<PAGE> 1
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
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): July 21, 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 officers) (Zip Code)
818 773-0900
Registrant's telephone number, including area code
N.A.
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On July 21, 2000, registrant completed an acquisition of approximately
99.9% of the outstanding capital stock of Optronics International Corporation, a
Republic of China corporation ("OIC"). The purchase price paid to the
shareholders of OIC, which was arrived at as the result of arms' length
negotiations, consisted of 3,399,975 shares of registrant's common stock and
warrants to purchase 800,000 shares of registrant's common stock. The value of
registrant's shares and options issued in the transaction was approximately
$103.2 million based on the closing price of registrant's common stock at the
time the acquisition agreement was entered into among the parties.
Item 5. Other Information
On July 26, 2000, registrant issued a press release announcing the filing
with the Securities and Exchange by its wholly owned subsidiary, Luminent, Inc.
of a registration statement on Form S-1. A copy of that press release is
attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by
reference.
On July 27, 2000, registrant issued a press release announcing its
financial results at, and for the six months ended, June 30, 2000 and other
matters. A copy of that press release is attached as Exhibit 99.2 to this Form
8-K and is incorporated herein by reference
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The following financial statements of Optronics International Corporation are
filed herewith as part of this report:
Independent Auditors' Report
Balance Sheets at December 31, 1997, 1998 and 1999
Statements of Operations and Comprehensive Income for the
years ended December 31, 1997, 1998 and 1999
Statements of Shareholders' Equity for the years ended
December 31, 1997, 1998 and 1999
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999
Notes to Financial Statements
Balance Sheets at December 31, 1999 (audited)
and June 30,2000 (unaudited)
Statements of Operations and Comprehensive Income for the
six months ended June 30, 1999 and 2000
Statements of Cash Flows for the six months ended
June 30, 1999 and 2000 (unaudited)
Notes to Financial Statements
2
<PAGE> 3
(b) Pro forma Financial Information
Unaudited Pro Forma Condensed Consolidated Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1999
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(c) Exhibits
2.1(a) Stock Purchase Agreement by and between MRV and the shareholders
of Optronics International Corp. ("OIC") dated April 23, 2000
(incorporated by reference to Exhibit 10.19 of the Registration
Statement of Luminent, Inc. filed with the Securities and Exchange
Commission on July 26, 2000);
2.2(b) Escrow Agreement, dated as of the 23rd day of April 2000, by
and among MRV, the selling shareholders of OIC and the law firm of
Baker & McKenzie, Taipei Office(incorporated by reference to
Exhibit 10.19 of the Registration Statement of Luminent, Inc.
filed with the Securities and Exchange Commission on July 26,
2000);
99.1 Press Release of July 26, 2000
99.2 Press Release of July 27, 2000
3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Optronics International Corp.
We have audited the accompanying balance sheets of Optronics International
Corp. as of December 31, 1997, 1998 and 1999, and the related statements of
operations and comprehensive income, changes in 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 financial statements referred to above present fairly,
in all material respects, the financial position of Optronics International
Corp. 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/ TN Soong & Co.
TN Soong & Co
A Member Firm of Andersen Worldwide, SC
Taipei, Taiwan, the Republic of China
June 23, 2000
4
<PAGE> 5
OPTRONICS INTERNATIONAL CORP.
BALANCE SHEETS
DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
NOTES 1997 1998 1999
--------- ------- ------- -------
(IN THOUSAND U.S. DOLLARS
EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................... 2B $ 4,734 $ 6,510 $ 1,841
Restricted cash......................................... 2D 742 64 967
Marketable securities................................... 2B, 2E 1,607 -- 2,307
Notes and accounts receivable -- net.................... 2B, 3, 10 486 2,076 476
Inventories............................................. 2F, 4 248 694 1,046
Prepaid expenses and other current assets............... 53 39 102
------- ------- -------
Total Current Assets.................................... 7,870 9,383 6,739
------- ------- -------
PROPERTIES -- NET....................................... 2G, 2H, 2,741 4,920 5,197
------- ------- -------
5, 10
OTHER ASSETS
Prepaid long-term investment............................ -- 1 --
Deferred pension cost................................... 2L, 8 33 13 --
Deferred charges -- net of accumulated amortization cost
of $2 in 1999......................................... 2I -- -- 32
Refundable deposits..................................... 38 62 41
------- ------- -------
Total Other Assets...................................... 71 76 73
------- ------- -------
TOTAL ASSETS............................................ $10,682 $14,379 $12,009
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and accounts payable.............................. 10 $ 97 $ 701 $ 537
Income tax payable...................................... 2M, 9 -- 14 62
Current portion of long-term debts...................... 6, 12 -- -- 253
Accrued expenses and other current liabilities.......... 520 1,809 841
------- ------- -------
Total Current Liabilities............................... 617 2,524 1,693
LONG-TERM DEBTS -- NET OF CURRENT PORTION............... 6, 12 -- 495 253
ACCRUED PENSION COST.................................... 2L, 8 34 39 86
------- ------- -------
Total Liabilities....................................... 651 3,058 2,032
------- ------- -------
SHAREHOLDERS' EQUITY.................................... 7
Capital stock, $0.3 par value;
Authorized -- 25,000 thousand shares in 1997 and
45,000 thousand shares in 1998 and 1999
Issued -- 20,000 thousand shares in 1997 and
35,000 thousand shares in 1998 and 1999............ 7,266 11,833 11,833
Advanced capital........................................ 4,324 --
Retained earnings:
Legal reserve......................................... -- -- 50
Unappropriated earnings (Deficit)..................... (499) 365 (1,261)
Cumulative translation adjustment....................... 2O (1,060) (877) (645)
------- ------- -------
Total Shareholders' Equity.............................. 10,031 11,321 9,977
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $10,682 $14,379 $12,009
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
OPTRONICS INTERNATIONAL CORP.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
NOTES 1997 1998 1999
------ ------- ------- -------
(IN THOUSAND U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
SALES................................................ $ 1,280 $ 7,940 $ 4,998
SALES RETURNS AND ALLOWANCES......................... (2) (318) (191)
------- ------- -------
NET SALES............................................ 2J, 10 1,278 7,622 4,807
COST OF SALES........................................ 2J, 10 1,164 4,336 4,388
------- ------- -------
GROSS PROFIT......................................... 114 3,286 419
------- ------- -------
OPERATING EXPENSES
Research and development............................. 2K 888 2,086 1,453
General and administrative........................... 187 646 453
Marketing............................................ 169 638 318
------- ------- -------
Total Operating Expenses................... 1,244 3,370 2,224
------- ------- -------
LOSS FROM OPERATIONS................................. (1,130) (84) (1,805)
------- ------- -------
NON-OPERATING INCOME
Interest revenue..................................... 67 236 206
Subsidy.............................................. 492 704 339
Gain on sale of marketable securities................ 2E 177 132 48
Unrealized holdings gains on marketable securities... 13 -- --
Foreign exchange gain................................ 2N 10 -- --
Gain on disposal of properties....................... 10 -- -- 4
Other................................................ -- 1 39
------- ------- -------
Total Non-Operating Income................. 759 1,073 636
------- ------- -------
NON-OPERATING EXPENSE
Foreign exchange loss................................ 2N -- 15 49
Loss on decline in value and obsolescence of
Inventory.......................................... -- 46 293
Loss on physical inventory........................... -- -- 3
Loss on disposal of properties....................... -- 27 --
------- ------- -------
Total Non-Operating Expense................ -- 88 345
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAX...................... (371) 901 (1,514)
INCOME TAX EXPENSE................................... 2M, 9 -- (37) (62)
------- ------- -------
NET INCOME (LOSS).................................... $ (371) $ 864 $(1,576)
======= ======= =======
OTHER COMPREHENSIVE INCOME
Translation adjustments.............................. 2O (1,060) 183 232
------- ------- -------
COMPREHENSIVE INCOME (LOSS).......................... $(1,431) $ 1,047 $(1,344)
======= ======= =======
EARNINGS (LOSS) PER SHARE -- Based on 2Q
Weighted average outstanding common stock
18,085 thousand shares in 1997,
33,125 thousand shares in 1998 and
35,000 thousand shares 1999........................ $ (0.02) $ 0.03 $ (0.05)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
OPTRONICS INTERNATIONAL CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
RETAINED EARNINGS (NOTE 7)
---------------------------------- CUMULATIVE
CAPITAL STOCK ISSUED UNAPPROPRIATED TRANSLATION TOTAL
-------------------- ADVANCED LEGAL EARNINGS ADJUSTMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL RESERVE (DEFICIT) TOTAL (NOTE 20) EQUITY
---------- ------- -------- ------- -------------- ------- ----------- -------------
(THOUSAND) (IN THOUSAND U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997..... 14,000 $ 5,093 $ -- $-- $ (128) $ (128) $ -- $ 4,965
Issuance of capital stock for
cash....................... 6,000 2,173 -- -- -- -- -- 2,173
Advanced capital............. -- -- 4,324 -- -- -- -- 4,324
Net loss for 1997............ -- -- -- -- (371) (371) -- (371)
Translation adjustments...... -- -- -- -- -- -- (1,060) (1,060)
------ ------- ------- --- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1997... 20,000 7,266 4,324 -- (499) (499) (1,060) 10,031
Issuance of capital stock for
cash....................... 15,000 4,567 (4,324) -- -- -- -- 243
Net income for 1998.......... -- -- -- -- 864 864 -- 864
Translation adjustments...... -- -- -- -- -- -- 183 183
------ ------- ------- --- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1998... 35,000 11,833 -- -- 365 365 (877) 11,321
Appropriations of 1998
earnings:
Legal reserve.............. -- -- -- 50 (50) -- -- --
Net loss for 1999............ -- -- -- -- (1,576) (1,576) -- (1,576)
Translation adjustments...... -- -- -- -- -- -- 232 232
------ ------- ------- --- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1999... 35,000 $11,833 $ -- $50 $(1,261) $(1,211) $ (645) $ 9,977
====== ======= ======= === ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
OPTRONICS INTERNATIONAL CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
(IN THOUSAND U.S. DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (371) $ 864 $(1,576)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 190 480 647
Loss (gain) on disposal of properties..................... -- 27 (4)
Accrued pension cost...................................... 1 25 60
Unrealized holding gains on marketable securities......... (13) -- --
Gain on sale of marketable securities..................... (177) (132) (48)
Transfer of properties to expense......................... 10 -- --
Changes in operating assets and liabilities
Notes and accounts receivable.......................... (486) (1,590) 1,600
Inventories............................................ (248) (446) (352)
Prepaid expenses and other current assets.............. (39) 14 (63)
Notes and accounts payable............................. 97 604 (164)
Income tax payable..................................... -- 14 48
Accrued expenses and other current liabilities......... 179 1,289 (968)
------- ------- -------
Net Cash Provided by (Used in) Operating Activities......... (857) 1,149 (820)
------- ------- -------
INVESTING ACTIVITIES
Acquisitions of Properties.................................. (2,550) (2,575) (834)
Decrease (increase) in restricted cash...................... (742) 678 (903)
Proceeds from disposals of properties....................... 2 -- 39
Decrease (increase) in marketable securities................ 2,680 1,739 (2,259)
Decrease (increase) in prepaid long-term investments........ -- (1) 1
Increase in deferred charges................................ -- (33)
Decrease (increase) in refundable deposits.................. (9) (24) 21
------- ------- -------
Net Cash Used in Investing Activities....................... (619) (183) (3,968)
------- ------- -------
FINANCING ACTIVITIES
Proceeds from
Issuance of capital stock................................. 6,497 243 --
Long-term debts........................................... -- 495 --
------- ------- -------
Net Cash Provided by Financing Activities................... 6,497 738 --
------- ------- -------
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE................. (658) 72 119
------- ------- -------
NET INCREASE (DECREASE) IN CASH............................. 4,363 1,776 (4,669)
CASH AT BEGINNING OF YEAR................................... 371 4,734 6,510
------- ------- -------
CASH AT END OF YEAR......................................... $ 4,734 $ 6,510 $ 1,841
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income tax.................................... $ -- $ 24 $ 15
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 9
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSAND U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
1. GENERAL
Business
Optronics International Corp. (the "Company") was incorporated under the
Company Law of the Republic of China on November 21, 1996 and started its
operations in February 1997. The Company is primarily engaged in research,
development, production, manufacture and sale of visible laser diode and module,
communication laser diode and module and high power laser diode and module.
2. ACCOUNTING POLICIES
A. 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.
B. Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, marketable securities and accounts
receivable. Cash and marketable securities are deposited or placed with high
credit quality financial institutions. The Company is exposed to credit risk in
the event of default by these institutions to the extent of the amount recorded
on the balance sheet. 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.
C. Fair Value of Financial Instruments
The Company's financial instruments, including cash, restricted cash,
marketable securities, notes and accounts receivable, refundable deposits, and
notes and accounts payable are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments.
Fair value of long-term debts is estimated based on current interest rates
available to the Company with similar terms, degrees of risks and remaining
maturities. The carrying values of long-term debts approximate their respective
fair value.
D. Restricted Cash
Restricted cash is composed of time deposits that the Company maintains as
collateral for obtaining letters of credits.
E. Marketable Securities
Marketable securities are open-end bond funds 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.
9
<PAGE> 10
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
F. 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.
G. Properties
Properties are stated at cost less accumulated depreciation. Major
additions, renewals and betterment are capitalized, while maintenance and
repairs are expensed currently.
Depreciation is provided on the straight-line method over the estimated
useful lives that range as follows: machinery and equipment -- 3 to 8 years;
computer equipment -- 3 years; office equipment -- 5 years; leasehold
improvements -- 5 years; transportation equipment -- 5 years; other
equipment -- 5 to 20 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.
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 financial statements of the Company.
I. Deferred Charges
Deferred charges are stated at cost and amortized on straight-line basis
over the following years: tools -- 3 years.
J. Recognition of Revenue, Cost and Expenses
Product sales are recognized upon the transfer of title and risk of
ownership to customers, which occurs on product shipment. Cost charged against
revenue and expenses are recognized as incurred.
K. 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.
L. Pension Costs
The Company has non-contributory and funded defined benefit retirement
plans covering all its 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.
10
<PAGE> 11
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
M. Income Tax
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
identified to an asset or a liability in the financial statements, then it
should be classified as current or noncurrent based on the expected reversal
date of temporary difference.
N. Foreign-currency Transactions
The functional currency of the Company is New Taiwan dollars. The
foreign-currency transactions of the Company 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, 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.
O. Translation of Foreign-currency Financial Statements
The financial statements 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.
P. Comprehensive Income
The Company adopted the provisions of SFAS No. 130 "Reporting Comprehensive
Income"; SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity during a period from non-owner sources. To date,
the Company has only translation adjustments that are required to be reported in
comprehensive income.
Q. Earnings (Loss) Per Share
SFAS No. 128 "Earnings Per Share", establishes standards for computing and
presenting earnings per share. Basic earnings per share is calculated using the
average shares of common share outstanding. Diluted earnings per share is
calculated using the weighted average number of common and dilutive common
equivalent shares outstanding during the period, using either as if converted
method for convertible preferred share or the treasury stock method for options
and warrants. Since the Company's capital structure is simple, therefore, its
basic earnings per share is the same as diluted earnings per share.
11
<PAGE> 12
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES AND ACCOUNTS RECEIVABLE -- NET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998 1999
----- ------- -----
<S> <C> <C> <C>
Receivable from related parties (Note 10)................... $ -- $ 13 $ 46
Notes receivable............................................ 207 1,676 46
Accounts receivable -- third parties........................ 397 915 861
----- ------- -----
604 2,604 953
Allowance for doubtful accounts............................. (118) (528) (477)
----- ------- -----
$ 486 $ 2,076 $ 476
===== ======= =====
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998 1999
---- ---- ------
<S> <C> <C> <C>
Finished goods.............................................. $ 34 $246 $ 233
Work in process............................................. 152 297 320
Raw materials............................................... 62 151 493
---- ---- ------
$248 $694 $1,046
==== ==== ======
</TABLE>
5. PROPERTIES -- NET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Cost
Machinery and equipment................................... $2,042 $4,090 $5,018
Computer equipment........................................ 41 47 60
Office equipment.......................................... 27 33 36
Leasehold improvements.................................... 100 71 81
Transportation equipment.................................. 41 56 58
Other equipment........................................... 24 1,167 1,230
Prepayments............................................... 632 106 33
------ ------ ------
2,907 5,570 6,516
------ ------ ------
Accumulated depreciation
Machinery and equipment................................... 137 558 1,076
Computer equipment........................................ 7 19 32
Office equipment.......................................... 2 8 13
Leasehold improvements.................................... 15 16 29
Transportation equipment.................................. 4 12 21
Other equipment........................................... 1 37 148
------ ------ ------
166 650 1,319
------ ------ ------
$2,741 $4,920 $5,197
====== ====== ======
</TABLE>
12
<PAGE> 13
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBTS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998 1999
---- ---- -----
<S> <C> <C> <C>
Industrial Bureau -- Innovation Products Matching Fund to be
repaid in installment with final payment due in October
2001 (Note 12)............................................ $ -- $495 $ 506
Current portion............................................. -- -- (253)
---- ---- -----
$ -- $495 $ 253
==== ==== =====
</TABLE>
As of December 31, 1999, long-term debts mature as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
During the year 2000.................................... $253
During the year 2001.................................... 253
</TABLE>
7. SHAREHOLDERS' EQUITY
The Company's Articles of Incorporation provide that the following shall be
appropriated from the annual net income after deducting any previously
accumulated deficit and 10% legal reserve:
(a) 5% - 10% special bonus to employees;
(b) 1% - 3% compensation to directors and supervisors; and
(c) Special retained earnings reserve and unappropriated earnings can be
set aside when necessary, and 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.
8. 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.
13
<PAGE> 14
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Certain pension information are summarized as follows:
The components of net periodic benefit costs are as follows:
a. Net periodic pension cost
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Service cost................................. $ 51 $ 47 $ 87
Interest cost................................ -- 4 10
Projected return on plan assets.............. -- (1) (3)
Amortization of transition obligation........ -- 4 4
Amortization of unrecognized loss............ -- -- 1
---- ---- ----
Net periodic benefit cost.................... $ 51 $ 54 $ 99
==== ==== ====
</TABLE>
The change in benefit obligation and plan assets and reconciliation of
fund status are as follows:
b. Change in benefit obligation:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Projected benefit obligation at beginning of
year:...................................... $ -- $ 68 $148
For the years:
Service cost................................ 51 47 87
Interest cost............................... -- 4 10
Actuarial loss (gain)....................... 26 26 (6)
Amortization................................ -- -- 1
Foreign currency exchanges................... (9) 3 6
---- ---- ----
Projected benefit obligation at end of
year....................................... $ 68 $148 $246
==== ==== ====
</TABLE>
c. Change in plan assets:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Fair value of plan assets at beginning of
year....................................... $ -- $ 12 $ 43
Contributions................................ 12 30 41
Interest income.............................. -- 1 3
---- ---- ----
Fair value of plan assets at end of year..... $ 12 $ 43 $ 87
==== ==== ====
</TABLE>
d. Reconciliation of fund status
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Funded status................................ $ 57 $105 $156
Unrecognized transition obligation........... (56) (53) (50)
Unrecognized actuarial loss.................. -- (26) (20)
Additional liability......................... 33 13 --
---- ---- ----
Net amount of accrued pension cost shown in
the balance sheets......................... $ 34 $ 39 $ 86
==== ==== ====
</TABLE>
14
<PAGE> 15
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
e. Actuarial assumptions
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Discount rate used in determining present
values..................................... 6.75% 6.50% 6.00%
Rate of long-term rate of return on plan
assets..................................... 6.50% 6.25% 6.00%
Rate of compensation increase................ 6.00% 6.00% 6.00%
</TABLE>
9. 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..................... $-- $126 $--
Income tax benefit -- deferred.................... -- (82) --
Estimated permanent differences................... -- (7) --
Additional 10% income tax on undistributed
earnings........................................ -- -- 60
Adjustment of prior year's income tax............. -- -- 2
-- ---- ---
Income tax expense................................ $-- $ 37 $62
== ==== ===
</TABLE>
B. As of December 31, 1997, 1998 and 1999, deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Current:
Taxable temporary differences................... $ 33 $ 112 $ 119
Investment tax credits.......................... 21 156 5
Operating loss carryforward..................... 109 -- 338
----- ----- -------
Total........................................... 163 268 462
Valuation allowance............................. (163) (268) (462)
----- ----- -------
-- -- --
----- ----- -------
Noncurrent:
Taxable temporary differences................... 33 23 31
Investment tax credits.......................... 329 -- 1,279
Operating loss carryforwards.................... -- 670 51
----- ----- -------
Total........................................... 362 693 1,361
Valuation allowance............................. (362) (693) (1,361)
----- ----- -------
-- -- --
----- ----- -------
$ -- $ -- $ --
===== ===== =======
</TABLE>
C. The Company's income tax returns through taxable year ended December 31,
1996 have been examined by the tax authorities.
D. As of December 31 1999, the Company's unused investment tax credits and
the tax effect of loss carryforward amounted to approximately $1,284 and $389,
respectively, and are available for future use through 2003 and 2004,
respectively.
15
<PAGE> 16
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS
A. Name and Relationship of Related Parties
<TABLE>
<CAPTION>
NAME AND RELATIONSHIP OF RELATED PARTIES RELATIONSHIP WITH THE COMPANY
---------------------------------------- -----------------------------
<S> <C>
Its chairman is the supervisor of the
Wah Lee Industrial Corp. (WAH LEE)...... Company
Delta Electronics Int. Ltd. (DELTA
LTD.)................................. Same chairman
Delta Electronics Inc. (DELTA INC.)..... Same chairman
Cyntec Co., Ltd. (CYNTEC) Same chairman
</TABLE>
B. Significant Related Party Transactions
For the period
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Sales
DELTA INC. ............................. $-- -- $ 22 -- $148 3
WAH LEE................................. -- -- 274 4 95 2
-- --- ---- --- ---- ---
$-- -- $296 4 $243 5
== === ==== === ==== ===
Purchases
CYNTEC.................................. $-- -- $ 1 -- $ -- --
DELTA LTD. ............................. -- -- 121 4 265 12
-- --- ---- --- ---- ---
$-- -- $122 4 $265 12
== === ==== === ==== ===
</TABLE>
At end of period
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1998 1999
------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Receivable
DELTA INC. ............................. $-- -- $ 2 -- $25 5
WAH LEE................................. -- -- 11 1 21 4
-- --- --- --- --- ---
$-- -- $13 1 $46 9
== === === === === ===
Accounts payable -- DELTA LTD. ........... $-- -- $65 9 $52 10
== === === === === ===
</TABLE>
a. Sales to related parties are based on normal selling prices. The collection
period is 30-75 days after shipment for related parties and 15-60 days for
other companies.
b. The payment terms for purchases from related parties are the same as those
from other suppliers.
c. As of December 1999, the Company sold certain machinery and equipment to
DELTA INC. for $38 and generated a gain of $4.
16
<PAGE> 17
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. 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 FAIR CARRYING FAIR CARRYING FAIR
VALE VALUE VALE VALUE VALE VALUE
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash............................... $4,734 $4,734 $6,510 $6,510 $1,841 $1,841
Restricted cash.................... 742 742 64 64 967 967
Marketable securities.............. 1,607 1,607 -- -- 2,307 2,307
Notes and accounts
receivable -- net............... 486 486 2,076 2,076 476 476
Prepaid long-term investment....... -- -- 1 1 -- --
Refundable deposits................ 38 38 62 62 41 41
Liabilities
Notes and accounts payable......... 97 97 701 701 537 537
Long-term debts (including current
portion)........................ -- -- 495 495 506 506
</TABLE>
12. COMMITMENTS AND CONTINGENT LIABILITIES
In 1997 and 1999, the Company entered into loan agreements with Industrial
Development Bureau, Ministry of Economic Affairs and Administration of Hsin-chu
Science-based Industrial Park, respectively, for developing new products. Under
the agreements, the Company starts to repay the loan by installment after the
prototypes are completed for one year. In addition, when the new products begin
to sell, the Company shall pay 2% of net sales as feedback fund each quarter for
three years, but the total feedback fund should not be more than 30% of the
loan.
13. 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
research, development, production, manufacture and sale of visible laser diode
and module, communication laser diode and module and high power laser diode and
module.
B. Foreign markets: Export sales were under 10% of total revenues for
1997 and 1998. Sales to Asia and other area in 1999 were $1,865 and $683,
respectively.
17
<PAGE> 18
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
C. Major customers
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
------------- ------------- -------------
CUSTOMERS AMOUNT % AMOUNT % AMOUNT %
--------- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
A................................... $484 27 $ -- -- $-- --
B................................... 276 16 -- -- -- --
C................................... -- -- 1,212 15 -- --
</TABLE>
D. Geographic information. The Company's operations are entirely in the
Republic of China.
18
<PAGE> 19
OPTRONICS INTERNATIONAL CORP.
BALANCE SHEETS
DECEMBER 31, 1999 (AUDITED) AND JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
NOTES 1999 2000
------------ ------------- ---------
(IN THOUSAND U.S. DOLLARS
EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................... 2B $ 1,841 $ 2,058
Restricted cash........................................ 2D 967 1,163
Marketable securities.................................. 2B, 2E 2,307 --
Notes and accounts receivable -- net................... 2B, 3, 9 476 1,330
Inventories............................................ 2F, 4 1,046 1,740
Prepaid expenses and other current assets.............. 102 126
------- -------
Total Current Assets................................... 6,739 6,417
------- -------
PROPERTIES -- NET...................................... 2G, 2H, 5, 9 5,197 5,618
------- -------
OTHER ASSETS
Prepaid long-term investment........................... -- --
Deferred pension cost.................................. 2L -- --
Deferred charges -- net of accumulated amortization
cost of $2 as of December 31, 1999 and $13 as of June
30, 2000............................................. 2I 32 108
Refundable deposits.................................... 41 51
------- -------
Total Other Assets..................................... 73 159
------- -------
TOTAL ASSETS........................................... $12,009 $12,194
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and accounts payable............................. 9 $ 537 $ 1,306
Income tax payable..................................... 2M, 8 62 --
Current portion of long-term debts..................... 6, 11 253 259
Accrued expenses and other current liabilities......... 841 753
------- -------
Total Current Liabilities.............................. 1,693 2,318
LONG-TERM DEBTS -- NET OF CURRENT PORTION.............. 6, 11 253 129
ACCRUED PENSION COST................................... 2L 86 141
------- -------
Total Liabilities...................................... 2,032 2,588
------- -------
SHAREHOLDERS' EQUITY................................... 7
Capital stock -- $0.3 par value;
Authorized -- 45,000 thousand shares.................
Issued -- 35,000 thousand shares..................... 11,833 11,833
Retained earnings:
Legal reserve........................................ 50 50
Unappropriated earnings (deficit).................... (1,261) (1,843)
Cumulative translation adjustment...................... 2O, 2P (645) (434)
------- -------
Total Shareholders' Equity............................. 9,977 9,606
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $12,009 $12,194
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 20
OPTRONICS INTERNATIONAL CORP.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
NOTES 1999 2000
----- -------- -------
(UNAUDITED)
(IN THOUSAND U.S.
DOLLARS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
NET SALES................................................... 2J, 9 $ 2,968 $3,207
COST OF SALES............................................... 9 2,117 2,917
------- ------
GROSS PROFIT................................................ 851 290
------- ------
OPERATING EXPENSES
Research and development.................................... 2K 901 599
General and administrative.................................. 217 354
Marketing................................................... 261 143
------- ------
Total Operating Expenses.................................... 1,379 1,096
------- ------
LOSS FROM OPERATIONS........................................ (528) (806)
------- ------
NON-OPERATING INCOME (EXPENSE)
Interest revenue............................................ 130 38
Subsidy..................................................... 235 174
Gain on sale of marketable securities....................... 2E -- 22
Unrealized holding gains on marketable securities........... -- --
Foreign exchange gain loss.................................. 2N 10 (10)
Gain on disposal of properties.............................. 9 4 --
------- ------
Total Non-Operating Income.................................. 379 224
------- ------
LOSS BEFORE INCOME TAX...................................... (149) (582)
INCOME TAX EXPENSE.......................................... 2M, 8 2 --
------- ------
NET LOSS.................................................... $ (151) $ (582)
======= ======
OTHER COMPREHENSIVE INCOME
Translation adjustments..................................... 2O (97) 211
------- ------
COMPREHENSIVE LOSS.......................................... $ (248) $ (371)
======= ======
LOSS PER SHARE -- Based on weighted average outstanding
common stock 35,000 thousand shares....................... 2Q $(0.004) $(0.02)
======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE> 21
OPTRONICS INTERNATIONAL CORP.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------
1999 2000
------- -------
(UNAUDITED)
(IN THOUSAND U.S.
DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (151) $ (582)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 314 405
Gain on disposal of properties............................ (4) --
Accrued pension cost...................................... 44 55
Gain on sale of marketable securities..................... -- (22)
Changes in operating assets and liabilities
Notes and accounts receivable.......................... 1,564 (854)
Inventories............................................ (463) (694)
Prepaid expenses and other current assets.............. (281) (24)
Notes and accounts payable............................. 99 769
Income tax payable (14) (62)
Accrued expenses and other current liabilities......... (1,021) (88)
------- -------
Net Cash Provided by (Used in) Operating Activities......... 87 (1,097)
------- -------
INVESTING ACTIVITIES
Acquisitions of properties.................................. (450) (709)
Increase in restricted cash................................. (887) (196)
Proceeds from disposal of properties........................ 38 --
Decrease (increase) in marketable securities................ (400) 2,329
Increase in deferred charges................................ (2) (86)
Decrease (increase) in refundable deposits.................. 23 (10)
------- -------
Net Cash Provided by (Used in) Investing Activities......... (1,678) 1,328
------- -------
FINANCING ACTIVITY
Payment of long-term debts.................................. -- (124)
------- -------
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE................. (60) 110
------- -------
NET INCREASE (DECREASE) IN CASH............................. (1,651) 217
CASH AT BEGINNING OF PERIOD................................. 6,510 1,841
------- -------
CASH AT END OF PERIOD....................................... $ 4,859 $ 2,058
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income tax.................................... $ 15 $ 62
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 22
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSAND U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
1. GENERAL
Business
Optronics International Corp. (the "Company") was incorporated under the
Company Law of the Republic of China on November 21, 1996 and started its
operations in February 1997. The Company is primarily engaged in research,
development, production, manufacture and sale of visible laser diode and module,
communication laser diode and module and high power laser diode and module.
2. ACCOUNTING POLICIES
A. 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.
B. Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, marketable securities and accounts
receivable. Cash and marketable securities are deposited or placed with high
credit quality financial institutions to the extent of the amount recorded on
the balance sheet. 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.
E. Fair Value of Financial Instruments
The Company's financial instruments, including cash, restricted cash,
marketable securities, notes and accounts receivable, refundable deposits, and
notes and accounts payable are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments.
Fair value of long-term debts is estimated based on current interest rates
available to the Company with similar terms, degrees of risks and remaining
maturities. The carrying values of long-term debts approximate their respective
fair value.
F. Restricted Cash
Restricted cash is composed of time deposits that the Company maintains as
collateral for obtaining letters of credits.
E. Marketable Securities
Marketable securities are open-end bond funds 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.
22
<PAGE> 23
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
F. 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.
G. Properties
Properties are stated at cost less accumulated depreciation. Major
additions, renewals and betterment are capitalized, while maintenance and
repairs are expensed currently.
Depreciation is provided on the straight-line method over the estimated
useful lives that range as follows: machinery and equipment -- 3 to 8 years;
computer equipment -- 3 years; office equipment -- 5 years; leasehold
improvements -- 5 years; transportation equipment -- 5 years; other
equipment -- 5 to 20 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.
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 financial statements of the Company.
I. Deferred Charges
Deferred charges are stated at cost and amortized on straight-line basis
over the following years: tools -- 3 years.
J. Recognition of Revenue, Cost and Expenses
Product sales are recognized upon the transfer of title and risk of
ownership to customers, which occurs upon shipment of the product. Cost charged
against revenue and expenses are recognized as incurred.
K. 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.
L. Pension Costs
The Company has non-contributory and funded defined benefit retirement
plans covering all its 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.
23
<PAGE> 24
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a defined benefit pension plan for all regular employees,
which provides benefits base on length of service and average monthly salary for
the last six month 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 as the committee's name in the Central Trust of China which acts
as trustee.
M. Income Tax
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
identified to an asset or a liability in the financial statements, then it
should be classified as current or noncurrent based on the expected reversal
date of temporary difference.
N. Foreign-currency Transactions
The functional currency of the Company is New Taiwan dollars. The
foreign-currency transactions of the Company 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, 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.
O. Translation of Foreign-currency Financial Statements
The financial statements 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.
Q. Comprehensive Income
The Company adopted the provisions of SFAS No. 130 "Reporting Comprehensive
Income"; SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity during a period from non-owner sources. To date,
the Company has only translation adjustment that are required to be reported in
comprehensive income.
R. Earnings (Loss) Per Share
SFAS No. 128 "Earnings Per Share", establishes standards for computing and
presenting earnings per share. Basic earnings per share is calculated using the
average shares of common share outstanding. Diluted earnings per share is
calculated using the weighted average number of common and dilutive common
equivalent shares outstanding during the period, using either as if converted
method for convertible preferred share or the treasury stock method for options
and warrants. Since the Company's capital structure is simple, therefore, its
basic earnings per share is the same as diluted earnings per share.
24
<PAGE> 25
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES AND ACCOUNTS RECEIVABLE -- NET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ --------
<S> <C> <C>
Receivable from related parties (Note 9).................... $ 46 $ 331
Notes receivable............................................ 46 12
Accounts receivable -- third parties........................ 861 1,474
----- ------
953 1,817
Allowance for doubtful accounts............................. (477) (487)
----- ------
$ 476 $1,330
===== ======
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ --------
<S> <C> <C>
Finished goods.............................................. $ 233 $ 323
Work in process............................................. 320 626
Raw materials............................................... 493 791
------ ------
$1,046 $1,740
====== ======
</TABLE>
5. PROPERTIES -- NET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ --------
<S> <C> <C>
Cost
Machinery and equipment................................... $5,018 $5,381
Computer equipment........................................ 60 85
Office equipment.......................................... 36 69
Leasehold improvements.................................... 81 176
Transportation equipment.................................. 58 59
Other equipment........................................... 1,230 1,291
Prepayments............................................... 33 292
------ ------
6,516 7,353
------ ------
Accumulated depreciation
Machinery and equipment................................... $1,076 $1,407
Computer equipment........................................ 32 42
Office equipment.......................................... 13 18
Leasehold improvements.................................... 29 32
Transportation equipment.................................. 21 27
Other equipment........................................... 148 209
------ ------
1,319 1,735
------ ------
$5,197 $5,618
====== ======
</TABLE>
25
<PAGE> 26
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBTS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ --------
<S> <C> <C>
Industrial Bureau -- Innovation Products Matching Fund to be
repaid in installment with final payment due in October
2001 (Note 12)............................................ $ 506 $ 388
Current portion............................................. (253) (259)
----- -----
$ 253 $ 129
===== =====
</TABLE>
As of June 30, 2000, long-term debts mature as follows:
<TABLE>
<CAPTION>
JUNE 30,
2000
--------
<S> <C>
During the year 2000...................................... $259
During the year 2001...................................... 129
</TABLE>
7. SHAREHOLDERS' EQUITY
The Company's Articles of Incorporation provide that the following shall be
appropriated from the annual net income after deducting any previously
accumulated deficit and 10% legal reserve:
(d) 5% - 10% special bonus to employees;
(e) 1% - 3% compensation to directors and supervisors; and
(f) Special retained earnings reserve and unappropriated earnings can
be set aside when necessary, and 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.
8. INCOME TAX
A. Income tax benefit: The Company expects no income tax benefits and
income tax payable for the six months ended June 30, 2000. Income tax expense of
$2 for the six months ended June 30, 1999 represents the prior year's income tax
adjustment.
26
<PAGE> 27
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
B. As of December 31, 1999 and June 30, 2000, deferred income tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ --------
<S> <C> <C>
Current:
Taxable temporary differences............................. $ 119 $ 105
Investment tax credits.................................... 5 --
Operating loss carryforwards.............................. 338 284
------- -------
Total..................................................... 462 389
Valuation allowance....................................... (462) (389)
------- -------
-- --
------- -------
Noncurrent:
Taxable temporary differences............................. 31 5
Investment tax credits.................................... 1,279 1,214
Operating loss carryforwards.............................. 51 59
------- -------
Total..................................................... 1,361 1,278
Valuation allowance....................................... (1,361) (1,278)
------- -------
-- --
------- -------
$ -- $ --
======= =======
</TABLE>
C. The Company's income tax returns through taxable year ended December 31,
1996 have been examined by the tax authorities.
D. As of June 30, 2000, the Company's unused investment tax credits and the
tax effect of loss carryforwards amounted to approximately $1,214 and $343,
respectively, and are available for future use through 2003 and 2004,
respectively.
9. RELATED PARTY TRANSACTIONS
A. Name and Relationship of Related Parties
<TABLE>
<CAPTION>
NAME AND RELATIONSHIP OF RELATED PARTIES RELATIONSHIP WITH THE COMPANY
---------------------------------------- -----------------------------
<S> <C>
Wah Lee Industrial Corp. (WAH LEE)........... Its chairman is the supervisor of the Company
Delta Electronics Int. Ltd. (DELTA LTD.)..... Same chairman
Delta Electronics Inc. (DELTA INC.).......... Same chairman
</TABLE>
B. Significant Related Party Transactions
For the period
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------
1999 2000
--------------- ---------------
AMOUNT % AMOUNT %
------- ---- ------- ----
<S> <C> <C> <C> <C>
Sales
DELTA INC. .............................................. $ 86 3 $314 5
WAH LEE.................................................. 86 3 176 10
---- --- ---- ---
$172 6 $490 15
==== === ==== ===
</TABLE>
27
<PAGE> 28
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------
1999 2000
--------------- ---------------
AMOUNT % AMOUNT %
------- ---- ------- ----
<S> <C> <C> <C> <C>
Purchases.................................................. $160 8 $ 8 --
DELTA LTD. .............................................. 2 -- -- --
---- --- ---- ---
DELTA INC. .............................................. $162 8 $ 8 --
==== === ==== ===
</TABLE>
At end of period
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------- -------------
AMOUNT % AMOUNT %
------ --- ------ ---
<S> <C> <C> <C> <C>
Receivable
DELTA INC. .............................................. $ 25 5 $272 20
WAH LEE.................................................. 21 4 59 5
---- --- ---- ---
$ 46 9 $331 25
==== === ==== ===
Accounts payable -- DELTA LTD. ............................ $ 52 10 $ 1 --
==== === ==== ===
</TABLE>
d. Sales to related parties are based on normal selling prices. The collection
period is 30-75 days after shipment for related parties and 15-60 days for
other companies.
e. The payment terms for purchases from related parties are the same as those
from other suppliers.
c. As of June 30, 1999, the Company sold certain machinery and equipment to
DELTA INC. for $38 and generated a gain of $4.
10. 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, 1999 JUNE 30, 2000
------------------ ------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Assets
Cash......................................... $1,841 $1,841 $2,058 $2,058
Restricted cash.............................. 967 967 1,163 1,163
Marketable securities........................ 2,307 2,307 -- --
Notes and accounts receivable -- net......... 476 476 1,330 1,330
Prepaid long-term investment................. -- -- -- --
Refundable deposits.......................... 41 41 51 51
Liabilities
Notes and accounts payable................... 537 537 1,306 1,306
Long-term debts (including current
portion).................................. 506 506 388 388
</TABLE>
11. COMMITMENTS AND CONTINGENT LIABILITIES
A. In 1997 and 1999, the Company entered into loan agreements with
Industrial Development Bureau, Ministry of Economic Affairs and Administration
of Hsin-chu Science-based Industrial Park, respectively, for developing new
products. Under the agreements, the loans are paid in installments starting
28
<PAGE> 29
OPTRONICS INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
one year after the prototypes are completed. In addition, the Company shall make
quarterly payment for a period of three years equivalent to 2% of net sales as
feedback fund starting when sales are generated from the new products begin.
However, the total feedback fund should not be more than 30% of the loan.
B. As of June 30, 2000, unused letters of credit aggregate about US$129
thousand and JPY 32,683 thousand.
12. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." FSAS 131 requires companies to disclose
certain information about operating segments. Based on the criteria within SFAS
131, the Company has determined that it has one reportable segment, laser diode
products.
A. Foreign markets:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------
AREA 1999 2000
---- ------- -------
<S> <C> <C>
Asia........................................................ $1,234 $ 907
America..................................................... 94 762
Europe...................................................... 16 234
Other....................................................... -- 7
------ ------
$1,344 $1,910
====== ======
</TABLE>
B. Major customers
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------
1999 2000
--------------- ---------------
CUSTOMERS AMOUNT % AMOUNT %
--------- ------- ---- ------- ----
<S> <C> <C> <C> <C>
A...................................................... $410 14 $ -- --
B...................................................... 400 13 -- --
C...................................................... -- -- 380 12
D...................................................... -- -- 314 10
</TABLE>
C. Geographic information. The Company's operations are entirely in the
Republic of China.
29
<PAGE> 30
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On July 21, 2000, MRV Communications, Inc. (MRV) acquired approximately
99.9% of the outstanding capital stock of Optronics International Corp. (OIC), a
Republic of China corporation, in exchange for approximately 4.0 million shares
of MRV's common stock and warrants to purchase common stock. 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 year ended December 31,
1999 and for the six months ended June 30, 2000 give effect to the OIC
acquisition as if it had taken place at the beginning of each period. The
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2000
gives effect to the OIC 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
OIC. The OIC 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 OIC. The unaudited pro forma
condensed consolidated 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 OIC acquisition occurred
on such dates or to project MRV's results of operation or financial position for
any future period.
30
<PAGE> 31
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
Pro Forma
MRV OIC Adjustments Total
-------- -------- ----------- --------
(in thousands)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents 45,207 2,058 -- 47,265
Restricted cash -- 1,163 -- 1,163
Short-term investments 3,427 -- -- 3,427
Accounts receivable 63,555 1,330 -- 64,885
Inventories 49,616 1,740 -- 51,356
Refundable income taxes -- -- -- --
Deferred income taxes 7,663 -- -- 7,663
Other current assets 5,872 126 -- 5,998
-------- -------- -------- --------
Total current assets 175,340 6,417 -- 181,757
-------- -------- -------- --------
Property and Equipment, net 48,497 5,618 1,500 (1) 55,615
Other Assets:
Goodwill and intangibles 321,764 -- 93,092 (1) 414,856
U.S. Treasury notes 95,014 -- -- 95,014
Investments in partner companies 29,969 -- -- 29,969
Deferred income taxes 6,827 -- -- 6,827
Loan financing costs and other 6,655 159 -- 6,814
-------- -------- -------- --------
Total assets 684,066 12,194 94,592 790,852
======== ======== ======== ========
Current Liabilities
Current maturities of financing lease obligation 1,097 -- -- 1,097
Current maturities of long-term debt -- 259 -- 259
Accounts payable 33,485 1,306 -- 34,791
Accrued liabilities 21,744 753 -- 22,497
Short-term debt 78,801 -- -- 78,801
Income taxes payable 714 -- -- 714
Deferred revenue 1,293 -- -- 1,293
-------- -------- -------- --------
Total current liabilities 137,134 2,318 -- 139,452
-------- -------- -------- --------
Long-Term Liabilities
Convertible debentures 90,000 -- -- 90,000
Capital lease obligations, net of current portion 1,589 -- -- 1,589
Long-term debt, net of current portion -- 129 -- 129
Deferred income taxes 1,213 -- -- 1,213
Accrued pension -- 141 -- 141
Other long-term liabilities 10,152 -- -- 10,152
-------- -------- -------- --------
Total long-term liabilities 102,954 270 -- 103,224
-------- -------- -------- --------
Minority Interests 2,599 -- -- 2,599
Stockholders' Equity 441,379 9,606 (9,606)(1) 441,379
(20,000)(1) (20,000)
124,198 (1) 124,198
-------- -------- -------- --------
441,379 9,606 94,592 545,577
-------- -------- -------- --------
-------- -------- -------- --------
Total liabilities and stockholders' equity 684,066 12,194 94,592 790,852
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
31
<PAGE> 32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Pro Forma
MRV OIC Adjustments Total
-------- -------- ----------- --------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
-------- -------- -------- --------
Revenues, net 139,007 3,207 -- 142,214
-------- -------- -------- --------
Costs and Expenses
Cost of goods sold 88,529 2,917 -- 91,446
Research and development 13,367 599 -- 13,966
Research and development of consolidated 13,282 -- -- 13,282
development stage enterprises
Selling, general and administrative expenses 41,481 497 -- 41,978
Amortization of goodwill and other intangibles 13,069 -- 9,309(2) 22,378
Deferred compensation charges -- -- 7,200(3) 7,200
-------- -------- -------- --------
Operating (loss) (30,721) (806) (16,509) (48,036)
-------- -------- -------- --------
Interest expenses related to convertible notes 2,803 -- 2,803
Other income (expense), net 1,125 224 -- 1,349
Provision (credit) for income taxes 883 -- -- 883
Minority interest 332 -- -- 332
-------- -------- -------- --------
Net (loss) (33,614) (582) (16,509) (50,705)
======== ======== ======== ========
Basic and diluted net loss per share (0.56) (0.79)
======== ========
Weighted average shares outstanding used in basic and
diluted per shares calculation 59,839 4,200(6) 64,039
======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
32
<PAGE> 33
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
MRV OIC Adjustments Total
-------- -------- ----------- --------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
-------- -------- -------- --------
Revenues, net 288,524 4,807 -- 293,331
-------- -------- -------- --------
Costs and Expenses
Cost of goods sold 197,442 4,388 -- 201,830
Research and development 35,319 1,453 -- 36,772
Research and development of consolidated -- -- -- --
development stage enterprises
Selling, general and administrative expenses 71,756 771 -- 72,527
Amortization of goodwill and other intangibles -- -- 18,618(4) 18,618
Deferred compensation charges -- -- 11,480(5) 11,480
-------- -------- -------- --------
Operating (loss) (15,993) (1,805) (30,098) (47,896)
-------- -------- -------- --------
Interest expenses related to convertible notes 4,500 -- -- 4,500
Interest income, net 4,822 291 -- 5,113
Provision (credit) for income taxes (2,153) 62 -- (2,091)
Minority interest (610) -- -- (610)
-------- -------- -------- --------
Net (loss) (12,908) (1,576) (30,098) (44,582)
======== ======== ======== ========
Basic and diluted net loss per share (0.24) (0.77)
======== ========
Weighted average shares outstanding used in basic and
diluted per shares calculation 53,920 4,200(6) 58,120
======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
33
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following adjustments were applied to MRV's historical financial
statements and those of OIC to arrive at the pro forma financial information:
(1) The purchase price of OIC and the estimated allocation of the purchase price
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
OIC
-------
<S> <C>
Common stock 103,198
Stock options 20,000
Other costs 1,000
-------
124,198
=======
Allocation of purchase price -
Net assets 9,606
Property, Plant and equipment 1,500
Deferred Compensation 20,000
Goodwill and other intangibles 93,092
-------
124,198
=======
</TABLE>
(2) The pro forma adjustment is to record the amortization of goodwill related
to the acquisition as if the transaction occurred on January 1, 2000. Goodwill
recorded in relation to this acquisition was approximately $93.1 million and is
being amortizated on a straight-line basis over 5 years or approximately $9.3
million for the six month period ended June 30, 2000
(3) The pro forma adjustment is to record deferred stock compensation related to
the acquisition as if the transaction occurred on January 1, 2000. Deferred
stock compensation recorded in relation to this acquisition was approximately
$20.0 million and is being amortized over 4 years or approximately $7.2 million
for the six month period ended June 30, 2000
(4) The pro forma adjustment is to record the amortization of goodwill related
to the acquisition as if the transaction occurred on January 1, 1999. Goodwill
recorded in relation to this acquisition was approximately $93.1 million and is
being amortizated on a straight-line basis over 5 years or approximately $18.6
million for the year ended December 31, 1999
(5) The pro forma adjustment is to record deferred stock compensation related to
the acquisition as if the transactions occurred on January 1, 1999. Deferred
stock compensation recorded in relation to this acquisition was approximately
$20.0 million and is being amortized over 4 years or approximately $11.5 million
for the year ended December 31, 1999.
(6) Weighted average shares used to calculate pro forma basic and diluted net
loss per share for the periods presented is computed using the weighted average
number of common stock outstanding for the periods presented and the shares
issued in conjunction with the acquisition as if such shares were outstanding at
the beginning of each period presented.
34
<PAGE> 35
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.
Date: August 3, 2000
MRV COMMUNICATIONS, INC.
By: /s/ EDMUND GLAZER
---------------------------------------
Edmund Glazer
Executive Vice President Finance and
Administration and Chief Financial Officer
35
