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Previous: CENTRAL GARDEN & PET COMPANY, 8-K, EX-99.1, 2000-07-07 |
Next: MRV COMMUNICATIONS INC, 8-K/A, EX-2.1.(E), 2000-07-07 |
<PAGE> 1
FORM 8-K/A
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 24, 2000
MRV COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-23452 06-1340090
(Commission File Number) (I.R.S. Employer Identification No.)
20415 Nordhoff Street
Chatsworth, California 91311
(Address of Principal executive offices) (Zip Code)
818 773-0900
(Registrant's telephone number, including area code)
8943 Fullbright Ave.
Chatsworth, CA 91311
(Former name or former address, if changed since last report)
<PAGE> 2
This Form 8-K/A Supplements and completes registrant's Form 8-K filed May
9, 2000:
Item 7 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The following financial statements of Fiber Optics Communications, Inc. are
included herewith:
Audited Consolidated Financial Statements As Of December 31, 1997, 1998 And
1999:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1997, 1998 and 1999
Consolidated Statements of Operations and Comprehensive Income for the years
ended December 31, 1997, 1998 and 1999
Consolidated Statements of Changes in Stockholders Equity for the year ended
December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows
for the year ended December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statements
Unaudited Consolidated Financial Statements as of March 31, 1999 and 2000:
Consolidated Balance Sheets at March 31, 1999 and 2000
Consolidated Statements of Operations And Comprehensive Income for the Periods
Ended March 31, 1999 and 2000
Consolidated Statements Of Cash Flows
For the Periods Ended March 31, 1999 and 2000
Notes to Consolidated Financial Statements
2
<PAGE> 3
(b) Pro Forma Financial Information
The following pro forma financial information is included herewith:
Unaudited Pro Forma Condensed Consolidated Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1999
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Three Months Ended March 31, 2000
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(c) Exhibits
2.1(e) Addendum No. 2 to Escrow Agreement dated as of June 26, 2000 by and
among Fiber Optic Communications, Inc. ("FOCI"), Registrant and the selling
shareholders of FOCI.
2.1(f) Addendum No. 2 to Stock Purchase Agreement dated as of June 26, 2000
by and among FOCI, Registrant and the selling shareholders of FOCI.
2.1(g) Memorandum of Understanding dated as of June 26, 2000 between
Registrant and the remaining shareholders of FOCI.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
July 7, 2000
MRV COMMUNICATIONS, INC.
BY: /s/ EDMUND GLAZER
-----------------------------------
Edmund Glazer
Vice President of Finance and
Administration and
Chief Financial Officer
4
<PAGE> 5
[ARTHUR ANDERSEN LETTERHEAD]
T N Soong & Co
12th Fl., 156 Min Sheng E. Road
Sec. 3 Taipei, Taiwan, ROC
Tel : 886-2-2545-9988
Fax: 886-2-2545-9966
FOCI FIBER OPTIC COMMUNICATIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997, 1998 AND 1999
F-1
<PAGE> 6
Independent Auditors' Report
To the Board of Directors and Shareholders of
FOCI Fiber Optic Communications, Inc.
We have audited the accompanying consolidated balance sheets of FOCI Fiber Optic
Communications, Inc. as of December 31, 1997, 1998 and 1999, and the related
consolidated statements of operations and comprehensive income, shareholders'
equity, and cash flows for the years ended December 31, 1997, 1998 and 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FOCI Fiber Optic
Communications, Inc. at December 31, 1997, 1998 and 1999 and the results of its
operations and its cash flows for the years ended December 31, 1997, 1998 and
1999, in conformity with accounting principles generally accepted in the United
States of America.
/s/ T N SOONG & CO
T N Soong & Co
A Member Firm of Andersen Worldwide, SC
Taipei, Taiwan, the Republic of China
June 12, 2000
F-2
<PAGE> 7
FOCI FIBER OPTIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997, 1998 and 1999
(In Thousand U.S. Dollars Except Share Amounts)
<TABLE>
<CAPTION>
December 31
---------------------------------------------
A S S E T S Notes 1997 1998 1999
----------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash 2C $ 532 $ 2,236 $ 3,344
Marketable securities 2D, 15 911 1,527 174
Notes and accounts receivable-net 2C, 3, 14 8,119 9,361 10,348
Inventories 2E, 4 2,787 8,504 11,541
Prepaid expenses and other current assets 15 1,252 3,217 4,444
------------- ------------- -------------
Total Current Assets 13,601 24,845 29,851
------------- ------------- -------------
LONG-TERM STOCK INVESTMENTS 2F, 5 - 40 31
------------- ------------- -------------
PROPERTIES- NET 2G, 6, 15 9,231 15,723 25,559
------------- ------------- -------------
INTANGIBLE ASSETS 2I
Patent 149 107 66
Land occupancy rights - 270 502
------------- ------------- -------------
Total Intangible Assets 149 377 568
------------- ------------- -------------
OTHER ASSETS
Deferred charges- net 2J - 197 265
Deferred income tax 2N, 13 490 368 331
Refundable deposits 28 100 85
Others 10 1,029 789
------------- ------------- -------------
Total Other Assets 528 1,694 1,470
------------- ------------- -------------
TOTAL ASSETS $ 23,509 $ 42,679 $ 57,479
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank loans 7 $ 2,099 $ 2,686 $ 8,700
Commercial papers 8 - - 1,659
Notes payable 867 1,607 1,225
Accounts payable 304 940 1,787
Income tax payable 2N, 13 25 185 188
Current portion of long-term debts 9, 15 317 641 429
Accrued expenses and other current liabilities 13 1,337 1,579 2,195
------------- ------------- -------------
Total Current Liabilities 4,949 7,638 16,183
------------- ------------- -------------
LONG-TERM DEBTS - NET OF CURRENT PORTION 9, 15 2,473 1,892 7,429
------------- ------------- -------------
OTHER LIABILITIES
Accrued pension cost 2M, 12 44 66 70
Others 254 313 373
------------- ------------- -------------
Total Other Liabilities 298 379 443
------------- ------------- -------------
Total Liabilities 7,720 9,909 24,055
------------- ------------- -------------
SHAREHOLDERS' EQUITY 10
Capital stock, $0.3 par value;
Authorized - 35,000 thousand shares in 1997
110,000 thousand shares in 1998 and 1999
Issued - 35,000 thousand shares in 1997,
56,720 thousand shares in 1998 and
68,984 thousand shares in 1999 12,975 19,787 23,891
Capital surplus 5,456 13,358 11,592
Retained earnings:
Legal reserve - 62 267
Unappropriated earnings 426 1,871 ( 755)
Cumulative translation adjustment ( 3,068) ( 2,308) ( 1,571)
------------- ------------- -------------
Total Shareholders' Equity 15,789 32,770 33,424
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 23,509 $ 42,679 $ 57,479
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 8
FOCI FIBER OPTIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
For the Years Ended December 31, 1997, 1998 and 1999
(In Thousand U.S. Dollars Except Per Share Amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
Notes 1997 1998 1999
--------- ------------ ------------ -------
<S> <C> <C> <C> <C>
GROSS SALES $ 7,544 $ 20,498 $ 20,053
SALES RETURNS AND ALLOWANCES ( 38) ( 117) ( 295)
------------ ------------ ------------
NET SALES 2K, 14 7,506 20,381 19,758
COST OF SALES 2,688 13,389 13,407
------------ ------------ ------------
GROSS PROFIT 4,818 6,992 6,351
------------ ------------ ------------
OPERATING EXPENSES
Research and development 2L 895 871 1,256
General and administrative 1,506 3,358 3,321
Marketing 1,067 2,132 1,692
------------ ------------ ------------
Total Operating Expenses 3,468 6,361 6,269
------------ ------------ ------------
INCOME FROM OPERATIONS 1,350 631 82
------------ ------------ ------------
NON-OPERATING INCOME (EXPENSES)
Foreign exchange gain (losses) - net 2P 1,003 ( 403) ( 599)
Interest - net ( 9) ( 63) ( 322)
Loss on disposal of properties - net ( 71) ( 19) ( 65)
Long-term investment permanent loss 2F - ( 57) ( 9)
Unrealized holdings gains (loss) of market
securities 2D ( 437) 211 170
Loss on sale of marketable securities ( 421) ( 106) -
Other - net 30 ( 132) 114
------------ ------------ ------------
Total Non-Operating Income (Expenses) 95 ( 569) ( 711)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX AND
MINORITY INTERESTS 1,445 62 ( 629)
INCOME TAX BENEFIT (EXPENSE) 2N, 13 174 129 ( 68)
------------ ------------- ------------
NET INCOME BEFORE MINORITY LOSS 1,619 191 ( 697)
MINORITY LOSS 15 1,316 36
------------ ------------ ------------
NET INCOME (LOSS) $ 1,634 $ 1,507 ( $ 661)
============ ============ ============
OTHER COMPREHENSIVE INCOME
Translation adjustment ( $ 3,068) $ 760 $ 737
------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) ( $ 1,434) $ 2,267 $ 76
============ ============ ============
EARNINGS (LOSS) PER SHARE - Based on 2S
Weighted average outstanding common
stock
31,245 thousand shares in 1997 and
50,177 thousand shares in 1998 and
68,447 thousand shares in 1999 $ 0.05 $ 0.03 ( $ 0.01)
======= ======= =======
Retroactively adjusted outstanding common stock
43,117 thousand shares in 1997 and
60,213 thousand shares in 1998 and
68,447 thousand shares in 1999 $ 0.04 $ 0.03 ( $ 0.01)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 9
FOCI FIBER OPTIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
(In Thousand U.S. Dollars)
<TABLE>
<CAPTION>
CAPITAL SURPLUS
CAPITAL STOCK -------------------------------------------
ISSUED Gain on
---------------------------- Disposal of
Shares Pain-in Long-term Properties
(Thousand) Amount Capital Investment (2G) Total
-------------- ---------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE , JANUARY 1, 1997 19,980 $ 7,519 $ - $ - $ - $ -
Issuance of capital stock for cash 15,020 5,456 5,456 - - 5,456
Net income for 1997 - - - - - -
Translation adjustment - - - - - -
------------- ---------- ---------- ---------- ---------- ----------
BALANCE , DECEMBER 31, 1997 35,000 12,975 5,456 - - 5,456
Issuance of capital stock for cash 16,470 4,905 9,809 - - 9,809
Appropriations of 1997 earnings:
Legal reserve - - - - - -
Capital surplus transferred into capital 5,250 1,907 ( 1,907) - - ( 1,907)
Net income for 1998 - - - - - -
Translation adjustment - - - - - -
------------- ---------- ---------- ---------- ---------- ----------
BALANCE , DECEMBER 31, 1998 56,720 19,787 13,358 - - 13,358
Appropriations of 1998 earnings:
Legal reserve - - - - - -
Stock dividends - 10% 5,672 1,759 - - - -
Capital surplus transferred into capital 5,672 2,060 ( 2,060) - - ( 2,060)
Stocks issued as payment of bonus
to employees 920 285 285 - - 285
Net loss for 1999 - - - - - -
Gain on disposal of properties - - - - 1 1
Adjustment of capital reserve due
to change in equity in long-term
investments - - - 8 - 8
Translation adjustments - - - - - -
------------- ---------- ---------- ---------- ---------- ----------
BALANCE , DECEMBER 31, 1999 68,984 $ 23,891 $ 11,583 $ 8 $ 1 $ 11,592
=========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
RETAINED EARNINGS (Note 10) CUMULATIVE
----------------------------------------------- TRANSLATION TOTAL
Legal Unappropriated ADJUSTMENT SHAREHOLDERS'
Reserve Earnings (Deficit) Total ( Note 2Q) EQUITY
---------- ------------------- ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE , JANUARY 1, 1997 $ - ( $ 1,208) ( $ 1,208) $ - $ 6,311
Issuance of capital stock for cash - - - - 10,912
Net income for 1997 - 1,634 1,634 - 1,634
Translation adjustment - - - ( 3,068) ( 3,068)
---------- ------------ ---------- ------------ ------------
BALANCE , DECEMBER 31, 1997 - 426 426 ( 3,068) 15,789
Issuance of capital stock for cash - - - - 14,714
Appropriations of 1997 earnings:
Legal reserve 62 ( 62) - - -
Capital surplus transferred into capital - - - - -
Net income for 1998 - 1,507 1,507 - 1,507
Translation adjustment - - - 760 760
---------- ------------ ---------- ------------ ------------
BALANCE , DECEMBER 31, 1998 62 1,871 1,933 ( 2,308) 32,770
Appropriations of 1998 earnings:
Legal reserve 205 ( 205) - - -
Stock dividends - 10% - ( 1,759) ( 1,759) - -
Capital surplus transferred into capital - - - - -
Stocks issued as payment of bonus
to employees - - - - 570
Net loss for 1999 - ( 661) ( 661) - ( 661)
Gain on disposal of properties - ( 1) ( 1) - -
Adjustment of capital reserve due
to change in equity in long-term
investments - - - - 8
Translation adjustments - - - 737 737
---------- ------------ ---------- ------------ ------------
BALANCE , DECEMBER 31, 1999 $ 267 ( $ 755) ( $ 488) ( $ 1,571) $ 33,424
========== ============ ========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 10
FOCI FIBER OPTIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1998 and 1999
(In Thousand U.S. Dollars)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------
1997 1998 1999
------------ ------------ --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,634 $ 1,507 ( $ 661)
Adjustments to reconcile net income (loss) to net cash
provided used in operating activities:
Depreciation and amortization 697 972 1,475
Loss on disposal of properties 71 19 65
Long-term investment permanent loss - 57 9
Accrued pension costs ( 4) 22 4
Unrealized holding losses (gains) on marketable
securities 437 ( 211) ( 170)
Minority interest in net income of consolidated
subsidiaries ( 15) ( 1,316) ( 36)
Deferred income tax ( 485) 122 37
Loss on sale of marketable securities 421 106 -
Changes in operating assets and liabilities
Notes and accounts receivable ( 5,483) ( 1,242) ( 987)
Inventories ( 1,354) ( 5,717) ( 3,037)
Prepaid expenses and other current assets ( 237) ( 2,157) ( 1,227)
Notes and accounts payable ( 189) 1,376 465
Accrued expenses and other current liabilities 907 402 619
------------ ------------ --------------
Net Cash Used in Operating Activities ( 3,600) ( 6,060) ( 3,444)
------------ ------------ ------------
INVESTING ACTIVITIES:
Acquisitions of Marketable securities ( 1,769) ( 511) 1,523
Long-term stock investments - ( 40) -
Properties ( 6,316) ( 7,175) ( 11,388)
Proceeds from disposals of Properties 17 190 56
Long-term stock investment - 135 -
Increase in deferred charges - ( 459) ( 541)
Decrease (increase) in refundable deposits 176 ( 72) 15
Decrease (increase) in other assets - ( 1,019) 240
------------ ------------ ------------
Net Cash Used in Investing Activities ( 7,892) ( 8,951) ( 10,095)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from (payments of) Short-term bank loans 1,605 587 6,014
Commercial paper - - 1,659
Long-term debts 971 ( 257) 5,325
Issuance of capital stock 10,912 14,714 570
Increase in minority interest - 1,375 96
------------ ------------ ------------
Net Cash Provided by Financing Activities 13,488 16,419 13,664
------------ ------------ ------------
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE ( 1,754) 296 983
------------ ------------ ------------
NET INCREASE IN CASH 242 1,704 1,108
CASH AT BEGINNING OF YEAR 290 532 2,236
------------ ------------- ------------
CASH AT END OF YEAR $ 532 $ 2,236 $ 3,344
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 118 $ 284 $ 385
============ ============ ============
Cash paid for income tax $ 12 $ 34 $ 29
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 11
FOCI FIBER OPTIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand U.S. Dollars, Except Share Amounts)
1. GENERAL
Business
FOCI Fiber Optic Communications, Inc. (the "Company") was incorporated
under the Company Law of the Republic of China on June 14, 1995 and started
its operation in September 1995. The Company designs, installs,
manufactures and markets fiber optic related products such as components,
testing systems, instruments, network installation, CATV engineering and
sensing systems.
The Company's has the following subsidiaries:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Date, Place and
Other Details
Related to
Name Ownership Incorporation Nature of Business
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOCI USA, Inc. 100% Incorporated on March 11, Selling of fiber optic related products
1999 in the State of including components, testing
California, United systems, instruments, network
States of America. installation, CATV engineering, and
sensing systems.
-----------------------------------------------------------------------------------------------------------------------
FOCI Optronic Components, 94% Incorporated on February Designs, installs, manufactures and
Inc. 6, 1999 in the markets fiber optic related
Republic of China. products including components,
testing systems, instruments,
network installation, CATV
engineering, and sensing systems
-----------------------------------------------------------------------------------------------------------------------
FIOPTEC Inc. 93% Incorporated on April 9, Manufacture and markets fiber optic
1993 in the Republic related products including fiber
of China. The optic components.
Company's 93%
investment was Also, it has indirect investment in
acquired on June 29, Shanghai FOCI Fiber Optic
1998. Communications Equipment, Inc.
through FIOPTEC Inc. (Cayman
Islands).
-----------------------------------------------------------------------------------------------------------------------
FIOPTEC Inc. (Cayman 100% owned by Incorporated on August 28, Investment holding company.
Islands) FIOPTEC, Inc. 1998 in Cayman Islands.
-----------------------------------------------------------------------------------------------------------------------
Shanghai FOCI Fiber Optic 100% owned by Incorporated on August 1, Designs, installs, manufactures and
Communications FIOPTEC 1995 in Shanghai, markets fiber optic related
Equipment, Inc. (Cayman People's Republic of products including components,
Islands) China. FIOPTEC Inc.'s testing systems, instruments,
investment was made on network installation, CATV
June 29, 1998. engineering, and sensing systems.
-----------------------------------------------------------------------------------------------------------------------
Yuan-Tai Enterprises Pte, 100% owned by Incorporated on October Import fiber optic products from the
Ltd. FIOPTEC Inc. 23, 1993 in Singapore. Company for export outside
FIOPTEC Inc. made its Singapore.
investment to the
Company on December 5,
1995 and the
investment was
disposed by FIOPTEC
Inc. on October 29,
1998.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE> 12
2. ACCOUNTING POLICIES
A. Basis of presentation
The consolidated financial statements included the following: (a) 1997
- the Company, FIOPTEC Inc., Shanghai FOCI Fiber Optic Communications
Equipment, Inc., and Yuan-Tai Enterprises Pte., Ltd.; (b) 1998 - the
Company, FIOPTEC Inc., FIOPTEC Inc. (Cayman Islands), and Shanghai
FOCI Fiber Optic Communications Equipment, Inc.; and (c) 1999 - the
Company, FIOPTEC Inc., FIOPTEC Inc. (Cayman Islands), and Shanghai
FOCI Fiber Optic Communications Equipment, Inc., FOCI Optronic
Components, Inc., and FOCI USA, Inc.
All transactions and balances with consolidated companies have been
eliminated.
B. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
C. Concentration of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable.
Cash is deposited with high credit quality financial institutions. As
far as the accounts receivable, the Company performs ongoing credit
evaluations of its customers' financial condition and the Company
maintains an allowance for doubtful accounts receivable based upon
review of the expected collectibility of individual accounts
receivable.
D. Marketable securities
Marketable securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings.
The costs of investment sold are determined by the weighted average
method.
E. Inventories
Inventories are stated at cost using the weighted average method and
are valued at the lower of cost or market value at balance sheet date.
The market value of raw materials is determined based on current
replacement cost, while work-in-process and finished goods are
determined by net realizable value.
F. Investments in shares of stock
These investments are equity securities without readily available
market value. Accordingly, they were carried at costs. The unrealized
loss resulting from the decline in market value of such investment is
reported as deduction from stockholders' equity in the current year's
income. When it becomes evidently clear that there has been a
permanent impairment in value and the chance of recovery is minimal,
loss is recognized in the current year's income.
G. Properties
Properties are stated at cost less accumulated depreciation. Major
additions, renewals and betterment and interest expense incurred
during the construction period are capitalized, while maintenance and
repairs are expensed currently.
Depreciation is provided on the straight-line method over the
estimated useful lives of the assets. Salvage values of fixed assets
still in use after the end of their original estimated useful lives
F-8
<PAGE> 13
are depreciated over the remaining new estimated useful lives. The
useful lives of the fixed assets are 2~10 years, except for buildings
which are 20~25 years.
Upon sale or disposal of properties, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss is
credited or charged to income. Any such gain, less applicable income
tax, is transferred to capital surplus at the end of the year.
H. Asset impairment
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", ("SFAS No. 121") requires recognition of impairment of
long-lived assets in the event the net book value of these assets
exceeds the future undiscounted cash flows attributable in use to
these assets. SFAS No. 121 has not had an impact on the consolidated
financial statements of the Company.
I. Intangible assets
Intangible assets are stated at cost and amortized on straight-line
basis over the following years: patent- 5 years; land occupancy rights
- 50 years.
J. Deferred charges
Deferred charges consisting of computer software purchased, and
payments under technology transfer agreements are stated at cost and
amortized on straight basis over 2-5 years.
K. Revenue recognition
Sales are recognized when products are shipped to customers.
Revenue and cost on engineering contracts are accounted for under
completed contract method or the percentage of completion method. The
use of the percentage of completion method depends on the ability to
make reasonably dependable estimates. That is, the Company can
estimate the extent of progress toward completion, contract revenues,
and contract costs. The completed contract method may be used as the
Company's basic accounting policy in circumstances in which financial
position and results of operations would not vary materially from
those resulting from use of the percentage of completion method.
Anticipated losses on engineering contracts are provided for when
determined. When the balances of contract in progress excess the one
of billing on contract, the billing on contract is shown in the
current asset as a deduction, on the contrary, the contract in
progress is shown in the current liability as a deduction.
L. Research and development
Research and development costs consist of expenditures incurred during
the course of planned search and investigation aimed at the discovery
of new knowledge that will be useful in developing new products or
processes, or at significantly enhancing existing products or
production processes. And the implementation of such is through
design, testing of product alternatives or construction of prototypes.
The Company expenses all research and development costs as they are
incurred.
M. Pension costs
The Company, FOCI Optronic Components, Inc. and FIOPTEC Inc. have
non-contributory and funded defined benefit retirement plans covering
all their regular employees. The contribution to an independent fund
is deposited with the Central Trust of China, as the custodian. Net
pension cost, with includes service cost, interest cost, expected
return on plan assets and amortization of net asset or obligation at
transition, is recognized based on an actuarial valuation.
F-9
<PAGE> 14
N. Income tax
The Company, FOCI Optronic Component, Inc. and FIOPTEC Inc. are
subject to tax in the Republic of China (ROC), FIOPTEC Inc. (Cayman
Island) is not subject to income or other taxes in Cayman Island,
while FOCI USA, Inc. is subject to tax in the United States of America
and Shanghai FOCI Fiber Optic Communications Equipment, Inc. is
subject to tax in the People Republic of China (PRC).
The Company adopted the provisions of SFAS No. 109 "Accounting for
Income Tax"; the provision for income tax represents income tax paid
and payable for the current year plus the changes in the deferred
income tax assets and liabilities during the years. Deferred income
taxes are recognized for the tax effects of temporary differences,
unused tax credit and operating loss carryforwards. Valuation
allowance is provided for deferred tax assets that are not certain to
be realized. A deferred tax asset or liability should, according to
the classification of its related asset or liability, be classified as
current or noncurrent. However, if a deferred asset or liability
cannot be related to a asset or liability in the financial statements,
then it should be classified as current or noncurrent based on the
expected reversal dates of temporary differences.
O. Bonuses to employees, directors and supervisors
According to ROC regulations and the Articles of Incorporation of
FOCI, a portion of distributable earnings should be set aside as
bonuses to employees, directors and supervisors. Bonuses to directors
and supervisors are always paid in cash. However, bonuses to employees
may be granted in cash or stock or both. All of these appropriations,
including stock bonuses which are valued at par value of $0.30, are
charged against retained earnings under ROC GAAP, after such
appropriations are formally approved by the shareholders in the
following year. Under U.S. GAAP, such bonuses are charged to income
currently in the year earned. Stock issued as part of these bonuses is
recorded at fair market value, determined by an independent third
parties. Since the amount and form of such bonuses are not finally
determinable until the shareholders` meeting in the subsequent year,
the total amount of the aforementioned bonuses is initially accrued
based on management's estimate regarding the amount to be paid based
on the Company`s Articles of Incorporation. Any difference between the
initially accrued amount and the fair market value of the bonuses
settled by the issuance of shares is recognized in the year of
approval by shareholders.
P. Foreign-currency transactions
The functional currency of the Company, FOCI Optronic Components, Inc.
and FIOPTEC Inc. is New Taiwan dollars, that of Shanghai FOCI Fiber
Optic Communications Equipment, Inc. is Remibi, and that of FOCI USA,
Inc. and FIOPTEC Inc. (Cayman Islands) is US dollars. The
foreign-currency transactions of the Company and its subsidiary,
except that of FOCI USA, Inc. and FIOPTEC Inc. (Cayman Islands), are
recorded using their respective functional currencies at the rates of
exchange in effect when the transactions occur. Gains or losses,
resulting from the application of different foreign exchange rates
when cash in foreign currency is converted into New Taiwan dollars and
Remibi, or when foreign-currency receivables and payables are settled,
are credited or charged to income in the year of conversion or
settlement. At the balance sheet dates, the balances of
foreign-currency assets and liabilities are restated into the
respective functional currencies based on prevailing exchange rates
and any resulting gains or losses are credited or charged to income.
Q. Translation of foreign-currency financial statements
The financial statements of the foreign subsidiary are translated into
U.S. dollars at the following exchange rates: assets and liabilities -
current rate; income and expenses - weighted average rate during the
year. The resulting translation adjustment is recorded as separate
component of shareholders' equity.
F-10
<PAGE> 15
R. Comprehensive income
The Company adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income". Comprehensive income, as defined, includes all
changes in equity during a period from non-owner sources. As of
December 31, 1999, comprehensive income of the Company included only
the translation adjustments on subsidiaries.
S. Earnings (loss) per share
Earnings per share is calculated by dividing net income by the average
number of shares outstanding in each period, adjusted retroactively
for stock dividends issued subsequently.
<TABLE>
<CAPTION>
3. NOTES AND ACCOUNTS RECEIVABLE - NET December 31
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Receivable from related parties (Note 14) $ 919 $ 3,140 $ 3,619
Notes receivable 211 316 320
Accounts receivable - third parties 7,154 7,303 7,332
------------ ------------ ------------
8,284 10,759 11,271
Allowance for doubtful accounts (165) (1,398) (923)
------------ ------------ ------------
$ 8,119 $ 9,361 $ 10,348
============ ============ ============
</TABLE>
4. INVENTORIES
A. The details of inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Finished goods $ 1,177 $ 41 $ 1,780
Work in process - 1,798 1,427
Raw materials 1,658 4,134 4,236
Contract in progress - net - 2,607 4,198
------------ ------------ ------------
2,835 8,580 11,641
Allowance for losses (48) (76) (100)
------------ ------------ ------------
$ 2,787 $ 8,504 $ 11,541
============ ============ ============
</TABLE>
B. The details of contract in progress are summarized as follows:
<TABLE>
<CAPTION>
Estimated Contract
Contract Contract Paid - in Billing on in
Accounting method Price Cost Cost Contract Progress
----------------- -------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999
----
Applied system of fiber Completed contract method
optic $ 5,400 $ 5,348 $ 4,813 $ 722 $ 4,091
Others Completed contract method 492 394 107 - 107
-------- -------- -------- -------- --------
$ 5,892 $ 5,742 $ 4,920 $ 722 $ 4,198
======== ======== ======== ======== ========
1998
----
Applied system of fiber Completed contract method
optic $5,400 $4,657 $3,312 $705 $2,607
====== ====== ====== ==== ======
</TABLE>
F-11
<PAGE> 16
The completion percentage of the construction - Applied system of
fiber optic was 90% as of December 31, 1999 and will be completed in
2000.
5. INVESTMENTS IN SHARES OF STOCK
The details of the investments are as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------
% of % of % of
Carrying Owner- Carrying Owner- Carrying Owner-
Value Ship Value Ship Value Ship
---------- --------- ---------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Ganso Corp. $ - - $ 22 - $ 13 -
Winluck Group Ltd. - - 18 - 18 -
---------- ---------- ----------
$ - $ 40 $ 31
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
6. PROPERTIES - NET December 31
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cost
Land $ - $ - $ 3,186
Buildings 5,386 5,458 15,255
Machinery and equipment 3,733 5,093 6,852
Test equipment 343 340 551
Transportation equipment 18 183 195
Furniture and fixtures 830 1,041 1,448
Leasehold improvements - 76 -
Construction in progress and prepayments 41 5,628 1,704
------------ ------------ ------------
10,351 17,819 29,191
------------ ------------ ------------
Accumulated depreciation
Buildings 69 280 699
Machinery and equipment 763 1,326 2,151
Test equipment 50 82 135
Transportation equipment 3 17 39
Furniture and fixtures 235 386 608
Leasehold improvements - 5 -
------------ ------------ ------------
1,120 2,096 3,632
------------ ------------ ------------
$ 9,231 $ 15,723 $ 25,559
============ ============ ============
</TABLE>
Interest expense were amounting to $95 and $151 were capitalized in 1997
and 1999, respectively.
F-12
<PAGE> 17
<TABLE>
<CAPTION>
7. SHORT-TERM LOANS December 31
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Secured loans from Tai-sin Bank, Far Eastern Bank,
Dah An Commercial Bank and Land Bank of Taiwan $ 248 $ 2,686 $ 5,426
Unsecured loans from The International Commercial
Bank of China 1,851 - 2,479
Working capital loans from The International
Commercial Bank of China - 795
------------ ------------ ------------
$ 2,099 $ 2,686 $ 8,700
============ ============ ============
3.00% 6.67% 1.12%
~8.15% ~7.75% ~7.77%
============ ============ ============
</TABLE>
As of December 31, 1999, unused credit for short-term bank borrowings is
about $407.
8. COMMERCIAL PAPERS
Commercial paper will mature between January to May 2000. It bore annual
interest rates ranging from 4.85% to 5.10% and is secured by a guaranty
issued by Tai-sin Bank, Far Eastern Bank and Dah An Commercial Bank.
As of December 31, 1999, unused credit for issuance of commercial paper is
about $2,451.
<TABLE>
<CAPTION>
9. LONG-TERM DEBTS December 31
---------------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Land Bank of Taiwan:
Loan for plant expansion. Payable in 60 monthly installments
starting from December 1998 to November 2003. Interest at
floating rate and actual annual interest rate was 7.5%
in 1997 and 1998. $ 1,904 $ 1,893 $ -
Loan for plant expansion. Payable in 72 monthly
installments starting from December 2000 to
November 2006. Interest at an annual rate of
7.5%. - - 6,161
Loan for the purchase machinery and equipment.
Payable in 48 monthly installments starting
from July 1997 to June 2001. Interest at floating
rate and actual annual interest rate was 7.5%. 886 640 393
The International Commercial Bank of China - loan for the purchase land.
Payable in 16 quarterly installments starting from October 2000 to
September 2004. Interest at floating rate and actual applicable
rate for 1999 was 7.5% per annum. - - 1,304
------------ ------------ ------------
2,790 2,533 7,858
Current portion (317) (641) (429)
------------ ------------ ------------
$ 2,473 $ 1,892 $ 7,429
============ ============ ============
</TABLE>
As of December 31, 1999, long-term bank loans mature as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
<S> <C>
During the year 2000 $ 429
During the year 2001 1,484
During the year 2002 1,352
During the year 2003 1,353
During the year 2004 1,272
During the year 2005 1,027
During the year 2006 941
</TABLE>
F-13
<PAGE> 18
10. SHAREHOLDERS' EQUITY
According to the ROC Company Law, capital surplus can only be used to
offset a deficit or transferred to capital.
The Company's Articles of Incorporation provide that the following shall be
appropriated from the annual net income (less deficit, if any):
(a) 10% thereof as legal reserve;
(b) Not over 15% special bonus to employees;
(c) Not over 5% compensation to directors and supervisors; and
(d) The remaining amount shall be appropriated as common stockholders'
bonus.
The appropriations and the disposition of the remaining net income shall be
resolved by the shareholders in the following year and given effect to in
the financial statements of that year.
The aforementioned appropriation for legal reserve shall be made until the
reserve equals the Company's capital. Such reserve can only be used to
offset a deficit; or, when it has reached 50% of the paid-in capital, up to
50% thereof can be transferred to capital.
11. LONG-TERM OPERATING LEASES
The Company has an operating lease agreement covering certain parcels of
land with an area of 4,494 square meters. The agreement will is valid until
December 2015 and required payment of fixed annual rental of $58.
12. PENSION PLAN
The Company has a defined benefit pension plan for all regular employees,
which provides benefits based on length of service and average monthly
salary for the last six months prior to retirement.
The Company makes monthly contributions, equal to 2% of salaries and wages,
to a pension fund which is administered by a pension fund monitoring
committee and deposited in the committee's name in the Central Trust of
China which acts as trustee.
Certain pension information are summarized as follows:
The components of net periodic benefit costs are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
a. Net periodic pension cost
Service cost $ 34 $ 83 $ 74
Interest cost 4 9 12
Projected return on plan assets (1) (3) (8)
Amortization of unrecognized loss - 5 -
---------- ---------- ----------
Net periodic benefit cost $ 37 $ 94 $ 78
========== ========== ==========
</TABLE>
F-14
<PAGE> 19
The change in benefit obligation and plan assets and reconciliation of fund
status are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
b. Change in benefit obligation:
Projected benefit obligation at beginning of year: $ 56 $ 144 $ 188
For the years:
Service cost 34 83 74
Interest cost 4 9 12
Actuarial loss (gain) 49 (57) 24
Foreign currency exchanges 1 9 8
---------- ----------- ----------
Projected benefit obligation at end of year $ 144 $ 188 $ 306
========== ========== ==========
c. Change in plan assets:
Fair value of plan assets at beginning of year $ 15 $ 45 $ 124
Employer contributions 29 76 82
Interest income 1 3 8
---------- ---------- ----------
Fair value of plan assets at end of year $ 45 $ 124 $ 214
========== ========== ==========
d. Reconciliation of fund status
Funded status $ 99 $ 64 $ 92
Unrecognized actuarial loss (58) (1) (25)
----------- ---------- ----------
Net amount of "Prepaid pension costs" shown
in the balance sheets $ 41 $ 63 $ 67
========== ========== ==========
e. Actuarial assumptions
Discount rate used in determining present values 6.75% 6.5% 6.0%
Rate of long-term rate of return on plan assets 7.0% 6.5% 6.0%
Rate of compensation increase 6.5% 6.5% 6.0%
</TABLE>
F-15
<PAGE> 20
13. INCOME TAX
A. Income tax benefit and income tax payable:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense - current $ 42 $ 189 $ 44
Income tax expense (benefit) - deferred (216) (319) 24
Translation adjustment - 1 -
------------ ------------ ------------
Income tax expense (benefit) $ (174) $ (129) $ 68
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
B. As of December 31, 1997, 1998 and 1999, deferred income tax assets and
liabilities are as follows:
December 31
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Taxable temporary differences $ (132) $ 241 $ 354
Investment tax credits 66 155 69
------------ ------------ ------------
Total (66) 396 423
Valuation allowance - (4) -
------------ ------------ ------------
(66) 392 423
------------ ------------ ------------
Noncurrent:
Taxable temporary differences 7 4 (4)
Investment tax credits 483 364 335
Operating loss carryforwards - 35 -
------------ ------------- ------------
Total 490 403 331
Valuation allowance - (35) -
------------ ------------ ------------
490 368 331
------------ ------------ ------------
$ 424 $ 760 $ 754
============ ============ ============
</TABLE>
C. The Company's income tax returns through taxable year ended December
31, 1997 have been examined by the tax authorities. The Company did
not receive any tax assessment from the tax authorities as a result
from the foregoing tax examinations.
D. Pursuant to the "Statute for the Establishment and Administration of
Science- Based Industrial Park," the Company was granted several
periods of tax holidays with respect to income derived from approved
investments and are eligible until December, 2002.
E. As of December 31 1999, the Company's unused investment tax credits
amounted to $405. Such tax credits can be utilized until December
2003.
F-16
<PAGE> 21
14. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
A. Name and Relationship of Related Parties
Name and Relationship of Related Parties Relationship with the Company
---------------------------------------- ----------------------------------
<S> <C>
Pacriminvesting & Developing Co., Ltd. A shareholder.
Winluck Group Ltd. The supervisor is the board chairman of the
Company
Yuan-Tai Enterprises Pte., Ltd. A consolidated entity until October 29, 1998
(see Note 1)
</TABLE>
B. Significant Related Party Transactions
(1) Sales
<TABLE>
<CAPTION>
For the Years Ended December 31
----------------------------------------------------------------
1997 1998 1999
------------------ ------------------ ------------------
Amount % Amount % Amount %
---------- ---- ---------- ---- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Winluck Group Ltd. $ 1,033 14 $ 1,755 9 $ 878 4
Yuan-Tai Enterprises Pte., Ltd. - - 2,058 10 387 2
Pacriminvesting & Developing
Co., Ltd. 6 - - - - -
---------- ---- ---------- ---- ---------- ----
$ 1,039 14 $ 3,813 19 $ 1,265 6
========== ==== ========== ==== ========== ====
</TABLE>
The above sales are dealt with in the ordinary course of business
similar to that with other companies, and the collection period is at
sight in the average 60 days.
(2) Engineering revenues
<TABLE>
<CAPTION>
For the Years Ended December 31
-----------------------------------------------------------------
1997 1998 1999
------------------ ------------------ -------------------
Amount % Amount % Amount %
---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Winluck Group Ltd. $ - - $ 3,050 89 $ - -
========== ==== ========== ==== ========== ====
</TABLE>
(3) Accounts Receivable
<TABLE>
<CAPTION>
For the Years Ended December 31
----------------------------------------------------------------
1997 1998 1999
------------------ ------------------ ------------------
Amount % Amount % Amount %
---------- ---- ---------- ---- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Winluck Group Ltd. $ 919 11 $ 3,140 29 $ 3,137 28
Yuan-Tai Enterprises Pte, Ltd. - - - - 482 4
---------- ---- ---------- ---- ---------- ----
919 11 3,140 29 3,619 32
==== ==== ====
Allowance for doubtful
accounts (75) (543) -
---------- ---------- ----------
$ 844 $ 2,597 $ 3,619
========== ========== ==========
</TABLE>
F-17
<PAGE> 22
15. FINANCIAL INSTRUMENTS
The Company's financial instruments are carried at cost, which approximates
their fair value and are listed as follows:
<TABLE>
<CAPTION>
December 31,1997 December 31,1998 December 31,1999
------------------------ ------------------------ -----------------------
Carrying Carrying Carrying
Value Fair Value Value Fair Value Value Fair Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 532 $ 532 $ 2,236 $ 2,236 $ 3,344 $ 3,344
Marketable securities 911 911 1,527 1,527 174 174
Notes and accounts
receivable-net 8,119 8,119 9,361 9,361 10,348 10,348
Long-term investment - - 40 40 31 31
Refundable deposits 28 28 100 100 85 85
Liabilities
Short-term bank loans 2,099 2,099 2,686 2,686 8,700 8,700
Commercial papers payable - - - - 1,659 1,659
Notes payable 867 867 1,607 1,607 1,225 1,225
Accounts payable 304 304 940 940 1,787 1,787
Long-term bank borrowing
(including current
portion) 2,790 2,790 2,533 2,533 7,858 7,868
</TABLE>
16. ASSETS PLEDGED AS COLLATERAL
<TABLE>
<CAPTION>
December 31
Assets 1997 1998 1999 Subject of Collateral
--------------------------------- --------- --------- --------- ---------------------------------
<S> <C> <C> <C> <C>
Land $ - $ - $ 3,186 Long-term loans
Marketable securities 361 - - Financed stock
Time deposit (shown in Short-term guarantee and endorse
other current assets) 154 1,466 3,022 for the bank loan of subsidiary
Machinery and equipment 1,307 1,088 905 Long-term loans
Buildings 5,354 5,317 12,741 Long-term loans
--------- --------- ---------
$ 7,176 $ 7,871 $ 19,854
========= ========= =========
</TABLE>
17. COMMITMENTS AND CONTINGENT LIABILITIES
A. On July 27, 1995, the Company has acquired from Industrial Technology
Research Institute specific product technology know-how related to
light source driver, FBT Fiber Couplers, WIC and WBC, WDM attenuators
and FBT attenuators. In consideration for the foregoing, the Company
shall pay royalty, until 2001, equivalent to 1% of the sales value of
the products covered by the agreement. ITRI, however, have agreed to
waive the royalty payments in 1997 and 1998, and, in 1999, the Company
paid royalties of US$4,768.
B. FIOPTEC Inc. and FOCI Optronic Components Inc. signed several
contracts with third parties for the construction of its new plant
amounting to $1,639. As of December 31, 1999, the two subsidiaries has
outstanding obligations of $608 related to these contracts.
F-18
<PAGE> 23
18. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14
"Financial Reporting for Segments of a Business Enterprise, " replacing the
"industry segment" approach with "management" approach. The management
approach designates the internal organization that is used by management
for making operating decisions and assessing performance as the source of
the Company's reportable segments. SFAS 131 also requires disclosures about
products and services, geographic areas and major customers.
A. Industry: The Company is engaged in a single industry, which is
manufacturing, selling, designing and installation of fiber optic
related products.
B. Foreign markets
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------
Area 1997 1998 1999
----------------- ------------- ------------- -------------
<S> <C> <C> <C>
Asia $ 6,671 $ 8,731 $ 7,834
United States 1,869 2,003 5,196
Europe 1,303 2,695 4,165
Other 114 217 303
------------- ------------- -------------
$ 9,957 $ 13,646 $ 17,498
============= ============= =============
</TABLE>
C. Major customers
<TABLE>
<CAPTION>
Years Ended December 31
1997 1998 1999
-------------------- -------------------- -------------------
Customers Amount % Amount % Amount %
--------- ------------ ---- ------------ ---- ------------ --
<S> <C> <C> <C> <C> <C> <C>
A $ - - $ 3,050 15 $ 2,285 12
============ ============ ============
</TABLE>
F-19
<PAGE> 24
<TABLE>
<CAPTION>
D. Geographic information
Adjustments
and
Eliminating
Overseas Taiwan Entries Consolidated
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
1997
----
Sales to customers other than the
parent and its subsidiaries $ - $ 7,506 $ - $ 7,506
Intercompany revenue - 4,914 (4,914) -
------------ ------------ ------------ ------------
Total sales $ - $ 12,420 $ (4,914) $ 7,506
============ ============ ============ ============
Gross profit $ - $ 9,732 ( $ 4,914) $ 4,818
============ ============ ============
Operating expenses (3,468)
Non-operating income (expenses) 95
------------
Income before income tax 1,445
Income tax benefit 174
Minority loss 15
------------
Net income $ 1,634
============
Identifiable assets $ 5,743 $ 23,317 ( $ 5,551) $ 23,509
============ ============ ============ ============
1998
----
Sales to customers other than the
parent and its subsidiaries $ - $ 20,381 $ - $ 20,381
Intercompany revenue - 108 (108) -
------------ ------------ ------------ ------------
Total sales $ - $ 20,489 $ (108) $ 20,381
============ ============ ============ ============
Gross profit $ - $ 7,100 $ (108) $ 6,992
============ ============ ============
Operating expenses (6,361)
Non-operating income (expenses) (569)
------------
Income before income tax 62
Income tax benefit 129
Minority loss 1,316
------------
Net income $ 1,507
============
Identifiable assets $ - $ 42,730 $ (91) $ 42,639
============ ============ ============ ============
1999
----
Sales to customers other than the
parent and its subsidiaries $ 3,480 $ 16,278 $ - $ 19,758
Intercompany revenue - 1,082 (1,082) -
------------ ------------ ------------ ------------
Total sales $ 3,480 $ 17,360 $ (1,082) $ 19,758
============ ============ ============ ============
Gross profit $ 793 $ 6,640 $ (1,082) $ 6,351
============ ============ ============
Operating expenses (6,269)
Non-operating income (expenses) (711)
------------
Loss before income tax (629)
Income tax expense (68)
Minority loss 36
------------
Net loss ( $ 661)
============
Identifiable assets $ 1,188 $ 56,510 ( $ 250) $ 57,448
============ ============ ============ ============
</TABLE>
F-20
<PAGE> 25
FOCI FIBER OPTIC COMMUNICATIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND 2000, AND APRIL 24, 2000
F-21
<PAGE> 26
FOCI FIBER OPTIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
( Unaudited )
March 31, 1999 and 2000
(In Thousand U.S. Dollars Except Share Amounts)
<TABLE>
<CAPTION>
March 31
------------------------------
A S S E T S Notes 1999 2000
----------- --------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash 2C $ 2,213 $ 1,747
Marketable securities 2D 173 174
Notes and accounts receivable-net 2C, 3 10,122 10,541
Inventories 2E, 4 8,482 12,720
Prepaid expenses and other current assets 12, 14 2,913 4,682
------------- -------------
Total Current Assets 23,903 29,864
------------- -------------
LONG-TERM STOCK INVESTMENTS 2F, 5 40 40
-------------- -------------
PROPERTIES- NET 2G, 6, 14, 15 17,523 27,518
------------- -------------
INTANGIBLE ASSETS 2I
Patent 93 96
Land occupancy rights 500 500
Others 936 736
------------- -------------
Total Intangible Assets 1,529 1,332
------------- -------------
OTHER ASSETS
Deferred charges- net 2J 279 658
Deferred income tax 2N, 12 442 342
Refundable deposits 87 83
------------- -------------
Total Other Assets 808 1,083
------------- -------------
TOTAL ASSETS $ 43,803 $ 59,837
============= =============
CURRENT LIABILITIES
Short-term bank loans 7 $ 2,796 $ 6,533
Commercial papers 8 2,713 2,442
Notes payable 447 494
Accounts payable 916 2,678
Income tax payable 2N, 12 163 189
Current portion of long-term debts 9, 14 - 625
Accrued expenses and other current liabilities 12 1,971 4,377
------------- --------------
Total Current Liabilities 9,006 17,338
------------- --------------
LONG-TERM DEBTS - NET OF CURRENT PORTION 9, 14 2,305 7,423
------------- -------------
OTHER LIABILITIES
Accrued pension cost 2M 57 67
Others 572 422
------------- -------------
Total Other Liabilities 629 489
------------- -------------
Total Liabilities 11,940 25,250
SHAREHOLDERS' EQUITY 10
Capital stock, $0.3 par value;
Authorized - 110,000 thousand shares
Issued - 56,720 thousand shares in 1999 and
68,984 thousand shares in 2000 19,787 23,891
Capital surplus 13,358 11,592
Retained earnings:
Legal reserve - 267
Unappropriated earnings (accumulated deficits) 2,087 (580)
Cumulative translation adjustment (3,369) (583)
------------- -------------
Total Shareholders' Equity 31,863 34,587
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 43,803 $ 59,837
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE> 27
FOCI FIBER OPTIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
( Unaudited )
For the Periods Ended March 31, 1999 and 2000
(In Thousand U.S. Dollars Except Per Share Amounts)
<TABLE>
<CAPTION>
Periods Ended March 31
-------------------------------
Notes 1999 2000
--------- ------------- -------------
<S> <C> <C> <C>
NET SALES 2K $ 3,668 $ 5,967
------------- -------------
COST OF SALES 2,378 3,760
------------- -------------
GROSS PROFIT 1,290 2,207
------------- -------------
OPERATING EXPENSES
Research and development 2L 259 425
General and administrative 790 563
Marketing 367 701
------------- -------------
Total Operating Expenses 1,416 1,689
------------- -------------
INCOME (LOSS) FROM OPERATIONS (126) 518
------------- -------------
NON-OPERATING INCOME (EXPENSES)
Foreign exchange gain (losses) - net 2P 55 (370)
Interest - net (74) (192)
Loss on disposal of properties - net (3) -
Gain on sale of marketable securities 126 -
Other - net 32 188
------------- -------------
Total Non-Operating Income (Expenses) 136 (374)
------------- -------------
INCOME BEFORE INCOME TAX AND
MINORITY INTERESTS 10 144
INCOME TAX BENEFIT (EXPENSE) 2N, 12 - -
------------- --------------
NET INCOME BEFORE MINORITY LOSS 10 144
MINORITY LOSS 14 31
------------- -------------
NET INCOME $ 24 $ 175
============= =============
OTHER COMPREHENSIVE INCOME
Translation adjustment (1,061) 988
------------- -------------
COMPREHENSIVE INCOME (LOSS) $ (1,037) $ 1,163
============= =============
(Forward)
EARNINGS (LOSS) PER SHARE- Based on 2S
Weighted average outstanding common stock
56,720 thousand shares in 1999 and
68,984 thousand shares in 2000 $ 0.0004 $ 0.003
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE> 28
FOCI FIBER OPTIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
( Unaudited )
For the Periods Ended March 31, 1999 and 2000
(In Thousand U.S. Dollars)
<TABLE>
<CAPTION>
Periods Ended March 31
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 24 $ 175
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 264 716
Loss on disposal of properties 3 -
Accrued pension costs (9) (3)
Minority interest in net loss
of consolidated subsidiaries 14 31
Deferred income tax (74) (11)
Gain on sale of marketable securities (126) -
Changes in operating assets and liabilities
Notes and accounts receivable (761) (193)
Inventories 22 (1,179)
Prepaid expenses and other current assets 304 (238)
Notes and accounts payable (1,184) 160
Accrued expenses and other current liabilities 370 2,183
------------ ------------
Net Cash Provided by (Used in) Operating Activities (1,153) 1,641
------------ ------------
INVESTING ACTIVITIES:
Acquisitions of Long-term stock investments - (1)
Properties (1,960) (2,582)
Proceeds from disposals of marketable securities 1,480 -
Decrease in refundable deposits 13 2
Increase in other assets (312) (461)
------------ ------------
Net Cash Used in Investing Activities (779) (3,042)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from (payments of) Short-term bank loans 110 (2,167)
Commercial paper 2,713 783
Long-term debts (228) 190
Increase in minority interest 245 18
------------ ------------
Net Cash Provided by (Used in)Financing Activities 2,840 (1,176)
------------ ------------
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE (931) 980
------------ ------------
NET DECREASE IN CASH (23) (1,597)
CASH AT BEGINNING OF PERIOD 2,236 3,344
------------ ------------
CASH AT END OF PERIOD $ 2,213 $ 1,747
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 88 $ 272
============ ============
Cash paid for income tax $ 2 $ 4
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE> 29
FOCI FIBER OPTIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousand U.S. Dollars, Except Share Amounts)
1. GENERAL
Business
FOCI Fiber Optic Communications, Inc. (the "Company") was incorporated
under the Company Law of the Republic of China on June 14, 1995 and started
its operation in September 1995. The Company designs, installs,
manufactures and markets fiber optic related products such as components,
testing systems, instruments, network installation, CATV engineering and
sensing systems.
The Company's has the following subsidiaries:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Date, Place and
Other Details
Related to Nature of
Name Ownership Incorporation Business
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOCI USA, Inc. 100% Incorporated on March 11, Selling of fiber optic related
1999 in the State of products including components,
California, United States testing systems, instruments,
of America. network installation, CATV
engineering, and sensing systems.
------------------------------------------------------------------------------------------------------------------------
FOCI Optronic 94% Incorporated on February Designs, installs, manufactures and
Components, Inc. 6, 1999 in the Republic of markets fiber optic related products
China. including components, testing
systems, instruments, network
installation, CATV engineering, and
sensing systems
------------------------------------------------------------------------------------------------------------------------
FIOPTEC Inc. 93% Incorporated on April 9, Manufacture and markets fiber optic
1993 in the Republic of related products including fiber
China. The Company's 93% optic components.
investment was acquired on
June 29, 1998. Also, it has indirect investment in
Shanghai FOCI Fiber Optic
Communications Equipment, Inc.
through FIOPTEC Inc. (Cayman Islands).
------------------------------------------------------------------------------------------------------------------------
FIOPTEC Inc. (Cayman 100% owned by Incorporated on August 28, Investment holding company.
Islands) FIOPTEC, Inc. 1998 in Cayman Islands.
------------------------------------------------------------------------------------------------------------------------
Shanghai FOCI Fiber 100% owned by FIOPTEC Incorporated on August 1, Designs, installs, manufactures and
Optic Communications (Cayman Islands) 1995 in Shanghai, People's markets fiber optic related products
Equipment, Inc. Republic of China. FIOPTEC including components, testing
Inc.'s investment was made systems, instruments, network
on June 29, 1998. installation, CATV engineering, and
sensing systems.
------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE> 30
2. ACCOUNTING POLICIES
A. Basis of presentation
The consolidated financial statements included the following: the
Company, FIOPTEC Inc., FIOPTEC Inc. (Cayman Islands), and Shanghai
FOCI Fiber Optic Communications Equipment, Inc., FOCI Optronic
Components, Inc., and FOCI USA, Inc.
All transactions and balances with consolidated companies have been
eliminated.
B. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
C. Concentration of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable.
Cash is deposited with high credit quality financial institutions. As
far as the accounts receivable, the Company performs ongoing credit
evaluations of its customers' financial condition and the Company
maintains an allowance for doubtful accounts receivable based upon
review of the expected collectibility of individual accounts
receivable.
D. Marketable securities
Marketable securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings.
The costs of investment sold are determined by the weighted average
method.
E. Inventories
Inventories are stated at cost using the weighted average method and
are valued at the lower of cost or market value at balance sheet date.
The market value of raw materials is determined based on current
replacement cost, while work-in-process and finished goods are
determined by net realizable value.
F. Investments in shares of stock
These investments are equity securities without readily available
market value. Accordingly, they were carried at costs. The unrealized
loss resulting from the decline in market value of such investment is
reported as deduction from stockholders' equity in the current year's
income. When it becomes evidently clear that there has been a
permanent impairment in value and the chance of recovery is minimal,
loss is recognized in the current year's income.
G. Properties
Properties are stated at cost less accumulated depreciation. Major
additions, renewals and betterment and interest expense incurred
during the construction period are capitalized, while maintenance and
repairs are expensed currently.
Depreciation is provided on the straight-line method over the
estimated useful lives of the assets. Salvage values of fixed assets
still in use after the end of their original estimated useful lives
are depreciated over the remaining new estimated useful lives. The
useful lives of the fixed assets are 2~10 years, except for buildings
which are 20~25 years.
F-26
<PAGE> 31
Upon sale or disposal of properties, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss is
credited or charged to income. Any such gain, less applicable income
tax, is transferred to capital surplus at the end of the year.
H. Asset impairment
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", ("SFAS No. 121") requires recognition of impairment of
long-lived assets in the event the net book value of these assets
exceeds the future undiscounted cash flows attributable in use to
these assets. SFAS No. 121 has not had an impact on the consolidated
financial statements of the Company.
I. Intangible assets
Intangible assets are stated at cost and amortized on straight-line
basis over the following years: patent- 5 years; land occupancy rights
- 50 years.
J. Deferred charges
Deferred charges consisting of computer software purchased, and
payments under technology transfer agreements are stated at cost and
amortized on straight basis over 2-5 years.
K. Revenue recognition
Sales are recognized when products are shipped to customers.
Revenue and cost on engineering contracts are accounted for under
completed contract method or the percentage of completion method. The
use of the percentage of completion method depends on the ability to
make reasonably dependable estimates. That is, the Company can
estimate the extent of progress toward completion, contract revenues,
and contract costs. The completed contract method may be used as the
Company's basic accounting policy in circumstances in which financial
position and results of operations would not vary materially from
those resulting from use of the percentage of completion method.
Anticipated losses on engineering contracts are provided for when
determined. When the balances of contract in progress excess the one
of billing on contract, the billing on contract is shown in the
current asset as a deduction, on the contrary, the contract in
progress is shown in the current liability as a deduction.
L. Research and development
Research and development costs consist of expenditures incurred during
the course of planned search and investigation aimed at the discovery
of new knowledge that will be useful in developing new products or
processes, or at significantly enhancing existing products or
production processes. And the implementation of such is through
design, testing of product alternatives or construction of prototypes.
The Company expenses all research and development costs as they are
incurred.
M. Pension costs
The Company, FOCI Optronic Components, Inc. and FIOPTEC Inc. have
non-contributory and funded defined benefit retirement plans covering
all their regular employees. The contribution to an independent fund
is deposited with the Central Trust of China, as the custodian. Net
pension cost, with includes service cost, interest cost, expected
return on plan assets and amortization of net asset or obligation at
transition, is recognized based on an actuarial valuation.
F-27
<PAGE> 32
The Company has a defined benefit pension plan for all regular
employees, which provides benefits based on length of service and
average monthly salary for the last six months prior to retirement.
The Company makes monthly contributions, equal to 2% of salaries and
wages, to a pension fund which is administered by a pension fund
monitoring committee and deposited in the committee's name in the
Central Trust of China which acts as trustee.
N. Income tax
The Company, FOCI Optronic Component, Inc. and FIOPTEC Inc. are
subject to tax in the Republic of China (ROC), FIOPTEC Inc. (Cayman
Island) is not subject to income or other taxes in Cayman Island,
while FOCI USA, Inc. is subject to tax in the United States of America
and Shanghai FOCI Fiber Optic Communications Equipment, Inc. is
subject to tax in the People Republic of China (PRC).
The Company adopted the provisions of SFAS No. 109 "Accounting for
Income Tax"; the provision for income tax represents income tax paid
and payable for the current year plus the changes in the deferred
income tax assets and liabilities during the years. Deferred income
taxes are recognized for the tax effects of temporary differences,
unused tax credit and operating loss carryforwards. Valuation
allowance is provided for deferred tax assets that are not certain to
be realized. A deferred tax asset or liability should, according to
the classification of its related asset or liability, be classified as
current or noncurrent. However, if a deferred asset or liability
cannot be related to a asset or liability in the financial statements,
then it should be classified as current or noncurrent based on the
expected reversal dates of temporary differences.
O. Bonuses to employees, directors and supervisors
According to ROC regulations and the Articles of Incorporation of
FOCI, a portion of distributable earnings should be set aside as
bonuses to employees, directors and supervisors. Bonuses to directors
and supervisors are always paid in cash. However, bonuses to employees
may be granted in cash or stock or both. All of these appropriations,
including stock bonuses which are valued at par value of $0.30, are
charged against retained earnings under ROC GAAP, after such
appropriations are formally approved by the shareholders in the
following year. Under U.S. GAAP, such bonuses are charged to income
currently in the year earned. Stock issued as part of these bonuses is
recorded at fair market value, determined by an independent third
parties. Since the amount and form of such bonuses are not finally
determinable until the shareholders` meeting in the subsequent year,
the total amount of the aforementioned bonuses is initially accrued
based on management's estimate regarding the amount to be paid based
on the Company`s Articles of Incorporation. Any difference between the
initially accrued amount and the fair market value of the bonuses
settled by the issuance of shares is recognized in the year of
approval by shareholders.
P. Foreign-currency transactions
The functional currency of the Company, FOCI Optronic Components, Inc.
and FIOPTEC Inc. is New Taiwan dollars, that of Shanghai FOCI Fiber
Optic Communications Equipment, Inc. is Remibi, and that of FOCI USA,
Inc. and FIOPTEC Inc. (Cayman Islands) is US dollars. The
foreign-currency transactions of the Company and its subsidiary,
except that of FOCI USA, Inc. and FIOPTEC Inc. (Cayman Islands), are
recorded using their respective functional currencies at the rates of
exchange in effect when the transactions occur. Gains or losses,
resulting from the application of different foreign exchange rates
when cash in foreign currency is converted into New Taiwan dollars and
Remibi, or when foreign-currency receivables and payables are settled,
are credited or charged to income in the year of conversion or
settlement. At the balance sheet dates, the balances of
foreign-currency assets and liabilities are restated into the
respective functional currencies based on prevailing exchange rates
and any resulting gains or losses are credited or charged to income.
F-28
<PAGE> 33
Q. Translation of foreign-currency financial statements
The financial statements of the foreign subsidiary are translated into
U.S. dollars at the following exchange rates: assets and liabilities -
current rate; income and expenses - weighted average rate during the
year. The resulting translation adjustment is recorded as separate
component of shareholders' equity.
R. Comprehensive income
The Company adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income". Comprehensive income, as defined, includes all
changes in equity during a period from non-owner sources. As of March
31, 1999 and 2000, comprehensive income of the Company included only
the translation adjustments on subsidiaries.
S. Earnings (loss) per share
Earnings per share is calculated by dividing net income by the average
number of shares outstanding in each period, adjusted retroactively
for stock dividends issued subsequently.
3. NOTES AND ACCOUNTS RECEIVABLE - NET
<TABLE>
<CAPTION>
March 31
-----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Notes receivable $ 200 $ 417
Accounts receivable - third parties 11,280 11,077
------------ ------------
11,480 11,494
Allowance for doubtful accounts ( 1,358) ( 953)
------------ ------------
$ 10,122 $ 10,541
============ ============
</TABLE>
4. INVENTORIES
A. The details of inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31
-----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Finished goods $ 903 $ 1,055
Work in process 1,707 2,255
Raw materials 2,525 4,974
Contract in progress - net 3,422 4,538
------------ ------------
8,557 12,822
Allowance for losses (75) (102)
------------ ------------
$ 8,482 $ 12,720
============ ============
</TABLE>
F-29
<PAGE> 34
B. The details of contract in progress are summarized as follows:
<TABLE>
<CAPTION>
Contract Estimated Paid - in Billing on Contract in
Accounting method price contract cost cost contract progress
-------------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 2000
--------------
Applied system of Completed contract
fiber optic method $ 5,400 $ 5,523 $ 5,257 $ 952 $ 4,305
Others Completed contract
method 492 407 234 - 233
---------- ----------- ----------- ----------- -----------
$ 5,892 $ 5,930 $ 5,491 $ 952 $ 4,538
========== =========== =========== =========== ===========
March 31, 1999
--------------
Applied system of Completed contract
fiber optic method $ 5,400 $ 4,523 $ 4,107 $ 685 $ 3,422
========== =========== =========== =========== ===========
</TABLE>
5. INVESTMENTS IN SHARES OF STOCK
The details of the investments are as follows:
<TABLE>
<CAPTION>
March 31
---------------------------------------------
1999 2000
-------------------- --------------------
% of % of
Carrying Owner- Carrying Owner-
Value Ship Value Ship
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Ganso Corp. $ 22 - $ 22 -
Winluck Group Ltd. 18 - 18 -
-------- --------
$ 40 $ 40
======== ========
</TABLE>
6. PROPERTIES - NET
<TABLE>
<CAPTION>
March 31
-----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Cost
Land $ - $ 3,292
Buildings 5,383 18,357
Machinery and equipment 6,117 7,408
Test equipment 337 581
Transportation equipment 89 211
Furniture and fixtures 1,110 1,598
Leasehold improvements 181 -
Construction in progress and prepayments 6,625 325
------------ ------------
19,842 31,772
------------ ------------
Accumulated Depreciation
Buildings 332 894
Machinery and equipment 1,457 2,446
Test equipment 92 160
Transportation equipment 17 46
Furniture and fixtures 407 708
Leasehold improvements 14 -
------------ ------------
2,319 4,254
------------ ------------
$ 17,523 $ 27,518
============ ============
</TABLE>
F-30
<PAGE> 35
7. SHORT-TERM LOANS
<TABLE>
<CAPTION>
March 31
-----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Secured loans from Tai-sin Bank, Far Eastern Bank,
Dah An Commercial Bank , The International
Commercial Bank of China and Land Bank
of Taiwan $ 1,590 $ 2,674
Working capital loans from Far Eastern Bank, Land
Bank, China Construction Bank and Shanghai
Pudong Development Bank 1,206 3,859
------------ ------------
$ 2,796 $ 6,533
============ ============
1.80% 1.8%
~8.0% ~8.0%
============ ============
</TABLE>
8. COMMERCIAL PAPERS
Commercial paper will mature between May to July 2000. It bore annual
interest rates ranging from 4.70% to 5.10% and is secured by a guaranty
issued by Tai-sin Bank, Far Eastern Bank and Dah An Commercial Bank.
9. LONG-TERM DEBTS
<TABLE>
<CAPTION>
March 31
-----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Land Bank of Taiwan:
Loan for plant expansion. Payable in 60
monthly installments starting from
December 1998 to November 2003. Interest at
an annual rate of 7.5% but was prepaid in
November 1999. $ 1,745 $ -
Loan for plant expansion. Payable in 72
monthly installments starting from
December 2000 to November 2006. Interest
at an annual rate of 7.5%. - 6,363
Loan for the purchase machinery and equipment. Payable
in 48 monthly installments starting from July 1997 to
June 2001. Interest at floating rate and actual
annual interest rate was 7.14%. 560 339
The International Commercial Bank of China - loan for the
purchase land. Payable in 16 quarterly installments
starting from October 2000 to September 2004. Interest
at floating rate and actual applicable rate for 2000 was
7.5% per annum. - 1,346
------------ ------------
2,305 8,048
Current portion - (625)
------------ ------------
$ 2,305 $ 7,423
============ ============
</TABLE>
F-31
<PAGE> 36
10. Shareholders' equity
According to the ROC Company Law, capital surplus can only be used to
offset a deficit or transferred to capital.
The Company's Articles of Incorporation provide that the following shall be
appropriated from the annual net income (less deficit, if any ):
(a) 10% thereof as legal reserve;
(b) Not over 15% special bonus to employees;
(c) Not over 5% compensation to directors and supervisors; and
(d) The remaining amount shall be appropriated as common shareholders'
bonus.
The appropriations and the disposition of the remaining net income shall be
resolved by the shareholders in the following year and given effect to in the
financial statements of that year.
The aforementioned appropriation for legal reserve shall be made until the
reserve equals the Company's capital. Such reserve can only be used to offset a
deficit; or, when it has reached 50% of the paid-in capital, up to 50% thereof
can be transferred to capital.
11. LONG-TERM OPERATING LEASES
The Company has an operating lease agreement covering certain parcels of
land with an area of 4,494 square meters. The agreement will is valid until
December 2015 and required payment of fixed annual rental of $58.
12. INCOME TAX
A. Income tax benefit and income tax payable:
<TABLE>
<CAPTION>
March 31
-----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Income tax expense - current $ 5 $ 35
Income tax benefit - deferred (5) (35)
------------ ------------
Income tax benefit (expense) $ - $ -
============ ============
</TABLE>
F-32
<PAGE> 37
B. As of March 31, 1999 and 2000, deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
March 31
-----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Current:
Taxable temporary differences $ 241 $ 354
Investment tax credits 155 69
------------ ------------
Total 396 423
Valuation allowance (4) -
------------ ------------
392 423
------------ ------------
Noncurrent:
Taxable temporary differences 43 7
Investment tax credits 364 335
Operating loss carryforwards 35 -
------------ -------------
Total 442 342
Valuation allowance - -
------------ ------------
442 342
------------ ------------
$ 834 $ 765
============ ============
</TABLE>
C. The Company's income tax returns through taxable year ended December
31, 1997 have been examined by the tax authorities. The Company did
not receive any tax assessment from the tax authorities as a result
from the foregoing tax examinations.
D. Pursuant to the "Statute for the Establishment and Administration of
Science- Based Industrial Park," the Company was granted several
periods of tax holidays with respect to income derived from approved
investments and are eligible until December, 2002.
13. FINANCIAL INSTRUMENTS
The Company's financial instruments are carried at cost, which approximates
their fair value and are listed as follows:
<TABLE>
<CAPTION>
March 31,1999 March 31,2000
------------------------- ------------------------
Carrying Fair Value Carrying Fair Value
Value Value
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Assets
Cash $ 2,213 $ 2,213 $ 1,747 $ 1,747
Marketable securities 173 173 174 174
Notes and accounts
receivable-net 10,122 10,122 10,541 10,541
Long-term investment 40 40 32 32
Refundable deposits 87 87 83 83
Liabilities
Short-term bank loans 2,796 2,796 6,533 6,533
Commercial papers 2,713 2,713 2,442 2,442
Notes payable 447 447 494 494
Accounts payable 916 916 2,678 2,678
Long-term debts (including
current portion) 2,305 2,305 8,048 8,048
</TABLE>
F-33
<PAGE> 38
14. ASSETS PLEDGED AS COLLATERAL
<TABLE>
<CAPTION>
March 31
-------------------------
Assets 1999 2000 Subject of collateral
------------------------------ -------------- -------------- -----------------------------------------
<S> <C> <C> <C>
Land $ - $ 3,292 Long-term loans
Time deposit (shown in Short-term guarantee and endorse for
other current assets) - 3,156 the bank loan of subsidiary
Machinery and equipment 1,008 882 Long-term loans
Buildings 5,140 15,173 Long-term loans
---------- ----------
$ 6,148 $ 22,503
========== ==========
</TABLE>
15. COMMITMENTS AND CONTINGENT LIABILITIES
A. On July 27, 1995, the Company has acquired from Industrial Technology
Research Institute specific product technology know-how related to
light source driver, FBT Fiber Couplers, WIC and WBC, WDM attenuators
and FBT attenuators. In consideration for the foregoing, the Company
shall pay royalty, until 2001, equivalent to 1% of the sales value of
the products covered by the agreement. As of April 24, 2000, the
Company paid royalties of US$4,768.
B. FIOPTEC Inc. and FOCI Optronic Components Inc. signed several
contracts with third parties for the construction of its new plant
amounting to $2,248. As of March 31, 2000, the two subsidiaries has
outstanding obligations of $192 related to these contracts.
16. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14
"Financial Reporting for Segments of a Business Enterprise, " replacing the
"industry segment" approach with "management" approach. The management
approach designates the internal organization that is used by management
for making operating decisions and assessing performance as the source of
the Company's reportable segments. SFAS 131 also requires disclosures about
products and services, geographic areas and major customers.
A. Industry: The Company is engaged in a single industry, which is
manufacturing, selling, designing and installation of fiber optic
related products.
B. Foreign markets
<TABLE>
<CAPTION>
Periods Ended March 31
--------------------------------
Area 1999 2000
----------------- ------------- -------------
<S> <C> <C>
Asia $ 1,299 $ 1,114
United States 865 1,859
Europe 665 1,283
Other 6 32
------------- -------------
$ 2,835 $ 4,288
============= =============
</TABLE>
C. Major customers
<TABLE>
<CAPTION>
Periods Ended March 31
---------------------------------------------
1999 2000
-------------------- --------------------
Customers Amount % Amount %
--------- ------------ ---- ------------ ----
<S> <C> <C> <C> <C>
A $ - - $ 854 14
B - - 725 12
------------ ---- ------------ ----
$ - - 1,579 26
============ ==== ============ ====
</TABLE>
F-34
<PAGE> 39
D. Geographic information
<TABLE>
<CAPTION>
Adjustments
and
Eliminating
Overseas Taiwan Entries Consolidated
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
March 31, 1999
--------------
Sales to customers other than the
parent and its subsidiaries $ 655 $ 3,013 $ - $ 3,668
Intercompany revenue - 1,164 (1,164) -
------------ ------------ ------------ ------------
Total sales $ 655 $ 4,177 $ (1,164) $ 3,668
============ ============ ============ ============
Gross profit $ 48 $ 1,270 $ (28) $ 1,290
============ ============ ============
Operating expenses (1,416)
Non-operating income 136
------------
Income before income tax 10
Income tax -
Minority loss 14
------------
Net income $ 24
============
Identifiable assets $ 7,179 $ 48,954 $ (12,330) $ 43,803
============ ============ ============ ============
March 31, 2000
--------------
Sales to customers other than the
parent and its subsidiaries $ 2,079 $ 3,888 $ - $ 5,967
Intercompany revenue - 2,763 (2,763) -
------------ ------------ ------------ ------------
Total sales $ 2,079 $ 6,651 $ (2,763) $ 5,967
============ ============ ============ ============
Gross profit $ 39 $ 2,421 $ (253) $ 2,207
============ ============ ============
Operating expenses (1,689)
Non-operating expenses (374)
------------
Income before income tax 144
Income tax -
Minority loss 31
------------
Net income $ 175
============
Identifiable assets $ 9,909 $ 61,937 $ (12,017) $ 59,829
============ ============ ============ ============
</TABLE>
F-35
<PAGE> 40
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On April 24, 2000, MRV Communications, Inc. (MRV) completed the acquisition
of approximately 97% or the outstanding capital stock of Fiber Optic
Communications, Inc. (FOCI), a Republic of China corporation, in exchange for
approximately 4.8 million shares of MRV's common stock and approximately $48.6
million in cash. MRV's management has prepared the following unaudited pro forma
condensed consolidated financial information to give effect to this acquisition.
The Unaudited Pro Forma condensed consolidated Statement of Operations for the
years ended December 31, 1999 and for the three-months ended March 3,1 2000 give
effect to the FOCI acquisition as if it had taken place at the beginning of each
period. The Unaudited Pro Forma condensed consolidated Balance Sheet as of March
31, 2000 gives effect to the FOCI acquisition as if it had taken place on such
date.
The pro forma adjustments, which are based upon available information and
certain assumptions that the Company believes are reasonable in the
circumstances, are applied to the historical financial statements of MRV and
FOCI. The FOCI acquisition will be accounted for using the purchase method of
accounting. MRV allocation of purchase price is based upon management's current
estimates of the fair value of assets acquired and liabilities assumed in
accordance with Accounting Principles Board No. 16. The purchase price
allocations reflected in the accompanying unaudited pro forma condensed
consolidated financial statements may be different from the final allocation of
the purchase price and such differences may be material. The Company expects to
complete a valuation and other procedures during the fourth quarter of 2000.
The accompanying unaudited pro forma condensed consolidated financial
information should be read in conjunction with the historical financial
statements and the notes thereto for both MRV and FOCI. The unaudited pro forma
condensed combined financial information is provided for informational purposes
only and does not purport to represent what MRV's financial position or results
of operations would actually have been had the FOCI acquisition occurred on such
dates or to project MRV's results of operation or financial position for any
future period.
F-36
<PAGE> 41
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
MRV FOCI Adjustments Total
-------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents 19,467 1,747 - 21,214
Short-term investments 10,344 174 - 10,518
Accounts receivable 54,374 10,541 - 64,915
Inventories 37,569 12,720 - 50,289
Refundable income taxes 3,789 - - 3,789
Deferred income taxes 6,800 - - 6,800
Other current assets 6,211 4,682 - 10,893
--------- ----------- ----------- -----------
Total current assets 138,554 29,864 - 168,418
--------- ----------- ----------- -----------
Property and Equipment, net 17,226 27,518 3,000 (1) 47,744
Other Assets:
Goodwill 26,201 - 258,703 (1) 284,904
Other intangibles - 1,332 - 1,332
U.S. Treasury notes 96,253 - (48,578) (1) 47,675
Investments in partner companies 24,258 - - 24,258
Deferred income taxes 5,479 342 - 5,821
Long-term stock investments - 40 - 40
Loan financing costs and other 3,143 741 - 3,884
--------- ----------- ----------- -----------
Total assets 311,114 59,837 213,125 584,076
--------- ----------- ----------- -----------
Current Liabilities
Current maturities of capital lease obligation 122 - - 122
Current maturities of long-term debt - 625 - 625
Short-term bank loans - 6,533 - 6,533
Commercial paper - 2,442 - 2,442
Accounts payable 23,789 2,678 - 26,467
Accrued liabilities 15,690 4,377 - 20,067
Note payable - 494 - 494
Income taxes payable - 189 - 189
Deferred revenue 1,041 - - 1,041
--------- ----------- ----------- -----------
Total current liabilities 40,642 17,338 - 57,980
--------- ----------- ----------- -----------
Long-Term Liabilities
Convertible debentures 90,000 - - 90,000
Capital lease obligations, net of current portion 1,268 - - 1,268
Long-term debt, net of current portion - 7,423 - 7,423
Deferred income taxes 281 - - 281
Accrued pension - 67 - 67
Other long-term liabilities 1,942 422 - 2,364
--------- ----------- ----------- -----------
Total long-term liabilities 93,491 7,912 - 101,403
--------- ----------- ----------- -----------
Minority Interests 2,394 - - 2,394
Stockholders' Equity
Preferred stock - - -
Common stock 126 23,891 (23,891) (1) 126
Additional paid-in capital 204,841 11,592 (11,592) (1)
- - 261,782 (1) 466,623
Legal Reserve - 267 (267) (1) -
Treasury stock (133) - (133)
Retained earnings (deficit) (24,241) (580) 580 (1) (24,241)
Accumulated other comprehensive income (loss) (6,006) (583) 583 (1) (6,006)
Deferred compensation - - (14,070) (1) (14,070)
--------- ----------- ----------- -----------
Total stockholders' equity 174,587 34,587 213,125 422,299
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Total liabilities and stockholders' equity 311,114 59,837 213,125 584,076
--------- ----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
F-37
<PAGE> 42
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Pro forma
MRV FOCI Adjustments Total
------- ------ ----------- ---------
<S> <C> <C> <C> <C>
-------- ------- --------- ---------
Revenues, net 288,524 19,758 - 308,282
-------- ------- --------- ---------
Costs and Expenses
Cost of goods sold 197,442 13,407 - 210,849
Research and development 35,319 1,256 - 36,575
Research and development of consolidated
development stage enterprises - - - -
Selling, general and administrative expenses 71,756 5,013 - 76,769
Amortization of goodwill and other intangibles - - 51,741 (2) 51,741
Deferred compensation charges - - 3,518 (4) 3,518
-------- ------- --------- ---------
Operating (loss) (15,993) 82 (55,259) (71,170)
-------- ------- --------- ---------
Interest expenses related to convertible notes 4,500 - - 4,500
Interest income, net 4,822 (711) 2,672 (3) 6,783
Provision (credit) for income taxes (2,153) 68 - (2,085)
Minority interest (610) (36) - (646)
-------- ------- --------- ---------
Net (loss) (12,908) (661) (52,587) (66,156)
-------- ------- --------- ---------
Basic and diluted net loss per share (0.48) (2.08)
-------- ---------
Weighted average shares outstanding used in basic and
diluted per shares calculation 26,960 4,800 31,760
-------- --------- ---------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
F-38
<PAGE> 43
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Pro Forma
MRV FOCI Adjustments Total
------ ------ ----------- ---------
<S> <C> <C> <C> <C>
------- ------ ------- -------
Revenues, net 65,072 5,967 - 71,039
------- ------ ------- -------
Costs and Expenses
Cost of goods sold 42,736 3,760 - 46,496
Research and development 6,060 425 - 6,485
Research and development of consolidated
development stage enterprises 5,831 - - 5,831
Selling, general and administrative expenses 16,027 1,264 - 17,291
Amortization of goodwill and other intangibles - - 12,935 (5) 12,935
Deferred compensation charges - - 879 (7) 879
------- ------ ------- -------
Operating (loss) (5,582) 518 (13,814) (18,878)
------- ------ ------- -------
Interest expenses related to convertible notes 1,125 - 1,125
Other income, net 637 (374) 668 (6) 931
Provision (credit) for income taxes (494) - - (494)
Minority interest 287 (31) - 256
------- ------ ------- -------
Net (loss) (5,863) 175 (13,146) (18,834)
------- ------ ------- -------
Basic and diluted net loss per share (0.21) (0.57)
------- -------
Weighted average shares outstanding used in basic and
diluted per shares calculation 28,425 4,800 33,225
======= ====== ======= =======
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
F-39
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The pro forma financial information gives effect to the following pro forma
adjustments:
(1) The purchase price of FOCI and the estimated allocation of the purchase
price is summarized as follows (in thousands):
Cash 48,578
Common stock 246,712
Stock options 14,070
Other costs 1,000
---------
310,360
---------
Allocation of purchase price -
Net assets of FOCI 34,587
Property, Plant and equipment 3,000
Deferred Compensation 14,070
Goodwill and other intangibles 258,703
---------
310,360
---------
(2) The pro forma adjustment is for the amortization of $258.7 million of
goodwill over 5 years or approximately $52.0 million for the year ended
December 31, 1999.
(3) The pro forma adjustment is to reduce interest income by approximately $2.7
million for the year ended December 31, 1999 to reflect the use of
investments of $48.6 million to fund the purchase price, assumes 5.5
percent return on investment.
(4) The pro forma adjustment is for the amortization of $14.1 million of
deferred compensation over an expected life of 4 years or approximately
$3.5 million for the year ended December 13, 1999.
(5) The pro forma adjustment is for the amortization of $258.7 million of
goodwill over 5 years or approximately $12.9 million for the period ended
March 31, 2000.
(6) The pro forma adjustment is to reduce interest income by approximately
$668,000 for the period ended March 31, 1999 to reflect the use of
investments of $48.6 million to fund the purchase price, assumes 5.5
percent return on investment.
(7) The pro forma adjustment is for the amortization of $14.1 million of
deferred compensation over an expected life of 4 years or approximately
$879,000 for the period ended March 31, 2000.
F-40
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