the quarter ended September 30,
1999.

Excluding the effect of deferred compensation expense, gross margins were
50%, 42% and 41% for the three months ended March 31, 2000, June 30, 2000 and
September 30, 2000, respectively. The decrease in margins for the three months
ended March 31, 2000 compared to the three months ended June 30, 2000 was
primarily due to competitive pricing pressures with respect to the
OptiSwitch(TM) line of products. This was partially offset by the inclusion of
revenues from Jolt Limited, whose products carry higher margins than our
OptiSwitch(TM) product line. For the three months ended September 30, 2000,
margins were negatively affected by the inclusion of operating results for
AstroTerra Corporation. Gross margins for AstroTerra Corporation were low due to
the fact that for the three months ended September 30, 2000 18% of AstroTerra
Corporation's revenues were derived from research and development contracts,
which carry lower margins than revenues derived from AstroTerra Corporation's
product sales.

Research and development expenses also decreased in the quarters ended June
30, 1999 and September 30, 1999 due to a large purchase of raw materials
associated with developing new product lines that occurred in the quarter ended
March 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

Since we commenced operations, our operating cash needs have been provided
by the contribution of equity capital by MRV Communications. We will continue to
rely on MRV Communications for our operating cash needs until the completion of
this offering.

30
<PAGE> 35

On September 30, 2000, we had working capital of $4.5 million, compared
with $3.3 million at December 31, 1999. The ratio of current assets to current
liabilities at September 30, 2000 was 1.7 to 1, compared to 3.0 to 1 at December
31, 1999. This decrease was primarily due to the inclusion of the operations of
Jolt Limited and AstroTerra Corporation at September 30, 2000.

Cash used in operating activities was $2.9 million for the nine months
ended September 30, 2000, compared to cash used in operating activities of $5.0
million for the nine months ended September 30, 1999. Net operating cash flows
for the nine months ended September 30, 2000 were favorably impacted by an
increase in accounts payable of $2.2 million, partially offset by an increase in
accounts receivable of $984,000 and amounts due from MRV Communications and its
affiliates of $896,000. Results of operations for the first nine months of 2000
were reduced by non-cash charges for the amortization of goodwill of $8.2
million and deferred stock compensation of $19.6 million.

Cash used in operating activities was $4.5 million in 1999, and $4.0
million in 1998. We experienced a decrease in operating cash flows from 1999
over 1998 despite a decrease in net loss year over year, due primarily to net
accounts receivable of $1.9 million in 1999 compared to nil in 1998. The
increase in accounts receivable is due to sales generated in 1999. This increase
in accounts receivable was partially offset by an increase in accounts payable.
Inventory levels increased in anticipation of increased sales.

Capital expenditures for property and equipment represent substantially all
of our cash used in investing activities in 1999 and 1998 and each of the nine
months ended September 30, 2000 and 1999. The capital expenditures reflect our
investment in expanding production and research and development capacity. We
anticipate additional capital expenditures of approximately $10.4 million for
fiscal 2001.

We believe that the net proceeds from this offering, along with our cash
flows from operations, will be sufficient to satisfy our working capital,
capital expenditure and research and development requirements for at least the
next 12 months. However, we may require or choose to obtain additional debt or
equity financing in order to finance acquisitions or other investments in our
business. Our future capital requirements will depend on many factors, including
our rate of revenue growth, the timing and extent of spending to support
development of new products and expansion of sales and marketing, the timing of
new product introductions and enhancements to existing products and market
acceptance of our products.

FOREIGN CURRENCY

We operate on an international basis with substantially all revenues
produced in US dollars. The US dollar is the functional currency of the
company's operations. We incur expenses for personnel and various purchases
incurred in those countries other than the United States, in the currency of
those countries, with the most significant one being the New Israeli Shekel.
Exchange rate fluctuations of the New Israeli Shekel in relation to the US
dollar have not been significant in recent years. We cannot predict the effect
of exchange rate fluctuations upon future operating results due to the number of
currencies involved. Historically we have not experienced significant variations
in financial results due to currency fluctuations. Also, we have not experienced
any material gains or losses on foreign currency transactions. We have not
historically attempted to reduce our currency risks through hedging instruments.
However, we may do so in the future.

INFLATION

We believe that our revenue and results of operations have not been
significantly impacted by inflation since we began operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Investments and Hedging Activities," and SFAS No. 137, which
delayed the effective date of SFAS No. 133. In June 2000, the

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<PAGE> 36

FASB issued SFAS No. 138 which provides additional guidance for the application
of SFAS No. 133 for certain transactions. We will adopt the statement in January
2001 and does not expect the adoption of this statement to have a material
impact on its financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements," and
as amended. SAB 101 summarizes certain of the Securities and Exchange
Commission's views in applying generally accepted accounting principles to
revenue recognition in financial statements. We have applied the provisions of
SAB 101 in the consolidated financial statements. The adoption of SAB 101 did
not have a material impact on our financial condition or results of operations.

In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting
for Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for certain
issues, including the definition of an employee, the treatment of the
acceleration of stock options and the accounting treatment for options assumed
in business combinations. FIN 44 became effective on July 1, 2000, but is
applicable for certain transactions dating back to December 1998. The adoption
of FIN 44 did not have a significant impact on our financial position or results
of operations.

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<PAGE> 37

BUSINESS

OVERVIEW

We design, manufacture and market optical wireless products that enable
service providers to offer high-speed broadband access within the last mile of
the communications network at a substantially reduced cost compared to other
existing solutions. We believe our products create a fundamental shift in the
design of the access network by allowing service providers to bypass traditional
copper infrastructure. Our products can be deployed quickly and cost effectively
and enable service providers to offer high-speed communications services as well
as other value-added services to business users. Our newly developed products
are designed to be deployed in a switched mesh architecture, which means that
our products allow transmission of data between any two points on the network
and enable full re-routing of traffic around a transmission link or equipment
failure.

INDUSTRY BACKGROUND

INCREASE IN DATA TRAFFIC ON THE EXISTING NETWORK

The volume of high-speed traffic across communications networks has grown
dramatically as the public Internet and private corporate intranets have become
an essential communications medium. According to Ryan, Hankin and Kent, a market
research firm, Internet traffic will increase from 350,000 terabytes, or
trillions of bytes, per month at the end of 1999, to over 15 million terabytes
per month in 2003. Much of this growth is expected to occur from increasing
demand by Internet and corporate users for data intensive applications such as
electronic commerce, streaming audio and video and other new applications.

EXISTING LAST MILE NETWORK INFRASTRUCTURE: A BOTTLENECK

In an effort to meet this expected growth in data traffic, many service
providers have made significant investments in the deployment of fiber optic
cable and related optical technologies, including wavelength division
multiplexing equipment which dramatically increases bandwidth, which is the
transmission capacity of fiber optic cable. Although the long-haul network,
which connects large cities or regions, is rapidly being upgraded to fiber optic
cable, upgrades to the last mile, which connects end-users to the central
office, have been slow and cost prohibitive. Unlike in the long-haul network,
which services a large number of users, the high cost of deploying fiber and
associated technologies in the last mile cannot be spread over a sufficiently
large number of users to justify such upgrades. Without these upgrades, the
performance of the entire communications network is compromised and service
providers are unable to extend high-speed communications services, or broadband
access, to the end-user. As an alternative, service providers are attempting to
extend the capacity of the existing copper-based last mile infrastructure by
introducing new services, such as digital subscriber lines that provide greater
transmission capacity than previous services.

EMERGENCE OF NEW SERVICE PROVIDERS

Over the last several years, worldwide deregulation in the
telecommunications market has fostered the development of a new generation of
service providers, known as competitive local exchange carriers. These carriers
historically have offered communication services by leasing portions of the
incumbent carrier's infrastructure and, as a result, their services are limited
to the bandwidth constraints of the existing last mile network. As customer
demand for bandwidth has increased, many of these carriers have discovered the
need to provide communication services through alternative means other than
existing copper-based networks. Some competitive local exchange carriers, known
as Greenfield providers, have recognized the customer need for broadband access
and are designing and implementing their own high-speed networks to eliminate
the need to rely on any portion of the incumbent carrier's infrastructure. Since
Greenfield providers own and manage their own networks, they are also able to
offer other value added services as well as multi-megabit and gigabit internet
protocol services. Another emerging type of service providers is

33
<PAGE> 38

building local exchange carriers, which are carriers formed by building owners
to provide telecommunication services to building tenants.

SOLUTIONS FOR THE LAST MILE BOTTLENECK

Currently, technologies employed to provide communications services over
the last mile include those based on copper, fiber, and fixed wireless
technologies. Despite partially addressing the increasing demand for bandwidth,
each of these is subject to inherent deficiencies that limit the effectiveness
of their respective technology.

Copper alternatives. Most service providers currently use copper-based
wireline solutions, including T-1, which provides high-speed transmission
services by bundling copper lines, digital subscriber lines and cable modems, to
address the last mile bottleneck. Copper, however, cannot adequately address the
need for high-speed connections required by most business users. While T-1 has
historically been adequate, the increasing demand for high-speed access has made
the relatively low bandwidth it provides impractical as a last mile solution.
Digital subscriber lines and cable modems are consumer-oriented solutions that
are relatively slow and insufficiently secure to be adequate for use by most
businesses. In addition, digital subscriber lines and cable modems are
characterized by transmission speeds that tend to be inconsistent and that vary
depending on the distance and quality of the copper cabling.

Fiber optic cable. A smaller number of service providers are offering
communications services over the last mile through fiber optic cable. Fiber
optic cable allows virtually unlimited bandwidth and can eliminate the last mile
bottleneck. However, deploying fiber in the last mile is expensive and time-
consuming, since it requires permits, rights-of-way, and the physical
installation of the cable. Deployment of fiber optic cable also involves a large
up-front investment since the cables have to be installed before services can be
offered. For these reasons, fiber connections are provided only to address the
bandwidth requirements of the largest buildings, where installation costs can be
spread over many users.

Wireless radio frequency alternatives. Another type of communication
technology deployed in the last mile is wireless radio frequency devices that
transmit information on licensed and unlicensed bands of the radio frequency
spectrum. Use of licensed bands requires approval from federal and local
jurisdictions, which can be time consuming and expensive. Although radio
frequency solutions eliminate the process associated with deploying fiber optic
cable, the bandwidth capabilities of radio frequency solutions that operate in
the licensed bands is usually limited to 155 megabits per second, which reduces
the effectiveness of wireless radio frequency devices as bandwidth needs
continue to rise. Radio frequency devices that use unlicensed bands do not
require approval from governmental agencies but the bandwidth is typically
restricted to 25 megabits per second. Wireless radio frequency solutions may
also require that wireless links be visible to each other, otherwise known as
line-of-sight, and suffer from transmission deterioration that occurs in heavy
rain, known as rain fade.

Optical wireless. Optical wireless technology, also known as free space
optics, is essentially fiber optics without the fiber cabling. Rather than using
fiber optic cable as the transmission medium, optical wireless technology
transmits light waves that carry data over the atmosphere. Each side of an
optical wireless link is comprised of a laser transmitter that generates the
light waves, and an optical receiver that recognizes the waves generated by the
transmitter. Unlike radio frequency devices, optical wireless technology has the
potential to provide virtually unlimited bandwidth because transmissions occur
in the optical domain and does not require service providers to obtain
governmental licenses which can be costly and time consuming. However, optical
wireless technology also requires line-of-sight between each link and
experiences atmospheric rain fade resulting from severe weather conditions such
as dense fog. Historically, the benefits of optical wireless technology have led
to its use in local area networks, since bandwidth needs for communications
within the corporate environment were far higher than for communications speeds
outside of the corporation. Businesses are now seeking to extend these
communications speeds outside their internal network environments. We believe
optical wireless technology is currently the only commercially available
solution that can extend these speeds over the last mile in a quick and cost
effective manner.

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<PAGE> 39

OUR SOLUTION FOR THE LAST MILE

We design, manufacture and market optical wireless products that enable
service providers to offer high-speed broadband access within the last mile of
the communications network in a cost effective and timely manner utilizing our
suite of reliable, scalable products. Our recently introduced products are
designed to be deployed in a switched mesh architecture, which means that our
products allow transmission of data between any two points on the network and
enable full re-routing of traffic around a transmission link or equipment
failure. In addition, these products feature a backup wireless radio frequency
option, which reduces problems associated with adverse weather conditions. We
offer our TereScope products, which provide optical wireless links, and our
OptiSwitch(TM) products, which enable switching, provisioning and aggregation.
All of these products can be remotely managed through our MegaVision network
management system. Because each of our products can perform independently, our
customers can also purchase products separately with no performance degradation.

Key benefits of our products include the following:

Low cost bypass of last mile copper infrastructure. Our optical wireless
products enable service providers to dramatically lower the cost of providing
high-speed broadband access to end-users compared to other commercially
available last mile solutions. Service providers can utilize our products to
provide bandwidth comparable to fiber optic cable and in excess of wireless
radio frequency alternatives. Our products can be deployed at lower costs
because deployment does not involve the expensive process of obtaining
rights-of-way, licenses, or permits from governments, digging into the ground to
lay cable, or charges for radio frequency spectrum rights.

Rapid deployment and service provisioning. Service providers, including
Greenfield providers and building local exchange carriers, can rapidly deploy
our optical wireless solution. Competing technologies such as fiber optic cable
and a number of radio frequency and copper-based alternatives take much longer
to deploy than our solution because these technologies require the
labor-intensive installation of equipment, rights-of-way, or governmental
licenses or other permits. The design of our TereScope products enables service
providers to avoid many of these time-consuming processes. Additionally, using
our MegaVision network management system, service providers can provision, or
allocate bandwidth among existing and new users, efficiently and
cost-effectively from a central location through a point-and-click graphical
user interface.

Leverage our comprehensive optical wireless products. With our TereScope
products providing the connectivity, our OptiSwitch(TM) products providing the
switching, provisioning and aggregation and our MegaVision products providing
network management capabilities, service providers can obtain from one source
every network element necessary to establish an end-to-end access network.
Moreover, the interoperability of our products enables service providers to
efficiently and conveniently deploy our products without the need to maintain an
engineering staff dedicated to resolving compatibility issues and provides a
significant advantage over our competitors' commercially available products that
are not readily compatible.

Improved availability and reliability. Our products are designed to be
implemented in a switched mesh architecture that permits transmission of data
through multiple pathways. If any particular link is unavailable, communication
traffic can be immediately re-routed to preserve the connection. Our TereScope
products can be deployed with our optical communication link with an automatic
radio-frequency backup to provide complete wireless availability. This
combination of optical and radio frequency wireless technologies helps the data
link to remain connected whenever the line of sight between points in a wireless
link is temporarily blocked.

Improved scalability. Our TereScope and OptiSwitch(TM) products allow
service providers to efficiently expand and upgrade their networks as demand for
bandwidth and new services grows. Service providers can deploy our products on
an as needed basis without sacrificing their existing network investment,
allowing a pay-as-you-grow network buildout. The modular design of our products
enables service providers to change and upgrade their network infrastructure
without significant hardware changes or additions.

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<PAGE> 40

Creation of new revenue opportunities for service providers. We offer a
variety of software and systems-based features that can be added on to our core
products. These features allow service providers to offer new services including
service level agreements, quality of service enhancements, wavelengths dedicated
specifically to the end-user and bandwidth-on-demand, which is the ability to
offer different levels of bandwidth depending on the customer's needs. These
added features provide new and enhanced revenue opportunities for our customers
while enabling them to differentiate their network services from those of other
service providers.

OUR STRATEGY

Our objective is to be the leading provider of optical wireless products
designed to eliminate the last mile bottleneck. Key elements of our strategy
include the following:

Maintain and extend technology expertise. We intend to leverage our
expertise in developing optical wireless technology and supplying optical
wireless products. We hold patents and have additional patents pending on new
wireless optical technology and applications. We intend to maintain and extend
our technological position by continuing to define next-generation optical
wireless networks. We also believe our expertise in the design of switching
products is a key element of our technology focus. We will continue to invest in
research and development that focuses on innovative optical wireless and optical
networking technology and to aggressively recruit and retain talented engineers.

Leverage existing customer base. We intend to leverage our relationships
with existing customers to rapidly expand our customer base and increase sales
of our products. To date, we have deployed more than 3,000 optical wireless
links, most of which are point-to-point connections in Europe. Due to the
emerging nature of the optical wireless industry and given the importance of
network integrity, availability and reliability, we believe service providers
will focus on proven optical wireless vendors when making purchasing decisions.
Accordingly, we believe our existing customer base provides us with an advantage
when competing for new customers. Moreover, we intend to increase sales of our
switching products to existing customers, enabling them to deploy our
comprehensive products to improve the efficiency of their networks.

Enable our customers to offer new revenue-generating services to their
end-users. We intend to continue to develop and provide products that enable
our customers to deliver new revenue-generating services to end-users. We intend
to ensure that our hardware and software architectures continue to offer the
performance and flexibility to allow rapid introduction of new services. We
intend to work closely with our customers to help them identify new services
that they can deliver using our products.

Expand sales, marketing and support network. We believe that the highly
technical nature of our products and the needs of our existing and potential
customers requires us to maintain a knowledgeable, proactive and capable sales,
marketing and support organization. We are adding to our direct sales and
support staffs in order to support competitive local exchange carriers,
including Greenfield providers, and building local exchange carriers and other
service providers who need a reliable, low cost, high bandwidth last mile
solution. We also intend to complement our sales and marketing efforts by
investing in customer support functions, to ensure that our close customer
relationships continue after products are deployed, to sustain our relationships
and to identify new areas for technical improvement and development.

Pursue acquisitions and establish strategic alliances. We intend to pursue
acquisitions that will enable us to broaden our technology offerings and gain
access to additional skilled employees. For example, with AstroTerra
Corporation, we acquired technologies which increased the distance our optical
signal can travel, added a backup radio-frequency option to our TereScope
products and substantially increased our engineering staff. In addition, we
intend to establish strategic alliances with complementary technology suppliers.

36
<PAGE> 41

TECHNOLOGY AND PRODUCTS

PRODUCT ARCHITECTURE

Our TereScope products utilize high-powered optics which allow for
high-speed, long distance optical wireless transmission of data. By installing
our TereScope products in a mesh configuration with a minimum of two connections
into each building and utilizing our OptiSwitch(TM) switching technology, our
products enable full re-routing of traffic around a link or equipment failure.
Additional redundancy is available through the use of our TereScope Fusion
series, which offers optical wireless communication with a wireless
radio-frequency backup. The backup radio frequency transmitters and receivers
can be programmed to begin transmitting when the primary laser connection fails.
Alternatively, they can be programmed to run in parallel with the laser signal,
ready for automatic switch over if the primary signal degrades. We believe we
offer one of the first commercially available wireless optic systems with
built-in auto fallback to radio frequency links.

Our TereScope devices can be installed on a building's rooftop or side or
in an office behind a window rather than a radio tower. Our products are
designed to be deployed in a mesh architecture, but can also be installed to
connect two discreet points, or in a hub and spoke design, known as a star
architecture. In a mesh architecture deployment, our TereScope products are
installed in a grid-like system thereby providing each building in the mesh
architecture with more than one connection to the mesh network. Our mesh
architecture also allows data traffic to be routed to take the most efficient
path. The mesh is generally intended to be installed in metropolitan areas and
business parks.

The following diagram illustrates the process of transmitting data across a
typical mesh architecture utilizing our TereScope and OptiSwitch(TM) products in
concert with our MegaVision network management system:

[OPTICAL ACCESS SOLUTION DIAGRAM]

37
<PAGE> 42

In the center of the diagram is a picture of a tower-like building (the
center building). On the rooftop of the center building are five TereScopes, a
six-sided rectangular device that has one of its long sides resting on a tripod.
The short side of the rectangular box faces outwards from the building and has a
round hole on it covered with glass. A line extends from each glass covering on
the Terescope product on the five buildings surrounding the center building (the
outside buildings). The lines represent the laser connection between the
TereScopes. Each of the five outside buildings has three TereScope products on
the rooftop of the building. In addition to the connections between the
TereScopes on center building and the outside buildings, there are also
connections (depicted by a line) between the TereScopes on the outside
buildings.
As a component of the TereScope on a building on the left side of the page,
there is a drawing of OptiSwitch product. There is also an enlarged picture of
the OptiSwitch product. A caption pointing to the product reads: 'OptiSwitch in
each building enable switching and other value added services.'
On the bottom right hand corner there is an enlarged picture of a computer
monitor, hard drive and key board which displays the MegaVision product. A
caption next to this picture states: 'MegaVision provides user friendly
graphical interface to manage the network from a remote location.'

OPTICAL WIRELESS PRODUCTS

The TereScope is constructed with a transmitter, which emits light that
does not damage the human eye, and a receiver that detects light. We offer a
range of TereScope products, the smallest of which looks like a security camera
and the largest of which is the size of a computer monitor. Our TereScope
products feature a number of recently developed technologies to account for
issues that have historically limited the use of optical wireless systems. These
patented technologies include a system that enables our TereScope products to
compensate for misalignment due to building movements or interference caused by
flying objects such as birds. In addition, TereScope products feature high power
laser transmitters and large optical receivers to permit connectivity over
longer distances.

Our TereScope products can be quickly installed either on a building's
rooftop, on the side of a building or in an office behind a window. A complete
TereScope system requires little space, eliminating large, unsightly components
and avoiding zoning issues. Additional benefits include substantial savings from
reduced installation, power and monthly space rental costs.

The TereScope wireless link offers bandwidth from 1.5 megabits per second
to 2.5 gigabits per second before application of dense wave division
multiplexing, a capacity enhancing technology. We also offer our TereScope
Fusion products that provide backup connectivity in the radio-frequency
spectrum. The backup facility on the TereScope Fusion products utilizes
unlicensed radio-frequency bands and provides speeds of 10 megabits per second.
We are also in the process of developing TereScope products that can support 16
channel dense wavelength division multiplexing technology, which will further
enhance capacity to enable us to provide speeds of 40 gigabits per second, and
micro-electro-mechanical systems technology, which will enable improved accuracy
for our high-speed TereScope products. Both of these products are anticipated to
be commercially available during the second half of 2001. The TereScope ranges
in list price from approximately $4,000 to $120,000, depending on data rate and
maximum range, with an additional $5,000 to $10,000 for a 10 megabit per second
radio frequency backup.

To date, we have deployed more than 3,000 optical wireless links,
approximately 60% of which are located in Europe, 30% in the United States and
10% in the Middle East. Some of the links in countries located in Eastern Europe
have been subject to severe weather conditions and we believe there has been no
material degradation in product performance in these areas.

The following chart describes major products in our family of TereScope
products. Each of these products became part of our product offerings as a
result of our acquisitions of Jolt Limited in May 2000 and AstroTerra
Corporation in July 2000:

<TABLE>
<CAPTION>
MAXIMUM
PRODUCT DATA RATE SUGGESTED RANGE
-------------------------- -------------------------- --------------------------
<S> <C> <C>
TereScope 40000 10 gigabits per second 1.6 kilometers
TereScope 10000 2.5 gigabits per second 1.6 kilometers
TereScope 3000 10 - 155 megabits per 3.75 kilometers
second
TereScope 10 1 - 25 megabits per second 2.0 kilometers
TereScope Fusion 10 megabits per second 3.75 kilometers
through radio-frequency
backup
</TABLE>

Sales of TereScope products were zero for 1999 and $2.4 million, or 16% of
net sales, for the nine months ended September 30, 2000.

SWITCHING AND BANDWIDTH MANAGEMENT

Our family of OptiSwitch(TM) products provides the switching functions
required to direct traffic from TereScope devices to the end user. Our
OptiSwitch(TM) products enable the service provider to introduce value-added
services including provisioning, which allows a service provider to provide
bandwidth to end users in 128 kilobits per second increments on a real-time
basis. New features in our OptiSwitch(TM) products

38
<PAGE> 43

support user authentication, authorization and access to the provider's billing
systems to allow for customized services for each user.

Our family of OptiSwitch(TM) products offers a modular design of circuit
boards, expandable up to 24 slots. Each slot supports hardware devices that can
add functionality and ports that provide connectivity to multiple end-users. The
exterior of each unit has cable connection ports which can support any
combination of modules and is expandable up to 192 ports of 100 megabits per
second or 24 ports of gigabit ethernet connections. Direct connection of the
OptiSwitch(TM) ports to our TereScope products allow service providers to offer
a complete cost-effective metropolitan solution.

The OptiSwitch(TM) 2400 series offers capacities up to 24 gigabits per
second, and can be installed by a provider for its metropolitan backbone link.
Our OptiSwitch(TM) products can easily be installed in each building or user's
location, allowing for an internet protocol network with the security,
scalability and reliability of a synchronous optical network, the high
performance network used in the metropolitan portion of the network, at
substantially reduced costs.

The following chart describes our switching and bandwidth management
products. The OptiSwitch(TM) products range in price from $1,400 to $190,000,
depending upon data rate and number of ports. Our initial OptiSwitch(TM) product
was introduced in the second quarter of 1999:

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
------------------------------------------------ -----------------------------------------------------
<S> <C> <C>
OPTISWITCH(TM)
OptiSwitch(TM) 2400 Series Modular multi-gigabit internet protocol backbone,
internet intrusion control, 24 gigabit capacity
OptiSwitch(TM) 1200 Series Modular multi-gigabit internet protocol backbone,
provisioning and aggregation capability, 12 gigabit
capacity
OptiSwitch(TM) 400/800 Series Internet protocol aggregation modular switched
circuit multiplexer, 8 gigabit capacity
OptiSwitch(TM) 100 Series Premises access internet protocol switched circuit
multiplexer

OPTISWITCH(TM) MASTER
OptiSwitch(TM) Master 10 Internet intrusion control and security
authentication, authorization
OptiSwitch(TM) Master 400/800 Accounting, quality of service and bandwidth
Series management
</TABLE>

Sales of OptiSwitch(TM) products were $8.5 million, or 100% of net sales,
for 1999 and $12.3 million, or 84% of net sales, for the nine months ended
September 30, 2000.

NETWORK MANAGEMENT

Our MegaVision management system provides software based graphical network
management and monitoring that is fully integrated with our optical transmission
and switching products. Our MegaVision network management system allows service
providers to provision their networks from a centralized location. With our
graphical interface, the provider receives a comprehensive view of the network
as well as fault isolation, configuration, performance and security management
of the network.

SALES, MARKETING AND CUSTOMER SUPPORT

SALES AND MARKETING

We utilize a direct sales staff comprised of sales representatives and
system engineers that target customers in the United States, Europe and Asia. As
of September 30, 2000, we employed eight sales representatives and five system
engineers. We anticipate increasing the size of our sales staff serving the
United States market. Our sales representatives are responsible for soliciting
new customers, identifying

39
<PAGE> 44

customer needs and recommending solutions for the effective use of our products.
Systems engineers work closely with our sales representatives to provide
strategic consultation, network design, product training and installation
support. We supplement our direct sales activity through a network of over 50
system integration companies located throughout the world that are approved
resellers of our products. We also have a one year non-exclusive distribution
agreement with iTouch Communications, a subsidiary of MRV Communications. This
non-exclusive arrangement allows iTouch Communications to sell competitive
products which could include those of MRV Communications and its subsidiaries
and affiliates. The agreement may be renewed at the mutual consent of the
parties. For 1999, 28% of net sales were to iTouch Communications compared to
16% for the nine months ended September 30, 2000.

Our sales organization is supported by a marketing effort intended to
increase our visibility in providing wireless optical solutions for the last
mile. Our marketing strategy includes the following:

- Advertising in industry trade publications;

- Focused seminars to target customers;

- Participation in industry trade shows and technical conferences;

- Communication with market research and analyst firms;

- Publication of articles in the industry trade press covering both
technical and application issues; and

- Strong web-based communication.

Sales in the United States were $2.4 million, or 29% of net sales, for 1999
and $4.8 million, or 32% of net sales for the nine months ended September 30,
2000. Sales in Asia-Pacific were $765,000, or 9% of net sales, for 1999 and
$710,000, or 5% of net sales for the nine months ended September 30, 2000.
European sales were $5.1 million, or 60% of net sales, for 1999 and $9.2
million, or 62% of net sales for the nine months ended September 30, 2000. Our
foreign operations expose us to certain credit and other risks.

CUSTOMER SERVICE AND SUPPORT

We believe that a strong support organization is a key element in customer
acceptance of our products and for our long-term relationship with our
customers. We are committed to providing our customers with a superior level of
service and support. Our customer services include post-sales technical
services, problem solving and resolution, product maintenance support and
expedited equipment replacement. Customers can choose additional customer
support services through a variety of fee-based programs. We provide customer
support 24 hours a day and seven days a week. As of September 30, 2000, we
employed six people in our customer service organization.

RESEARCH AND DEVELOPMENT

Our future success depends on the ability to constantly increase the
performance of our products, to develop and introduce new products in order to
meet the changing needs of our customers and maintain technological
competitiveness. Our development decisions and plans are influenced from our
customers' input, market needs and industry trends.

We have assembled a team of skilled engineers with extensive experience in
the fields of optical, mechanical, electrical and network management design. Our
research and development organization includes scientists and engineers who are
located at our design centers in California and Israel. We are pursuing several
research and development projects, including:

- Focusing on micro-electro-mechanical systems, or MEMS, technology and the
development of an all-optical network;

- Developing advanced wavelength division multiplexing technology for
deployment in devices that will enable us to provide additional bandwidth
to our customers;

- Focusing on custom application specific integrated chip, which are
computer chips designed for use in our products;

40
<PAGE> 45

- Designing and developing software that will enable us to provide enhanced
services to our customers;

- Designing next-generation optical wireless platforms to extend the reach
and increase the bandwidth of our current product offerings; and

- Designing additional features to complement our existing optical wireless
products.

Research and development expenses were $3.2 million for the period from
April 1, 1998 (date of inception) through December 31, 1998, $4.5 million for
the year ended December 31, 1999 and $14.8 million for the nine months ended
September 30, 2000. As of September 30, 2000, we employed 77 people in our
research and development department.

MANUFACTURING AND SUPPLY

We focus our manufacturing efforts to produce uniformly high quality
products that perform according to their design specifications. Although we are
expanding our internal manufacturing capabilities through the addition of new
manufacturing personnel, facilities and equipment, we are seeking to outsource
manufacturing where it is cost-effective to do so and there is minimal risk of
compromising our proprietary technologies and processes. Our strategy is to
outsource all mass production including full turn-key manufacturing. As we
refine and outsource our manufacturing process, we will be able to focus our
efforts on research and new product development.

All complex electronic and optical assembly and testing is performed in our
own facilities in San Diego, California, Jerusalem, Israel and Yokneam, Israel.
We utilize outside facilities from Flextronics for manufacturing both in
California and Israel, and we have informal back-up contract manufacturing
arrangements with other providers. Our agreement with Flextronics expires in
June 2001 and is terminable upon written consent of both parties.

We maintain in-house capabilities for final assembly and testing, quality
control, material purchasing and act as a backup for our outside manufacturing
suppliers. Prior to shipping to a customer, all of our products undergo a
thorough and comprehensive testing process designed to verify their conformance
with our design specifications and operational characteristics.

Most of our key components are available from multiple sources, although we
are dependent on sole source for several key components. We do not anticipate
any material disruption in our ability to manufacture in the event that one of
our suppliers experiences an inability to deliver a component. We continually
re-evaluate our process and suppliers seeking to lower our costs to manufacture
our products. As of September 30, 2000, we employed 33 people in our
manufacturing department.

COMPETITION

We compete in a rapidly evolving and highly competitive market. There are
many companies that have products that compete directly with our individual
products. Direct competitors for our optical wireless technology include
AirFiber, Canon and TeraBeam. Indirect competitors include companies that
provide radio frequency wireless solutions, such as Netro, Ceragon Networks and
Adaptive Broadband. In addition, we believe companies in emerging industries
attempting to address the last mile bottleneck, such as those in the passive
optical networking industry, could be future competitors. Direct competitors for
our switching products include Cisco Systems, Extreme Networks, Foundry Networks
and Nortel Networks.

We expect to compete favorably with these companies referred to in the
preceding paragraph as well as new entrants in the market. We believe that the
principal competitive factors in our market include:

- Product performance and features;

- Ability to provide comprehensive, integrated products;

- Speed and cost of deployment and service provision;

41
<PAGE> 46

- Ability to increase network capacity; and

- Ongoing support and service.

Many of our competitors have longer operating histories, better name
recognition, larger customer bases, and greater sales, technical marketing and
financial resources than we do, and may be able to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and provide more
services than we can. To remain competitive, we must continue to enhance our
customer support abilities and intensify our manufacturing efforts.

In addition, although we believe optical wireless technology is the most
effective means of addressing the last-mile bottleneck, it is subject to certain
deficiencies. For instance, in certain cases, where services may require a
solution that covers distances exceeding four kilometers or during adverse
weather conditions such as dense fog, technologies such as wireline solutions
may be more desirable.

EMPLOYEES

As of September 30, 2000, we employed 173 persons, of whom 77 were engaged
in research and development, 33 in manufacturing, 15 in operations and 48
persons in sales, marketing, customer support and administrative activities.
None of our employees are represented by a labor union. We consider our
relations with our employees to be good.

INTELLECTUAL PROPERTY

Our strategy is to actively pursue and acquire patent protection in the
United States and foreign jurisdictions for technology that we believe to be
proprietary and that offers a potential competitive advantage for our inventions
and technology. We own six issued U.S. patents, five issued foreign patents,
thirteen patents pending in the United States, and two Patent Cooperation Treaty
patent applications on various aspects of optical laser network and wireless
network technologies. Three patents and eight patents pending acquired in
connection with the AstroTerra Corporation acquisition as well as five patents
and two patents pending acquired in connection with the Jolt Limited acquisition
have substantial importance to our line of TereScope products. Assuming all
maintenance fees are paid, the six U.S. patents will expire between 2013 and
2018. Assuming all annuities are paid, the five foreign patents will expire
between 2012 and 2015. We intend to continue to acquire rights to and to file
patent applications for various aspects of our technology in the United States
and abroad. We also use copyright and trademark law to protect our proprietary
information.

In addition to patents, copyrights and trademarks, we rely on trade secrets
and proprietary know-how. We seek protection of these trade secrets and
proprietary know-how, in part, through confidentiality and proprietary
information agreements. We require our employees, directors, consultants and
advisors, any outside scientific collaborators, any outside sponsored
researchers, and other individuals and entities to execute confidentiality
agreements upon the start of employment, consulting, or other contractual
relationships with us. These agreements provide that all confidential
information developed or made known to the individual or entity during the
course of the relationship is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees and some
other parties, the agreements provide that all inventions conceived by the
individual will be our exclusive property.

FACILITIES

Our corporate headquarters are located in Chatsworth, California where we
share space with MRV Communications in accordance with the terms of the real
estate matters agreement between us and MRV Communications. We maintain our main
manufacturing, development and office facilities in San Diego,

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<PAGE> 47

California and Jerusalem, Israel and Yokneam, Israel. The table below lists the
locations, square footage, annual rent and expiration dates of our leased
facilities for our major operations.

<TABLE>
<CAPTION>
SQUARE FOOTAGE
LOCATION LEASED ANNUAL RENT LEASE EXPIRATION DATE
-------- -------------- ----------- ---------------------
<S> <C> <C> <C>
San Diego, California................. 16,166 $112,992 4/30/02(1)
San Diego, California................. 28,930 $138,168 12/31/01
San Diego, California................. 3,620 $ 53,700 month to month
Jerusalem, Israel..................... 19,526 $174,144 1/25/03
Jerusalem, Israel..................... 12,917 $129,600 9/30/03
Yokneam, Israel....................... 6,609 $ 87,324 8/16/03
Yokneam, Israel....................... 4,962 $ 61,032 7/30/03
Yokneam, Israel....................... 2,433 $ 44,748 8/28/03
</TABLE>

---------------
(1) We have the option to extend the lease term for one additional two year
period, with an annual rent increase of 10%, by providing 60 days prior
written notice. We may terminate the lease at any time, without penalty, by
providing 120 days prior written notice.

LEGAL PROCEEDINGS

On August 16, 2000, a complaint captioned Walden v. Jolt, Ltd. was filed
against Jolt Limited, various of its directors and shareholders, and MRV
Communications in the Tel Aviv-Jaffa District Court in Israel. The complaint
alleges various causes of action, including breach of contract, frustration of
performance of contract and acting in bad faith with respect to an investment
contract entered into by and among the plaintiffs, additional investors and Jolt
Limited, pursuant to which the plaintiffs were to have acquired a 38.36%
interest in Jolt Limited. The plaintiffs allege that as a result of defendants'
actions, they were forced by Jolt Limited to give notice of rescission of the
investment contract, and Jolt Limited subsequently entered into an agreement
with MRV Communications to sell all of its shares in exchange for shares and
stock options of MRV Communications. The plaintiffs are seeking actual damages
in the amount of 636,776 shares of MRV Communications (accounting for a
subsequent 2-for-1 stock split of MRV Communications shares) and $17.9 million
plus interest, which represents a 38.36% interest in the shares of MRV
Communications that the plaintiffs would have received as shareholders of Jolt
Limited on the date of sale to MRV Communications had the investment contract
not been rescinded. MRV Communications has agreed to indemnify us for any
liabilities we may incur in connection with this matter. We believe that Jolt
Limited and the other defendants have meritorious defenses to such claims and
they intend to defend these claims vigorously. Nevertheless, litigation is
uncertain, and Jolt Limited and the other defendants may not prevail in this
suit.

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<PAGE> 48

MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

The following table sets forth the names, ages and positions of our
executive officers, key employees and directors as of the date hereof. The
background of each person listed in the table is described below.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- ---------------------------------------------------
<S> <C> <C>
Dr. Shlomo Margalit............ 58 Chairman of the Board and Director
Guy Avidan..................... 38 Chief Executive Officer, President and Director
Dr. Eric Korevaar.............. 41 President of North American Operations and Chief
Technology Officer
Shay Gonen..................... 35 Vice President of Finance, Chief Financial Officer
and Secretary
Edna Ganon..................... 38 Vice President of Engineering
Allen Brandt................... 45 Vice President of Business Development
Noam Lotan..................... 48 Director
Lior Bregman................... 42 Director
Michael McDonough.............. 50 Director
</TABLE>

Dr. Shlomo Margalit has served as a Chairman of the Board and as a member
of our Board of Directors since September 2000. Dr. Margalit is a co-founder of
MRV Communications and has been its Chairman of the Board of Directors and Chief
Technology Officer since MRV Communications' inception in July 1988. Dr.
Margalit holds a B.S., M.A. and Ph.D. in electrical engineering from the
Technion, the Israel Institute of Technology.

Guy Avidan has served as our Chief Executive Officer, President and as a
member of our Board of Directors since September 2000. From January 1999 to
September 2000, Mr. Avidan served as President of NBase-Xyplex International a
subsidiary of MRV Communications. From 1995 to January 1999, Mr. Avidan served
as Managing Director of NBase-Communications, a subsidiary of MRV
Communications. Mr. Avidan holds a B.A. in business management, economics and
accounting from Haifa University and also is licensed as a Certified Public
Accountant.

Dr. Eric Korevaar has served as our President of North American Operations
and Chief Technology Officer since September 2000. Dr. Korevaar has served as
Director, President and Treasurer of AstroTerra Corporation since 1992. Dr.
Korevaar holds a B.S. in physics from the California Institute of Technology,
and an M.A. and Ph.D. both in mechanical and aerospace engineering from
Princeton University.

Shay Gonen has served as our Vice President of Finance, Chief Financial
Officer and Secretary since September 2000. From January 1999 to September 2000,
Mr. Gonen served as General Manager of European Activity for NBase-Xyplex a
subsidiary of MRV Communications. From September 1996 to December 1998, Mr.
Gonen served as Chief Operating Officer of NBase-Communications a subsidiary of
MRV Communications. From April 1994 to September 1996, Mr. Gonen served as Vice
President of Operations and Finance for Silver Arrow, L.P. Mr. Gonen holds a
B.S. in industrial engineering from Technion, the Israel Institute of Technology
and an M.B.A. from Bar-Ilan University in Tel Aviv.

Edna Ganon has served as our Vice President of Engineering since September
2000. From 1996 to September 2000, Ms. Ganon has served as Vice President of
Research and Development at NBase-Communications, a subsidiary of MRV
Communications. From 1995 to 1996, Ms. Ganon served as Director of Software
Engineering at Fibronics Ltd. Ms. Ganon holds a B.S. in computer and software
engineering from the Haifa Technion, Institute of Technology.

Allen Brandt has served as our Vice President of Business Development since
September 2000. From 1999 to September 2000, Mr. Brandt served as Vice President
of Strategic Accounts of NBase-Xyplex, a subsidiary of MRV Communications. From
1995 to 1998, Mr. Brandt served as Vice President of Sales of

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<PAGE> 49

NBase-Communications, a subsidiary of MRV Communications. Mr. Brandt holds a
B.S. from Western State University and a J.D. from Western State University
College of Law.

Noam Lotan has served as a member of our Board of Directors since our
incorporation in December 1999. Mr. Lotan served as our President, Secretary,
and Chief Financial Officer from our incorporation in December 1999 to September
2000. Mr. Lotan has served as the President, Chief Executive Officer and a
Director of MRV Communications since May 1990. From October 1993 to June 1995,
Mr. Lotan also served as MRV Communications' Chief Financial Officer. Mr. Lotan
holds a B.S. in electrical engineering from the Technion, the Israel Institute
of Technology and an M.B.A. in business administration from INSEAD, the European
Institute of Business Administration, Fontainebleau, France.

Lior Bregman has served as a member of our Board of Directors since
September 2000. Mr. Bregman is currently a managing director at CIBC World
Markets. Mr. Bregman has been employed in various positions by CIBC World
Markets and its predecessor, Oppenheimer & Co., since 1988. Mr. Bregman holds a
B.A. in business economics from Hebrew University and an M.B.A. from Stanford
University.

Michael McDonough has served as a member of our Board of Directors since
September 2000. Mr. McDonough has served as President of GTE Wireless from
February 2000 to August 2000 and Senior Vice President of Marketing and Sales of
GTE Wireless from June 1997 to February 2000. Mr. McDonough served as Senior
Vice President of GTE Corporation from April 1996 to June 1997 and as President
of GTE Telops from 1994 to 1996. Mr. McDonough holds a B.A. in economics from
the University of Montana and a Ph.D. in economics from Texas A&M University.

BOARD OF DIRECTORS

Our Board of Directors currently consists of five members, and we expect to
elect two additional members to our Board of Directors prior to the effective
date of this offering. Our Board of Directors is elected annually and hold
office until the next annual meeting of stockholders and until their successors
shall have been elected and shall have qualified.

Our Board of Directors appoints our executive officers on an annual basis
to serve until their successors have been elected and qualified. There are no
family relationships among any of our Board of Directors or officers.

DIRECTOR COMPENSATION

Our directors do not currently receive any cash compensation from us for
their services as members of the Board of Directors, although they are
reimbursed for travel and lodging expenses in connection with attendance at
Board and Committee meetings. Concurrently with the offering, we plan to grant
options to purchase 15,000 shares of common stock to each director who is not
our employee or an employee of MRV Communications at an exercise price equal to
the initial public offering price under our 2000 Stock Plan. We plan to
establish a policy that outside directors will receive grants of options to
purchase shares of our common stock annually for their services as directors.

BOARD COMMITTEES

Our Board of Directors established a Compensation Committee, an Audit
Committee and an Affiliate Committee. The Compensation Committee reviews and
recommends to the Board of Directors the compensation and benefits of all our
officers and establishes and reviews general policies relating to compensation
and benefits of our employees. The Compensation Committee consists of Lior
Bregman, Noam Lotan and Michael McDonough. The Audit Committee reviews our
internal accounting procedures and consults with and reviews the services
provided by our independent accountants. The Audit Committee consists of Michael
McDonough and Lior Bregman. The Affiliate Committee approves agreements and
arrangements between us and MRV Communications and any of its affiliates which
such committee determines to be outside the ordinary course of business. The
Affiliate Committee consists of

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<PAGE> 50

Michael McDonough and Lior Bregman. The members of the Audit and Affiliate
Committees are each independent directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Except for Noam Lotan, who was our President and Chief Executive Officer
from December 1999 to September 2000, none of the directors serving on the
Compensation Committee has ever been an officer or employee of Optical Access.
Prior to establishing the Compensation Committee in September 2000, the Board of
Directors as a whole performed the functions delegated to the Compensation
Committee. Except for Shlomo Margalit, none of our executive officers has served
on a Board of Directors or on a compensation committee of any other entity that
had officers who served or will serve upon the closing of this offering on our
Board of Directors or on our Compensation Committee. Dr. Margalit serves on the
Board of Directors of MRV Communications, which has two officers, Dr. Margalit
and Noam Lotan, serving on our Board of Directors. Dr. Margalit is the Chairman
of the Board and Chief Technology Officer of MRV Communications and Mr. Lotan is
the President and Chief Executive Officer of MRV Communications.

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

All of our outstanding common stock is currently owned by MRV
Communications, and thus none of our officers or directors owns any of our
common stock. To the extent our directors and officers own shares of MRV
Communications common stock at the time of the distribution, they will
participate in the distribution on the same terms as other holders of MRV
Communications common stock.

The following table sets forth the number of shares of MRV Communications
common stock beneficially owned on September 30, 2000 by each director, each of
the executive officers named in the Summary Compensation Table in the
"-- Executive Compensation" section below and all of our directors and executive
officers as a group. Except as otherwise noted, the individual director or
executive officer had sole voting and investment power with respect to such
securities. The total number of shares of MRV Communications common stock
outstanding as of September 30, 2000 was 72,292,085.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED(1)
----------------------
NAME NUMBER PERCENT
---- ---------- --------
<S> <C> <C>
Shlomo Margalit............................................. 3,337,060 4.6%
Guy Avidan(2)............................................... 45,000 *
Eric Korevaar............................................... 341,468 *
Shay Gonen(3)............................................... 12,500 *
Noam Lotan(4)............................................... 1,526,874 2.1%
Lior Bregman................................................ -- --
Michael McDonough........................................... -- --
All directors and executive officers as a group (7
persons).................................................. 5,262,902 7.3%
</TABLE>

---------------
* Less than 1%.

(1) Pursuant to the rules of the SEC, shares of common stock that an individual
or group has a right to acquire within 60 days pursuant to the exercise of
options or warrants are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.

(2) Includes 45,000 shares issuable pursuant to stock options exercisable within
60 days from September 30, 2000.

(3) Includes 12,500 shares issuable pursuant to stock options exercisable within
60 days from September 30, 2000.

(4) Includes 60,000 shares issuable pursuant to stock options exercisable within
60 days from September 30, 2000.

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<PAGE> 51

LIMITATION ON DIRECTOR'S LIABILITY AND INDEMNIFICATION

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:

- any breach of their duty of loyalty to the corporation or its
stockholders;

- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;

- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

- any transaction from which the director derived an improper personal
benefit.

The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence on the part of indemnified parties. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in their
capacity as an officer, director, employee or other agent, regardless of whether
the bylaws would permit indemnification.

We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification for judgments fines,
settlement amounts and expenses, including attorneys' fees incurred by the
director or executive officer in any action or proceeding, including any action
by or in our right, arising out of the person's services as a director or
executive officer, or any other company or enterprise to which the person
provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.

The limitations on liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty and
may reduce the likelihood of derivative litigation against our directors and
officers, even though a derivative action, if successful, might otherwise
benefit us and our stockholders. A stockholder's investment in us may be
adversely affected to the extent we pay the costs of settlement or damage awards
against our directors and officers under these indemnification provisions.

At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.

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<PAGE> 52

EXECUTIVE COMPENSATION

The following table sets forth compensation earned by our Chief Executive
Officer and our other most highly compensated executive officers whose annual
salary and bonus for the fiscal year ended December 31, 1999 exceeded $100,000
based on compensation earned as an employee at the entity indicated for the
fiscal year ended December 31, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- -------- -------- ------------
<S> <C> <C> <C>
Noam Lotan(1)............................................ $100,000 -- --
Guy Avidan(2)............................................ $102,000 $ 39,000 --
Chief Executive Officer and President
Eric Korevaar(3)......................................... $110,000 $ 5,000 $2,200(4)
President of North American Operations
Shay Gonen(5)............................................ $102,000 -- --
Vice President of Finance, Chief Financial Officer
and Secretary
</TABLE>

------------------------

(1) Noam Lotan resigned as our President, Secretary and Chief Financial Officer
in September, 2000. Mr. Lotan served as President and Chief Executive
Officer of MRV Communications for the fiscal year ended December 31, 1999.

(2) Guy Avidan served as President of NBase-Xyplex International, a subsidiary
of MRV Communications, for the fiscal year ended December 31, 1999. Mr.
Avidan joined us subsequent to December 31, 1999 and earns compensation at
an annual rate of $125,000.

(3) Eric Korevaar served as President, Secretary and Treasurer of AstroTerra
Corporation for the fiscal year ended December 31, 1999. Mr. Korevaar joined
us subsequent to December 31, 1999 and earns compensation at an annual rate
of $115,000.

(4) Represents a reimbursable spending allowance for health benefits equal to 2%
of annual salary.

(5) Shay Gonen served as General Manager of NBase-Communications, a subsidiary
of MRV Communications, for the fiscal year ended December 31, 1999. Mr.
Gonen joined us subsequent to December 31, 1999 and earns compensation at an
annual rate of $115,000.

EMPLOYMENT AGREEMENTS

Each of Guy Avidan and Shay Gonen will enter into an employment agreement
with us, which will be effective as of the consummation of this offering. The
employment agreements will each have an initial term expiring three years from
the closing of this offering. Each officer will be entitled to an annual base
salary and a discretionary annual bonus. The annual base salary for Mr. Avidan
will be $125,000 and the annual base salary for Mr. Gonen will be $115,000.

Each officer will agree not to compete, directly or indirectly, with
Optical Access or disclose confidential information regarding Optical Access
during the term of the agreement provided that the officer may own less than 5%
of the stock of a public company that competes with us. The employment
agreements will entitle the officers to receive certain benefits established by
Optical Access for its executive employees.

If an officer's employment agreement is terminated by the officer by mutual
agreement, upon death or disability of the officer, or for cause, which includes
any material act of dishonesty or commission of a crime involving fraud, then
the officer will receive, through the date of termination, his base salary and
any expense reimbursement under the agreement. If the officer is terminated
without cause, then the officer will receive his base salary and benefits under
the agreement for the lesser of the remainder of the employment term or 12
months from the date of termination. We have agreed that upon any merger,

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<PAGE> 53

reorganization, sale or disposition of assets or otherwise, the successor
company will be required to assume each employment agreement.

OPTION GRANTS IN LAST FISCAL YEAR, AGGREGATE OPTION EXERCISES AND FISCAL
YEAR-END OPTION VALUES

No options to acquire MRV Communications common stock were granted to any
of our executive officers named in the Summary Compensation Table during the
year ended December 31, 1999. The following table provides summary information
concerning outstanding MRV Communications stock options held by our executive
officers named in the Summary Compensation Table as of December 31, 1999.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Noam Lotan............................... 60,000 -- $1,698,750 --
Guy Avidan............................... 48,006 34,000 1,533,192 1,081,625
Eric Korevaar............................ -- -- -- --
Shay Gonen............................... 12,500 32,500 397,656 1,033,906
</TABLE>

---------------

(1) Based on the difference between $34.4375 per share (the closing price per
share of MRV Communications' common stock on December 31, 1999 as reported
on The Nasdaq National Market adjusted for MRV Communications' two-for-one
stock split effected in May 2000) and the per share exercise price.

STOCK PLAN

2000 STOCK PLAN

Our 2000 Stock Plan provides for the grant of qualified incentive stock
options that meet the requirements of Section 422 of the Internal Revenue Code,
non-qualified stock options, deferred stock and restricted stock awards. Our
Board of Directors adopted our 2000 Stock Plan in June 2000 and our stockholder
approved it in June 2000. We have reserved a total of 4,500,000 shares of our
common stock for issuance under our 2000 Stock Plan, which is subject to
anti-dilution provisions for stock splits, stock dividends, recapitalization and
similar events.

Our 2000 Stock Plan may be administered by our Board of Directors or a
committee appointed by our Board of Directors. The Board of Directors currently
administers our 2000 Stock Plan. The administrator of our 2000 Stock Plan has
the power to select participants among eligible persons and to determine the
terms of options or awards. Under current law, incentive stock options may be
granted to any individual who is an officer or employee of Optical Access or any
of its subsidiaries or any future subsidiaries.

The exercise price of any option granted under our 2000 Stock Plan is
payable in full in cash, or if approved by the administrator prior to exercise,
by surrender of shares of common stock already owned, cancellation of
indebtedness, a full recourse promissory note, withholding whole shares of
common stock then issuable upon exercise of an option, or any combination of the
foregoing.

Under our 2000 Stock Plan, we may make loans available to optionees,
subject the administrator's approval, in connection with the exercise of stock
options granted under our 2000 Stock Plan. If shares of common stock are pledged
as collateral for such indebtedness, such shares may be returned to us in
satisfaction of such indebtedness. If so returned, such shares shall again be
available for issuance in connection with future stock options and awards under
our 2000 Stock Plan.

In the event of a change of control, unless otherwise determined by the
administrator or our Board of Directors, all stock options, restricted stock and
deferred stock will fully vest and any indebtedness will be forgiven. Pursuant
to our 2000 Stock Plan, a change of control is deemed to have occurred if any
person obtains beneficial ownership of 50% or more of the combined voting power
of outstanding securities, there

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<PAGE> 54

is a change in our Board of Directors, there is a merger or consolidation of the
company or our stockholders approve a liquidation of Optical Access or an
agreement to sell substantially all of our assets.

Options and awards granted under our 2000 Stock Plan are generally not
transferable by the optionee, and each option and award is exercisable during
the lifetime of the optionee only by the optionee. Our Board of Directors may
from time to time revise or amend our 2000 Stock Plan, unless shareholder
approval is required, and may suspend or discontinue it at any time. Unless
terminated earlier, our 2000 Stock Plan will terminate automatically in
September 2010.

As of September 30, 2000, no options to purchase shares were outstanding
under our 2000 Stock Plan.

At September 30, 2000, we expected that options to purchase 2,800,000
shares of common stock will be granted to certain of our employees and
non-employee directors on the effective date of this offering at an exercise
price equal to the initial public offering price, which options will vest 25% at
the end of each year after their hire date, in the case of employees, and their
appointment date, in the case of directors.

CERTAIN TRANSACTIONS

Divisions and subsidiaries of MRV Communications are our customers and
purchase substantial quantities of our products. These customers accounted for
sales of $3.4 million for the year ended December 31, 1999 and $6.0 million
during the nine months ended September 30, 2000. There were no sales of this
nature to these customers for the period from April 1, 1998, the date of our
inception, through December 31, 1998. Sales to iTouch Communications, a
subsidiary of MRV Communications and a reseller of our products, constituted a
substantial portion of these sales. We have a one year non-exclusive
distribution agreement with iTouch Communications renewable upon the mutual
written consent of the parties. For 1999 we sold $2.4 to iTouch Communications
compared to $2.3 for the nine months ended September 30, 2000. In addition,
Luminent, Inc., a company substantially owned by MRV Communications, provides us
with active and passive optical components. For 1999, we purchased $144,000 of
components from Luminent compared to $331,000 for the nine months ended
September 30, 2000. No purchases were made for the period from April 1, 1998,
the date of our inception, through December 31, 1998. Like other customers and
suppliers, sales to and purchases from MRV Communications-related customers and
suppliers are based on purchase orders and, other than our arrangement with
iTouch Communications, we have no long-term arrangements with them. We expect
these relationships with MRV Communications and its affiliates to continue
following this offering. We believe that our sales to and purchases from MRV
Communications-related customers and suppliers have been on terms no more
favorable that those we provide to or obtain from our other customers and
suppliers. We expect that sales to and purchases from MRV Communications and its
affiliates in the future will be on terms no more favorable than those we
provide to or obtain from our other customers or and suppliers.

ARRANGEMENTS BETWEEN OPTICAL ACCESS AND MRV COMMUNICATIONS

We have provided below a summary description of the executed master
separation agreement along with the key related agreements. This description,
which summarizes the material terms of the agreements, is not complete. You
should read the full text of these agreements, which have been filed with the
Securities and Exchange Commission as exhibits to the registration statement of
which this prospectus is a part.

Conflicts may develop between MRV Communications and us as regarding the
terms of our agreements with MRV Communications. We have established a committee
of our Board of Directors, consisting of independent directors, to approve the
terms of any arrangement or agreement which they believe to be outside the
ordinary course of business to minimize the potential for these conflicts of
interest. Notwithstanding the operations of that committee, such conflicts may
not be resolved in our favor. It is our policy and the policy of MRV
Communications that transactions between MRV Communications and us will
generally be on terms and conditions comparable to those between unaffiliated
third parties.

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<PAGE> 55

However, because our agreements with MRV Communications were negotiated in the
context of a parent-subsidiary relationship, we cannot assure you that these
agreements, or the transactions with MRV Communications contemplated by such
agreements, will be effected on terms as favorable to us as could have been
obtained from unaffiliated third parties.

We have been advised by MRV Communications that MRV Communications has
approved this initial public offering at this time because of its perception of
favorable market conditions for the securities of companies engaged in the
optical wireless networking industry and its desire to provide us with an
alternative source of funding for our operations and capital resources.

MASTER SEPARATION AGREEMENT

The master separation agreement contains the key provisions relating to our
separation from MRV Communications and this offering.

The Separation. The separation occurred effective as of October 31, 2000.
The separation agreement provides for the transfer to us of assets and
liabilities from MRV Communications related to our business as described in this
prospectus. The various ancillary agreements that are exhibits to the separation
agreement and which detail the separation and various interim and ongoing
relationships between MRV Communications and us include:

- a general assignment and assumption agreement;

- technology, patent, and trademark ownership and license agreements;

- an employee matters agreement;

- a tax sharing agreement;

- a transitional services agreement;

- a real estate matters agreement;

- a confidential disclosure agreement; and

- an indemnification and insurance matters agreement.

To the extent that the terms of any of these ancillary agreements conflict
with the separation agreement, the terms of these agreements will govern. These
agreements are described more fully below.

The Initial Public Offering. Under the terms of the separation agreement,
we are obligated to use our reasonable commercial efforts to satisfy the
following conditions to the consummation of this offering, any of which may be
waived by MRV Communications:

- the registration statement containing this prospectus must be effective;

- United States securities and blue sky laws must be satisfied;

- our common stock must be listed on the Nasdaq National Market;

- all our obligations under the underwriting agreement must be met or
waived by the underwriters;

- MRV Communications must own at least 80.1% of our stock;

- no legal restraints must exist preventing the separation or this
offering;

- the separation must have occurred; and

- the separation agreement must not have been terminated.

Covenants Between MRV Communications and Optical Access. In addition to
signing documents that transfer control and ownership of various assets and
liabilities of MRV Communications relating to our business, we have agreed with
MRV Communications to enter into additional transitional service agreements,
exchange information, engage in auditing practices and resolve disputes in
particular ways.

Information Exchange. Both MRV Communications and we have agreed to share
information relating to governmental, accounting, contractual and other similar
requirements of our ongoing businesses,

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<PAGE> 56

unless the sharing would be commercially detrimental. In furtherance of this,
both MRV Communications and we have agreed as follows:

- Each party has agreed to maintain adequate internal accounting to allow
the other party to satisfy its own reporting obligations and prepare its
own financial statements.

- Each party will retain records beneficial to the other party for a
specified period of time. If the records are going to be destroyed, the
destroying party will give the other party an opportunity to retrieve all
relevant information from the records, unless the records are destroyed
in accordance with adopted record retention policies.

- Each party will use commercially reasonable efforts to provide the other
party with directors, officers, employees, other personnel and agents who
may be used as witnesses in and books, records and other documents which
may reasonably be required in connection with legal, administrative or
other proceedings.

Auditing Practices. So long as MRV Communications is required to
consolidate our results of operations and financial position, we have agreed to:

- not select a different independent accounting firm from that used by MRV
Communications without MRV Communications' consent;

- use reasonable commercial efforts to enable our auditors to date their
opinion on our audited annual financial statements on the same date as
MRV Communications' auditors date their opinion on MRV Communications'
financial statements;

- exchange all relevant information needed to prepare financial statements;

- grant each other's internal auditors access to each other's records; and

- notify each other of any change in accounting principles.

Dispute Resolution. If problems arise between MRV Communications and us,
we have agreed to the following procedures:

- The parties will make a good faith effort to first resolve the dispute
through negotiation.

- If negotiations fail, the parties agree to attempt to resolve the dispute
through non-binding mediation.

- If mediation fails, the parties can resort to binding arbitration. In
addition, nothing prevents either party acting in good faith from
initiating litigation at any time if failure to do so would cause serious
and irreparable injury to one of the parties or to others.

No Representations and Warranties. Neither party is making any promises to
the other regarding:

- the value of any asset that MRV Communications is transferring;

- whether there is a lien or encumbrance on any asset MRV Communications is
transferring; or

- the legal sufficiency of any conveyance of title to any asset MRV
Communications is transferring.

No Solicitation. Each party has agreed not to directly solicit or recruit
employees of the other party without the other party's consent for two years
after the separation date. However, this prohibition does not apply to general
recruitment efforts carried out through public or general solicitation or where
the solicitation is employee-initiated.

Expenses. All of the costs and expenses related to this offering as well
as the costs and expenses related to the separation will be allocated between
MRV Communications and us. It is anticipated that we will bear the costs and
expenses associated with this offering. We will each bear our own internal costs
incurred in consummating these transactions.

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<PAGE> 57

Termination of the Agreement. MRV Communications in its sole discretion
can terminate the separation agreement and all ancillary agreements at any time
prior to the closing of this offering. This offering will not proceed if the
separation and ancillary agreements are terminated. Both MRV Communications and
Optical Access must agree to terminate the separation and all ancillary
agreements after the closing of this offering.

GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT

The general assignment and assumption agreement identifies the assets MRV
Communications transferred to us and the liabilities we assumed from MRV
Communications in the separation. The agreement also describes when and how
these transfers and assumptions will occur. As of the separation date, MRV
Communications contributed and transferred to us all of the capital stock held
by MRV Communications in subsidiaries and other entities that conducted our
business and all other assets and liabilities associated with our business. The
capital stock transferred to us consists of:

- all of the capital stock of Jolt Limited; and

- all of the capital stock of AstroTerra Corporation.

The assets transferred to us include:

- all assets reflected on our balance sheet as of September 30, 2000, minus
any assets disposed of after September 30, 2000;

- all written off, expensed or fully depreciated assets that would have
appeared on our balance sheet as of September 30, 2000 if we had not
written off, expensed or fully depreciated them;

- all assets that MRV Communications acquired after September 30, 2000 that
would have appeared in our financial statements as of the contribution
date if we prepared such financial statements using the same principles
we used in preparing our balance sheet dated September 30, 2000;

- all assets that our business primarily uses as of the contribution date
but are not reflected in our balance sheet as of September 30, 2000 due
to mistake or omission;

- all contingent gains related primarily to our business;

- all supply, vendor, capital, equipment lease or other contracts that
relate primarily to our business, including contracts representing
obligations reflected on our balance sheet as of September 30, 2000;

- all computers, desks, equipment and other assets used primarily by
employees of MRV Communications who will become our employees due to the
contribution; and

- specified rights under existing insurance policies.

The subsidiaries and assets listed above comprise:

- all business operations whose financial performance is reflected in our
combined financial statements for the period ended September 30, 2000, as
set forth elsewhere in this prospectus; and

- all business operations relating to our business initiated or acquired by
MRV Communications after September 30, 2000.

Assumption of Liabilities. Effective on the separation date, we assumed
liabilities from MRV Communications, to the extent that these liabilities were,
prior to the separation date, liabilities held by MRV Communications related to
our business and except as provided in an ancillary or other agreement.

Excluded Liabilities. The general assignment and assumption agreement also
provides that we did not assume specified liabilities, including any liabilities
that would otherwise be allocated to us but which are covered by MRV
Communications' insurance policies, unless we are a named insured under such
policies.

Delayed Transfers. If it is not practicable to transfer specified assets
and liabilities on the separation date, the agreement provides that these assets
and liabilities will be transferred after the separation date.

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<PAGE> 58

Terms of Other Ancillary Agreements Govern. If another ancillary agreement
expressly provides for the transfer of an asset or an assumption of a liability,
the terms of the other ancillary agreement will determine the manner of the
transfer and assumption.

Obtaining Approvals and Consents. The parties have agreed to use all
reasonable efforts to obtain any required consents, substitutions or amendments
required to novate or assign all rights and obligations under any contracts that
will be transferred in the separation.

Expenses. We have agreed to pay all costs of the transfer of assets from
MRV Communications to us incurred on or after separation date, including:

- moving expenses;

- transfer taxes;

- expenses related to notices to customers, suppliers and other third
parties;

- fees related to the transfer or issuance of licenses, permits and
franchises;

- fees and expenses related to the assignment or transfer of contracts,
agreements and intellectual property; and

- costs related to the transfer of any employee.

Nonrecurring Costs and Expenses. Any nonrecurring costs and expenses that
are not allocated in the separation agreement or any other ancillary agreement
shall be the responsibility of the party that incurs the costs and expenses.

MASTER TECHNOLOGY OWNERSHIP AND LICENSE AGREEMENT

The master technology ownership and license agreement, or the master
technology agreement, allocates rights in technology other than patents, patent
applications and invention disclosures. In the master technology agreement, MRV
Communications confirmed that we own all technology developed by us, which
includes our subsidiaries, and, to the extent that any such technology is
registered in MRV Communications' name or to the extent MRV Communications
otherwise has any ownership rights in that technology, MRV Communications will
assign it to us. MRV Communications will not restrict our right to use the
assigned or jointly owned technology. In the event of an acquisition of either
party, the acquired party may assign the master technology agreement to its
acquirer. Nothing in the master technology agreement or in any of the other
intellectual property agreements summarized below limit or facilitate MRV
Communications' right to compete with us. However, the technology agreements do
give us control over the intellectual property needed for MRV Communications to
compete with us thus requiring MRV Communications to independently develop
technology before it competes with us.

MASTER PATENT OWNERSHIP AND LICENSE AGREEMENT

The master patent ownership and license agreement, or the master patent
agreement, allocates rights relating to patents, patent applications and
invention disclosures. In the master patent agreement, MRV Communications
confirmed that we own patents, patent applications and invention disclosures
that were developed by us, which includes our subsidiaries, and, to the extent
that any of these patents or patent applications are recorded in MRV
Communications' name, MRV Communications will assign them to us. The specific
patents, patent applications and invention disclosures being assigned are
identified in the master patent agreement. MRV Communications will not restrict
our rights to practice the assigned patents.

In addition, each party covenants not to sue the other party or the other
party's customers or suppliers for infringement of its patents that exist as of
the date or that are based on applications or invention disclosures that exist
as of the date. However, this does not mean that after the separation date MRV
Communications can use our technology without our consent to compete against us
without liability. The

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<PAGE> 59

products and services that are covered by the covenant are the products and
services of each party's business, as it exists as of the contribution date.

In the event of an acquisition of either party, the acquired party may
assign the master patent agreement except that the licenses and covenants not to
sue may not be assigned.

The master patent agreement also provides that MRV Communications and we
will assist each other in specified ways for a period of five years after the
date in the event either party is subject to patent litigation.

MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT

The master trademark ownership and license agreement, or the master
trademark agreement, allocates rights relating to trademarks, service marks and
trade names. In the master trademark agreement, MRV Communications confirmed
that we own our trademarks, service marks and trade names that we use in
connection with our business. Moreover, to the extent that any of our
trademarks, service marks and trade names are registered in MRV Communications'
name or to the extent that MRV Communications otherwise has ownership rights in
any of our trademarks, service marks and trade names, MRV Communications will
assign such rights to us. Similarly, it will assign any right to any cause of
action and any rights of recovery for past infringement of those of trademarks,
service marks and trade names. In addition, MRV Communications will grant us a
license to use a number of its trademarks, service marks and trade names in
marketing our products and will agree not to license such trademarks, service
marks or trade names to our competitors. In the event of an acquisition of
either MRV Communications or us, the acquired party may assign this agreement to
the acquirer.

EMPLOYEE MATTERS AGREEMENT

We have entered into an employee matters agreement with MRV Communications
to allocate assets, liabilities, and responsibilities relating to our current
and former employees and their participation in the benefits plans, including
stock plans, that MRV Communications currently sponsors and maintains.

All eligible Optical Access employees will continue to participate in the
MRV Communications benefits plans on comparable terms and conditions to those
for MRV Communications employees until we establish benefit plans for our
employees, or elect not to establish comparable plans, if it is not legally or
financially practical. We intend to establish our own benefit program in the
future.

Once we establish our own benefits plans, we may modify or terminate each
plan in accordance with the terms of that plan and our policies. No Optical
Access benefit plan will provide benefits that overlap benefits under the
corresponding MRV Communications benefit plan. Each Optical Access benefit plan
will provide that all service, compensation and other benefit determinations
that were recognized under the corresponding MRV Communications benefits plan
will be taken into account under that Optical Access benefit plan.

Assets relating to the employee liabilities will be transferred to us or
the related Optical Access plans and trusts from trusts and other funding
vehicles associated with MRV Communications' benefits plans.

TAX SHARING AGREEMENT

We have entered into a tax sharing and indemnification agreement with MRV
Communications, which allocates tax liabilities between MRV Communications and
us and addresses several other tax matters such as responsibility for filing tax
returns, paying tax liabilities, and controlling and cooperating in tax
disputes. The agreement requires MRV Communications to file with the Internal
Revenue Service all consolidated, combined or unitary tax returns that we join
in filing with MRV Communications for all tax periods both before and after the
separation date and requires MRV Communications to pay to the IRS all taxes with
respect to these tax returns. The agreement requires us to pay MRV
Communications for our allocable share of any taxes due with respect to such tax
returns. Our share of these taxes generally will be the amount of taxes that we
would pay if we were a separate stand-alone company. If we generate

55
<PAGE> 60

tax losses or credits that benefit other members of the MRV Communications
group, MRV Communications will reimburse us for the use of these losses or
credits. Conversely, if we benefit from losses or credits generated by MRV
Communications or any of its affiliates, we will reimburse MRV Communications
for the use of these losses or credits.

Each member of a consolidated group for United States federal income tax
purposes is jointly and severally liable for the group's federal income tax
liability for the period during which it is a member even after it withdraws
from the group, and the agreement does not change this result. Accordingly, we
could be required to pay a deficiency in the MRV Communications and its
affiliates' federal income tax liability for a period during which we were a
member of the group even if the agreement allocates that liability to MRV
Communications or another member. In this event, however, we would have a claim
for indemnification from MRV Communications under this agreement.

TRANSITIONAL SERVICES AGREEMENT

The transitional services agreement governs the provision of transitional
services by MRV Communications and us to each other, on an interim basis, until
one year after the separation date, unless extended for specific services or
otherwise indicated in the agreement. The services include data processing and
telecommunications services, such as voice telecommunications and data
transmission, and information technology support services, for functions
including accounting, financial management, tax, payroll, stockholder and public
relations, legal, procurement, and other administrative functions. Services are
generally cost plus 5%, but may increase to cost plus 10% if the services extend
beyond the one year period. The master transitional services agreement also
covers the provision of additional transitional services identified from time to
time after the separation date that were inadvertently or unintentionally
omitted from the specified services, or that are essential to effectuate an
orderly transition under the separation agreement, so long as the provision of
such services would not significantly disrupt MRV Communications' operations or
significantly increase the scope of its responsibility under the agreement.

REAL ESTATE MATTERS AGREEMENT

The real estate matters agreement addresses real estate matters relating to
the MRV Communications leased properties that MRV Communications will transfer
to or share with us. The agreement describes the manner in which MRV
Communications will transfer to or share with us various leased properties,
including the following types of transactions:

- assignments to us of MRV Communications' leases for specified leased
properties;

- subleases to us of portions of specified properties leased by MRV
Communications; and

- short-term licenses between MRV Communications and us permitting
short-term occupancy of selected leased sites.

The real estate matters agreement includes a description of each property
to be transferred to or shared with us for each type of transaction. The
standard forms of the proposed transfer documents, such as lease, sublease and
license, are contained in schedules.

The real estate matters agreement also requires both parties to use
reasonable efforts to obtain any landlord consents required for the proposed
transfers of leased sites, including our paying commercially reasonable consent
fees, if required by the landlords, and us agreeing to provide the security
required under the applicable leases.

The real estate matters agreement further provides that we will be required
to accept the transfer of all sites allocated to us, even if a casualty has
damaged a site before the contribution date. Transfers with respect to leased
sites where the underlying lease is terminated due to casualty or action by the
landlord prior to the contribution date will not be made, and neither party will
have any liability related thereto.

The real estate matters agreement also gives the parties the right to
change the allocation and terms of specified sites by mutual agreement based on
changes in the requirements of the parties. The real estate
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<PAGE> 61

matters agreement provides that all reasonable costs required to effect the
transfers, including landlord consent fees and landlord attorneys' fees, will be
paid by MRV Communications.

MASTER CONFIDENTIAL DISCLOSURE AGREEMENT

The master confidential disclosure agreement provides that both parties
agree not to disclose confidential information of the other party except in
specific circumstances. MRV Communications and we also agree not to use this
information in violation of any use restrictions in one of the other written
agreements between us.

INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT

General Release of Pre-Separation Claims. Effective as of the separation
date, subject to specified exceptions, we released MRV Communications and its
affiliates, agents, successors and assigns, and MRV Communications released us,
and our affiliates, agents, successors and assigns, from any liabilities arising
from events occurring on or before the separation date, including events
occurring in connection with the activities to implement the separation and this
offering. This provision will not impair a party from enforcing the separation
agreement, any ancillary agreement or any arrangement specified in any of these
agreements.

Indemnification. The indemnification and insurance matters agreement also
contains provisions governing indemnification. In general, we have agreed to
indemnify MRV Communications and its affiliates, agents, successors and assigns
from all liabilities arising from:

- our business, any of our liabilities or any of our contracts; and

- any breach by us of the separation agreement or any ancillary agreement.

MRV Communications has agreed to indemnify us and our affiliates, agents,
successors and assigns from all liabilities arising from:

- MRV Communications' business other than the Optical Access business;

- any liabilities we may incur in connection with the complaint captioned
Walden v. Jolt, Ltd.;

- claims related to the use of the name Optical Access or Optical Access,
Inc., or the use of any trademarks, service marks or trade names
associated with those names;

- patent claims related to or stemming from notices received from Nortel
Networks, Inc. as described in "Risk Factors" only as they relate to
sales of OptiSwitch(TM) products prior to this offering; and

- any breach by MRV Communications of the separation agreement or any
ancillary agreement.

These indemnification provisions do not apply to amounts collected from
insurance. The agreement also contains provisions governing notice and
indemnification procedures.

Insurance Matters. The agreement also contains provisions governing our
insurance coverage following the separation date. In general, we agree to
reimburse MRV Communications for premium expenses related to insurance coverage
during this period. We will work with MRV Communications to secure additional
insurance if desired and cost effective.

Environmental Matters. MRV Communications has agreed to indemnify us and
our affiliates, agents, successors and assigns from all liabilities arising from
environmental conditions existing as of the separation date at facilities
transferred to us, or which arise out of operations occurring before the
separation date at these facilities. Further, MRV Communications has agreed to
indemnify us and our affiliates, agents, successors and assigns from all
liabilities arising from environmental conditions caused by operations occurring
at any time, whether before or after the separation date, at any MRV
Communications facility.

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<PAGE> 62

We have agreed to indemnify MRV Communications and its affiliates, agents,
successors and assigns from all liabilities arising from environmental
conditions caused by operations after the contribution date at any of the
facilities transferred to us, and from environmental conditions at our
facilities arising from an event that occurs on or after the separation date.

Each party will be responsible for all liabilities associated with any
environmental contamination caused by that party post-separation.

Assignment. The indemnification and insurance matters agreement is not
assignable by either party without prior written consent.

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<PAGE> 63

PRINCIPAL STOCKHOLDERS

The table below sets forth certain information known to us with respect to
the beneficial ownership of our common stock at September 30, 2000 and after
giving effect to our sale of 5,000,000 shares of our common stock in this of
this offering, by:

- each stockholder beneficially owning 5% or more of our common stock;

- each of our directors who beneficially own our common stock;

- each of our executive officers who beneficially own our common stock; and

- all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or will become exercisable within 60 days after September 30, 2000
are deemed outstanding, while such shares are not deemed outstanding for
purposes of computing percentage ownership of any other person. To our
knowledge, the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. In providing the information in the
table below, we have

- assumed that neither MRV Communications nor any of our officers or
directors purchases any of our shares in this offering, and

- not (except as noted below) given effect to a potential distribution of
our common stock by MRV Communications after this offering. See
"Management -- Stock Ownership of Directors and Executive Officers" for a
description of the ownership of MRV Communications stock by our directors
and executive officers.

<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OWNED(2)
-----------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
MRV Communications, Inc.(1).................... 41,667,000 100% 88%
Guy Avidan..................................... 400,000(2) * *
Eric Korevaar.................................. 250,000(2) * *
Shay Gonen..................................... 250,000(2) * *
Lior Bregman................................... 15,000(2) * *
Michael McDonough.............................. 15,000(2) * *
All directors and executive officers as a group
(7 persons).................................. 930,000(2)(3) 2.3%(2)(3) 2.0%(2)(3)
</TABLE>

---------------

* Less than 1%

(1) MRV Communications' address is 20415 Nordhoff Street, Chatsworth, California
91311.

(2)Represents shares of Common Stock issuable upon exercise of stock options to
be granted on the effective date of this offering.

(3) Based on the beneficial ownership by our executive officers and directors of
MRV Communications common stock on September 30, 2000, if MRV Communications
had distributed its Optical Access shares to its stockholders on that date,
our officers and directors as a group would have owned 2,836,564 shares of
our common stock, or approximately 6.8% of our shares before this offering
and approximately 6.1% of our shares after giving effect to this offering.

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<PAGE> 64

DESCRIPTION OF CAPITAL STOCK

We are authorized to issue 200,000,000 shares of common stock, $.001 par
value per share, and 20,000,000 shares of undesignated preferred stock, $.001
par value per share.

COMMON STOCK

As of September 30, 2000, there were 41,667,000 shares of common stock
outstanding, which were held of record by one stockholder. Upon completion of
this offering, there will be 46,667,000 shares of common stock outstanding,
assuming no exercise of the underwriter's over-allotment option nor any exercise
of outstanding warrants and options.

The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably dividends, if any, as may be declared from time to
time by the Board of Directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up of Optical Access,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
preferred stock, if any, then outstanding. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and non-assessable, and the shares of common
stock to be issued upon the closing of this offering will be fully paid and
non-assessable.

PREFERRED STOCK

Our Board of Directors has the authority, without action by our
stockholders, to issue up to 20,000,000 shares of preferred stock in one or more
series and to designate the rights, preferences and privileges of each series,
any or all of which may be greater than the rights of the common stock. The
effect of the issuance of any shares of preferred stock upon the rights of
holders of the common stock might include, among other things, restricting
dividends on the common stock, diluting the voting power of the common stock,
impairing the liquidation rights of the common stock and delaying or preventing
a change in control of Optical Access without further action by the
stockholders. We have no plans to issue any shares of preferred stock upon
completion of this offering.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CHARTER AND DELAWARE LAW

Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer, a
proxy contest or otherwise and the removal of incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with us. We believe
that the benefits of increased protection of our potential ability to negotiate
with the proponent if an unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging takeover or
acquisition proposals because, among other things, negotiation of these
proposals could result in an improvement of their terms.

We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless, with exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a business combination includes a merger, asset
or stock sale, or other transaction resulting in a financial benefit to the
interested stockholder. Generally, an interested stockholder is a person who,
together with affiliates and associates, owns, or within three years prior to
the determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have an anti-takeover effect with respect to transactions not approved in
advance by the Board

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<PAGE> 65

of Directors, including discouraging attempts that might result in a premium
over the market price for the shares of common stock held by stockholders.

Our certificate of incorporation and bylaws require that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders or by a consent in writing.
In addition, special meetings of our stockholders may be called only by the
Board of Directors or our Chairman of the Board, or President. Our certificate
of incorporation and bylaws also provide that, beginning upon the closing of
this offering, our Board of Directors will be divided into three classes, with
each class serving staggered three-year terms, and that certain amendments of
the certificate of incorporation and of the bylaws require the approval of
holders of at least 66.7% of the voting power of all outstanding stock. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of Optical Access.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our restated certificate of incorporation provides that we will indemnify
our directors and officers to the fullest extent authorized by Delaware law, as
it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with the service for us or on our
behalf. The restated certificate of incorporation further provides that our
directors will not be personally liable for monetary damages to us for breaches
of their fiduciary duty as directors, unless they acted in bad faith or
knowingly or intentionally violated the law. In addition, we have entered into
indemnification agreements with our directors containing provisions which may
require us, among other things, to indemnify our directors against liabilities
that may arise by virtue of their status or service as directors, and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company, New York, New York.

LISTING

We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol of "OPXS."

SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of the common stock.

Upon completion of this offering, we will have outstanding 46,667,000
shares of common stock, which assumes

- the issuance of 5,000,000 shares of common stock offered by us; and

- no exercise of the underwriters' over-allotment option.

All of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act. If shares are
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act, their sales of shares would be subject to the limitations and
restrictions that are described below.

As of September 30, 2000, all of the remaining shares of common stock were
held by MRV Communications and were issued and sold by us in reliance on an
exemption from the registration requirements of the Securities Act. All these
shares will be subject to a lock-up agreement, described below, on the date of
this prospectus. In addition, the holders of stock options, which we plan to
issue

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<PAGE> 66

concurrently with this offering, could exercise such options and sell some of
the shares issued upon exercise as described below.

<TABLE>
<CAPTION>
APPROXIMATE SHARES
RELEVANT DATES ELIGIBLE FOR FUTURE SALE COMMENT
-------------- ------------------------ -------
<S> <C> <C>
On the date of this
prospectus................... 5,000,000 Freely tradable shares sold in
this Offering
180 days after the date of this
prospectus................... 41,667,000 Initial public offering lock-up
expires; shares salable under
Rule 144
</TABLE>

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or

- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.

Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public information
about us.

STOCK OPTIONS

As of September 30, 2000, there were no shares of common stock subject to
outstanding options under our 2000 Stock Plan. Immediately after the completion
of the offering, we intend to file registration statements on Form S-8 under the
Securities Act to register all of the shares of common stock issued or reserved
for future issuance under our 2000 Stock Plan. After the effective dates of
these registration statements, shares purchased upon exercise of options granted
under our 2000 Stock Plan would be available for resale in the public market.

LOCK-UP AGREEMENTS

Each of MRV Communications, which beneficially owns 41,667,000 shares of
our common stock, and our officers and directors, have agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of our common stock or enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of any shares of our common stock or any securities convertible into
or exercisable or exchangeable for shares of our common stock, for a period of
180 days after the date of this prospectus, without the prior written consent of
Bear, Stearns & Co. Inc., on behalf of the underwriters.

Bear, Stearns & Co. Inc., on behalf of the underwriters, may in its sole
discretion choose to release any or all of these shares from these restrictions
prior to the expiration of either the 180-day period.

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<PAGE> 67

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Bear, Stearns & Co. Inc., CIBC World Markets Corp., U.S. Bancorp Piper
Jaffray Inc. and First Security Van Kasper, Inc. are acting as representatives,
have severally agreed to purchase, and we have agreed to sell to them,
severally, the number of shares indicated below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Bear, Stearns & Co. Inc.....................................
CIBC World Markets Corp. ...................................
U.S. Bancorp Piper Jaffray Inc..............................
First Security Van Kasper, Inc. ............................
---------

Total............................................. 5,000,000
=========
</TABLE>

The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus are
subject to the approval of specified legal matters by their counsel and to other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered by this prospectus, if any such shares are taken.
However, the underwriters are not required to take or pay for the shares covered
by the underwriters' over-allotment option described below.

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price listed on the
cover page of this prospectus and part to designated dealers at a price that
represents a concession not in excess of $ a share under the initial
public offering price. Any underwriter may allow, and such dealers may re-allow,
a concession not in excess of $ a share to other underwriters or to
other dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives of the underwriters.

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 750,000
additional shares of common stock at the initial public offering price listed on
the cover page of this prospectus, less underwriting discounts and commissions.
The underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent this option is exercised,
each underwriter will become obligated, subject to limited conditions, to
purchase approximately the same percentage of additional shares of common stock
as the number listed next to the underwriter's name in the preceding table bears
to the total number of shares of common stock listed next to the names of all
underwriters in the preceding table.

The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The following table shows the underwriters' discounts to be paid to the
underwriters by us. Such amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.

<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------------- ----------------------
WITHOUT WITH WITHOUT WITH
OVER- OVER- OVER- OVER-
ALLOTMENT ALLOTMENT ALLOTMENT ALLOTMENT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions payable by us... $ $ $ $
</TABLE>

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<PAGE> 68

We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $2,000,000.

The representatives have informed us that the underwriters do not expect
sales to discretionary accounts to exceed 5% of the shares of common shares
being offered, and if made at all, no such sales shall be made without the prior
specific written approval of the customer.

We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "OPXS."

We, along with our directors, executive officers, stock option holders and
MRV Communications, have agreed that, without the prior written consent of Bear,
Stearns & Co. Inc. on behalf of the underwriters, we will not, during the period
ending 180 days after the date of this prospectus:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, whether
these shares or any such securities are then owned by the person or are
thereafter acquired, directly from us; or

- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock, whether any transaction described above is to be settled by
delivery of common stock or such other securities, in cash or otherwise.

The restrictions described in this paragraph do not apply to:

- the sale of shares to the underwriters; or

- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Covered
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from us in the offering. The underwriters
may close out any covered short position by either exercising their option to
purchase additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the overallotment option. Naked short sales are any
sales in excess of the underwriters' option to purchase additional shares from
us. The underwriters must close out any naked short position by purchasing
shares on the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the common stock in the open market after pricing that could adversely
effect investors who purchase in the offering. Stabilizing transactions consist
of various bids for or purchases of common stock made by the underwriters in the
open market prior to the completion of the offering.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of our stock
and, together with the imposition of the penalty bid, may stabilize, maintain or
otherwise affect the market price of the common stock. As a result, the price of
the common stock may be higher than the price that otherwise might exist in the
open market. If these

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<PAGE> 69

activities are commenced, they may be discontinued at any time. These
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to five percent of the shares of common stock offered
by this prospectus to our directors, officers, employees, customers and other
business associates who have expressed an interest in purchasing common stock in
the offering. There can be no assurance that any of the reserved shares will be
purchased. The number of shares of common stock available for sale to the
general public will be reduced to the extent these parties purchase the reserved
shares. Any reserved shares that are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares offered
by this prospectus.

We and the underwriters have agreed to indemnify each other against
specified liabilities, including liabilities under the Securities Act, and to
contribute to payments either of us may be required to make in respect thereof.

The provisions of Rule 2720 of the NASD's Conduct Rules apply to this
offering because CIBC World Markets, one of the representatives of the
underwriters of this offering, is our affiliate because Lior Bregman serves as
both a managing director of CIBC World Markets and as one of our directors and a
member of our Audit, Affiliate and Compensation Committees. When an NASD member
participates in the underwriting of an affiliate's securities, the NASD's
Conduct Rules provide that the public offering price per share can be no higher
than that recommended by a "qualified independent underwriter" meeting specified
standards. In accordance with this requirement, Bear, Stearns & Co. Inc. has
assumed the responsibilities of acting as a qualified independent underwriter
and has recommended a public offering price for shares of our common stock in
compliance with the requirements of Rule 2720 of the NASD's Conduct Rules. Both
in its role as lead manager of this offering and in its role as a qualified
independent underwriter, Bear, Stearns & Co. Inc. has performed due diligence
investigations and reviewed and participated in the preparation of this
prospectus and the registration statement of which this prospectus forms a part.
Bear, Stearns & Co. Inc. will not receive any additional compensation in
connection with acting as a qualified independent underwriter with respect to
this offering. We have agreed to indemnify Bear, Stearns & Co. Inc. against
certain liabilities it may incur in connection with its responsibilities as a
qualified independent underwriter, or to contribute to payments Bear, Stearns &
Co. Inc. may be required to make in connection with those liabilities.

Bear, Stearns & Co. Inc., the lead manager of this offering, has acted as a
co-manager of a completed Rule 144A/Regulation S offering of convertible
subordinated notes of MRV Communications, our parent, in June 1998 and also
acted as lead manager of a completed public offering of common stock of MRV
Communications in September 1997. Bear, Stearns & Co. Inc., received
underwriting compensation for its participation in these MRV Communications
offerings consistent with the NASD's Conduct Rules.

CIBC World Markets Corp., U.S. Bancorp Piper Jaffray, Inc. and First
Security Van Kasper, Inc., each a representative of the underwriters, acted as
co-manager of the completed public offering of common stock of Luminent, Inc. in
November 2000. MRV Communications holds approximately 90% of the outstanding
shares of common stock of Luminent. Each of these firms received underwriting
compensation for its participation in the Luminent offering consistent with the
NASD's Conduct Rules.

A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.

Prior to this offering, there has been no public market for the shares of
common stock. The initial public offering price for the shares of common stock
offered by this prospectus was determined by

65
<PAGE> 70

negotiations between us and the representatives of the underwriters. Among the
factors considered in determining the initial public offering price were:

- our record of operations, our current financial position and future
prospects;

- the experience of our management;

- sales, earnings and certain of our other financial and operating
information in recent periods; and

- the price-earnings ratios, price-sales ratios, market prices of
securities and financial and operating information of companies engaged
in activities similar to ours.

The estimated initial public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a result of market
conditions and other factors.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for us by Kirkpatrick & Lockhart LLP, Los Angeles, California. Paul,
Hastings, Janofsky & Walker LLP, Costa Mesa, California, will act as counsel for
the underwriters.

EXPERTS

The consolidated financial statements of Optical Access, Inc. included in
this prospectus to the extent and for the periods indicated in their report,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.

The financial statements of AstroTerra Corporation as of December 31, 1998
and 1999 and for each of the three years in the period ended December 31, 1999
included in this registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.

The financial statements of Jolt Limited as of December 31, 1998 and
December 31, 1999 and for the years ended December 31, 1998 and 1999 have been
included herein in reliance upon the report of Somekh Chaikin, a member firm of
KPMG International, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

WHERE YOU CAN FIND MORE INFORMATION ABOUT OPTICAL ACCESS

We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the shares of common stock in
this offering. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule that were filed with the
registration statement. For further information with respect to our common stock
and us, we refer you to the registration statement and the exhibits and schedule
that were filed with the registration statement. Statements contained in this
prospectus about the contents of any contract or any other document that is
filed as an exhibit to the registration statement are not necessarily complete,
and we refer you to the full text of the contract or other document filed as an
exhibit to the registration statement. A copy of the registration statement and
the exhibits and schedules that were filed with the registration statement may
be inspected without charge at the public reference facilities maintained by the
Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the Securities and Exchange Commission upon
payment of the prescribed fee. Information regarding the operation of the Public
Reference Room may be obtained by calling the Commission at (800) SEC-0330. The
Securities and Exchange Commission maintains a web site that contains reports,
proxy and information statements and other information

66
<PAGE> 71

regarding registrants that file electronically with the Securities and Exchange
Commission. The address of the site is http://www.sec.gov.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance with the requirements of the Securities Exchange Act will file
periodic reports, proxy statements and other information with the Securities and
Exchange Commission. These periodic reports, proxy statements and other
information will be available for inspection and copying at the regional
offices, public reference facilities and web site of the Securities and Exchange
Commission referred to above.

67
<PAGE> 72

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Optical Access, Inc.:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1999
(audited) and at September 30, 2000 (unaudited)........ F-3
Consolidated Statements of Operations for the period from
April 1, 1998 (date of inception) through December 31,
1998, for the year ended December 31, 1999 (audited)
and for the nine months ended September 30, 1999 and
2000 (unaudited)....................................... F-4
Statements of Parent Company Investment for the period
from April 1, 1998 (date of inception) through December
31, 1998, for the year ended December 31, 1999
(audited) and for the nine months ended September 30,
2000 (unaudited)....................................... F-5
Consolidated Statements of Cash Flows for the period from
April 1, 1998 (date of inception) through December 31,
1998, for the year ended December 31, 1999 (audited)
and for the nine months ended September 30, 1999 and
2000 (unaudited)....................................... F-6
Notes to Consolidated Financial Statements................ F-7

Financial Statements of Jolt Limited:
Independent Auditors' Report to the Shareholders of Jolt
Limited................................................ F-20
Balance Sheets as at December 31, 1999 and 1998........... F-21
Statements of Operations for the years ended December 31,
1999 and 1998.......................................... F-22
Statement of Changes in Shareholders' Equity for the years
ended December 31, 1998 and 1999....................... F-23
Statements of Cash Flows for the years ended December 31,
1999 and 1998.......................................... F-24
Notes to Financial Statements............................. F-26

Financial Statements of AstroTerra Corporation:
Report of Independent Public Accountants.................. F-37
Balance Sheets at December 31, 1998 and 1999 (audited) and
June 30, 2000 (unaudited).............................. F-38
Statements of Operations for the years ended December 31,
1997, 1998 and 1999 (audited) and for the six months
ended June 30, 1999 and 2000 (unaudited)............... F-39
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999 (audited) and for the
six months ended June 30, 2000 (unaudited)............. F-40
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999 (audited) and for the six months
ended June 30, 1999 and 2000 (unaudited)............... F-41
Notes to Financial Statements............................. F-42

Unaudited Pro Forma Condensed Consolidated Financial
Statements:
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................ F-50
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the nine months ended September 30,
2000................................................... F-51
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1999........ F-52
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information.................................. F-53
</TABLE>

F-1
<PAGE> 73

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder of Optical Access, Inc.:

We have audited the accompanying consolidated balance sheets of Optical
Access, Inc. (a Delaware corporation and a wholly-owned subsidiary of MRV
Communications, Inc.) and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, parent company investment and
cash flows for the period from April 1, 1998 (date of inception) through
December 31, 1998 and for the year ended December 31, 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. 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 Optical Access, Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for the period from April 1, 1998 (date of
inception) through December 31, 1998 and for the year ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP
Arthur Andersen LLP

Los Angeles, California
October 4, 2000

F-2
<PAGE> 74

OPTICAL ACCESS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1998 1999 2000
------ ------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ -- $ 141 $ 567
Accounts receivable, net of allowance of nil in 1998 and
1999 and $63 in 2000................................... -- 1,937 3,646
Inventories............................................... 1,092 1,942 3,570
Due from MRV and its affiliates........................... -- 499 1,591
Prepaids and other current assets......................... 350 405 1,200
------ ------ --------
Total current assets.............................. 1,442 4,924 10,574
------ ------ --------
Property and Equipment, net:
Machinery and equipment................................... 405 633 1,196
Furniture and fixtures.................................... -- -- 36
Computer hardware and software............................ 162 324 429
Leasehold improvements.................................... -- 534 925
------ ------ --------
567 1,491 2,586
Less -- Accumulated depreciation.......................... (20) (180) (528)
------ ------ --------
547 1,311 2,058
Goodwill, net............................................... -- -- 133,504
Other assets................................................ -- -- 465
------ ------ --------
Total assets...................................... $1,989 $6,235 $146,601
====== ====== ========
LIABILITIES AND PARENT COMPANY INVESTMENT
Current Liabilities:
Current portion of long-term debt......................... $ -- $ -- $ 172
Accounts payable.......................................... 433 1,393 4,807
Accrued payroll and related............................... 177 230 1,089
Other current liabilities................................. -- -- 15
------ ------ --------
Total current liabilities......................... 610 1,623 6,083
Long-term debt, net of current portion...................... -- -- 715
Other long-term liabilities................................. -- -- 355
Commitments and contingencies
Parent company investment................................... 1,379 4,612 139,448
------ ------ --------
Total liabilities and parent company investment... $1,989 $6,235 $146,601
====== ====== ========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 75

OPTICAL ACCESS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1998 NINE MONTHS ENDED
(DATE OF INCEPTION) SEPTEMBER 30,
THROUGH YEAR ENDED ------------------
DECEMBER 31, 1998 DECEMBER 31, 1999 1999 2000
------------------- ----------------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales(2)............................... $ -- $ 8,473 $ 4,518 $ 14,708
------- ------- ------- --------

Cost of sales(1)........................... -- 4,555 2,584 11,800
------- ------- ------- --------
Gross profit.......................... -- 3,918 1,934 2,908
Operating costs and expenses:
Selling, general and administrative(1)... -- 1,688 902 11,255
Research and development(1).............. 3,213 4,543 3,386 14,781
Amortization of goodwill................. -- -- -- 8,172
------- ------- ------- --------
3,213 6,231 4,288 34,208
------- ------- ------- --------
Operating loss............................. (3,213) (2,313) (2,354) (31,300)
Other expense, net....................... -- -- -- 46
------- ------- ------- --------
Loss before provision for income taxes..... (3,213) (2,313) (2,354) (31,346)
Provision for income taxes................. -- -- -- --
------- ------- ------- --------
Net loss.............................. $(3,213) $(2,313) $(2,354) $(31,346)
======= ======= ======= ========
Basic and diluted net loss per share....... $ (0.08) $ (0.06) $ (0.06) $ (0.75)
======= ======= ======= ========
Basic and diluted weighted average
shares................................... 41,667 41,667 41,667 41,667
======= ======= ======= ========
</TABLE>

---------------
(1) Includes amounts relating to deferred stock compensation of approximately
$3.5 million, $6.3 million and $9.8 million presented in "Cost of sales",
"Selling, general and administrative" and "Research and development",
respectively, for the nine months ended September 30, 2000.

(2) Includes amounts relating to sales to MRV and its affiliates of nil, $3.8
million, $2.1 million (unaudited) and $6.3 million (unaudited) for the
period from April 1, 1998 (date of inception) through December 31, 1998, the
year ended December 31, 1999, the nine months ended September 30, 1999 and
the nine months ended September 30, 2000, respectively (see Note 8).

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 76

OPTICAL ACCESS, INC.

STATEMENTS OF PARENT COMPANY INVESTMENT

<TABLE>
<CAPTION>
PARENT DEFERRED
COMPANY STOCK
INVESTMENT COMPENSATION TOTAL
---------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at April 1, 1998 (date of inception)................ $ -- $ -- $ --
Net loss.................................................. (3,213) -- (3,213)
Net investment from MRV Communications.................... 4,592 -- 4,592
-------- -------- --------
Balance at December 31, 1998................................ 1,379 -- 1,379
Net loss.................................................. (2,313) -- (2,313)
Net investment from MRV Communications.................... 5,546 -- 5,546
-------- -------- --------
Balance at December 31, 1999................................ 4,612 -- 4,612
Net loss (unaudited)...................................... (31,346) -- (31,346)
Net investment from MRV Communications (unaudited)........ 146,583 -- 146,583
Deferred stock compensation expense (unaudited)........... 75,000 (75,000) --
Amortization of deferred stock compensation expense
(unaudited)............................................ -- 19,599 19,599
-------- -------- --------
Balance at September 30, 2000 (unaudited)................... $194,849 $(55,401) $139,448
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 77

OPTICAL ACCESS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1998 NINE MONTHS ENDED
(DATE OF INCEPTION) SEPTEMBER 30,
THROUGH YEAR ENDED -------------------
DECEMBER 31, 1998 DECEMBER 31, 1999 1999 2000
------------------- ----------------- ------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $(3,213) $(2,313) $(2,354) $(31,346)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization... 20 160 110 373
Provision for doubtful
accounts...................... -- -- -- 52
Amortization of goodwill........ -- -- -- 8,172
Amortization of deferred stock
compensation expense.......... -- -- -- 19,599
Changes in assets and liabilities,
net of effects from acquisition:
Accounts receivable............. -- (1,937) (1,566) (984)
Inventories..................... (1,092) (850) (1,806) 154
Due from MRV and its
affiliates.................... -- (499) -- (896)
Prepaid and other current
assets........................ (350) (55) (535) (106)
Accounts payable................ 433 960 1,089 2,190
Accrued payroll and related..... 177 53 49 199
Other current liabilities....... -- -- -- (284)
------- ------- ------- --------
Net cash used in operating
activities............... (4,025) (4,481) (5,013) (2,877)
------- ------- ------- --------
Cash flows from investing activities:
Purchases of property and
equipment....................... (567) (924) (738) (696)
Purchase of investments............ -- -- -- (11)
Net cash received in connection
with Jolt and AstroTerra
acquisitions.................... -- -- -- 652
------- ------- ------- --------
Net cash used in investing
activities............... (567) (924) (738) (55)
------- ------- ------- --------
Cash flows from financing activities:
Payments on long-term debt......... -- -- -- (510)
Net change in other liabilities.... -- -- -- (323)
Net cash advances from MRV
Communications.................. 4,592 5,546 5,946 4,191
------- ------- ------- --------
Net cash provided by
financing activities..... 4,592 5,546 5,946 3,358
Net increase in cash and cash
equivalents........................ -- 141 195 426
Cash and cash equivalents, beginning
of period.......................... -- -- -- 141
------- ------- ------- --------
Cash and cash equivalents, end of
period............................. $ -- $ 141 $ 195 $ 567
======= ======= ======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 78

OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999

1. BUSINESS AND BASIS OF PRESENTATION

On April 29, 2000, MRV Communications, Inc. (MRV or the Parent) announced a
plan to create a separate company, subsequently named Optical Access, Inc.
(Optical Access or the Company), comprised of MRV's optical wireless business.
Historically, substantially all of Optical Access' operations were located in
Israel. In connection with the acquisition of AstroTerra Corporation
(AstroTerra) in July 2000 (see Note 3), Optical Access obtained its first
significant U.S. operations. Optical Access designs, manufactures and sells an
optical wireless solution that delivers high-speed communications traffic to the
portion of the communications network commonly known as the last mile. Its
solution provides higher transmission capacity, or bandwidth, at a lower cost
compared to other commercially available last mile solutions. After completion
of Optical Access' planned initial public offering, MRV will own at least 80.1%
of Optical Access' outstanding common stock.

Optical Access was incorporated in Delaware in December 1999 as a
wholly-owned subsidiary of MRV issuing to MRV 1,000 shares of its common stock.
In November 2000, Optical Access authorized 20,000,000 shares of $.001 par value
preferred stock and 200,000,000 shares of $.001 par value common stock and
effected a 41,667-for-one stock split of its outstanding common stock (see Note
10). There are no shares of preferred stock issued or outstanding.

On September 29, 2000, MRV and Optical Access entered into a Master
Separation Agreement (the Separation Agreement) effective on October 31, 2000
(the separation date), under which MRV will continue to fund working capital and
other needs for the first few months of operation as a separate, stand-alone
entity. Additionally, MRV will transfer to Optical Access, on or about the
separation date, substantially all of the assets and liabilities associated with
Optical Access' business.

The accompanying consolidated financial statements include the assets,
liabilities, operating results and cash flows of Optical Access and have been
prepared using MRV's historical bases in the assets and liabilities and the
historical results of operations that are transferred to Optical Access.
Additionally, there has been no interest charge reflected in Optical Access'
consolidated financial statements from fundings provided by MRV. However, the
financial information included herein may not reflect the consolidated financial
position, operating results, changes in parent company investment and cash flows
of Optical Access in the future or what they would have been had Optical Access
been a separate, stand-alone entity during the periods presented.

Optical Access faces numerous risks related to the fact that it has no
history as an independent company. In addition, Optical Access faces risks
commonly associated with a technology company such as operating in a sector that
is new and characterized by rapid technological change, evolving industry
standards, the need to generate capital to fund operations and uncertainty
regarding market acceptance of its products and products under development.
There can be no assurance that Optical Access will be successful in raising the
needed capital. Additionally, should Optical Access be successful in obtaining
capital, there can be no assurance that profitable operations can be achieved.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PARENT COMPANY INVESTMENT

The parent company investment account represents the book value of net
assets transferred to Optical Access.

F-7
<PAGE> 79
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Optical Access and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

INTERIM FINANCIAL STATEMENTS

The accompanying consolidated financial statements for the interim periods
included herein are unaudited. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States have been omitted, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These unaudited financial statements
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the results of
operations, changes in cash flows and financial position as of and for the
periods presented. The results for the interim periods presented are not
necessarily indicative of results to be expected for a full year.

REVENUE RECOGNITION

Sales to customers are made on the basis of individual purchase orders.
Revenue from products is recognized upon shipment, at which time, collection is
considered probable. Products are shipped "FOB shipping point" with no rights of
return other than normal warranty rights. Optical Access generally warrants its
products against defects in materials and workmanship for one year. The
estimated cost of warranty obligations, which have been insignificant, is
recognized at the time of revenue recognition. Revenue related to customer
support is recognized monthly as the services are performed. Revenue related to
extended support contacts have been insignificant.

Sales to MRV and its affiliates are made in the ordinary course of business
under terms and conditions that Optical Access believes are substantially equal
to terms and conditions granted to third party customers (see Note 8).

CASH AND CASH EQUIVALENTS

Optical Access considers all highly liquid investments with original
maturity of three months or less to be cash equivalents.

INVENTORIES

Inventories are stated at the lower of cost or market and consist of
materials, labor and overhead. Cost is determined by the first-in, first-out
method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:

<TABLE>
<S> <C>
Machinery and equipment..... 7 years
Furniture and fixtures...... 5 years
Computer hardware and
software.................. 3 years
Leasehold improvements...... Lesser of lease term or useful lives
</TABLE>

Maintenance and repairs are charged to expense as incurred and the costs of
additions and betterments that increase the useful lives of the assets are
capitalized.

F-8
<PAGE> 80
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

IMPAIRMENT OF GOODWILL AND OTHER LONG-LIVED ASSETS

Optical Access evaluates its long-lived assets, such as goodwill and
property and equipment, for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may be impaired.
Optical Access considers a history of operating losses to be its primary
indicator of potential impairment. An asset is deemed to be impaired if a
forecast of undiscounted future operating cash flows directly related to the
asset, including disposal value, if any, is less than its carrying amount. If an
asset is determined to be impaired, the loss is measured as the amount by which
the carrying value of the asset exceeds fair value. Optical Access measures fair
value by discounting estimated future cash flows. Considerable management
judgment is necessary to estimate discounted future cash flows. Accordingly,
actual results could vary significantly from such estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued expense are carried at cost,
which approximates their fair market value due to the short-term nature of those
instruments. The fair value of long-term debt obligations is estimated based on
current interest rates available to Optical Access for debt instruments with
similar terms, degrees of risk and remaining maturities. The carrying values of
these obligations approximate their fair values.

INCOME TAXES

Deferred income tax assets or liabilities are computed based on the
temporary differences between the financial statement and income tax bases of
assets and liabilities using the statutory marginal income tax rate in effect
for the years 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. For purposes of these financial
statements, income taxes have been calculated as if Optical Access had prepared
a tax return on a stand-alone basis.

STOCK-BASED COMPENSATION

Optical Access accounts for its employee stock plan under the intrinsic
value method prescribed by Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, and has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."

Deferred stock compensation charges are being amortized using the graded
vesting method. Using this method, approximately 57%, 26%, 13% and 4%,
respectively, of each option's compensation expense is amortized in each of the
four years following the date of grant.

EARNINGS PER SHARE

Basic and diluted earnings per common share are computed using the weighted
average number of common shares (adjusted for the effect of the stock split
discussed in Note 1 and 10) outstanding. The weighted average number of shares
used for computation of basic and diluted loss per shares used for all periods
presented were 41,667,000.

COMPREHENSIVE INCOME

Effective January 1, 1998, 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 (net

F-9
<PAGE> 81
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets) during a period from non-owner sources. To date, the Company has not had
any transactions that are required to be reported in comprehensive income
(loss), other than net loss.

STATEMENTS OF CASH FLOWS (UNAUDITED)

The "push down" of the assets and liabilities of Jolt Limited (Jolt) in
May, 2000, and AstroTerra in July 2000 (see Note 3), are non-cash transactions,
which have been excluded from the accompanying unaudited consolidated statement
of cash flows for the nine months ended September 30, 2000. There were no
additional non-cash items for any period presented. These non-cash transactions
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
<S> <C>
Detail of Jolt and AstroTerra Acquisitions:
Fair value of assets acquired............................. $ 5,200
Goodwill recorded......................................... 141,344
Liabilities assumed....................................... (3,862)
Common stock issued....................................... (142,030)
---------
Net cash received in acquisition....................... $ 652
=========
</TABLE>

FOREIGN CURRENCY

Management determined that the functional currency of its foreign
subsidiaries 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 remeasured into U.S. dollars in accordance with SFAS No. 52
"Foreign Currency Translation." Gains and losses from remeasurement are
reflected in the accompanying Consolidated Statements of Operations and are
immaterial in all periods presented.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Investments and Hedging
Activities," and SFAS No. 137, which delayed the effective date of SFAS No. 133.
In June 2000, the FASB issued SFAS No. 138 which provides additional guidance
for the application of SFAS No. 133 for certain transactions. Optical Access
will adopt the statement in January 2001 and does not expect the adoption of
this statement to have a material impact on its financial position or results of
operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," and
as amended. SAB 101 summarizes certain of the Securities and Exchange
Commission's views in applying generally accepted accounting principles to
revenue recognition in financial statements. We have applied the provisions of
SAB 101 in the consolidated financial statements. The adoption of SAB 101 did
not have a material impact on Optical Access' financial condition or results of
operations.

F-10
<PAGE> 82
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

3. BUSINESS ACQUISITIONS

On May 1, 2000, MRV completed the acquisition of all of the outstanding
capital stock of Jolt, an Israeli corporation. Jolt designs, manufactures and
sells multi-port wireless optics communications equipment. Under the terms of
the purchase agreement, shareholders received approximately 1.1 million shares
of MRV common stock. In addition, the employees of Jolt received options to
purchase approximately 849,000 shares of common stock of MRV. The purchase price
aggregated approximately $57.7 million. The issuance price of the common stock
was approximately $31 per share, which was determined based on the average
market price five days before and after the terms of the acquisition were agreed
upon. The options to purchase common stock are exercisable at $6 per share, have
an aggregate intrinsic value of $25.0 million, and vest over an employment
period of four years. The acquisition is being accounted for using the purchase
method of accounting. The assets and liabilities of the acquired entity have
been "pushed down" to Optical Access. The excess purchase price paid over the
fair value of the net identifiable assets acquired of $32.7 million has been
recorded as goodwill and is being amortized on a straight-line basis over 5
years. The deferred compensation of approximately $25.0 million is being
amortized using the graded vesting method over four years.

On July 12, 2000, MRV completed the acquisition of AstroTerra, a California
corporation that develops and manufactures free-space optical wireless
communication systems to connect data and telecommunications networks. MRV
exchanged approximately 1.6 million shares of its common stock for all of the
outstanding capital stock of AstroTerra. In addition, the employees of
AstroTerra received options to purchase approximately 809,000 shares of common
stock of MRV. The purchase price aggregated approximately $160.3 million. The
issuance price of the common stock was approximately $65 per share, which was
determined based on the average market price five days before and after the
terms of the agreement were agreed upon. The options to purchase common stock
are exercisable at approximately $3 per share, have an aggregate intrinsic value
of approximately $50.0 million and vest over an employment period of four years.
The deferred compensation is being amortized using the graded vesting method
over four years. The excess purchase price paid over the fair value of the net
identifiable assets acquired of $108.6 million has been recorded as goodwill and
is being amortized on a straight-line basis over 5 years.

The purchase price of Jolt and AstroTerra were allocated using management's
best estimates and may change pending the final valuation of the net assets,
which is to be completed by the end of the year. Management does not expect that
any modifications to the purchase price allocation will have a material effect
on its financial position or results of operations. The preliminary purchase
price allocation is as follows (in thousands):

<TABLE>
<S> <C>
Purchase Price.............................................. $218,030
Allocation of purchase price:
Net tangible assets....................................... 1,686
Deferred stock compensation............................... 75,000
Goodwill and other intangibles............................ 141,344
</TABLE>

F-11
<PAGE> 83
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The outstanding capital stock of Jolt and AstroTerra purchased by MRV, has
been contributed to Optical Access. The results of operations of Jolt and
AstroTerra have also been included in Optical Access' consolidated financial
statements from the date of their respective acquisition. The following
unaudited pro forma financial information presents the combined results of
operations of Optical Access, Jolt, and AstroTerra as if the acquisitions had
occurred as of January 1, 1999, giving effect to certain adjustments, including
amortization of goodwill and other intangibles and deferred compensation charges
(in thousands, except per share data).

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales.............................................. $ 8,803 $ 17,676
Net loss............................................... (62,247) (43,267)
Basic and diluted net loss per share................... (1.49) (1.04)
</TABLE>

4. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1998 1999 2000
------ ------ -------------
(IN THOUSANDS(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................. $1,000 $1,099 $1,925
Work in process............................ 89 326 818
Finished goods............................. 3 517 827
------ ------ ------
Total inventories..................... $1,092 $1,942 $3,570
====== ====== ======
</TABLE>

5. BUSINESS SEGMENTS AND CONCENTRATIONS OF RISK

Optical Access operates under one reportable segment: wireless optical
communications. Wireless optical communications include optical laser wireless
transmitters and receivers, switched circuit multiplexers and graphical network
management. These products are sold primarily to original-equipment
manufacturers and through distributors.

For the period from April 1, 1998 (date of inception) through December 31,
1998 the Company had no sales. As of December 31, 1999, one customer accounted
for approximately 17%, of accounts receivable. As of September 30, 2000
(unaudited), two customers accounted for approximately 42% of accounts
receivable. For the year ended December 31, 1999 and the nine months ended
September 30, 2000 (unaudited), 55% and 57% of net sales, respectively, were to
unrelated parties. Sales to MRV and its affiliates represented 45% and 43% of
net sales for the year ended December 31, 1999 and the nine months ended
September 30, 2000 (unaudited), respectively. Certain geographical area
information follows (in thousands).

F-12
<PAGE> 84
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Geographical Area Net Sales:

<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
APRIL 1, 1998 ENDED
(DATE OF INCEPTION) SEPTEMBER 30,
THROUGH YEAR ENDED ----------------
DECEMBER 31, 1998 DECEMBER 31, 1999 1999 2000
-------------------- ----------------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
United States................ $ -- $2,421 $1,508 $ 4,763
Asia-Pacific................. -- 765 427 710
European..................... -- 5,116 2,583 9,180
Other........................ -- 171 -- 55
---- ------ ------ -------
Total net sales.... $ -- $8,473 $4,518 $14,708
==== ====== ====== =======
</TABLE>

As of December 31, 1999 the majority of Optical Access' activities and
related assets were based in Israel. The business of Jolt, acquired in May 2000,
is also based in Israel. The operations of AstroTerra, acquired in July 2000,
are based in San Diego, California.

6. INCOME TAXES

Optical Access has generated operating losses since inception.
Historically, substantially all of Optical Access' operations were located in
Israel. In connection with the acquisition of AstroTerra in July 2000, Optical
Access obtained its first significant U.S. operations. These operating losses
were generated by subsidiaries located outside of the United States. Optical
Access has received a tax holiday in Israel, which extends through 2008.
Following the separation, Optical Access will be required to petition for a tax
exemption as a new entity. Management believes that Optical Access will receive,
at a minimum, the remaining exemption period through 2008, but could qualify for
a tax exemption through 2010. Consequently, Optical Access expects that during
the periods in which these tax losses can be utilized, its income would be
substantially exempt. Accordingly, there will be no tax benefit from such
operating losses and no deferred tax assets have been provided in the
accompanying consolidated financial statements. Deferred taxes with respect to
other temporary differences are insignificant.

Optical Access has not provided for U.S. federal income and foreign
withholding taxes on non-U.S. subsidiaries' undistributed earnings because these
earnings are intended to be reinvested indefinitely.

7. LONG-TERM DEBT (UNAUDITED)

Long-term debt consisted of the following as of September 30, 2000 (in
thousands):

<TABLE>
<S> <C>
Notes payable to financial institutions bearing interest at
approximately 18 percent, payable in monthly installments
of principal and interest through July 2004............... 887
Less -- Current portion................................... (172)
-----
$ 715
=====
</TABLE>

F-13
<PAGE> 85
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes the required principal long-term debt payments as
of September 30, 2000 (in thousands):

<TABLE>
<S> <C>
Period ending September 30:
2000................................................ $172
2001................................................ 325
2002................................................ 370
2003................................................ 13
2004................................................ 7
----
$887
====
</TABLE>

Certain assets of Optical Access, such as substantially all of the assets
of recently acquired Jolt (see Note 3), are secured as collateral under these
notes payable.

8. TRANSACTIONS WITH MRV COMMUNICATIONS, INC.

Optical Access' sales of products to MRV and its affiliates were $3.8
million in 1999, $2.1 million (unaudited) for the nine months ended September
30, 1999 and $6.3 million for the nine months ended September 30, 2000
(unaudited). Optical Access recorded receivables from affiliates of MRV of
approximately $499,000 and $1.6 million as of December 31, 1999 and September
30, 2000 (unaudited), respectively, for product sales in the ordinary course of
business. These amounts have been included in "Due from MRV and its affiliates"
in the accompanying consolidated balance sheets.

For the periods presented, intercompany transactions and balances between
Optical Access and MRV consisted of the following (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM APRIL 1, NINE MONTHS ENDED
1998 (DATE OF INCEPTION) YEAR ENDED SEPTEMBER 30,
THROUGH DECEMBER 31, DECEMBER 31, ------------------
1998 1999 1999 2000
------------------------ ------------ ------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period............. $ $ 4,592 $ 4,592 $ 5,546
Intercompany sales......................... -- 3,410 1,919 6,021
Operating expenses......................... (4,025) (4,481) (5,013) (2,877)
Fair value of Jolt and AstroTerra
transferred
from MRV................................. -- -- -- 218,030
Push down of deferred stock compensation
expense.................................. -- -- -- (75,000)
Net cash (distributions to) advances from
MRV...................................... 8,617 2,025 4,448 (5,137)
------- ------- ------- --------
Balance at end of period................... 4,592 5,546 5,946 146,583
======= ======= ======= ========
Average balance during the period.......... $ 2,000 $ 5,000 $ 5,500 $110,000
======= ======= ======= ========
</TABLE>

Optical Access' costs and expenses do not reflect charges for interest
expense from funding provided by MRV. Costs and expenses for corporate
activities of MRV such as legal, accounting, employee benefits, real estate,
insurance services, information technology services, treasury and other MRV
corporate and infrastructure costs were not significant for any period
presented.

For purposes of governing the ongoing relationships between Optical Access
and MRV at and after the separation and to provide for an orderly transition,
Optical Access and MRV have entered or will enter into various agreements. A
brief description of each of the agreements follows.

Master Separation Agreement. MRV and Optical Access have entered into a
master separation agreement, which contains key provisions relating to the
separation, Optical Access' initial funding, and

F-14
<PAGE> 86
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

initial public offering. The agreement lists the documents and items that the
parties must deliver in order to accomplish the transfer of assets and
liabilities from MRV to Optical Access, effective on the separation date. The
agreement also contains conditions that must occur prior to the initial public
offering. The parties also entered into ongoing covenants that survive the
transactions, including covenants to establish interim service level agreements,
exchange information, engage in certain auditing practices and resolve disputes
in particular ways.

General Assignment and Assumption Agreement. The General Assignment and
Assumption Agreement identifies the assets that MRV will transfer to Optical
Access and the liabilities that Optical Access will assume from MRV in the
separation. The agreement also describes when and how these transfers and
assumptions will occur. In general, these assets and liabilities are those that
appear in the consolidated balance sheets.

Intellectual Property Agreements. The Master Technology Ownership and
License Agreement, the Master Patent Ownership and License Agreement and the
Master Trademark Ownership and License Agreement together are referred to as the
Intellectual Property Agreements. Under the Intellectual Property Agreements,
MRV will confirm that Optical Access owns or will transfer to Optical Access its
rights in specified patents, patent applications, invention disclosures,
specified trademarks and other intellectual property related to Optical Access'
current business and research and development efforts.

Employee Matters Agreement. The Employee Matters Agreement outlines how
MRV and Optical Access plan to allocate assets, liabilities and responsibilities
relating to current and former employees of Optical Access and their
participation in the benefits plans, including stock plans, that MRV currently
sponsors and maintains. The agreement also contains provisions describing some
of Optical Access' employee benefit and employee stock plans.

All eligible Optical Access employees will continue to participate in the
MRV benefits plans on comparable terms and conditions to those for MRV employees
until Optical Access establishes benefit plans for its employees, or elects not
to establish comparable plans if it is not legally or financially practical.

Once Optical Access establishes its own benefits plans, it may modify or
terminate each plan in accordance with the terms of that plan and its policies.
No Optical Access benefit plan will provide benefits that overlap benefits under
the corresponding MRV benefit plan. Each Optical Access benefit plan will
provide that all service, compensation and other benefit determinations that, as
of the separation, were recognized under the corresponding MRV benefits plan
will be taken into account under that Optical Access benefit plan.

Tax Sharing Agreement. In summary, MRV will pay to Optical Access the tax
benefit received by MRV as the result of Optical Access being included in MRV's
consolidated tax return. To the contrary, MRV will receive from Optical Access
any taxes paid by MRV as a result of Optical Access being included in MRV's
consolidated tax return. The tax sharing and indemnification agreement with MRV
allocates tax liabilities between MRV and Optical Access and addresses several
other tax matters such as responsibility for filing tax returns, paying tax
liabilities, and controlling and cooperating in tax disputes. The agreement
requires MRV to file with the Internal Revenue Service all consolidated,
combined or unitary tax returns that Optical Access joins in filing with MRV for
all tax periods both before and after the separation date and requires MRV to
pay to the IRS all taxes with respect to these tax returns. The agreement
requires Optical Access to pay MRV for their allocable share of any taxes due
with respect to such tax returns. Optical Access' share of these taxes generally
will be the amount of taxes that Optical Access would pay if they were a
separate stand-alone company. If Optical Access generates tax losses or credits
that benefit other members of the MRV group, MRV will reimburse them for the use
of these losses or credits. Conversely, if Optical Access benefits

F-15
<PAGE> 87
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from losses or credits generated by MRV or any of its affiliates, they will
reimburse MRV for the use of these losses or credits.

Each member of a consolidated group for U.S. federal income tax purposes is
jointly and severally liable for the group's federal income tax liability for
the period during which it is a member even after it withdraws from the group,
and the agreement does not change this result. Accordingly, Optical Access could
be required to pay a deficiency in the group's federal income tax liability for
a period during which Optical Access was a member of the group even if the Tax
Sharing Agreement allocates that liability to MRV or another member. In this
event, however, Optical Access would have a claim for indemnification from MRV
under this agreement.

Transitional Services Agreement. The Transitional Services Agreement
governs the provision of information technology services by MRV and Optical
Access to each other, on an interim basis, for one year from the date of
separation, unless extended for specific services or otherwise indicated in the
agreement. The services include data processing and telecommunications services,
such as voice telecommunications and data transmission, and information
technology support services, for functions including accounting, financial
management, tax, payroll, stockholder and public relations, legal, procurement,
and other administrative functions. Services will be incurred at cost plus 5%,
but may increase to cost plus 10% should the services extend beyond the one-year
period. Optical Access does not expect these services to be significant and
therefore the impact on Optical Access' results of operations should not be
significant. Specified charges for such services are generally intended to allow
the providing company to recover the direct and indirect costs of providing the
services. The Transitional Services Agreement also will cover the provision of
certain additional transitional services identified from time to time after the
separation date that were inadvertently or unintentionally omitted from the
specified services, or that are essential to effectuate an orderly transition
under the separation agreement, so long as the provision of such services would
not significantly disrupt MRV's operations or significantly increase the scope
of its responsibility under the agreement.

In addition, the Transitional Services Agreement will provide for the
replication of some computer systems, including hardware, software, data storage
or maintenance and support components. Generally, the party needing the
replicated system will bear the costs and expenses of replication. Generally,
the party purchasing new hardware or licensing new software will bear the costs
and expenses of purchasing the new hardware or obtaining the new software
licenses.

Real Estate Matters Agreement. The Real Estate Matters Agreement addresses
real estate matters relating to the MRV leased and owned properties that MRV
will transfer to or share with Optical Access. The agreement describes the
manner in which MRV will transfer to or share with Optical Access various leased
and owned properties. The Real Estate Matters Agreement provides that Optical
Access will be required to accept the transfer of all sites allocated to Optical
Access, even if a site has been damaged by a casualty before the separation
date. The Real Estate Matters Agreement also provides that all reasonable costs
required to effect the transfers, including landlord consent fees and landlord
attorneys' fees will be paid by MRV.

Master Confidential Disclosure Agreement. The master confidential
disclosure agreement provides that both Optical Access and MRV agree not to
disclose confidential information of the other party in specific circumstances.
They also agree not to use this information in violation of any use restrictions
in any of the other written agreements.

Indemnification and Insurance Matters Agreement. Effective as of the
separation date, subject to specified exceptions, Optical Access and MRV will
each release the other from any liabilities arising from events occurring on or
before the separation date, including events occurring in connection with the
activities to implement the separation, the initial public offering and the
distribution. The agreement also

F-16
<PAGE> 88
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contains provisions governing indemnification. In general, Optical Access and
MRV will each indemnify the other from all liabilities arising from their
respective businesses or contracts, as well as liabilities arising from a breach
of the separation agreement or any ancillary agreement. In addition, MRV and
Optical Access will each indemnify the other against liability for specified
environmental conditions. Optical Access will reimburse MRV for the cost of any
insurance coverage from the separation date to .

9. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company leases facilities and certain equipment under lease
arrangements expiring in various years through September 2003. The aggregate
minimum annual lease payments under leases in effect on December 31, 1999 were
as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
2000............................................... $257
2001............................................... 267
2002............................................... 272
2003............................................... 100
----
$896
====
</TABLE>

Rental expense under lease agreements for the period from April 1, 1998
(date of inception) through December 31, 1998 and the year ended December 31,
1999 was $39,000 and $106,000, respectively. Rental expense under lease
agreements for the nine months ended September 30, 1999 and 2000 was $69,000 and
$223,000, respectively.

Through subsidiaries in Israel, Optical Access is obligated to the Office
of the Chief Scientist of the Government of Israel (Chief Scientist) with
respect to the government's participation in research and development expenses
for the OptiSwitch(TM) Master product line. Accordingly, Optical Access' royalty
to the Chief Scientist is calculated at a rate of 3% to 5% of sales of the
OptiSwitch(TM) Master product line developed with the participation up to the
dollar amount of such participation. Optical Access received participation of
$350,000, $500,000 and $200,000 for the period from April 1, 1998 (data of
inception) through December 31, 1998, the year ended December 31, 1999 and the
nine months ended September 30, 1999, respectively. No participation was
received during the nine months ended September 30, 2000. The remaining future
obligation at September 30, 2000 is approximately $900,000 which is contingent
on generating sufficient sales of this selected product line.

LITIGATION

On August 16, 2000, a notice of action against Jolt, various of its
directors, shareholders and MRV was received from third parties alleging, among
other things, breach of contract, frustration of performance of contract and
acting in bad faith with respect to investment contracts entered into by Jolt.
Management, in consultation with its legal counsel, is evaluating these claims
and presently does not believe that any of the defendants violated any of the
allegations asserted by these parties. MRV has agreed to indemnify the Company
for any liability it may incur in connection with this matter. Management, in
consultation with its legal counsel, intends to vigorously defend its position,
however, it is not possible, at this stage, to assess the ultimate outcome of
this matter.

In July 2000, MRV received a written notice by Nortel Networks, Inc.
(Nortel) alleging possible patent infringements with the OptiSwitch(TM) product
line. In November 2000, Nortel provided a formal

F-17
<PAGE> 89
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

proposal to MRV with terms for licensing such patents from Nortel. Management is
currently determining the validity of the allegation, revenues generated by
OptiSwitch(TM) products which the alleged technology is covered by Nortels'
patents, and the ultimate impact to such products. Management, in consultation
with its legal counsel, does not believe the ultimate outcome will have a
significant impact on its financial position or results of operations, however,
it is not possible, at this stage, to determine the ultimate outcome of this
matter.

From time to time, the Company is a defendant in lawsuits involving matters
which are routine to the nature of its business. Management is of the opinion
that the ultimate resolution of all such matters will not have a material
adverse effect on the Company's results of operations or financial position.

10. STOCKHOLDERS' EQUITY

Optical Access' Board of Directors authorized 20,000,000 shares of $.001
par value preferred stock and 200,000,000 of $.001 par value common stock.
Effective November 16, 2000, the Board of Directors declared a 41,667-for-one
stock split of its outstanding common stock. All references to share and
per-share data for all periods presented have been restated to give effect to
this stock split.

STOCK OPTIONS

In September 2000, the Board of Directors adopted, and the stockholder
approved the 2000 Stock Option Plan (the Plan). The Plan provides for grants of
qualified incentive stock options, non-qualified stock options, restricted stock
awards and other stock-based awards to officers, employees, directors,
consultants and advisors of the Company. Stock-based awards are generally
granted at not less than fair market value at the grant date, and typically vest
over a four-year period and expire ten years after the grant date. Under the
Plan, 4.5 million shares of common stock have been reserved for issuance. As of
September 30, 2000 no options have been granted under this plan.

Stock option information with respect to MRV stock options is as follows
(in thousands, except share prices):

<TABLE>
<CAPTION>
PERIOD FROM APRIL 1, 1998
(DATE OF INCEPTION) THROUGH YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999 SEPTEMBER 30, 2000
---------------------------- ------------------------ -------------------------
WTD. AVG. EX. WTD. AVG. EX. WTD. AVG. EX.
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------------- -------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year..................... 397,000 $ 7.88 556,380 $2.63 909,240 $4.30
Granted.................... 224,000 10.00 470,600 5.80 1,632,045 4.50
Exercised.................. (65,520) 7.88 (117,740) 2.63 (179,820) 2.70
Canceled in repricing...... (556,380) 7.88 -- -- -- --
Granted in repricing....... 556,380 2.63 -- -- -- --
-------- ------ -------- ----- --------- -----
Outstanding, end of year... 556,380 $ 2.63 909,240 $4.81 2,361,465 $4.97
======== ====== ======== ===== ========= =====
</TABLE>

Information about stock options outstanding at September 30, 2000 is
summarized as follows:

<TABLE>
<CAPTION>
NUMBER WEIGHTED NUMBER
OUTSTANDING AT AVERAGE EXERCISABLE AT
EXERCISED SEPTEMBER 30, REMAINING SEPTEMBER 30,
PRICE 2000 CONTRACT LIFE 2000
------------- -------------- ------------- --------------
<S> <C> <C> <C>
$2.63 - $2.88 524,420 3.22 Years 28,040
$2.88 - $9.72 1,837,045 8.16 Years --
--------- ------
2,361,465 28,040
========= ======
</TABLE>

F-18
<PAGE> 90
OPTICAL ACCESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTING FOR STOCK-BASED COMPENSATION

SFAS No. 123 permits companies to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. Because Optical Access' employee stock-based compensation plan has
characteristics significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the fair value
estimate, management believes that the existing option valuation models do not
necessarily provide a reliable single measure of the fair value of awards from
the plan. Therefore, as permitted, Optical Access applies the existing
accounting rules under APB No. 25 and provides pro forma net income and pro
forma earnings per share disclosures for stock based awards made during the year
as if the fair-value-based method defined in SFAS No. 123 had been applied, pro
forma net loss and net loss per share for the nine months ended September 30,
2000 would have been reduced to the following pro forma amounts (in thousands,
except per share data):

<TABLE>
<CAPTION>
PERIOD FROM APRIL 1, 1998 (DATE NINE MONTHS
OF INCEPTION) THROUGH YEAR ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999 SEPTEMBER 30, 2000
------------------------------- ----------------- ------------------
<S> <C> <C> <C>
Additional compensation
expense.................... $ 152 $ 458 $ 3,429
Pro forma net loss........... (3,365) (2,771) (34,775)
Pro forma basic and diluted
net loss per share......... (0.08) (0.07) (0.83)
</TABLE>

The following assumptions were applied as of September 30, 2000: (i)
expected dividend yield of 0%, (ii) expected volatility rate of 34%, (iii)
expected lives of 6 years, and (iv) the risk-free interest rate of 6.5%.

F-19
<PAGE> 91

INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF JOLT LIMITED

We have audited the accompanying balance sheets of Jolt Limited (the
Company) as at December 31, 1999 and 1998, and the related statements of
operations, changes in shareholders' equity and cash flows for the two years,
the last of which ended December 31, 1999. These financial statements are the
responsibility of the Company's Board of Directors and of its Management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards in the United States. Such standards require that we plan and perform
the audit to obtain reasonable assurance that 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 the Board of Directors and by Management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
fair basis for our opinion.

In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as at December
31, 1999 and 1998 and the results of operations, the changes in shareholders'
equity, and the cash flows for the two years, the last of which ended December
31, 1999, in conformity with generally accepted accounting principles in the
United States.

As more fully described in Note 24D to the financial statements, a legal
claim was filed against the Company after the date of the balance sheet.

/s/ Somekh Chaikin
Certified Public Accountants (Isr.)
A member firm of KPMG International

Jerusalem, Israel
July 15, 2000, except for Note 24D and 26
as to which date is October 2, 2000
and except for Note 22
as to which date is November 17, 2000

F-20
<PAGE> 92

JOLT LIMITED

BALANCE SHEETS
AS AT DECEMBER 31

<TABLE>
<CAPTION>
NOTE 1999 1998
---- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. 3 $ 50,318 $ 761
Trade receivables, net.................................... 4 160,980 186,223
Other receivables......................................... 5 18,220 6,103
Inventory................................................. 6 369,111 309,175
----------- -----------
598,629 502,262
----------- -----------
FIXED ASSETS, NET......................................... 7 138,536 205,344
----------- -----------
$ 737,165 $ 707,606
=========== ===========
CURRENT LIABILITIES
Short-term bank borrowings................................ $ -- $ 111,650
Trade payables............................................ 8 188,794 287,325
Other payables............................................ 9 781,700 462,044
Current portion of long-term loans........................ 10 522,082 937,426
----------- -----------
1,492,576 1,798,445
----------- -----------
OTHER LIABILITIES
Long-term loans........................................... 10 704,023 98,014
Liability in respect of severance pay..................... 11 282,694 190,176
Long-term loans from shareholders......................... 12 225,000 221,698
Convertible liability to shareholder...................... 13 227,645 100,325
Liability to shareholder.................................. 13 -- 66,883
----------- -----------
CONVERTIBLE LONG-TERM LIABILITY TO SHAREHOLDERS........... 14 -- 216,587
----------- -----------
SHAREHOLDERS' DEFICIT
Series A convertible preferred shares, $0.24 par value
each (20,000 shares authorized and 8,352 shares issued
and fully paid at December 31, 1999 and 1998)........... 15 2,874 2,874
Common stock, $0.24 par value each (50,000 shares
authorized and 41,075 shares issued and fully paid at
December 31, 1999 and 1998)............................. 14,133 14,133
Additional paid-in capital................................ 2,723,039 2,723,039
Receipts on account of shares............................. 1,320,030 1,120,030
Accumulated deficit....................................... (6,254,849) (5,844,598)
----------- -----------
Total shareholders' deficit............................... 15 (2,194,773) (1,984,522)
----------- -----------
$ 737,165 $ 707,606
=========== ===========
</TABLE>

The notes to the financial statements form an integral part thereof.
F-21
<PAGE> 93

JOLT LIMITED

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31

<TABLE>
<CAPTION>
NOTE 1999 1998
---- ---------- ----------
<S> <C> <C> <C>
INCOME
Sales, net.................................................. 16 $1,472,110 $1,282,418
COST OF SALES............................................... 17 498,107 578,696
---------- ----------
GROSS PROFIT................................................ 974,003 703,722
---------- ----------
OPERATING EXPENSES
Research and development costs.............................. 18 176,604 172,408
Marketing................................................... 19 272,472 375,758
General and administrative expenses......................... 20 794,490 596,664
---------- ----------
1,243,566 1,144,830
---------- ----------
OPERATING LOSS.............................................. (269,563) (441,108)
Financing (expenses) income, net............................ 21 (265,688) 47,833
Other income (expenses)..................................... 22 125,000 (15,572)
---------- ----------
NET LOSS FOR THE YEAR....................................... $ (410,251) $ (408,847)
========== ==========
</TABLE>

The notes to the financial statements form an integral part thereof.
F-22
<PAGE> 94

JOLT LIMITED

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
RECEIPTS ON
SHARE SHARE ACCOUNT OF ACCUMULATED TOTAL
CAPITAL PREMIUM SHARES DEFICIT NET DEFICIT
------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998... 17,007 2,723,039 795,030 (5,435,751) (1,900,675)
Receipts on account of
shares..................... -- -- 325,000 -- 325,000
Loss for the year............ -- -- -- (408,847) (408,847)
------- ---------- ---------- ----------- -----------
BALANCE AT DECEMBER 31,
1998....................... 17,007 2,723,039 1,120,030 (5,844,598) (1,984,522)
Receipts on account of
shares..................... -- -- 200,000 -- 200,000
Loss for the year............ -- -- -- (410,251) (410,251)
------- ---------- ---------- ----------- -----------
BALANCE AT DECEMBER 31,
1999....................... 17,007 $2,723,039 $1,320,030 $(6,254,849) $(2,194,773)
======= ========== ========== =========== ===========
</TABLE>

The notes to the financial statements form an integral part thereof.
F-23
<PAGE> 95

JOLT LIMITED

STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31

<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(410,251) $(408,847)
Adjustment to reconcile net loss to net cash provided by
used in operating activities (see Annex).................. 614,753 137,601
--------- ---------
Net cash provided by (used in) operating activities......... 204,502 (271,246)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets................................... (3,420) (64,509)
--------- ---------
Net cash used in investing activities....................... (3,420) (64,509)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term bank borrowings, net...... (111,650) 94,658
Receipt of loans from shareholders.......................... -- 106,939
Repayments of long term loans from shareholders............. (10,000) (25,000)
Receipt of long-term loans.................................. -- 18,871
Repayments of long-term loans............................... (6,382) (5,765)
Receipt of convertible long-term liabilities from
shareholders.............................................. -- 150,000
Repayment of convertible long-term liabilities from
shareholders.............................................. (23,493) (44,094)
--------- ---------
Net cash provided by (used in) by financing activities...... (151,525) 295,609
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 49,557 (40,146)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 761 40,907
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 50,318 $ 761
========= =========
</TABLE>

The notes to the financial statements form an internal part thereof.
F-24
<PAGE> 96

<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
ANNEX A
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES
ITEMS NOT AFFECTING CASH FLOWS:
Depreciation of fixed assets................................ $ 70,228 $ 76,178
Loss on sale of fixed assets................................ -- 15,572
Increase (decrease) in provision for severance pay.......... 92,518 (14,017)
Exchange rate differences and interest on:
Loans from shareholders................................... 13,302 14,461
Long-term loans........................................... 197,047 30,610
Convertible long-term liability........................... 6,906 (6,311)
-------- ---------
380,001 116,493
-------- ---------
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in trade receivables.................... 25,243 (23,421)
Decrease (increase) in other receivables.................... (12,117) 7,952
Decrease (increase) in inventory............................ (59,936) 23,232
Increase (decrease) in trade payables....................... (98,531) 88,012
Increase (decrease) in other payables....................... 319,656 (136,184)
Increase in liabilities to shareholder...................... 60,437 61,517
-------- ---------
234,752 21,108
-------- ---------
Net adjustment.............................................. 614,753 137,601
======== =========
ANNEX B
NON-CASH ITEMS
Conversion of capital note to share capital................. 200,000 325,000
======== =========
</TABLE>

The notes to the financial statements form an internal part thereof.
F-25
<PAGE> 97

JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999

NOTE 1 -- GENERAL

a. The Company was incorporated as a private limited company under the
Companies' Ordinance on May 28, 1991.

b. The Company's activities consist of developing, manufacturing and
marketing high-speed infrared wireless communication products.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

A. DEFINITIONS

In these financial statements:

CPI -- The Consumer Price Index published by the Central Bureau of
statistics.

B. FINANCIAL STATEMENTS IN NOMINAL ISRAELI CURRENCY

The primary financial statements were prepared on the historical cost basis
in nominal New Israeli Shekels ("NIS"). Accordingly, they do not take into
account the changes in the general purchasing power of the Israeli currency as
stated in opinions of the Institute of Certified Public Accountants in Israel.

These financial statements were prepared in US dollars at the request of
the Company's shareholders.

Translation into US dollars

In accordance with Israeli law, the Company maintains its books of accounts
in New Israeli Shekels. However, since the Company operates in a US dollar
environment, the financial statements have been translated into US dollars for
the request of the Company's shareholders. The representative exchange rate as
at the date of the financial statements has been used to translate monetary
assets and liabilities, and historical rates have been used to translate
non-monetary items.

Items in the statements of income have been translated at the average rates
of exchange prevailing in the respective years, except for items related to
non-monetary balance sheet items which were translated at historical rates.
Differences in respect of translation at daily rates of exchange are not
considered material.

Translation differences are included in financing expenses.

The abovementioned translation should not be construed as representing
actual amounts in or convertible into US dollars.

Exchange rates and indices

Balances in, or linked to, foreign currencies are stated on the basis of
the exchange rates prevailing at balance sheet date.

Balances linked to the Consumer Price Index ("CPI") are included on the
basis of the appropriate index.

F-26
<PAGE> 98
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

Following are details of the CPI and US dollar exchange rates:

<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 % OF CHANGE % OF CHANGE
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CPI -- in points................................ 168.53 166.3 1.3 8.62
US dollar exchange rate $1 in NIS............... 4.153 4.16 (0.17) 17.65
</TABLE>

Cash and cash equivalents

For the purpose of these financial statements, all highly liquid
investments with an original maturity of three months or less are considered
cash equivalents.

Allowance for doubtful accounts

The allowance for doubtful accounts includes a specific provision based on
the aging of the accounts.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined by
the "first-in, first-out" method.

Fixed assets

Fixed assets are stated at cost. Depreciation is provided using the
straight-line method in accordance with the following rates:

<TABLE>
<CAPTION>
%
----
<S> <C>
Computers and office equipment........................ 6-33
Testing equipment..................................... 15
Motor vehicles........................................ 15
</TABLE>

Leasehold improvements are amortized over the minimum period of the lease.
Maintenance and repairs are charged to operations expenses as incurred.

Income taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measures using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. If
the likelihood of realizing the deferred tax assets or liability is less than
"more likely than not," a valuation allowance is created.

Sales

Sales are recognized when the product is shipped to the customer, as
shipments are made F.O.B. point of shipment. Provision for returns in respect of
sales is made as required.

Research and development costs

The Company expenses its research and development costs as incurred.

F-27
<PAGE> 99
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

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 as at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from such estimates.

Preparations of the computer systems for year 2000

The costs required to prepare and convert the existing programs of the
Company, to be able to differentiate between years belonging to the 20th century
and years belonging to the 21st century (year 2000 compliance), are recorded as
current expense when incurred.

NOTE 3 -- CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
1999 1998
------- ----
<S> <C> <C>
In foreign currency (principally the U.S. dollars)......... $48,692 $ 23
In Shekels................................................. 1,626 738
------- ----
50,318 761
======= ====
</TABLE>

NOTE 4 -- TRADE RECEIVABLES, NET

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
DOMESTIC
Open accounts (principally linked to the US dollar)......... $ 37,524 $ 76,957
FOREIGN
Open accounts (principally in US dollars)................... 128,530 122,199
-------- --------
166,054 199,156
Less -- allowance for doubtful accounts..................... (5,074) (12,933)
-------- --------
160,980 186,223
======== ========
</TABLE>

NOTE 5 -- OTHER RECEIVABLES

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Value added tax refundable.................................. $ 14,838 $ 4,711
Income Tax Authorities...................................... 2,064 405
Prepaid expenses............................................ 1,318 987
-------- --------
18,220 6,103
======== ========
</TABLE>

F-28
<PAGE> 100
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

NOTE 6 -- INVENTORY

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Raw materials............................................... $119,835 $104,608
Work in process............................................. 69,121 50,843
Finished goods.............................................. 180,155 153,724
-------- --------
369,111 309,175
======== ========
</TABLE>

NOTE 7 -- FIXED ASSETS, NET

<TABLE>
<CAPTION>
COMPUTERS
AND OFFICE LEASEHOLD TESTING MOTOR
EQUIPMENT IMPROVEMENTS EQUIPMENT VEHICLE TOTAL
---------- ------------ --------- ------- --------
<S> <C> <C> <C> <C> <C>
COST
As at January 1, 1999...................... $184,186 $31,129 $256,968 $22,484 $494,767
Additions.................................. 2,724 -- 696 -- 3,420
-------- ------- -------- ------- --------
As at December 31, 1999.................... 186,910 31,129 257,664 22,484 498,187
-------- ------- -------- ------- --------
ACCUMULATED DEPRECIATION
As at January 1, 1999...................... 115,393 2,479 168,178 3,373 289,423
Additions.................................. 21,548 6,225 37,958 4,497 70,228
-------- ------- -------- ------- --------
As at December 31, 1999.................... 136,941 8,704 206,136 7,870 359,651
-------- ------- -------- ------- --------
NET BOOK VALUE
As at December 31, 1999.................... 49,969 22,425 51,528 14,614 138,536
======== ======= ======== ======= ========
As at December 31, 1998.................... 68,793 28,650 88,790 19,111 205,344
======== ======= ======== ======= ========
</TABLE>

With regards to liens see note 24C

NOTE 8 -- TRADE PAYABLES

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
DOMESTIC
Open accounts (partially linked to US$ and partially
unlinked)................................................. $157,881 $240,434
FOREIGN
Open accounts (principally in US dollars)................... 30,913 46,891
-------- --------
188,794 287,325
======== ========
</TABLE>

NOTE 9 -- OTHER PAYABLES

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accrued salaries and related expenses....................... $459,013 $279,485
Advances from customers..................................... 105,995 86,467
Accrued expenses............................................ 216,692 96,092
-------- --------
781,700 462,044
======== ========
</TABLE>

F-29
<PAGE> 101
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

NOTE 10 -- LONG-TERM LOANS

<TABLE>
<CAPTION>
INTEREST RATE % 1999 1998
--------------- ---------- ----------
<S> <C> <C> <C>
Linked to U.S. dollar............................... Libor +1.625 $ 30,804 $ 170,683
Linked to the Israeli CPI........................... 4.60-5.20 19,484 136,482
Unlinked............................................ 18.50 1,167,280 713,356
Linked to the Israeli CPI........................... 8.0 8,537 14,919
---------- ----------
1,226,105 1,035,440
Less: current maturities............................ (522,082) (937,426)
---------- ----------
704,023 98,014
========== ==========
</TABLE>

Loans in the amount of approximately $1.0 million were received from the
Industrial Development Bank of Israel Ltd. (the "Bank") and were granted in
connection with the Company's approved enterprise program. During 1998 and 1999
repayment of current maturities were not made in respect of the aforementioned
loans. In April 2000 the Company signed a loan restructuring agreement with the
Bank which included reclassifications of the terms of the loans.

The loans are collateralized by fixed and floating charges (liens) over the
Company's assets (see Note 24).

In April 1998 the Company received a loan in the amount of $18,871 from H.
L. Finance Services Ltd. for the purchase of a motor vehicle. The payments of
principle interest are in 36 monthly installments. The loan is collateralized by
the motor vehicle purchased.

B. Future annual maturities

NOTE 11 -- LIABILITY IN RESPECT OF SEVERANCE PAY

Under the Israeli law, the Company is required to make severance payments to
dismissed employees and employees leaving employment in certain other
circumstances, on the basis of the latest monthly salary for each year of
service.

This liability is partially funded by payments of premiums to insurance
companies under approved plans. The provision for severance pay in these
financial statements represents the Company's obligation not funded under these
approved plans.

F-30
<PAGE> 102
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

NOTE 12 -- LONG-TERM LOANS FROM SHAREHOLDERS

<TABLE>
<CAPTION>
REPAYMENT INTEREST
DATE LINKAGE % 1999 1998
--------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Loan A.......................... -- US dollar Libor+1.75 $ 53,000 $ 53,000
Loan D.......................... -- US dollar -- -- 10,000
Loan E.......................... -- US dollar 12 172,000 158,698
-------- --------
225,000 221,698
======== ========
</TABLE>

During March and April 2000 an amount of $50,000 in respect of loan A and
the full amount of loan E were converted to share capital.

NOTE 13 -- CONVERTIBLE LIABILITY AND LIABILITY TO SHAREHOLDER

These amounts are in respect of deferred compensation due to an employee
who is a controlling shareholder.

In accordance with an agreement dated March 30, 2000 the aforementioned
employee agreed to waive all past monies due to him in respect of his employment
in return for issuance of shares. In March 2000, the aforementioned employee was
issued shares in respect of the whole amount of the aforementioned liability.

NOTE 14 -- CONVERTIBLE LONG-TERM LIABILITY TO SHAREHOLDERS

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Convertible long-term loan
(see A below)............................................. $ -- $ 43,094
Convertible long-term loan
(see B below)............................................. -- 150,000
Convertible capital notes
(see C and D below)....................................... -- 23,493
-------- --------
-- 216,587
======== ========
</TABLE>

A. The loan is linked to the Israeli Consumer Price Index, bears interest
at 7% and is due on June 30, 1999. The loan is convertible into share
capital of the Company. The loan is presented as a long-term convertible
liability as result of the decision to convert it to share capital. In
1997 the loan was presented as long-term loans from shareholders. See
Note 12.

During 1999, the loan was converted to share capital and during 2000
shares were issued in respect thereof.

B. The loan is linked to the US dollar and bears no interest. The loan is
convertible into share capital of the Company. In 1999, the shareholder
and the Company signed an irrevocable agreement to convert the entire
loan to share capital. During 2000 shares in respect thereof were
issued.

C. The capital notes are linked to the US dollar and bear interest at
0% -- 7%. The notes were partially converted to share capital in 1998.
The balance in the amount of $23,493 was repaid during 1999.

F-31
<PAGE> 103
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

D. On January 15, 1998, the shareholder and the Company signed an
irrevocable agreement to convert an amount of NIS 275,000 capital notes
to share capital.

During 2000, the capital notes were converted to share capital and
shares were issued in respect thereof.

NOTE 15 -- SHARE CAPITAL

<TABLE>
<CAPTION>
1999 1998
---------- ----------
ISSUED AND ISSUED AND
AUTHORIZED PAID PAID
---------- ---------- ----------
NUMBER NUMBER NUMBER
---------- ---------- ----------
<S> <C> <C> <C>
Ordinary shares of NIS 1 each............................... 50,000 41,075 41,075
Series A convertible preferred shares of NIS 1 each......... 20,000 8,352 8,352
------ ------ ------
70,000 49,427 49,427
====== ====== ======
</TABLE>

The preferred shares have preference upon liquidation of the company and
they are convertible into ordinary shares at any time.

In 1999 convertible long term liability to shareholders was converted to
receipts on account of shares and the shares were issued during 2000.

NOTE 16 -- SALES, NET

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
FOREIGN..................................................... $1,260,191 $ 916,640
DOMESTIC.................................................... 211,919 365,778
---------- ----------
$1,472,110 $1,282,418
========== ==========
</TABLE>

NOTE 17 -- COST OF SALES

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Materials and related expenses.............................. $350,297 $337,039
Payroll and related expenses, net........................... 149,868 129,722
Royalties to the Chief Scientist............................ (3,531) 40,850
Depreciation................................................ 37,958 38,399
Other expenses.............................................. 19,822 9,454
Subcontractors.............................................. 3,629 --
Changes in inventories, net................................. (59,936) 23,232
-------- --------
$498,107 $578,696
======== ========
</TABLE>

F-32
<PAGE> 104
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

NOTE 18 -- RESEARCH AND DEVELOPMENT COSTS

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Payroll and related expenses, net........................... $152,779 $132,789
Research and development.................................... 15,693 32,132
Patents expenses............................................ 8,132 7,487
-------- --------
176,604 172,408
======== ========
</TABLE>

NOTE 19 -- MARKETING

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Payroll and related expenses, net........................... $115,323 $167,636
Advertising, exhibitions and related expenses............... 43,207 19,067
Motor vehicle maintenance expenses.......................... 4,061 9,964
Communications expenses..................................... 16,582 31,578
Foreign travels expenses.................................... 13,623 31,542
Shipments abroad expenses................................... 18,300 14,265
Commissions and other royalties expenses.................... 13,743 58,958
Professional services....................................... 46,641 39,571
Other....................................................... 992 3,177
-------- --------
272,472 375,758
======== ========
</TABLE>

NOTE 20 -- GENERAL AND ADMINISTRATIVE

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Payroll and related expenses, net........................... $497,104 $300,687
Bad and doubtful debts...................................... (1,632) 2,951
Rent and maintenance expenses............................... 93,002 84,943
Office expenses............................................. 18,474 21,895
Foreign travels expenses.................................... 9,492 8,628
Communications expenses..................................... 7,516 10,452
Professional services....................................... 125,590 131,007
Motor vehicle maintenance expenses.......................... -- --
Depreciation................................................ 32,270 37,779
Other....................................................... 12,674 (1,678)
-------- --------
794,490 596,664
======== ========
</TABLE>

F-33
<PAGE> 105
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

NOTE 21 -- FINANCING (EXPENSES) INCOME, NET

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
---------------------
1999 1998
--------- --------
<S> <C> <C>
Translation differences..................................... $ (23,312) $117,436
Bank fees and interest expenses............................. (13,130) (15,194)
Exchange rate differences and interests on loans from
shareholders, long term loans and convertible long term
liability................................................. (229,246) (54,409)
--------- --------
(265,688) 47,833
========= ========
</TABLE>

NOTE 22 -- OTHER INCOME

In 1999, the company has received compensation of $125,000 as a termination
fee from a third party.

NOTE 23 -- TAXES ON INCOME AND APPROVED ENTERPRISE BENEFITS

A. The Company has been granted "approved enterprise" status under the Law
for the Encouragement of Capital Investments -- 1959 and was entitled
to loans guaranteed by the State of Israel in respect of approved fixed
assets and other investments up to an amount of $1,500,000 linked to
various indices.

As an "approved enterprise" the Company is eligible for a ten year tax
holiday commencing in the first year the Company has taxable income
(after deduction of tax loss carry forwards) subject to certain time
restrictions. Entitlement to the benefits is dependent upon compliance
with the conditions of the letter of approval. The benefits period has
not yet commenced.

The approval was given in respect of investments totaling $2,141,000 to
be made over a period of three years.

The letter of approval is dated December 17, 1992, and relates to
investments commencing in January 1, 1992, the date on which the
Company submitted its application for approval.

The aforementioned investment is to be financed 30% by investment in
share capital and 70% by loans which 75% are guaranteed by the State
(See Note 10).

As at December 31, 1999, the Company has received government guaranteed
loans in the amount of approximately $1 million.

Loans received in respect of fixed asset purchases are repayable
quarterly over a five year period commencing two years after receipt of
the loan. Loans received in respect of other investments are repayable
quarterly over a two year period commencing three years after receipt
of the loan. The final letter of approval has not yet been received.

B. The Company has recognized deferred taxes arising from timing
differences for book purposes compared to tax purposes. Due to the
Company's lack of earnings history the deferred tax assets have been
fully offset by a valuation allowance.

C. The Company is subject to the Israeli Income Tax Law (Inflationary
Adjustments), 1985. Under this law, operating results for tax purposes
are measured in real terms, in accordance with the changes in the
Israeli Consumer Price Index ("Israeli CPI"), and companies are
entitled to deduct from their taxable income an "equity preservation
deduction" (which partially compensates for the decrease in the value
of stockholders' equity resulting from the annual rise in

F-34
<PAGE> 106
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

the Israeli CPI). The Company has accumulated tax losses of
approximately $5 million. The losses may be carried forward
indefinitely, linked to the Israeli CPI.

D. The Company has final assessments until 1993.

E. The Income Tax Law (Adjustments for inflation) -- 5745-1985, effective
since 1985, provides for a method of measuring operating results for
tax purposes on a real (inflation adjusted) basis. The various
adjustments required by the said law are intended to bring about
taxation on the basis of real income. However, adjustment of the normal
historical profit in accordance with the terms of said law is not
always identical with the inflation adjustments prescribed for
financial reporting purposes by opinions of the Institute of ICPAI.

NOTE 24 -- LIENS, COMMITMENTS AND CONTINGENT LIABILITIES

A. In connection with the Government Chief Scientist's partial funding of
research and development, in prior years, the Company is committed to
pay royalties to the Chief Scientist of 3% on sales of certain products,
up to the maximum of the amount funded (linked to CPI).

As of balance sheet date, the Company had received grants from the Chief
Scientist in the amount of approximately $250,000.

In respect of royalties payable an estimated provision in the amount of
approximately $67,432 has been made.

B. In March 1998 the Company entered into a contract to lease premises in
Har Hotzvim, Jerusalem for a period of 5 years with an option to extend
the contract for an additional two periods, each of 24 months. The
rental charge in respect of the first 5 years amounts to approximately
$7,900 per month, for the first additional period $8,700 per month and
for the second additional period $9,600 per month. If the Company
cancels the contract during the period from the commencement of the
fourth year of the contract compensation of $60,000 is due.

C. The Company registered a fixed and floating charge on all its machinery
and equipment, share capital and goodwill and a floating charge over all
its current assets in favor of the Industrial Development Bank of
Israel, Ltd., in connection with the Company's approved enterprise
program. In addition, the Company registered a fixed and floating charge
on its negotiable instruments, securities, notes and checks in favor of
the United Mizrahi Bank Ltd.

D. Subsequent to the balance sheet date, a claim in the amount of
approximately $19 million (NIS 75.6 million), was filed against the
Company and other parties by previous potential investors, "Walden and
Others", at the Tel Aviv District Court. According to the Company's
Legal Counsel, as of September 27, 2000, the details of the claim are
being studied and the Company is preparing its defense. In the opinion
of Company's Management, based on the opinion of its legal counsel, it
is not possible at this stage to assess the chances of the outcome of
the claim.

E. Subsequent to the balance sheet date the Chief Executive Officer of the
Company ceased employment. The Company reached an agreement with the
Officer in respect of amounts due to him. All amounts have been fully
provided for in the financial statements.

F-35
<PAGE> 107
JOLT LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)

NOTE 25 -- RELATED PARTIES

Balances and transactions with related parties are as follows:

A. BALANCES WITH RELATED PARTIES

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Other payable.......................................... $105,909 $ 7,660
-------- --------
Long-term loans from shareholders...................... 53,000 63,000
-------- --------
Convertible liability to shareholder................... 227,645 100,325
-------- --------
Liability to shareholder............................... -- 66,883
-------- --------
Convertible long-term debt to shareholders............. -- 66,586
-------- --------
</TABLE>

B. TRANSACTIONS WITH RELATED PARTIES

<TABLE>
<S> <C> <C>
Sales*................................................. -- 41,519
-------- --------
Purchases*............................................. -- 185,888
-------- --------
Finance expenses....................................... 9,678 17,055
-------- --------
General and administrative expenses.................... 359,377 271,665
-------- --------
Marketing expenses..................................... 48,146 32,808
-------- --------
</TABLE>

---------------
* The transactions were carried out in the normal course of business.

NOTE 26 -- SUBSEQUENT EVENTS

Subsequent to the balance sheet date the Company was purchased in a stock
swap transaction by MRV Communications, Inc., a public company, in the USA,
traded on the NASDAQ.

F-36
<PAGE> 108

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To AstroTerra Corporation:

We have audited the accompanying balance sheets of AstroTerra Corporation
(a California corporation) as of December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AstroTerra Corporation as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP

San Diego, California
August 24, 2000

F-37
<PAGE> 109

ASTROTERRA CORPORATION

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ -----------
1998 1999 2000
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 699,567 $ 1,192,250 $ 113,141
Accounts receivable.................................. 429,266 559,114 805,394
Inventories.......................................... 227,588 582,027 1,416,410
Prepaid expenses and other........................... 10,137 64,391 28,641
Refundable and deferred income taxes................. 37,048 85,567 107,067
---------- ----------- -----------
Total current assets......................... 1,403,606 2,483,349 2,470,653
Property and equipment, net............................ 57,000 300,994 453,875
Other assets........................................... 1,000 56,478 51,879
---------- ----------- -----------
Total assets................................. $1,461,606 $ 2,840,821 $ 2,976,407
========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 21,012 $ 221,847 $ 234,266
Accrued expenses..................................... 286,000 323,287 300,909
Income taxes payable................................. 71,981 -- --
Deferred revenues.................................... 17,239 87,376 298,898
Line of credit -- -- 136,000
Non-revolving credit facility........................ -- -- 182,000
---------- ----------- -----------
Total current liabilities.................... 396,232 632,510 1,152,073
---------- ----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, 20,000,000 shares authorized;
10,000,000, 10,526,316 and 10,526,316 issued and
outstanding, respectively......................... 647,994 1,689,636 1,689,636
Additional paid-in capital........................... 318,948 3,387,986 10,851,535
Notes receivable from stockholders................... (30,000) (4,020) --
Deferred compensation................................ -- (1,602,517) (6,678,402)
Retained earnings (accumulated deficit).............. 128,432 (1,262,774) (4,038,435)
---------- ----------- -----------
Total stockholders' equity................... 1,065,374 2,208,311 1,824,334
---------- ----------- -----------
Total liabilities and stockholders' equity... $1,461,606 $ 2,840,821 $ 2,976,407
========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these balance sheets.
F-38
<PAGE> 110

ASTROTERRA CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- -------------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Products...................... $ 410,481 $ 842,901 $ 1,684,825 $ 630,047 $ 1,733,257
Contracts..................... 2,441,665 3,284,976 2,966,051 1,331,444 818,737
---------- ---------- ----------- ----------- -----------
2,852,146 4,127,877 4,650,876 1,961,491 2,551,994
---------- ---------- ----------- ----------- -----------
Cost of Revenues:
Products...................... 375,749 562,913 1,100,516 423,342 1,317,680
Contracts..................... 1,905,020 2,758,922 3,053,468 1,281,209 1,075,924
---------- ---------- ----------- ----------- -----------
2,280,769 3,321,835 4,153,984 1,704,551 2,393,604
---------- ---------- ----------- ----------- -----------
Gross margin.......... 571,377 806,042 496,892 256,940 158,390
Operating Expenses:
Selling, general and
administrative............. 222,633 808,450 1,698,027 540,871 1,971,382
Research and development...... 246,884 108,429 164,566 17,876 968,524
---------- ---------- ----------- ----------- -----------
469,517 916,879 1,862,593 558,747 2,939,906
Income (loss) from
operations.......... 101,860 (110,837) (1,365,701) (301,807) (2,781,516)
Interest Income................. 534 430 5,835 8,246 12,766
Interest Expense................ (1,462) (3,247) (259) (152) (6,911)
---------- ---------- ----------- ----------- -----------
Income (loss) before
provision for income
taxes............... 100,932 (113,654) (1,360,125) (293,713) (2,775,661)
Provision for Income Taxes...... 36,000 98,056 31,081 89,590 --
---------- ---------- ----------- ----------- -----------
Net Income (loss)............... $ 64,932 $ (211,710) $(1,391,206) $ (383,303) $(2,775,661)
========== ========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 111

ASTROTERRA CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
NOTES RETAINED
COMMON STOCK ADDITIONAL RECEIVABLE EARNINGS TOTAL
----------------------- PAID-IN FROM DEFERRED (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT) EQUITY
---------- ---------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996... 7,500,000 $ 76,000 $ -- $ -- $ -- $ 275,210 $ 351,210
Net income................. -- -- -- -- -- 64,932 64,932
---------- ---------- ----------- -------- ----------- ----------- -----------
Balance, December 31, 1997... 7,500,000 76,000 -- -- -- 340,142 416,142
Repurchases of common stock
from employees........... (500,000) (5,000) -- -- -- -- (5,000)
Sales of common stock to
employees................ 2,300,000 76,994 -- (30,000) -- -- 46,994
Sale of common stock to
investor................. 700,000 500,000 -- -- -- -- 500,000
Deferred compensation
expense for stock issued
to employees............. -- -- 318,948 -- -- -- 318,948
Net loss................... -- -- -- -- -- (211,710) (211,710)
---------- ---------- ----------- -------- ----------- ----------- -----------
Balance, December 31, 1998... 10,000,000 647,994 318,948 (30,000) -- 128,432 1,065,374
Repurchase of common stock
from employees........... (982,046) (76,205) -- 30,000 -- -- (46,205)
Sales of common stock to
employees................ 982,046 117,847 -- (4,020) -- -- 113,827
Sale of common stock to
investor................. 526,316 1,000,000 -- -- -- -- 1,000,000
Deferred compensation for
stock issued to
employees................ -- -- 3,069,038 -- (3,069,038) -- --
Amortization of deferred
compensation............. -- -- -- -- 1,466,521 -- 1,466,521
Net loss................... -- -- -- -- -- (1,391,206) (1,391,206)
---------- ---------- ----------- -------- ----------- ----------- -----------
Balance, December 31, 1999... 10,526,316 1,689,636 3,387,986 (4,020) (1,602,517) (1,262,774) 2,208,311
The following information
is unaudited:
Repurchase of common stock
from employees........... -- -- -- 4,020 -- -- 4,020
Deferred compensation for
stock issued to
employees................ -- -- 7,463,549 -- (7,463,549) -- --
Amortization of deferred
compensation............. -- -- -- -- 2,387,664 -- 2,387,664
Net loss................... -- -- -- -- -- (2,775,661) (2,775,661)
---------- ---------- ----------- -------- ----------- ----------- -----------
Balance, June 30, 2000
(unaudited)................ 10,526,316 $1,689,636 $10,851,535 $ -- $(6,678,402) $(4,038,435) $ 1,824,334
========== ========== =========== ======== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 112

ASTROTERRA CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- -------------------------
1997 1998 1999 1999 2000
--------- --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ 64,932 $(211,710) $(1,391,206) $(383,303) $(2,775,661)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization..................... 47,825 45,929 83,284 42,619 129,506
Deferred income taxes............................. -- (3,925) (21,521) (22,245) --
Non-cash employee stock
compensation.................................... -- 318,948 1,466,521 463,725 2,387,664
Changes in assets and
liabilities:
Accounts receivable............................... 302,165 (301,519) (129,848) (400,872) (246,280)
Inventories....................................... (373,023) 145,435 (354,439) (255,393) (834,383)
Prepaid expenses and other........................ (519) (9,576) (54,254) 9,716 35,750
Refundable income taxes........................... -- -- (26,998) -- (21,500)
Other assets...................................... -- (1,000) (55,478) (17,115) (9,545)
Accounts payable.................................. 23,346 (48,478) 200,835 112,395 12,419
Accrued expenses.................................. 72,661 48,643 37,287 (124,477) (22,378)
Income taxes payable.............................. (16,601) 69,981 (71,981) 43,834 --
Deferred revenues................................. -- 17,239 70,137 (10,548) 211,521
--------- --------- ----------- --------- -----------
Net cash
provided by (used in)
operating activities........................ 120,786 69,967 (247,661) (541,664) (1,132,887)
--------- --------- ----------- --------- -----------
Net cash used in investing activities:
Purchases of property and equipment................. (79,269) (39,219) (327,278) (60,615) (268,242)
--------- --------- ----------- --------- -----------
Cash flows from financing activities:
Net (repayments) borrowings
on line of credit................................. 127,292 (127,292) -- -- 136,000
Borrowings on non-revolving credit
facility.......................................... -- -- -- -- 182,000
Proceeds from issuances of
common stock...................................... -- 546,994 1,113,827 -- --
Payments for repurchases of
common stock...................................... -- (5,000) (46,205) (46,205) 4,020
--------- --------- ----------- --------- -----------
Net cash provided by (used in)
financing activities........................ 127,292 414,702 1,067,622 (46,205) 322,020
--------- --------- ----------- --------- -----------
Net increase (decrease) in cash
and cash equivalents................................ 168,809 445,450 492,683 (648,484) (1,079,109)
Cash and cash equivalents,
beginning of year................................... 85,308 254,117 699,567 699,567 1,192,250
--------- --------- ----------- --------- -----------
Cash and cash equivalents, end
of year............................................. $ 254,117 $ 699,567 $ 1,192,250 $ 51,083 $ 113,141
========= ========= =========== ========= ===========
Non-cash activities:
Common stock issued for notes receivable from
stockholders...................................... $ -- $ 30,000 $ 4,020 $ -- $ --
========= ========= =========== ========= ===========
Repurchase of common stock from employee in exchange
for notes receivable.............................. $ -- $ -- $ 30,000 $ 30,000 $ --
========= ========= =========== ========= ===========
Deferred compensation for stock issued to
employees......................................... $ -- $ -- $ 3,069,038 $ -- $ 7,463,549
========= ========= =========== ========= ===========
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest.......................................... $ 1,462 $ 3,247 $ 259 $ 152 $ 6,911
========= ========= =========== ========= ===========
Income taxes...................................... $ 35,298 $ 32,000 $ 83,525 $ 60,742 $ 16,000
========= ========= =========== ========= ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 113

ASTROTERRA CORPORATION

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1999, 1998 AND 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999

1. LINE OF BUSINESS AND SALE OF COMPANY

AstroTerra Corporation (the Company) develops and manufactures free-space
optical laser communication systems to connect data and telecommunications
networks. The Company's optical communication systems are practical high-speed
wireless alternatives to fiber optic cable and microwave systems. The Company
also performs contract research and development for the U.S. government and
commercial customers. The Company's research and development contracts are
typically cost plus fixed fee arrangements with durations between six and
twenty-four months.

During July 2000, the Company entered into a stock purchase agreement with
MRV Communications, Inc. (MRV), whereby MRV acquired the entire share capital of
the Company in an exchange for shares of MRV common stock.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Interim Financial Statements

Revenue Recognition

Product revenues are recognized upon shipment and transfer of title and
risk of loss to the customer.

Research and development contract revenues are recognized using the
percentage-of-completion method on a cost-to-cost basis. Contract costs include
all direct material and labor costs, and those indirect costs related to
contract performance. If a loss is projected on a contract, the entire estimated
loss is charged to operations during the period that the loss becomes
determinable.

Payments received from customers in advance of shipment of products or
performance of contract services are deferred and recognized upon completion of
the related obligations.

Research and Development Costs

Research and development costs are expensed as incurred.

F-42
<PAGE> 114
ASTROTERRA CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998 AND 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with
original maturities of three months or less and consist primarily of money
market accounts.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method and includes materials, direct labor
and manufacturing overhead.

Property and Equipment

Property and equipment are stated at cost and depreciated using an
accelerated method over the estimated useful lives of the assets, ranging from 3
to 5 years. Maintenance and repairs are charged to expense as incurred, and the
costs of additions and betterments that increase the useful lives of the related
assets are capitalized. Upon retirement or disposal of assets, the cost and
related accumulated depreciation are removed from the accounts and any gain or
loss is reflected in operations.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the sum of future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition is less than the carrying
amount of the asset, an impairment loss is recognized. In the opinion of
management, there have been no events or changes in circumstances that indicate
impairment of the Company's long-lived assets.

Income Taxes

Deferred income tax assets or liabilities are recognized based on the
temporary differences between financial statement and income tax bases of assets
and liabilities using enacted statutory tax rates in effect of the years 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. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.

Fair Value of Financial Instruments

The carrying value of certain of the Company's financial instruments,
including accounts receivable, accounts payable and accrued expenses
approximates fair value due to their short term nature.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." The Company has elected, as permitted under SFAS No.
123, to continue to account for stock-based employee compensation using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25 and to disclose pro forma net income (loss) as if stock-based employee
compensation were computed using the fair value method under SFAS No. 123.
Transactions with other than employees, in which goods or services are the
consideration received for the issuance of equity instruments, are accounted for
on a fair value basis under SFAS No. 123. For the years ended December 31, 1997,
1998 and 1999 and for the six

F-43
<PAGE> 115
ASTROTERRA CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998 AND 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999

months ended June 30, 1999, the differences between pro forma net income (loss)
in accordance with SFAS No. 123 and net income (loss) as reported in the
accompanying statements of operations was not material. There were no additional
shares issued to employees during the six months ended June 30, 2000.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value. SFAS No. 133 was amended by SFAS No. 137, which defers the effective
date to all fiscal quarters of fiscal years beginning after June 15, 2000. The
adoption of SFAS No. 133 is not expected to have a material effect on the
Company's financial position or results of operations as the Company has not
been engaged in the use of derivative instruments.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101, as amended, must be adopted no later than the fourth
quarter of the fiscal year beginning after December 15, 1999. The Company does
not anticipate the adoption of SAB No. 101 to have a material impact on the
Company's financial position or results of operations.

3. COMPONENTS OF CERTAIN BALANCE SHEET CAPTIONS

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- --------------
1998 1999 2000
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Billed receivables................................... $366,730 $415,905 $652,193
Costs incurred in excess of billings on uncompleted
contracts including unbilled retainage of $61,355
and $64,609 in 1999 and 2000, respectively......... 62,536 143,209 153,201
-------- -------- --------
$429,266 $559,114 $805,394
======== ======== ========
</TABLE>

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- -----------
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials....................................... $ 27,774 $204,173 $ 438,275
Work in process..................................... 102,965 236,938 657,612
Finished goods...................................... 96,849 140,916 320,523
-------- -------- ----------
$227,588 $582,027 $1,416,410
======== ======== ==========
</TABLE>

F-44
<PAGE> 116
ASTROTERRA CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998 AND 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -----------
1998 1999 2000
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment............................ $ 230,415 $ 384,964 $ 621,934
Computers and software............................. 21,780 121,169 121,169
Furniture and fixtures............................. 4,387 18,646 49,918
--------- --------- ---------
256,582 524,779 793,021
Less: accumulated depreciation..................... (199,582) (223,785) (339,146)
--------- --------- ---------
$ 57,000 $ 300,994 $ 453,875
========= ========= =========
</TABLE>

Depreciation expense for the years ended December 31, 1997, 1998 and 1999
totaled $47,825, $45,929 and $83,284 respectively. Depreciation expense for the
six months ended June 30, 1999 and 2000 totaled $42,619 and $115,361
respectively.

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -----------
1998 1999 2000
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Compensation and related taxes..................... $ 286,000 $ 253,012 $ 257,318
Warranty reserve................................... -- 33,500 33,500
Other.............................................. -- 36,775 10,091
--------- --------- ---------
$ 286,000 $ 323,287 $ 300,909
========= ========= =========
</TABLE>

4. INCOME TAXES

Provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Current:
Federal.............................................. $25,227 $ 79,341 $ 39,628
State................................................ 10,773 22,640 12,974
------- -------- --------
36,000 101,981 52,602
------- -------- --------
Deferred:
Federal.............................................. -- (3,336) (18,293)
State................................................ -- (589) (3,228)
------- -------- --------
-- (3,925) (21,521)
------- -------- --------
Provision for income taxes............................. $36,000 $ 98,056 $ 31,081
======= ======== ========
</TABLE>

Realization of deferred income taxes is dependent on generating sufficient
taxable income during the periods in which temporary differences will reverse.
Although realization is not assured, management believes it is more likely than
not that the deferred income taxes will be realized. The amount of deferred
income taxes considered realizable, however, could be adjusted in the near term
if estimates of future taxable income during the reversal periods are revised.

F-45
<PAGE> 117
ASTROTERRA CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998 AND 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999

Deferred income taxes consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- ---------
<S> <C> <C>
Accrued expenses............................................ $34,326 $ 58,569
Other....................................................... 2,722 --
------- ---------
Deferred income taxes....................................... $37,048 $ 58,569
======= =========
</TABLE>

Provision for income taxes reconciles to the expected provision (benefit)
for income taxes based on the federal statutory tax rate as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- -------- ---------
<S> <C> <C> <C>
Expected federal income taxes......................... $36,987 $(41,313) $(462,443)
State income taxes, net of federal benefit............ 6,527 (7,291) (81,608)
Employee stock compensation........................... -- 127,579 586,608
Other................................................. (7,514) 19,081 (11,476)
------- -------- ---------
Provision for income taxes............................ $36,000 $ 98,056 $ 31,081
======= ======== =========
</TABLE>

5. CREDIT FACILITIES

In May 1998, the Company obtained a $300,000 revolving line of credit with
a bank, bearing interest at the bank's prime rate plus 1.5% (10.0% at December
31, 1999), collateralized by substantially all assets of the Company and
personally guaranteed by three majority stockholders of the Company. No amounts
were outstanding under the line of credit at December 31, 1999 and 1998. The
line of credit was terminated by the Company during February 2000.

In February 2000, the Company entered into a $1,300,000 credit agreement
with a bank, consisting of a $1,000,000 revolving line of credit and a $300,000
non-revolving credit facility for equipment purchases. The credit agreement
bears interest at variable rates based on either the banks' reference rate plus
0.5% or LIBOR plus 2.75%, as elected by borrower, is secured by substantially
all assets of the Company, and is subject to certain financial and non-financial
covenants. As of June 30, 2000, the Company had $136,000 outstanding under the
revolving line of credit and $182,000 outstanding under the non-revolving credit
facility for equipment purchases. The credit agreement is collateralized by the
assets of the Company. The credit agreement contains certain covenants, which
among other things requires the Company to maintain a minimum effective tangible
net worth, certain financial ratios and no consecutive losses. As of June 30,
2000, the Company was in default with certain financial covenants; therefore,
the components of the credit agreement are classified as short-term. The credit
agreement was terminated by the Company during August 2000 and all amounts
outstanding were repaid.

6. STOCKHOLDERS' EQUITY

Capital Structure

The Company is authorized to issue up to 20,000,000 shares of common stock,
no par value. Common shares are voting shares with equal dividend participation,
when and if declared, and equal rights in the event of liquidation.

F-46
<PAGE> 118
ASTROTERRA CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998 AND 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999

Employee Stock Purchase Plans

In August 1997, the Company implemented a book value employee stock
purchase plan (the Plan) and determined that 2,000,000 shares would be made
available for purchases. The Plan allowed each full time employee with at least
one year of service to purchase up to 2,000 shares of common stock at book value
per share, as determined by the board of directors. Additionally, the board of
directors determined that an additional 500,000 shares of common stock would be
made available for purchases by key employees on a discretionary basis.

Under the Plan, the Company retains the option to repurchase shares sold to
employees upon their termination. If an employee leaves the Company within a
year after purchasing shares, the Company's repurchase price per share is the
original issuance price. If an employee leaves the Company more than one year
after purchasing shares, the Company's repurchase price per share is the greater
of the original issuance price or current book value.

Discretionary shares sold to key employees carry terms determined by the
board of directors, and generally allow for employee vesting (elimination of the
Company repurchase option) over a period of four years. Further, upon a
substantial change in control of the Company or employee termination without
cause, the Company repurchase option terminates.

Stock issued to employees under the above plans are accounted for using the
variable method of accounting in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," Emerging Issues Task
Force Release (EITF) No. 87-23, "Book Value Stock Purchase Plans" and EITF No.
88-6 "Book Value Stock Plans in an Initial Public Offering." Accordingly,
outstanding shares under the book value purchase plan are marked to book value
per share during each reporting period. Outstanding shares issued to employees
on a discretionary basis with vesting provisions (elimination of the Company's
repurchase option) are marked to fair value during each reporting period. At the
point when restrictions related to employee shares lapse, any unamortized
deferred compensation expenses are recognized in operations.

Compensation expense for shares issued to employees during fiscal 1998,
1999 and the six months ended June 30, 1999 and 2000 totaled $318,948,
$1,466,521, $463,725 and $2,387,664 respectively, and is included in the
accompanying statements of operations. As of December 31, 1999 and June 30,
2000, deferred compensation included as a component of stockholders' equity
totals $1,602,517 and $6,678,402, respectively, and is expected to be amortized
in full during fiscal year 2000 as a result of the acquisition of the Company by
MRV (see Note 1).

F-47
<PAGE> 119
ASTROTERRA CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998 AND 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999

Stock based compensation expense has been included in the accompanying
statement of operations as follows:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -------------------------
1998 1999 1999 2000
-------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Allocation of compensation expense:
Cost of revenues:
Products................................... $ 3,844 $ 233,707 $ 73,900 $ 380,502
Contracts.................................. 40,144 574,645 188,865 518,904
Operating expenses:
Selling, general and administrative........ 273,382 627,199 198,325 1,021,154
Research and development................... 1,578 30,970 2,635 467,104
-------- ---------- -------- ----------
Total stock-based compensation expense.......... $318,948 $1,466,521 $463,725 $2,387,664
======== ========== ======== ==========
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its facilities and certain equipment under operating
leases expiring at various dates through April 2002. The Company has the right
to terminate the lease with at least 120 days prior written notice and has an
option to renew the lease for an additional two years at a rate increase of ten
percent. Rent expense for the years ended December 31, 1997, 1998 and 1999 was
$56,300, $81,089 and $127,746, respectively. Rent expense for the six months
ended June 30, 1999 and 2000 was $58,314 and $137,398, respectively.

Future minimum lease payments under operating leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
------------
<S> <C>
2000........................................................ $ 256,120
2001........................................................ 246,352
2002........................................................ 36,063
---------
$ 538,535
=========
</TABLE>

Legal Matters

In the ordinary course of business, the Company is subject to claims and,
from time to time, is named in various legal proceedings. In the opinion of
management, the amount of ultimate liability, if any, with respect to any of
these matters will not have a material adverse affect on the financial position
or results of operations of the Company.

8. RETIREMENT SAVINGS PLAN

The Company maintains a 401(k) retirement savings plan that covers
substantially all of its employees. Eligible employees may contribute to the
plan subject to certain Internal Revenue Service limitations. Company
contributions to the plan are discretionary. During fiscal 1997, 1998 and 1999,
the Company contributed $61,723, $82,823 and $77,907, respectively. For the six
months ended June 30, 1999 and 2000, the Company contributed $22,020 and $67,323
respectively.

F-48
<PAGE> 120
ASTROTERRA CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999, 1998 AND 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
1999

9. CONCENTRATIONS OF RISK

During fiscal 1997, 1998 and 1999, the Company had 7, 7 and 6 contracts,
respectively, with government agencies that accounted for 98%, 99% and 69% of
contract revenues, respectively. Additionally, the Company had a contract with a
commercial customer that accounted for 31% of contract revenues in fiscal 1999.
During both of the six month periods ended June 30, 1999 and 2000, the Company
had 5 contracts with government agencies that accounted for 73% and 100% of
contract revenues, respectively. Additionally, the Company had a commercial
customer that accounted for 27% of contract revenues for the six months ended
June 30, 1999.

During fiscal 1997, 1998 and 1999, 1, 3 and 1 customers represented 37%,
34% and 10% of product revenues, respectively. During the six months ended June
30, 1999 and 2000, 3 and 1 customers represented 39% and 58% of product
revenues, respectively.
Government agency contracts accounted for 43% and 63% of accounts receivable at
December 31, 1998 and 1999, respectively, and 31% of accounts receivable at June
30, 2000. One commercial customer accounted for 15% of accounts receivable at
December 31, 1998, and another commercial customer accounted for 48% of accounts
receivable at June 30, 2000.

10. SEGMENT REPORTING

The Company operates in one industry segment, which includes developing,
manufacturing and selling free-space optical laser communications systems to
connect data and telecommunication networks. The Company derives revenues in
this segment from both product shipments and research and development contracts.
The accompanying statements of operations separately reflect the revenues and
cost of revenues for products and research and development contracts.

F-49
<PAGE> 121

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On May 1, 2000, MRV Communications, Inc. (MRV) completed the acquisition of
all the outstanding capital stock of Jolt Limited (Jolt), an Israel corporation,
in exchange for approximately 1.9 million shares of MRV's common stock and stock
options to purchase common stock. On July 12, 2000, MRV acquired all of the
outstanding capital stock of AstroTerra Corporation (AstroTerra), a California
corporation, in exchange for approximately 2.4 million shares of MRV's common
stock and options to purchase common stock. The outstanding capital stock of
Jolt and AstroTerra, purchased by MRV, have been contributed to Optical Access,
Inc. ("Optical Access") as of the date of each acquisition as part of the Master
Separation Agreements. As such, Optical Access' management has prepared the
following unaudited pro forma condensed consolidated financial information to
give effect to these acquisitions. The Unaudited Pro Forma Condensed
Consolidated Statements of Operations for the years ended December 31, 1999 and
for the nine months ended September 30, 2000 give effect to the Jolt and
AstroTerra acquisitions as if they had taken place on January 1, 1999.

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 Optical
Access, Jolt and AstroTerra. The acquisition of Jolt and AstroTerra were
accounted for using the purchase method. Optical Access' allocation of purchase
price for each acquisition 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 allocations of the purchase prices, however,
management does not believe any material differences will result. The Company
expects to complete a final valuation 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 Optical Access, Jolt and AstroTerra. The
unaudited pro forma condensed consolidated financial information is provided for
informational purposes only and does not purport to represent what Optical
Access' financial position or results of operations would actually have been had
these acquisitions occurred on such dates or to project Optical Access' results
of operation or financial position for any future period.

F-50
<PAGE> 122

OPTICAL ACCESS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000

<TABLE>
<CAPTION>
ASTROTERRA
JOLT THROUGH THROUGH PRO FORMA
OPTICAL ACCESS MAY 1, 2000 JULY 12, 2000 ADJUSTMENTS TOTAL
-------------- ------------ ------------- ------------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 14,708 $ 416 $ 2,552 $ $ 17,676
Cost of sales....................... 11,800 172 2,394 (596)(2) 13,770
----------- ----- ------- -------- --------
Gross profit...................... 2,908 244 158 596 3,906
----------- ----- ------- -------- --------
Operating costs and expenses:
Selling, general and
administrative expenses........ 11,255 347 1,971 (906)(2) 12,667
Research and development.......... 14,781 91 969 (2,761)(2) 13,080
Amortization of goodwill and other
intangibles.................... 8,172 -- -- 13,044(1) 21,216
----------- ----- ------- -------- --------
34,208 438 2,940 9,377 46,963
----------- ----- ------- -------- --------
Operating loss...................... (31,300) (194) (2,782) (8,781) (43,057)
----------- ----- ------- -------- --------
Other income (expense), net......... (46) (170) 6 -- (210)
----------- ----- ------- -------- --------
Loss before provision for income
taxes............................. (31,346) (364) (2,776) (8,781) (43,267)
----------- ----- ------- -------- --------
Provision for income taxes.......... -- -- -- -- --
----------- ----- ------- -------- --------
Net loss............................ $ (31,346) $(364) $(2,776) $ (8,781) $(43,267)
=========== ===== ======= ======== ========
Basic and diluted net loss per
share............................. $ (0.75) $ (1.04)
=========== ========
Weighted average shares outstanding
used in basic and diluted per
shares calculation................ 41,667 --(5) 41,667
=========== ======== ========
</TABLE>

See notes to unaudited pro forma condensed consolidated financial information.
F-51
<PAGE> 123

OPTICAL ACCESS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
OPTICAL PRO FORMA
ACCESS JOLT ASTROTERRA ADJUSTMENTS TOTAL
-------- ------ ---------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 8,473 $1,472 $ 4,651 $ -- $ 14,596
Cost of sales............................. 4,555 498 4,154 6,400(4) 15,607
-------- ------ ------- -------- --------
Gross profit......................... 3,918 974 497 (6,400) (1,011)
-------- ------ ------- -------- --------
Operating costs and expenses:
Selling, general and administrative
expenses............................. 1,688 1,067 1,698 13,776(4) 18,229
Research and development................ 4,543 177 165 22,874(4) 27,759
Amortization of goodwill and other
intangibles.......................... -- -- -- 28,241(3) 28,241
-------- ------ ------- -------- --------
6,231 1,244 1,863 64,891 74,229
-------- ------ ------- -------- --------
Operating loss............................ (2,313) (270) (1,366) (71,291) (75,240)
-------- ------ ------- -------- --------
Other income (expense), net............... -- (140) 6 -- (134)
-------- ------ ------- -------- --------
Loss before provision for income taxes.... (2,313) (410) (1,360) (71,291) (75,374)
-------- ------ ------- -------- --------
Provision for income taxes................ -- -- 31 -- 31
-------- ------ ------- -------- --------
Net loss.................................. $ (2,313) $ (410) $(1,391) $(71,291) $(75,405)
======== ====== ======= ======== ========
Basic and diluted net loss per share...... $ (0.06) $ (1.81)
======== ========
Weighted average shares outstanding used
in basic and diluted per shares
calculation............................. 41,667 --(5) 41,667
======== ======== ========
</TABLE>

See notes to unaudited pro forma condensed consolidated financial information.
F-52
<PAGE> 124

OPTICAL ACCESS, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION

The following adjustments were applied to Optical Access' historical
financial statements and those of Jolt and AstroTerra to arrive at the pro forma
financial information:

(1) The pro forma adjustment is to record the amortization of goodwill related
to the acquisitions of Jolt and AstroTerra as if these transactions occurred
on January 1, 1999. Goodwill recorded in relation to these acquisitions was
approximately $141.3 million and is being amortizated on a straight-line
basis over 5 years or approximately $21.2 million for the nine month period
ended September 30, 2000. As the acquisitions of Jolt and AstroTerra
occurred during the period , $8.2 million of goodwill relating to these
acquisitions have been previously included in the consolidated statements of
operations of Optical Access for the nine months ended September 30, 2000.

(2) The pro forma adjustment is to record deferred stock compensation related to
the acquisitions of Jolt and AstroTerra as if the transactions occurred on
January 1, 1999. Deferred stock compensation recorded in relation to these
acquisitions was approximately $75.0 million and is being amortized over 4
years or approximately $15.3 million for the nine months ended September 30,
2000. As the acquisition of Jolt and AstroTerra occurred during the period,
$19.6 million of deferred compensation relating to this acquisition has been
previously included in the consolidated statements of operations of Optical
Access for the nine months ended September 30, 2000.

(3) The pro forma adjustment is to record the amortization of goodwill related
to the acquisitions of Jolt and AstroTerra as if the transactions occurred
on January 1, 1999. Goodwill recorded in relation to these acquisitions was
approximately $141.3 million and is being amortizated on a straight-line
basis over 5 years or approximately $28.2 million for the year ended
December 31, 1999.

(4) The pro forma adjustment is to record deferred stock compensation related to
the acquisitions of Jolt and AstroTerra as if the transactions occurred on
January 1, 1999. Deferred stock compensation recorded in relation to these
acquisitions was approximately $75.0 million and is being amortized over 4
years or approximately $43.1 million for the year ended December 31, 1999.

(5) 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. In
connection with the "push down" of the assets and liabilities of Jolt and
AstroTerra, no additional shares were exchanged with MRV. Therefore, no
dilutive effect has been provided for these acquisitions.

F-53
<PAGE> 125

OPTICAL ACCESS LOGO
<PAGE> 126

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC registration fee........................................ 28,512
NASD filing fee............................................. 11,300
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving costs................................ 400,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 600,000
Blue Sky fees and expenses.................................. 3,000
Directors and Officers Insurance............................ 150,000
Transfer Agent and Registrar fees........................... 10,000
Miscellaneous expenses...................................... 102,188
----------
Total............................................. 2,000,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The General Corporation Law of Delaware provides for indemnification by a
corporation of its directors and officers. Our certificate of incorporation
provides for the indemnification of directors and officers to the fullest extent
permissible under Delaware law. Our bylaws provide for the indemnification of
officers, directors and third parties acting on behalf of Optical Access, Inc.,
if, as required under Delaware law, such person acted in good faith and in a
manner reasonably believed to be in and not opposed to our best interest, and,
with respect to any criminal action or proceeding, the indemnified such person
had no reason to believe his or her conduct was unlawful.

We have entered into indemnification agreements with our directors and
executive officers, in addition to indemnification provided for in our bylaws,
and intend to enter into indemnification agreements with any new directors and
executive officers in the future. The indemnification agreements may require us,
among other things, to indemnify our directors and officers against certain
liability that may arise by reason of their status or service as directors and
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance, if available on reasonable terms.

Reference is also made to Section 7 of the form of Underwriting Agreement
contained in Exhibit 1.1 hereto, indemnifying officers and directors of Optical
Access, Inc. against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In connection with its incorporation and organization, in December 1999,
the Registrant issued 1,000 shares of common stock to MRV Communications, Inc.
for an aggregate of $1,000. In November 2000, Registrant effected a
41,667-for-one stock split of its outstanding common stock. The Registrant
believes that the initial issuances was exempt under Section 4(2) of the
Securities Act as a transaction not involving any public offering. Registrant
believes that the stock split was either not a "sale" of securities pursuant to
the Securities Act or exempt under Section 3(a)(9) of the Securities Act.

No underwriters were involved in connection with the sale of securities
referred to in this Item 15. MRV represented its intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued. MRV had adequate access, through its
relationships with registrant, to information about registrant.

II-1
<PAGE> 127

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Master Separation Agreement.+
2.2 Form of General Assignment and Assumption Agreement.+
2.3 Form of Master Technology Ownership and License Agreement.+
2.4 Form of Employee Matters Agreement.+
2.5 Form of Real Estate Matters Agreement.+
2.6 Form of Master Transitional Services Agreement.+
2.7 Form of Master Trademark Ownership and License Agreement.+
2.8 Form of Master Patent Ownership and License Agreement.+
2.9 Form of Indemnification and Insurance Matters Agreement.+
2.10 Form of Master Confidential Disclosure Agreement.+
2.11 Form of Tax Sharing and Indemnification Agreement.+
3.1 Form of Amended and Restated Certificate of Incorporation.+
3.2 Amended and Restated Bylaws of the Registrant.+
4.1 Specimen Common Stock Certificate.*
5 Opinion of Kirkpatrick & Lockhart LLP.*
10.1 Form of Optical Access, Inc. 2000 Stock Option Plan.+
10.2 Form of Indemnification Agreement.+
10.3 Share Purchase Agreement by and between MRV Communications,
Inc. ("MRV") and the shareholders of Jolt, Ltd., dated April
4, 2000.+
10.4 Stock Purchase Agreement by and between MRV and the
shareholders of AstroTerra Corporation dated July 7, 2000
(incorporated by reference to Exhibit 2.1(a) of the Form 8-K
of MRV filed with the SEC on July 27, 2000).+
10.5 Master Lease Agreement dated February 1, 1995 by and between
Torrey Sorrento Associates, Ltd. and Sweet Factory Inc.,
regarding 10343 Roselle Street, Suites 1, 2, 3, 4, 5, 6, 11,
12, E, F, and D-9, San Diego, California 92121.+
10.6 Lease Agreement dated April 19, 1995 by and between
Cal-Sorrento, Ltd. and AstroTerra Corporation, regarding
11526 Sorrento Valley Road, Suites V, IIG, D and J, San
Diego, California 92121, and all modifications thereto.+
10.7 Lease Agreement dated December 17, 1997 by and between
Cal-Sorrento, Ltd. and AstroTerra Corporation, regarding
11526 Sorrento Valley Road, Suite O, San Diego, California
92121.+
10.8 Sublease Agreement dated November 22, 1999 by and between
Sweet Factory, Inc. and AstroTerra Corporation, regarding
10343 Roselle Street, San Diego, California 92121, and rider
thereto dated as of even date therewith.+
10.9 Lease Agreement dated March 11, 1998 by and between Jolt
Ltd. and Kaps-Pharma Ltd., regarding 614 square meters of
office and warehouse space in a building located at block
30243 section 62, lot 5 in the Har Hahotzvim Industrial Zone
in Jerusalem, Israel.+
10.10 Lease Agreement dated April 13, 2000 by and between Jolt
Ltd. and Kaps-Pharma Ltd., regarding 324 square meters of
office and warehouse space in a building located at block
30243, section 62, lot 5 in the Har Hahotzvim Industrial
Zone in Jerusalem, Israel.+
10.11 Lease Agreement dated August 28, 2000 by and between Jolt
Ltd. and Kaps-Pharma Ltd., regarding 226 square meters of
office space in a building located at block 30243, section
62, lot 5 in the Har Hahotzvim Industrial Zone in Jerusalem,
Israel.+
10.12 Lease Agreement dated December 20, 1995 by and between
Mirobin, Ltd. and NBase Communications, Ltd. regarding 1814
square meters of office space in a building located on the
first floor of Mirobin Building, Industrial Yards, Yokneam,
Israel (location referred to in a diagram in original lease
agreement).+
10.13 Lease Agreement dated January 18, 1999 by and between
Mirobin, Ltd. and Fibronics, Ltd. regarding 669 square
meters of office space in a building located at block 11495,
lot 11, plot 2 in the Yokneam House, Industrial Area,
Mirobin Building, Yokneam, Israel.+
</TABLE>

II-2
<PAGE> 128

<TABLE>
<C> <S>
10.14 OEM Purchasing Agreement dated December 9, 1999 by and
between NBase-Xyplex and Uniskor (subsequently acquired by
Flextronics).+
10.15 Form of Employment Agreement between Optical Access, Inc.
and Guy Avidan.+
10.16 Form of Employment Agreement between Optical Access, Inc.
and Shay Gonen.+
10.17 Distribution Agreement by and between Itouch Communications,
Inc. and Optical Access, Inc.*
10.18 Lease Agreement dated November 15, 2000 by and between
Optical Access, Inc. and James and Jill Berg regarding 10401
Roselle Street, Building A, Suites A202, A203 and A206, San
Diego, California 92121.*
21.1 List of Registrant's Subsidiaries.+
23.1 Consent of Arthur Andersen LLP, Los Angeles.
23.2 Consent of Arthur Andersen LLP, San Diego.
23.3 Consent of Somekh Chaikin.
23.4 Consent of Kirkpatrick & Lockhart LLP (contained in Exhibit
5).
24.1 Power of attorney (included on signature page of
Registration Statement).+
</TABLE>

---------------
+ Previously filed.

* To be filed by Amendment.

(b) FINANCIAL STATEMENT SCHEDULES

All such schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.

ITEM 17. UNDERTAKINGS

We hereby undertake to provide to the Underwriters at the closing specified
in the Underwriting Agreement certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to each
purchaser.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

We hereby undertake that:

1. For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.

2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 129

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chatsworth, State of
California, on the 18th day of December, 2000.

OPTICAL ACCESS, INC.

By: /s/ SHLOMO MARGALIT

------------------------------------
Shlomo Margalit
Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ SHLOMO MARGALIT Chairman of the Board December 18, 2000
------------------------------------------
Shlomo Margalit

* Chief Executive Officer and
------------------------------------------ Director
Guy Avidan (Principal Executive Officer) December 18, 2000

* Chief Financial Officer
------------------------------------------ (Principal Financial and
Shay Gonen Accounting Officer) December 18, 2000

* Director December 18, 2000
------------------------------------------
Noam Lotan

* Director December 18, 2000
------------------------------------------
Lior Bregman

* Director December 18, 2000
------------------------------------------
Michael McDonough

*By: /s/ SHLOMO MARGALIT Attorney-in-fact December 18, 2000
------------------------------------
Shlomo Margalit
</TABLE>

II-4
<PAGE> 130

EXHIBIT INDEX

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*

2.1 Master Separation Agreement.+
2.2 Form of General Assignment and Assumption Agreement.+
2.3 Form of Master Technology Ownership and License Agreement.+
2.4 Form of Employee Matters Agreement.+
2.5 Form of Real Estate Matters Agreement.+
2.6 Form of Master Transitional Services Agreement.+
2.7 Form of Master Trademark Ownership and License Agreement.+
2.8 Form of Master Patent Ownership and License Agreement.+
2.9 Form of Indemnification and Insurance Matters Agreement.+
2.10 Form of Master Confidential Disclosure Agreement.+
2.11 Form of Tax Sharing and Indemnification Agreement.+
3.1 Form of Amended and Restated Certificate of Incorporation.+
3.2 Amended and Restated Bylaws of the Registrant.+
4.1 Specimen Common Stock Certificate.*
5 Opinion of Kirkpatrick & Lockhart LLP.*
10.1 Form of Optical Access, Inc. 2000 Stock Option Plan.+
10.2 Form of Indemnification Agreement.+
10.3 Share Purchase Agreement by and between MRV Communications,
Inc. ("MRV") and the shareholders of Jolt, Ltd., dated April
14, 2000.+
10.4 Stock Purchase Agreement by and between MRV and the
shareholders of AstroTerra Corporation dated July 7, 2000
(incorporated by reference to Exhibit 2.1(a) of the Form 8-K
of MRV filed with the SEC on July 27, 2000).+
10.5 Master Lease Agreement dated February 1, 1995 by and between
Torrey Sorrento Associates, Ltd. and Sweet Factory Inc.,
regarding 10343 Roselle Street, Suites 1, 2, 3, 4, 5, 6, 11,
12, E, F, and D-9, San Diego, California 92121.+
10.6 Lease Agreement dated April 19, 1995 by and between
Cal-Sorrento, Ltd. and AstroTerra Corporation, regarding
11526 Sorrento Valley Road, Suites V, IIG, D and J, San
Diego, California 92121, and all modifications thereto.+
10.7 Lease Agreement dated December 17, 1997 by and between
Cal-Sorrento, Ltd. and AstroTerra Corporation, regarding
11526 Sorrento Valley Road, Suite O, San Diego, California
92121.+
10.8 Sublease Agreement dated November 22, 1999 by and between
Sweet Factory, Inc. and AstroTerra Corporation, regarding
10343 Roselle Street, San Diego, California 92121, and rider
thereto dated as of even date therewith.+
10.9 Lease Agreement dated March 11, 1998 by and between Jolt
Ltd. and Kaps-Pharma Ltd., regarding 614 square meters of
office and warehouse space in a building located at block
30243 section 62, lot 5 in the Har Hahotzvim Industrial Zone
in Jerusalem, Israel.+
10.10 Lease Agreement dated April 13, 2000 by and between Jolt
Ltd. and Kaps-Pharma Ltd., regarding 324 square meters of
office and warehouse space in a building located at block
30243, section 62, lot 5 in the Har Hahotzvim Industrial
Zone in Jerusalem, Israel.+
10.11 Lease Agreement dated August 28, 2000 by and between Jolt
Ltd. and Kaps-Pharma Ltd., regarding 226 square meters of
office space in a building located at block 30243, section
62, lot 5 in the Har Hahotzvim Industrial Zone in Jerusalem,
Israel.+
10.12 Lease Agreement dated December 20, 1995 by and between
Mirobin, Ltd. and NBase Communications, Ltd. regarding 1814
square meters of office space in a building located on the
first floor of Mirobin Building, Industrial Yards, Yokneam,
Israel (location referred to in a diagram in original lease
agreement).+
10.13 Lease Agreement dated January 18, 1999 by and between
Mirobin, Ltd. and Fibronics, Ltd. regarding 669 square
meters of office space in a building located at block 11495,
lot 11, plot 2 in the Yokneam House, Industrial Area,
Mirobin Building, Yokneam, Israel.+
10.14 OEM Purchasing Agreement dated December 9, 1999 by and
between NBase-Xyplex and Uniskor (subsequently acquired by
Flextronics).+
10.15 Form of Employment Agreement between Optical Access, Inc.
and Guy Avidan.+
10.16 Form of Employment Agreement between Optical Access, Inc.
and Shay Gonen.+
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<TABLE>
<C> <S>
10.17 Distribution Agreement by and between Itouch Communications,
Inc. and Optical Access, Inc.*
10.18 Lease Agreement dated November 15, 2000 by and between
Optical Access, Inc. and James and Jill Berg regarding 10401
Roselle Street, Building A, Suites A202, A203 and A206, San
Diego, California 92121.*
21.1 List of Registrant's Subsidiaries.+
23.1 Consent of Arthur Andersen LLP, Los Angeles.
23.2 Consent of Arthur Andersen LLP, San Diego.
23.3 Consent of Somekh Chaikin.
23.4 Consent of Kirkpatrick & Lockhart LLP (contained in Exhibit
5).
24.1 Power of attorney (included on signature page of
Registration Statement).+
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+ Previously filed.

* To be filed by Amendment.