<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
[X] Quarterly Report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1997
[ ] Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act.
For the transition period from _______________ to ______________
Commission file number 0-25678
-------
MRV Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1340090
--------------------------------- -------------------
(State of other jurisdiction (IRS Employer
of incorporation or organization) identification no.)
8917 Fullbright Ave., Chatsworth, CA 91311
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (818) 773-9044
--------------
Check whether the issuer:(1)has filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months ( or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
----- -----
As of May 8, 1997 there were 22,779,138 shares of Common Stock, $.0034
par value per share, outstanding.
<PAGE> 2
MRV COMMUNICATIONS, INC.
Form 10-Q March 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1: Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996 (audited) 3
Condensed Consolidated Statements of Income (unaudited)
for the Three Months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Months ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION 9
Item 2: Changes in Securities. 9
SIGNATURE 10
</TABLE>
- ---------------
As used in this Report, "MRV" or the "Company" refers to MRV Communications,
Inc. and its wholly owned consolidated subsidiaries.
2
<PAGE> 3
MRV COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 7,158 $ 14,641
Short-term investments 24,544 17,659
Accounts receivable, net of
reserves of $2,219 in 1997 and $2,404 in 1996 28,871 24,296
Inventories 21,007 18,238
Deferred income taxes 2,622 2,660
Due from Elbit 1,332 2,154
Other current assets 2,532 2,223
--------- --------
Total current assets 88,066 81,871
Property And Equipment- At cost,
net of depreciation and amortization 6,208 6,248
Other Assets:
Goodwill 2,696 2,788
Deferred income taxes 6,040 6,036
--------- --------
$ 103,010 $ 96,943
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 104 $ 119
Accounts payable 16,857 11,328
Accrued liabilities 5,743 6,389
Accrued restructuring costs 2,761 3,549
Customer Deposits 821 1,500
Income taxes payable 2,151 2,013
--------- --------
Total current liabilities 28,437 24,898
LONG TERM LIABILITIES
Convertible debentures 300 17,325
Capital lease obligations, net of current portion 939 1,035
Other long-term liabilities 507 532
--------- --------
Total long term liabilities 1,746 18,892
--------- --------
MINORITY INTERESTS 862 852
COMMON STOCK ISSUED IN CONNECTION WITH ACQUISITION 6,300 10,530
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value:
1,000,000 shares authorized
no shares outstanding -- --
Common stock, $.0034 par value:
40,000,000 shares authorized
22,473,733 shares outstanding in 1997
and 21,286,490 shares outstanding in 1996 76 70
Additional paid-in capital 69,487 49,636
Accumulated deficit (3,607) (7,950)
Cumulative translation adjustments (291) 15
--------- --------
Total stockholders' equity 65,665 41,771
--------- --------
$ 103,010 $ 96,943
========= ========
</TABLE>
See accompanying notes
3
<PAGE> 4
MRV COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 Months Ended
-------------------------
March 31, March 31,
1997 1996
--------- --------
<S> <C> <C>
REVENUES, net $ 35,564 $15,529
-------- -------
COSTS AND EXPENSES:
Cost of goods sold 20,176 8,989
Research and development
expenses 2,748 1,684
Selling, general and
administrative expenses 5,775 2,136
-------- -------
Operating income 6,865 2,720
Interest expenses related to convertible debenture & acquisition (408) --
Other (expenses) income, net (166) 80
Provision for income taxes 1,938 921
Minority interests 10 --
-------- -------
NET INCOME $ 4,343 $ 1,879
-------- -------
EARNINGS PER SHARE $ 0.18 $ 0.09
-------- -------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND COMMON SHARES EQUIVALENT OUTSTANDING 24,795 21,412
-------- -------
</TABLE>
See accompanying notes
4
<PAGE> 5
MRV COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 Months Ended
--------------------------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,343 $ 1,879
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 132 78
Interest related to convertible debentures and
acquisition 408
Minority interests' share of income 10 --
(Increase) decrease in:
Accounts receivable (4,575) (2,162)
Inventories (2,769) (1,500)
Due from Elbit 822 --
Deferred income taxes 34 --
Other assets (309) (292)
Increase (decrease) in:
Accounts payable 5,529 1,616
Accrued liabilities (646) (590)
Accrued restructuring costs (788) --
Income taxes payable 138 269
Customer deposits (679) --
Deferred rent -- (6)
Other long term liabilities (25) 75
------- --------
Net cash (used in)
operating activities 1,840 (633)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (215) (335)
Restricted cash -- 558
Purchases of investments (13,918) (505)
Redemption of short-term investments 7,033 --
------- --------
Net cash provided by (used in)
investing activities (7,100) (282)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (111) --
Repurchase of common stock (4,230) --
Net proceeds from issuance of common stock 2,118 137
------- --------
Net cash (used in) provided by
financing activities (2,223) 137
------- --------
Net decrease in cash (7,483) (778)
Cash at beginning of period 14,641 1,951
------- --------
Cash at end of period $ 7,158 $ 1,173
------- --------
</TABLE>
See accompanying notes.
5
<PAGE> 6
MRV COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Basis of Presentation - The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with the
requirements of Form 10-Q and, therefore, do not include all information and
footnotes which would be presented if such financial statements were prepared in
accordance with generally accepted accounting principles. These statements
should be read in conjunction with the audited financial statements presented in
the Company's Annual Report or Form 10-K for the year ended December 31, 1996.
In the opinion of management, these interim financial statements
reflect all normal and recurring adjustments necessary for a fair presentation
of the financial position and results of operations for each of the periods
presented. The results of operations and cash flows for such periods are not
necessarily indicative of results to be expected for the full year.
2. NET EARNINGS PER SHARE
Net earnings per share are based upon the weighted average number of
shares outstanding during each of the periods, including the dilutive effect of
common stock equivalents. Weighted average shares outstanding include the common
stock equivalents of the convertible debentures, stock options and warrants
outstanding during the period and net income for the purpose of calculating
earnings per share is consequently adjusted for the interest payable to
debenture holders.
3. PRO FORMA FINANCIAL DATA
In September 1996, the Company completed a private placement of an
aggregate of $30,000,000 principal amount of 5% convertible subordinated
debentures due August 6, 1999 (the "Debentures"). Proceeds from this private
placement were used to purchase the Fibronics Business. The Debentures were
convertible into Common Stock of the Company at any time at the option of the
holders at a discount from the market price of the Common Stock at the time of
conversion that increased over the life of the Debentures until it reached a
floor. At a meeting of the Emerging Issues Task Force held on March 13, 1997,
the staff of the Securities and Exchange Commission ("SEC") announced its
position on the accounting treatment for the issuance of convertible preferred
stock and debt securities with a beneficial conversion feature such as that
contained in the Debentures. As announced, the SEC requires that a beneficial
conversion feature attached to instruments such as the Debentures that are
convertible into equity be recognized and measured by allocating a portion of
the proceeds equal to the intrinsic value of that feature to additional paid-in
capital and charging it to interest expense. As a result of this position, the
Company added a non-recurring, non-cash charge to its results of operations for
the quarter ended March 31, 1997 related to the issuance of the Debentures in
the amount of $408,000.
The following unaudited pro forma summary sets forth results of
operations excluding the non recurring charges for interest related to
convertible debentures and acquisition.
<TABLE>
<CAPTION>
Dollars in Thousands Three Months
Except Per Share Data Ended
(Unaudited) March 31, 1997
--------------------- --------------
<S> <C>
Revenues $35,564,000
Income before income taxes $ 6,689,000
Net income $ 4,751,000
Earnings per share $ 0.19
</TABLE>
6
<PAGE> 7
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
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>
3 Months Ended
--------------------
March 31 March 31
1997 1996
---- -----
<S> <C> <C>
Revenues, net ........................................... 100.0% 100.0%
Cost of goods sold ...................................... 56.7% 57.9%
Gross profit ............................................ 43.3% 42.1%
Operating expenses:
Research and development ............................ 7.7% 10.8%
Selling, general and administrative ................. 16.2% 13.8%
Operating income ........................................ 19.3% 17.5%
Interest expenses related to convertible debenture &
acquisition ........................................... 1.1% -
Other (expenses) income, net ............................ (0.5%) 0.5%
Income before taxes ..................................... 18.8% 18.0%
Provision for income taxes .............................. 5.4% 5.9%
Net Income .............................................. 12.2% 12.1%
</TABLE>
Revenues
Revenues for the quarter ended March 31, 1997 and 1996 were $35,564,000 and
$15,529,000 respectively. The changes represented an increase of $20,035,000 or
129% percent for the quarter ended March 31, 1997 over the quarter ended March
31, 1996. Revenues increased as a result of greater marketing efforts and
greater market acceptance of the Company's products, both domestically and
internationally. International sales accounted for approximately 57% percent of
revenues for the quarter ended March 31, 1997 as compared to 39% percent of
revenues for the quarter ended March 31, 1996. International sales, as a
percentage of total revenues, increased mainly as a result of increased sales,
marketing and support resources in place in Europe and increased sales to
the Pacific Rim region. Sales of networking products represented approximately
75% of total sales during the quarter ended March 31, 1997 compared to
approximately 63% for the quarter ended March 31, 1996. The increase in sales of
networking products was due primarily to increased sales of the MegaSwitch
family of products.
Gross Profit
Gross profit for the quarter ended March 31, 1997 was $15,389,000 compared to
$6,540,000 for the quarter ended March 31, 1996. Gross Profit as a percentage of
revenues rose from 42.1% during the quarter ended March 31, 1996 to 43.3% during
the quarter ended March 31, 1997 as a result of increased sales of higher margin
products such as the MegaSwitch family of products as well as lower cost
production techniques.
Research and Development
Research and development ("R&D") expenses were $2,748,000 and $1,684,000 and
represented 7.7% percent and 10.8% percent respectively of revenues for the
quarters ended March 31, 1997 and 1996. The 63% increase in R&D spending during
the quarter ended March 31, 1997 over the comparable period in 1996 was
attributable to the continued development of the Company's networking and fiber
optic products including Ethernet/Fast Ethernet/Gigabit Ethernet switches,
Gigahub modules and three-way simultaneous fiber optic transmission modules.
Additional costs were also 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.
7
<PAGE> 8
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased to $5,775,000
for the quarter ended March 31, 1997 from $2,136,000 for the quarter ended March
31, 1996. As a percentage of revenues, SG&A increased from 13.8 percent for the
quarter ended March 31, 1996 to 16.2 percent for the quarter ended March 31,
1997. The increase in SG&A expenses is due primarily to substantially increased
marketing efforts as well as additional personnel and overhead costs in
additional and expanded locations.
Interest Expense Related to Convertible Debentures and Acquisition
To give effect to the accounting treatment announced by the staff of the SEC at
the March 13, 1997 meeting of the Emerging Issues Task Force relevant to the
Company's issuance of the Debentures having "beneficial conversion" features,
the value of the fixed discount has been reflected in the Company's financial
statements at and for the quarter ended March 31, 1997 as additional interest
expense and such fixed discount has been accreted through the first possible
conversion date of the respective issuance. Similarly, the Company also plans to
report additional non-recurring charges of approximately $40,000 for the quarter
ending June 30, 1997. The Company will not need to report future charges
relating to the issuance of the Debentures beyond the second quarter of 1997 as
the outstanding principal and accrued interest were paid in full at April 4,
1997 through conversion into Common Stock. See "Liquidity and Capital Resources"
below.
Net Income
Net income increased from $1,879,000 for the quarter ended March 31, 1996 to
$4,343,000 for the quarter ended March 31, 1997. Net income increased primarily
due to substantially increased sales.
LIQUIDITY AND CAPITAL RESOURCES
In October 1994, the Company received proceeds of approximately $5,497,000 from
the issuance of 3,439,430 shares of Common Stock, upon exercise of the same
number of warrants that had been issued in the Company's initial public offering
of December 1992. In January 1995, the Company received net proceeds of
approximately $9,355,000 from the public offering of 2,700,000 shares of Common
Stock.
In September 1996, the Company completed a private placement of $30,000,000
principal amount of Debentures. The Debentures were convertible into Common
Stock at a discount from the market price at the time of conversion. At April 4,
1997, principal and accrued interest on the Debentures had been paid in full
through their conversion into a total of 1,816,159 shares of Common Stock at an
average conversion rate of $16.77 per share. As part of the private placement,
the Company also issued to the investors three-year warrants to purchase an
aggregate of up to 600,000 shares of Common Stock at a weighted average exercise
price of $26.67 per share.
In September 1996, the Company completed the Fibronics Acquisition from Elbit.
The purchase price for the Fibronics Business was approximately $22,770,000,
which was paid using a combination of cash and shares of Common Stock of the
Company. Cash in the amount of $12,240,000 was paid at the time of sale and the
balance was paid by the delivery of 458,991 shares of Common Stock of the
Company. The cash was provided from a portion of the proceeds of the private
placement of Debentures. In connection with the 458,991 shares of Common Stock
that were originally delivered to Elbit as partial payment of the purchase
price, the Company made certain guarantees to Elbit regarding the minimum
proceeds Elbit would receive upon resale of the shares. The Company secured such
guarantees by delivering to Elbit (i) a letter of credit from a major bank in
the amount of approximately $4,301,00 and (ii) an additional 137,305 shares of
its Common Stock ( the "Security Shares" ). In March 1997, MRV and Elbit agreed
to amend their agreement (the "March 1997 Amendment") regarding the Common Stock
portion of the purchase price paid to Elbit for the Fibronics Business. First,
the Company repurchased 184,381 shares, paying Elbit $4,230,000 (approximately
$23.00 per share) plus accrued interest thereon at 0.67% per month from January
1, 1997 through the date of Elbit's resale. To secure any shortfall, the Company
delivered to Elbit pending resale of the Additional Shares a letter of credit
from a major bank, expiring on June 15, 1997, in the amount of approximately
$6,536,000. Elbit has agreed to sell the Additional Shares in the open market at
no less than the prevailing bid price at the time of sale; provided, however,
that in no event shall sales of the Additional Shares be at less than $23.00 per
share. Elbit must pay to the Company any difference between the amount received
upon resale of the Additional Shares and $6,300,000 (plus accrued interest) and
return any unsold Additional Shares to the Company. As part of the March 1997
Amendment, Elbit also returned the Security Shares to the Company. Due to the
contingency relating to the Additional Shares, the remaining 274,610 Additional
Shares and the $6,300,000 has been shown on the March 31, 1997 Balance Sheet
outside of stockholders' equity (until the contingency is resolved). This
accounting treatment is consistent with the accounting relating to these shares
as of December 31, 1996.
8
<PAGE> 9
Net cash provided by operating activities for the three months ended March 31,
1997 was $1,840,000. Net cash used in financing activities for the three months
ending March 31, 1997 were $2,223,000. The cash used in financing activities was
primarily used for repurchase of the Common Stock from Elbit. Net cash used in
investing activities for the three months ended March 31, 1997 was $7,100,000.
The cash used in investing activities was primarily used to purchase investments
U.S. Government securities.
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 sales or
operating results, or on the prices of raw materials.
PART II - OTHER INFORMATION
Item 2. Change in Securities
(a) Not applicable
(b) Not applicable
(c) During August and September 1996, the Company sold an
aggregate of $30 million principal amount 5% convertible
subordinated debentures due August 6, 1999 (the "Debentures")
and warrants to purchase up to 600,000 shares of Common Stock
at a weighted average exercise price of $26.67 per share for
three years to a total of 14 investors in a private financing,
receiving proceeds aggregating $30 million. The Debentures
were convertible into Common Stock of the Company at any time
at the option of the holders at a discount from the market
price of the Common Stock at the time of conversion that
increased over the life of the Debentures until it reached a
floor. During the period from January 1, 1997 through March
31, 1997 $17,025,000 principal amount of Debentures and
approximately $407,000 of accrued interest were converted
into approximately 986,000 shares of Common Stock.
The issuance of shares upon conversion of the Debentures were
not effected through any broker-dealer, and no underwriting
discounts or commissions were paid in connection with such
issuance. Exemption from registration requirements is claimed
under the Securities Act of 1933 (the "Securities Act") in
reliance on Section 4(2) of the Securities Act, Regulation D
promulgated thereunder or Section 3(a)(9) of the Securities
Act. The recipients of securities in each such transaction
represented their 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 certificates evidencing the
securities in such transactions. All recipients had adequate
access to information about the Company. No consideration or
other remuneration was paid or given, and no solicitation was
made, in connection with the conversion of the Debentures.
9
<PAGE> 10
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 August 25, 1997.
MRV COMMUNICATIONS, INC.
By: /s/ Edmund Glazer
--------------------------
Edmund Glazer
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND CONDENSED CONSOLIDATED
BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 7,158
<SECURITIES> 24,544
<RECEIVABLES> 31,090
<ALLOWANCES> 2,219
<INVENTORY> 21,007
<CURRENT-ASSETS> 88,066
<PP&E> 6,208
<DEPRECIATION> 1,712
<TOTAL-ASSETS> 103,010
<CURRENT-LIABILITIES> 28,437
<BONDS> 300
0
0
<COMMON> 76
<OTHER-SE> 65,589
<TOTAL-LIABILITY-AND-EQUITY> 103,010
<SALES> 35,564
<TOTAL-REVENUES> 35,564
<CGS> 20,176
<TOTAL-COSTS> 8,553
<OTHER-EXPENSES> 166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408
<INCOME-PRETAX> 6,865
<INCOME-TAX> 1,938
<INCOME-CONTINUING> 4,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,343
<EPS-PRIMARY> $0.18
<EPS-DILUTED> $0.18
</TABLE>
