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