Notes to Consolidated Financial Statements
1. Description of Business and Basis of Presentation
Description of Business
MRV Communications, Inc. and subsidiaries ("MRV" or the "Company"), a Delaware corporation, is a global supplier of communications solutions to telecommunications service providers, data center operators, enterprises and governments throughout the world. MRV markets and sells its products worldwide, through a variety of channels, which include a dedicated direct sales force, distributors, value-added-resellers, systems integrators and sales agents. Until the third quarter of 2015, MRV conducted its business along
two
principal segments: the Network Equipment segment and the Network Integration segment. MRV's Network Equipment segment designs, manufactures, sells and services equipment used by commercial customers, governments, and telecommunications service providers. Products include packet switching, optical transport, infrastructure management equipment and service orchestration and provisioning software. The Network Integration segment, which primarily operated in Italy and provided network system design, integration and distribution services that included products manufactured by third-party vendors, was sold in December 2015.
On December 3, 2015, the Company completed the sale of all of its shares of its wholly owned subsidiary, Tecnonet S.p.A.("Tecnonet"), pursuant to a shares purchase agreement, dated as of August 10, 2015 (the "Purchase Agreement") with Maticmind S.p.A, a company incorporated under the laws of Italy. Tecnonet was the last business unit in our Network Integration segment. On February 19, 2016, the Company received a payment of
€4.3 million
(approximately
$4.8 million
) representing the post-closing purchase price adjustment pursuant to the Purchase Agreement.
Our business involves reliance on foreign-based offices. Several of our divisions, outside subcontractors and suppliers are located in foreign countries, including Argentina, Australia, Canada, Denmark, Germany, Israel, Italy, Netherlands, Philippines, Poland, Russia, Taiwan, Thailand, and the United Kingdom. For the years ended
December 31, 2016
,
2015
and
2014
, external revenues from foreign subsidiaries accounted for
22%
,
24%
and
26%
, respectively, of our total revenue. The majority of our foreign sales are to customers located in the European and Asia Pacific region.
Basis of Presentation
MRV's fiscal year is based on the calendar year ending on December 31. The accompanying consolidated financial statements include the accounts of MRV and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. MRV consolidates the financial results of less than majority-owned subsidiaries when it has effective control, voting control, or has provided the entity's working capital. When investment by others in these enterprises reduces the Company's voting control below
50%
, MRV discontinues consolidation and uses the cost or equity method of accounting for these investments, unless otherwise required.
2. Summary of Significant Accounting Policies
Revenue Recognition
MRV's revenue-generating products consist of switches and routers, console management, physical layer products, and fiber optic components. We recognize product revenue, net of sales discounts, returns and allowances, when persuasive evidence of an arrangement exists, delivery has occurred and all significant contractual obligations have been satisfied, the fee is fixed or determinable and collection is considered reasonably assured. Products are generally shipped "FOB shipping point," with no right of return and revenue is recognized upon shipment. If revenue is to be recognized upon delivery, such delivery date is tracked through information provided by the third party shipping company we use to deliver the product to the customer.
Sales of services and system support are deferred and recognized ratably over the contract period. Sales to end customers with contingencies, such as rights of return, rotation rights, conditional acceptance provisions and price protection, are infrequent and insignificant and are deferred until the contingencies have been satisfied or the contingent period has lapsed. For sales to distributors, we generally recognize revenue when product is sold to the distributor rather than when the product is sold by the distributor to the end user. In certain circumstances, distributors have limited rights of return such as stock rotation rights.
We estimate and establish allowances for expected future product returns and credits. We record a reduction in revenue for estimated future product returns and future credits to be issued to the customer in the period in which revenue is recognized, and for future credits to be issued in relation to price protection at the time we make changes to our distributor price book. We monitor product returns and potential price adjustments on an ongoing basis and estimate future returns and credits based on historical sales returns, analysis of credit memo data, and other factors known at the time of revenue recognition.
MRV collects sales taxes from its customers to remit to the applicable taxing authorities. These amounts are not included in revenues, but are included on the balance sheet in accrued liabilities.
Amounts billed to customers in a sale transaction related to shipping and handling represent revenues earned for goods provided and are classified as revenue. Shipping and handling costs are classified as cost of sales.
MRV generally warrants its products against defects in materials and workmanship for
90
days to
three
-year periods. The estimated cost of warranty obligations and sales returns and other allowances are recognized at the time of revenue recognition based on contract terms and prior claims experience.
Accounting for Multiple-Element Arrangements.
We allocate arrangement consideration at the inception of the arrangement to all deliverables using the relative selling price method. The selling price we use for each deliverable is based on (a) vendor-specific objective evidence if available; (b) third-party evidence if vendor-specific objective evidence is not available; or (c) best estimate of selling price if neither vendor-specific objective evidence nor third-party evidence is available. We allocate discounts in the arrangement proportionally on the basis of the selling price of each deliverable.
Cash and Cash Equivalents
MRV treats highly liquid investments with an original maturity of 90 days or less as cash equivalents. Investments with original maturities at the date of purchase greater than 90 days and remaining time to maturity of one year or less as short-term and are included in restricted time deposits. MRV maintains cash balances and investments in qualified financial institutions, and at various times such amounts are in excess of federal insured limits. As of
December 31, 2016
and
2015
, the Company's U.S. entities held
$19.2 million
and
$21.6 million
in cash and cash equivalents. The remaining
$5.9 million
and
$4.6 million
, respectively, were held by the company's foreign subsidiaries in foreign bank deposit accounts.
Restricted Time Deposits
Restricted time deposits represent investments that are restricted as to withdrawal or use and from time to time may include certificates of deposit. The investments in and releases of restricted time deposits are included in investing activities on the Company's Consolidated Statements of Cash Flows because the funds are invested in certificates of deposit. As of
December 31, 2016
and 2015, the Company held
$0.3 million
and
$5.2 million
of restricted time deposits, respectively;
$5.0 million
of which represented a certificate of deposit with a highly rated financial institution that matured in December 2016. The
$0.3 million
and remaining
$0.2 million
of restricted time deposits held as of
December 31, 2016
and 2015, respectively, represent security deposits that are restricted due to their respective agreements.
Concentration of Credit Risk, Accounts Receivable and Allowance for Doubtful Accounts
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents placed with high credit quality institutions and accounts receivable due from customers. Management evaluates the collectability of accounts receivable based on a combination of factors. If management becomes aware of a customer's inability to meet its financial obligations after a sale has occurred, the Company records an allowance to reduce the net receivable to the amount that management reasonably believes to be collectable from the customer. If the financial conditions of MRV's customers were to deteriorate or if economic conditions worsen, additional allowances may be required in the future. Accounts receivable are charged off at the point they are considered uncollectible.
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended:
|
|
Balance at
beginning
of period
|
|
Charged to
expense
|
|
Deductions
|
|
Effect of
foreign
currency
exchange
rates
|
|
Balance at
end of
period
|
December 31, 2014
|
|
$
|
1,117
|
|
|
42
|
|
|
(91
|
)
|
|
(6
|
)
|
|
$
|
1,062
|
|
December 31, 2015
|
|
$
|
1,062
|
|
|
40
|
|
|
(38
|
)
|
|
(4
|
)
|
|
$
|
1,060
|
|
December 31, 2016
|
|
$
|
1,060
|
|
|
(5
|
)
|
|
(795
|
)
|
|
7
|
|
|
$
|
267
|
|
As of
December 31, 2016
and
2015
, two customers, accounted for
22%
and
20%
of gross accounts receivables, respectively.
Inventories
Inventories are stated at the lower of cost or market and consist of materials, labor and overhead. Cost is computed using global standard cost, which approximates actual cost, on a first-in, first-out basis. Intercompany sales are recorded using standard costs for book purposes, and are eliminated in consolidation. If management estimates that the net realizable value of inventory is less than the cost of the inventory recorded, an adjustment to the cost basis equal to the difference between the cost of the inventory and the estimated net realizable market value is recorded. This adjustment is recorded as a charge to cost of goods sold, and includes estimates for excess quantities and obsolete inventory. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below previous estimates, we would make further adjustments in the period in which we make such a determination and record a charge to cost of goods sold. At each balance sheet date, management evaluates the ending inventories for excess quantities or obsolescence. This evaluation includes analysis of sales levels and projections of future demand. Based on this evaluation, management writes down the inventory to net realizable value if necessary. At the time of recording the adjustment, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration of, or increase in, that newly established cost basis.
Inventories, net of reserves, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
2016
|
|
2015
|
Raw materials
|
|
$
|
2,485
|
|
|
$
|
3,132
|
|
Work-in process
|
|
347
|
|
|
839
|
|
Finished goods
|
|
6,825
|
|
|
6,255
|
|
Total inventories
|
|
$
|
9,657
|
|
|
$
|
10,226
|
|
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized. When property or equipment are disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in other income, net, in the accompanying Consolidated Statements of Operations.
Depreciation is computed using the straight line method over the estimated useful lives of the related assets, as follows:
|
|
|
|
|
|
|
|
Life (years)
|
Asset category
|
|
From
|
|
To
|
Machinery and equipment
|
|
2
|
|
5
|
Computer hardware and software
|
|
3
|
|
7
|
Leasehold improvements
|
|
1
|
|
10
|
Furniture and fixtures
|
|
3
|
|
15
|
Intangible Assets
Intangible assets that are determined to have definite lives are amortized over their useful lives. The Company recorded an impairment charge of
$0.1 million
during the year ended
December 31, 2014
. The Company did
no
t record any impairment charges for the years ended
December 31, 2016
and
2015
. (See Note 4,
Property and Equipment and Intangible Assets)
Impairment of Long-Lived Assets
Management evaluates its long-lived assets, such as property and equipment and other long-term assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may be impaired. Management takes into consideration events or changes such as product discontinuance, plant closures, product dispositions and history of operating losses or other changes in circumstances to indicate that the carrying amount may not be recoverable. The carrying value of an asset is considered impaired when the anticipated undiscounted cash flow from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair value. Fair value is determined using the anticipated cash flows discounted at a rate based on our weighted average cost of capital, which represents the blended after-tax costs of debt and equity. There was
no
impairment loss on long-lived assets during the
three years
ended
December 31, 2016
.
Fair Value of Financial Instruments
MRV's financial instruments including cash and cash equivalents, restricted time deposits, accounts receivable, other receivables included in other assets and accounts payable are carried at cost, which approximates their fair value. The fair values of accounts receivable and accounts payable approximate their carrying amounts due to their short-term nature.
The Company follows a framework for measuring fair value using a three-level hierarchy that prioritizes the use of observable inputs. The fair value hierarchy is divided into three levels based on the source of inputs as follows: Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 - Valuations for which all significant inputs are observable, either directly or indirectly, other than level 1 inputs for similar instruments; Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
All of MRV's financial assets and a majority of its financial liabilities that are measured at fair value are measured using the unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Under this framework, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Management has not elected the fair value option for non-financial assets and liabilities.
As of
December 31, 2015
, the Company had cash equivalents consisting of money market funds of
$1.8 million
that were classified as Level 1 investments and were held at market price. No such instruments were held as of
December 31, 2016
. Cash equivalents are included in the Consolidated Balance Sheets as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Fair Value
|
December 31, 2015
|
|
$
|
1,807
|
|
|
$
|
1,807
|
|
During 2014, the Company issued
250,000
Common Stock warrants that prior to issuance were recorded as a liability at fair value. These Common Stock warrants were awarded to a plaintiffs' counsel in connection with a previously settled litigation matter. Upon issuance, the carrying value of the Common Stock warrants was reclassified to equity as a component of additional paid in capital in the amount of
$1.6 million
. In calculating the fair value of the Common Stock warrants, management used the Black Scholes option pricing model including a volatility of
41%
based on the Company's historical quoted prices and peer company data, the risk free interest rate of
1.5%
and a
5
year expected term of the Common Stock warrants. Volatility was based on both the Company's historical quoted prices and peer company data as the Company's stock is thinly traded. The resulting calculated fair value was
$6.59
per warrant. As of the issuance date of Common Stock warrants, the requirements necessary for equity classification were met and were recorded as a component of additional paid in capital.
During the year ended
December 31, 2014
, one of plaintiffs' counsel exercised
152,500
Common Stock warrants under the 'cashless' exercise provisions contained within the warrant agreement, leaving
97,500
Common Stock warrants with an exercise price of
$8.80
per warrant still available for future exercise. No Common Stock warrants were exercised during the years ended
December 31, 2016
and
2015
. The Common Stock warrants expire on July 18, 2018.
Other Current Assets
Other current assets include other accounts receivable, prepaid expenses and other assets that will be consumed or collected within a twelve month period. Other current assets as of
December 31, 2016
, included pre-paid expenses of
$1.1 million
and
$1.3 million
of other receivables. Other current assets as of
December 31, 2015
included other accounts receivable of
$4.8 million
related to the post-closing purchase price adjustment on the sale of Tecnonet, prepaid expenses of
$1.2 million
and
$0.9
of other assets.
Liability for Severance Pay
Under the laws of certain foreign jurisdictions, MRV is obligated to make severance payments to employees in those foreign jurisdictions on the basis of factors such as each employee's current salary and length of employment. The liability for severance pay is calculated as the amount that the Company would be required to pay if every employee were to separate as of the end of the period, and is recorded as part of other long-term liabilities.
Cost of Sales
Cost of sales includes material, depreciation on fixed assets used in the manufacturing process, shipping costs, direct labor and overhead.
Product Development and Engineering
Product development and engineering costs are charged to expense as incurred.
Software Development Costs
Development costs related to software products for sale or to be included in our products are expensed as incurred until the technological feasibility of the product has been established. Technological feasibility occurs when a working model is completed. After technological feasibility is established, additional costs are capitalized. We believe that our process for internally developed software is essentially completed concurrent with the establishment of technological feasibility, and, accordingly,
no
software development costs for internally developed software have been capitalized to date.
Internal Use Software Development Costs
Any software that we acquire, internally develop, or modify solely to meet our internal needs, and for which we have no substantive plan to market the software externally, is capitalized during the development phase. Costs incurred during the research phase are expensed as incurred. There were no such costs capitalized during the years ended
December 31, 2016
,
2015
and
2014
.
Sales and Marketing
Sales and marketing costs are charged to expense as incurred. For the years ended
December 31, 2016
,
2015
and
2014
, advertising and trade show costs were
$0.6 million
,
$0.4 million
and
$0.9 million
, respectively.
Income Taxes
We account for income taxes using the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
We use a risk based approach and analysis to identify potential tax exposures, estimate those tax exposures, and record appropriate uncertain tax liabilities based on whether or not the tax position is more-likely-than-not to be sustained under examination. We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of operations if the sustainability of the uncertain tax position does not meet the "more likely than not" recognition threshold based on its technical merits. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average number of shares of common stock ("Common Stock") outstanding, including restricted shares which, although they are legally outstanding and have voting rights, are subject to vesting and are treated as Common Stock equivalents in calculating basic net income (loss) per share. Diluted net income (loss) per share is computed using the weighted average number of shares of Common Stock outstanding and dilutive potential shares of Common Stock from stock options and warrants outstanding during the period. Diluted shares outstanding include the dilutive effect of in-the-money options, which is calculated based on the average share price for each period using the treasury stock method.
Employee equity share options, non-vested shares and similar equity instruments granted by MRV, are treated as potential shares of Common Stock outstanding in computing diluted net income per share. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service not yet recognized, and the amount of income tax benefits that would be realized and recorded in additional paid-in capital if the deduction for the award would reduce income taxes payable are assumed to be used to repurchase shares.
Outstanding stock options to purchase
455,498
,
295,366
and
309,309
shares were excluded from the computation of dilutive shares for the years ended December 31,
2016
,
2015
and
2014
, respectively, as they were anti-dilutive because of the net loss from continuing operations. The outstanding
97,500
warrants were excluded from the computation of dilutive shares for the years ended December 31,
2016
,
2015
and
2014
as they were anti-dilutive because of the net loss from continuing operations. Treasury shares are excluded from the number of shares outstanding.
Share-Based Compensation
The Company accounts for stock-based payment awards at fair value at the grant date. The estimated fair value of stock options and warrants are determined using the Black-Scholes valuation model. The assumptions used in calculating the fair value of share-based payment awards represent MRV's best estimates. Those estimates may be impacted by certain variables including stock price volatility, employee stock option exercise behaviors, additional stock option grants, estimates of forfeitures, and the related income tax impact. Stock-based compensation cost is recorded as expense using the straight-line method over the requisite service period.
Recently Issued Accounting Standards Not Yet Adopted
We consider the applicability and impact of all Accounting Standards Updates (“ASUs”) not yet adopted. The ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.
In May 2014, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09") and in August 2015 issued ASU No. 2015-14, which amended the effective date of the standard to annual reporting periods beginning after December 15, 2017. ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. During 2016, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”); ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”); ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”); and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”). The Company must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 with ASU 2014-09 (collectively, the “new revenue standards”). Management is continuing to assess the potential impact that adopting the new revenue standards will have on its consolidated financial statements and footnote disclosures. The Company’s current analysis indicates that the most significant effect of the new standard relates to the Company's accounting for certain fulfillment and contract acquisition costs, which will now be capitalized, rather than expensed as incurred, which is the Company's current practice under the current guidance. In addition, the Company expects to continue recognizing product sales at a point in time and service revenue over time. While the Company continues its assessment of the potential effects of the new standard, management anticipates adopting the new standard on a modified retrospective basis effective January 1, 2018.
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory" (“ASU 2015-11”). ASU 2015-11 simplifies the guidance on the subsequent measurement of inventory, excluding inventory measured using the last-in, first out (LIFO), or the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value, and defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 will become effective for the Company for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. Management has determined that the adoption of ASU 2015-11 on January 1, 2017, will not have a significant impact on its consolidated financial statements and footnote disclosures.
In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"). The amendments in ASU 2015-17 simplify the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as non-current. ASU 2015-17 will become effective for the Company for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. Management has determined that the adoption of ASU 2015-17 on January 1, 2017, will not have a significant impact on its consolidated financial statements and footnote disclosures.
In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"). The amendments in ASU 2016-02 require companies that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations generated by contracts longer than a year. ASU 2016-02 will become effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The guidance is required to be applied using the modified retrospective transition approach. Early adoption is permitted. Management is currently evaluating the potential impact that adopting ASU 2016-02 will have on its condensed consolidated financial statements and footnote disclosures.
In March 2016, the FASB issued ASU No. 2016-09, "Stock Compensation (Topic 718): Improvements to employee Share-Based Payment Accounting" ("ASU 2016-09"). The amendments in ASU 2016-09 simplify the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 will become effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. Management has determined that the adoption of ASU 2016-09 on January 1, 2017, will not have a significant impact on its consolidated financial statements and footnote disclosures.
Use of Estimates
The preparation of these consolidated financial statements require management to make certain estimates, assumptions and judgments that can affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the periods presented. On an ongoing basis, management evaluates its significant estimates and assumptions, including those related to revenue recognition, stock-based compensation, inventory valuation, accrued warranty, allowance for doubtful accounts, and accounting for income taxes. Management bases its estimates on historical and anticipated results, trends and on various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ materially from those estimates. In 2016, the Company accounted for a change in estimate related to the useful lives of its service inventory resulting in a
$0.2 million
charge to cost of services and increasing net loss
$0.2 million
for the year ended December 31, 2016. The change in accounting estimate also affected the Company's basic and diluted net loss per share
$0.03
for the year ended December 31, 2016.
3. Discontinued Operations
On August 10, 2015, we announced that we entered into a shares purchase agreement (“the Purchase Agreement”) with Maticmind S.p.A., (the “Purchaser”), a company incorporated under the laws of Italy, for the sale of all of the shares of our wholly-owned subsidiary Tecnonet. The consideration for the transaction included a cash payment by the Purchaser to the Company of
€15.6 million
(approximately
$17.0 million
) at closing plus a cash payment by Tecnonet to the Company of
€4.1 million
(approximately
$4.6 million
) prior to closing to repay an outstanding intercompany obligation. Tecnonet procured third party debt financing and repaid the loan in full in
two
payments:
€1.5 million
was received during the quarter ended September 30, 2015, with the remaining amount received during October 2015. The Purchaser assumed this debt at closing pursuant to the Purchase Agreement. On December 1, 2015, the sale of Tecnonet was approved by the Company's stockholders at the Company's special meeting of stockholders. On December 3, 2015, the Company completed the sale of all of the shares of Tecnonet. On February 19, 2016, the Company received a payment of
€4.3 million
(approximately
$4.8 million
) representing the post-closing purchase price adjustment pursuant to the Purchase Agreement. The Purchase Agreement also contains customary representations, warranties, covenants and indemnification obligations.
The Company included the
$4.8 million
receivable representing the post-closing purchase price adjustment on its consolidated balance sheet within other current assets as of
December 31, 2015
.
In
2015
, the Company reported an after-tax gain on the sale of Tecnonet in the amount of
$0.2 million
. In addition, the Company recorded a cumulative translation loss
$2.2 million
and
$0.8 million
in transaction costs related to the sale, all of which are recorded within discontinued operations in
2015
. The
$2.2 million
of foreign currency related losses included
$1.0 million
of historical translation related adjustments previously included in accumulated other comprehensive income on the consolidated balance sheet and
$1.2 million
recognized loss on the intercompany obligation that was settled as part of the transaction.
The results of operations of Tecnonet for the years ended
December 31, 2015
and
2014
that are reflected in consolidated statements of operations as discontinued operations consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31:
|
|
2015
|
|
2014
|
|
|
|
|
|
Revenue:
|
|
|
|
|
Product revenue
|
|
$
|
32,315
|
|
|
$
|
47,649
|
|
Service revenue
|
|
30,274
|
|
|
37,869
|
|
Total revenue
|
|
62,589
|
|
|
85,518
|
|
Cost of Revenue:
|
|
|
|
|
Cost of product
|
|
28,472
|
|
|
42,883
|
|
Cost of services
|
|
24,181
|
|
|
29,458
|
|
Total cost of revenue
|
|
52,653
|
|
|
72,341
|
|
Gross profit
|
|
9,936
|
|
|
13,177
|
|
Selling, general and administrative
(1)
|
|
6,574
|
|
|
7,615
|
|
Operating income
|
|
3,362
|
|
|
5,562
|
|
Interest expense
|
|
(124
|
)
|
|
(305
|
)
|
Cumulative translation loss recognized upon sale of Tecnonet
|
|
(2,180
|
)
|
|
—
|
|
Other expense, net
|
|
(307
|
)
|
|
(444
|
)
|
Income from discontinued operations before income taxes
|
|
751
|
|
|
4,813
|
|
Provision for income taxes
|
|
1,311
|
|
|
2,430
|
|
Income (loss) from discontinued operations, net of tax
|
|
(560
|
)
|
|
2,383
|
|
Gain on sale of Tecnonet, net of tax
|
|
189
|
|
|
—
|
|
Net income (loss) from discontinued operations, net of income taxes
|
|
$
|
(371
|
)
|
|
$
|
2,383
|
|
(1) Includes Transaction costs of
$0.8 million
in 2015.
The assets and liabilities of Tecnonet were removed from our consolidated balance sheet as of the date of the divestiture.
4. Property and Equipment and Intangible Assets
Property and Equipment
Property and equipment, at cost, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
2016
|
|
2015
|
Machinery and equipment
|
|
$
|
9,026
|
|
|
$
|
8,557
|
|
Computer hardware and software
|
|
6,080
|
|
|
6,512
|
|
Leasehold improvements
|
|
2,041
|
|
|
2,406
|
|
Furniture and fixtures
|
|
382
|
|
|
438
|
|
Construction in progress
|
|
53
|
|
|
119
|
|
Total property and equipment, at cost
|
|
17,582
|
|
|
18,032
|
|
Less — accumulated depreciation and amortization
|
|
(14,452
|
)
|
|
(13,982
|
)
|
Total property and equipment
|
|
$
|
3,130
|
|
|
$
|
4,050
|
|
Depreciation expense for the years ended
December 31, 2016
,
2015
and
2014
was
$1.6 million
,
$1.9 million
and
$1.9 million
, respectively.
Intangible Assets
Intangible assets, net of amortization, consist of intellectual property such as license agreements and totaled
$1.1 million
and
$1.2 million
as of
December 31, 2016
and
2015
, respectively. The terms of the some of these license agreements provide for use of the licensed software into perpetuity while others are definite. The Company amortizes the cost of the license agreements over the estimated useful life, which can range between
three
to
five
years. A portion of these assets, approximating
$0.4 million
and
$0.7 million
, were placed into service during the years ended
December 31, 2016
and
2015
, respectively.
The following table illustrates the estimated future amortization expense of intangible assets as of
December 31, 2016
(in thousands):
|
|
|
|
|
|
Year ending December 31,
|
|
Estimated Amortization Expense
|
2017
|
|
$
|
305
|
|
2018
|
|
247
|
|
2019
|
|
247
|
|
2020
|
|
149
|
|
2021
|
|
110
|
|
Thereafter
|
|
6
|
|
Total
|
|
$
|
1,064
|
|
Amortization of intangible assets was
$0.3 million
,
$0.2 million
and
$0.1 million
for the years ended December 31, 2016, 2015 and 2014 respectively. The Company recorded an impairment charge of
$0.1 million
during the year ended December 31, 2014 on one of the software license agreements placed into service. The Company did not record any impairment charges related to intangible assets for the years ended December 31, 2016 and 2015. As of December 31, 2016, intangible assets not yet placed into service totaled approximately
$0.2 million
.
5. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
2016
|
|
2015
|
Payroll and related
|
|
$
|
5,552
|
|
|
$
|
6,514
|
|
Professional fees
|
|
1,185
|
|
|
1,284
|
|
Non-income taxes
|
|
489
|
|
|
483
|
|
Product warranty
|
|
587
|
|
|
593
|
|
Severance and other employee related costs
|
|
643
|
|
|
—
|
|
Other
|
|
739
|
|
|
1,098
|
|
Total accrued liabilities
|
|
$
|
9,195
|
|
|
$
|
9,972
|
|
6. Income Taxes
For financial reporting purposes, loss from continuing operations before provision for income taxes includes the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31:
|
|
2016
|
|
2015
|
|
2014
|
United States
|
|
$
|
(8,499
|
)
|
|
$
|
(3,308
|
)
|
|
$
|
(7,993
|
)
|
Foreign
|
|
(2,816
|
)
|
|
(629
|
)
|
|
(4,672
|
)
|
Loss from continuing operations before provision for income taxes
|
|
$
|
(11,315
|
)
|
|
$
|
(3,937
|
)
|
|
$
|
(12,665
|
)
|
The provision (benefit) for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31:
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
State
|
|
$
|
4
|
|
|
$
|
49
|
|
|
$
|
(89
|
)
|
Foreign
|
|
318
|
|
|
144
|
|
|
68
|
|
Total current
|
|
322
|
|
|
193
|
|
|
(21
|
)
|
Deferred:
|
|
|
|
|
|
|
Foreign
|
|
—
|
|
|
2,678
|
|
|
1,894
|
|
Total deferred
|
|
—
|
|
|
2,678
|
|
|
1,894
|
|
Provision for income taxes
|
|
$
|
322
|
|
|
$
|
2,871
|
|
|
$
|
1,873
|
|
The income tax provision differs from the amount computed by applying the federal statutory income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31:
|
|
2016
|
|
2015
|
|
2014
|
Income tax provision, at statutory federal rate
|
|
34
|
%
|
|
34
|
%
|
|
34
|
%
|
State and local income taxes, net of federal income taxes effect
|
|
3
|
|
|
4
|
|
|
3
|
|
Permanent differences
|
|
(1
|
)
|
|
(4
|
)
|
|
(1
|
)
|
Foreign taxes at rates different than domestic rates
|
|
(2
|
)
|
|
(1
|
)
|
|
(3
|
)
|
Expired capital loss carryforwards
|
|
—
|
|
|
(880
|
)
|
|
—
|
|
Change in tax rates
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
Change in valuation allowance
|
|
(23
|
)
|
|
775
|
|
|
(47
|
)
|
Other adjustments
|
|
(2
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Effective tax rate
|
|
(3
|
)%
|
|
(73
|
)%
|
|
(15
|
)%
|
The components of deferred income taxes consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
Net operating losses
|
|
$
|
92,176
|
|
|
$
|
91,893
|
|
Allowance for doubtful accounts
|
|
118
|
|
|
365
|
|
Inventory reserve
|
|
2,413
|
|
|
3,161
|
|
Accrued liabilities
|
|
2,397
|
|
|
2,794
|
|
Other
|
|
4,162
|
|
|
4,697
|
|
Total deferred tax assets
|
|
101,266
|
|
|
102,910
|
|
Valuation allowance
|
|
(100,810
|
)
|
|
(102,747
|
)
|
Net deferred tax assets
|
|
456
|
|
|
163
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Depreciation and amortization
|
|
(456
|
)
|
|
(163
|
)
|
Total deferred tax liabilities
|
|
(456
|
)
|
|
(163
|
)
|
Total deferred income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
MRV records valuation allowances against deferred income tax assets, when necessary. Realization of deferred income tax assets, such as net operating loss ("NOL") carryforwards and income tax credits, is dependent on future taxable earnings and is therefore uncertain. At least quarterly, the Company assesses the likelihood that the deferred income tax asset balance will be recovered from future taxable income. To the extent management believes that recovery is unlikely, the Company establishes a valuation allowance against the deferred income tax asset, which increases income tax expense in the period such determination is made. During the year ended December 31,
2016
, the Company recorded a net decrease to the valuation allowance totaling
$2.0 million
against deferred income tax assets primarily as a result of domestic and foreign net operating losses and changes in temporary differences.
The change in the valuation allowance is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of period
|
|
$
|
(103
|
)
|
|
$
|
(139
|
)
|
|
$
|
(133
|
)
|
(Increase) decrease in valuation allowance
|
|
2
|
|
|
36
|
|
|
(6
|
)
|
Balance at end of period
|
|
$
|
(101
|
)
|
|
$
|
(103
|
)
|
|
$
|
(139
|
)
|
As of
December 31, 2016
, MRV had federal, state, and foreign NOL carryforwards available of
$183.3 million
,
$112.0 million
and
$100.8 million
, respectively. For the year ended
December 31, 2016
, federal NOL carryforwards increased by
$0.8 million
, state net operating loss carryforwards increased by
$14.9 million
, and foreign NOL carryforwards increased by
$3.4 million
. For federal and state income tax purposes, the NOLs are available to offset future taxable income, begin expiring in 2017 and are available through 2036. Certain foreign NOL carryforwards and tax credits are available indefinitely. Under the Internal Revenue Code, if a corporation undergoes an "ownership change," the corporation's ability to use its pre-change NOLs, capital loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. An ownership change is generally defined as a greater than 50% change in its equity ownership by value over a three-year period. We may experience an ownership change in the future as a result of subsequent shifts in our stock ownership. If we were to trigger an ownership change in the future, our ability to use any NOLs and capital loss carryforwards existing at that time could be limited. As of December 31, 2016, the federal, state and foreign NOLs had a full valuation allowance.
MRV has not recorded U.S. income tax expense for foreign earnings that it has declared as indefinitely reinvested offshore, thus reducing its overall income tax expense. At
December 31, 2016
, MRV had approximately
$4.2 million
of accumulated but undistributed earnings at certain foreign entities. The amount of earnings designated as indefinitely reinvested offshore is based upon our expectations of the future cash needs of the Company's foreign and domestic entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be repatriated. In the event actual cash needs of the Company's U.S. entities exceed current expectations or the actual cash needs of the Company's foreign entities are less than expected, the Company may need to repatriate foreign earnings that have been designated as indefinitely reinvested offshore. This would result in recording additional U.S. income tax expense. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
During the year ended December 31, 2016, the Company reported a loss of
$11.3 million
from continuing operations before provision for income taxes. The Company recognized income tax expense of
$1.3 million
and
$2.4 million
for the years ended December 31, 2015 and 2014, respectively, with respect to its discontinued operations.
The Company or one of its subsidiaries files income tax returns in the US federal jurisdiction, and various state and foreign jurisdictions. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of period
|
|
$
|
(81
|
)
|
|
$
|
(100
|
)
|
|
$
|
(134
|
)
|
Reductions related to prior year positions
|
|
43
|
|
|
19
|
|
|
34
|
|
Balance at end of period
|
|
$
|
(38
|
)
|
|
$
|
(81
|
)
|
|
$
|
(100
|
)
|
Substantially all of the uncertain tax benefits as of
December 31, 2016
, if recognized, would affect the effective tax rate. The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The tax years 2002-2016 remain open to examination by the major taxing jurisdictions to which the Company is subject. Management does not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
7. Long-term liabilities
Long-term liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
2016
|
|
2015
|
Liability for social contribution
(1)
|
|
$
|
2,643
|
|
|
$
|
2,729
|
|
Long-term portion of deferred revenue
|
|
797
|
|
|
1,036
|
|
Other
|
|
38
|
|
|
81
|
|
Total Long-term liabilities
|
|
$
|
3,478
|
|
|
$
|
3,846
|
|
|
|
(1)
|
Represents statutory post-employment benefits related to Israeli operations.
|
8. 401(k) Plan
The Company sponsors a 401(k) plan to provide retirement benefits for its U.S. employees. As allowed under Section 401(k) of the Internal Revenue Code, MRV's plan provides for tax-deferred salary contributions for eligible employees. The Plan allows employees to contribute a portion of their annual compensation to the plan on a pretax basis. The Company currently matches pretax contributions up to
50%
of the first
6%
of eligible earnings contributed by employees. Matching contributions to the Plan totaled approximately
$521,000
,
$424,000
, and
$562,000
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
9. Commitments and Contingencies
Lease Commitments
MRV leases certain facilities and equipment under non-cancelable lease agreements expiring in various years through 2020. Following are the aggregate minimum annual lease payments under leases in effect as of
December 31, 2016
(in thousands):
|
|
|
|
|
|
Year ending December 31:
|
|
Operating leases
|
2017
|
|
$
|
984
|
|
2018
|
|
607
|
|
2019
|
|
400
|
|
2020
|
|
251
|
|
Total
|
|
$
|
2,242
|
|
Rental expense under non-cancelable operating lease agreements for the years ended
December 31, 2016
,
2015
and
2014
, was
$1.2 million
,
$1.0 million
and
$1.3 million
, respectively.
On June 30, 2005, the Company entered into a lease amendment as successor-in-interest to Luminent, Inc. for the lease of office and warehouse space located in Chatsworth, CA (Los Angeles area). In February 2017, the Company extended its current lease through March 31, 2019, with no option to extend the lease term. The remaining lease payments will approximate
$0.6 million
. (See Note 16,
Subsequent Events
)
On October 8, 1996, the Company entered into a lease amendment for the lease of office space located in Chatsworth, CA (Los Angeles area). The current term of the lease is for
10 years
through April 1, 2017, with no option to extend the lease term. Pursuant to the amendment, the Company was granted an improvement allowance of
$70,000
which is being amortized as a reduction to rent expense over the life of the lease. In August 2016, the Company vacated this facility in an effort to consolidate its two existing Chatsworth facilities. The remaining lease obligation of
$33 thousand
is recorded in accrued liabilities on the Consolidated Balance Sheets as of December 31, 2016. In January 2017, the Company accelerated the termination date of this lease amendment to January 31, 2017. (See Note 16,
Subsequent Events
)
On December 16, 2009, the Company entered into a lease amendment with Chelmsford Associates, LLC for the lease of office space located in Chelmsford, MA (Boston area). In April 2015, the Company extended the terms of its existing lease for
five years, six months
through August 31, 2020, with an option to extend the lease term for a
five
year period. The remaining lease payments over the current term will approximate
$1.2 million
. Pursuant to the lease, the Company was granted rent abatement of
$214,067
, which is being amortized as a reduction to rent expense over the life of the lease.
On August 9 2007, the Company entered into a lease with Mirobin Ltd. for the lease of office space located in Yokneam, Israel (Haifa area) through December 31, 2017, with no option to extend the lease term. The remaining lease payments over the current term will approximate
$0.4 million
.
Purchase Commitments with Outsourcing Partners and Component Suppliers
We utilize several outsourcing partners to manufacture sub-assemblies for the Company’s products and to perform final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to
150
days. The Company also obtains individual components for its products from a wide variety of individual suppliers. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. As of
December 31, 2016
, the Company had outstanding minimum future commitments for manufacturing and component purchases totaled
$14.2 million
.
The Company records a liability for firm, non-cancelable and unconditional purchase commitments for quantities in excess of its future demand forecasts. As of
December 31, 2016
and
December 31, 2015
, the liability for these purchase commitments was
$0.4 million
and
$0.2 million
, respectively, and is included in accounts payable on the consolidated balance sheets.
Royalty Commitment
Certain of MRV's Israeli subsidiaries are obligated to the Office of the Chief Scientist of the Government of Israel ("Chief Scientist") with respect to the government's participation in research and development expenses for certain products. The royalty to the Chief Scientist is recorded in cost of goods sold, and is calculated at a rate of
2.0%
to
5.0%
of sales of such products developed with the participation, up to the cost of such participation. We have reserved approximately
$243,000
against a disputed claim that was raised in 2005, though the last correspondence with the Chief Scientist on the matter occurred in 2008. Amounts received from the participation of the Chief Scientist are offset against the related research and development expenses incurred. MRV did not receive participation from the Chief Scientist for the years ended
December 31, 2016
,
2015
, and
2014
.
Indemnification Obligations
In connection with the sale by MRV of SPI in October 2010, MRV agreed to indemnify the buyer against certain claims brought after the closing for prior-occurring events. Most of the indemnification obligations have expired; however, indemnifications related to employee benefits, environmental liabilities and taxes extend until their applicable statute of limitations has run plus
90 days
, and indemnification obligations are not time limited for title and ownership representations. These indemnification obligations are subject to a
$1.0 million
deductible and a
$20.0 million
cap and we have purchased an insurance policy to protect against such obligations.
The Company has received a notice from SPI, advising the Company of a tax audit for periods including tax returns filed prior to the acquisition of SPI by the buyer. MRV believes that it has meritorious defenses to the extent a formal indemnification claim is asserted and has notified its insurer of the potential claim. MRV intends to vigorously contest any claim; however, no formal legal proceeding has been commenced, and MRV can provide no assurance that such claim would not have a material adverse effect on its business, operating results or financial condition.
Our agreements for the sale of certain business (CES in March 2012, Alcadon and Interdata in October 2012, and Tecnonet in December 2015) include customary indemnification obligations to the respective buyers.
In connection with the sale of CES, MRV agreed to indemnify the buyer for the representations and warranties made in the sale purchase agreement and purchased an insurance policy to protect against any claims of indemnification related to the representations and warranties.
In addition, the Company has indemnification obligations to its current and former officers and directors as set forth in the Company's bylaws. We have agreements whereby our officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we retain directors and officers insurance that reduces our exposure and enables us to recover portions of amounts paid. As a result of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal.
Accordingly,
no
liabilities have been recorded for these indemnification agreements as of
December 31, 2016
and
2015
.
In the normal course of business to facilitate sales of its products, MRV indemnifies other parties, including customers, lessors and parties to other transactions with us, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising from a breach of representation or covenants, for intellectual property infringement, or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim.
We cannot estimate the amount of potential future payments, if any, that it might be required to make as a result of these obligations. Over the last decade, the Company has not incurred any significant expense as a result of obligations of this type. Accordingly, the Company has not accrued any amounts for such indemnification obligations. However, there can be no assurances that expenses will not be incurred under these indemnification provisions in the future.
Litigation
We are subject to legal claims and litigation in the ordinary course of business, including but not limited to product liability, employment and intellectual property claims. The outcome of any such matters is currently not determinable. In addition, we were party to the litigation set forth below.
Nhan T. Vo, individually and on behalf of other aggrieved employees vs. MRV Communications, Inc., Superior Court of California, County of Los Angeles.
On June 27, 2013, the plaintiff in this matter filed a lawsuit against the Company alleging claims for failure to properly pay overtime or provide meal and rest breaks to its non-exempt employees in California, among other things. The complaint seeks an unspecified amount of damages and penalties under provisions of the Labor Code, including the Labor Code Private Attorneys General Act. The Company has filed an answer denying all allegations regarding the plaintiff’s claims and asserting various defenses. Management believes it has accrued adequate reserves for this matter and does not expect the matter to have a material adverse effect on its business or financial condition. However, depending on the actual outcome of this case, further provisions could be recorded in the future which may have a material adverse effect on the Company’s operating results.
In connection with the sale by MRV of SPI in October 2010, MRV agreed to indemnify the buyer against certain claims brought after the closing for prior-occurring events. The Company has received a notice from SPI, advising the Company of a tax audit for periods including tax returns filed prior to the acquisition of SPI by the buyer. Management believes that it has meritorious defenses to the extent a formal indemnification claim is asserted and has notified its insurer of the potential claim. MRV intends to vigorously contest any claim; however, no formal legal proceeding has been commenced, and MRV can provide no assurance that such claim would not have a material adverse effect on its business, operating results or financial condition.
From time to time, MRV receives notices from third parties alleging possible infringement of patents with respect to product features or manufacturing processes. Management believes such notices are common in the communications industry because of the large number of patents that have been filed on these subjects. The Company's policy is to discuss these notices with the parties in an effort to demonstrate that MRV's products and/or processes do not violate any patents. Management does not believe that any of these matters will result in a material adverse outcome.
MRV and its subsidiaries have from time to time been named as a defendant in other lawsuits involving matters that management considers routine to the nature of its business. Management is of the opinion that the ultimate resolution of such outstanding matters will not have a material adverse effect on our business, operating results and financial condition.
Cost Saving Measures and Asset Impairments
During the second half of fiscal 2016, the Company initiated cost saving measures intended to optimize its cost structure. These cost saving measures included consolidating facilities in Chatsworth, California which amounted to approximately
$0.2 million
, in addition to reductions in workforce which included one-time termination benefits of approximately
$1.6 million
. The costs of implementation were reported under cost of net revenues and operating expenses in the Consolidated Statements of Operations. Substantially all cash outlays in connection with these measures occurred in the third and fourth quarter of fiscal 2016.
As of December 31, 2016, activities related to these measures were substantially complete.
The changes in reserves associated with these measures for fiscal 2016 consisted of the following and are included in accrued liabilities on the accompanying Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Other employee related costs
|
|
Facility Closures and Asset impairments
|
Balance at January 1, 2016
|
|
$
|
—
|
|
|
$
|
—
|
|
Provision for cost saving measures
|
|
1,557
|
|
|
166
|
|
Cash payments made
|
|
(914
|
)
|
|
(63
|
)
|
Balance at December 31, 2016
|
|
$
|
643
|
|
|
$
|
103
|
|
10. Product Warranty
As of
December 31, 2016
and
2015
, MRV's product warranty liability recorded in accrued liabilities was
$0.6 million
. The following table summarizes the activity related to the product warranty liability (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
Cost of warranty claims
|
|
Accruals for product warranties
|
|
Balance at
end of
period
|
December 31, 2014
|
|
$
|
578
|
|
|
$
|
(17
|
)
|
|
$
|
55
|
|
|
$
|
616
|
|
December 31, 2015
|
|
$
|
616
|
|
|
$
|
—
|
|
|
$
|
(23
|
)
|
|
$
|
593
|
|
December 31, 2016
|
|
$
|
593
|
|
|
$
|
(72
|
)
|
|
$
|
66
|
|
|
$
|
587
|
|
MRV accrues for warranty costs as part of its cost of sales based on associated material product costs, technical support labor costs and associated overhead. The products sold are generally covered by a warranty for periods of
90 days
to
three years
.
11. Stockholders' Equity
Stock Repurchase Programs and Stock Repurchase
On August 15, 2013, the Company's Board of Directors terminated an existing stock repurchase plan and approved a replacement repurchase plan on substantially the same terms in an amount up to
$7.0 million
that expired on May 14, 2014. From August 15, 2013, through
December 31, 2014
, the Company repurchased
127,510
shares at a total cost of approximately
$1.3 million
.
No
additional shares were repurchased during year ended
December 31, 2014
, under this plan.
On December 16, 2014, the Company's Board of Directors approved a repurchase of shares of the Company's Common Stock in an amount up to
$8.0 million
under a share repurchase plan that expired in accordance with its terms on November 13, 2015. During the year ended
December 31, 2015
, the Company repurchased
502,077
shares at a total cost of approximately
$4.9 million
, excluding commission under this share repurchase plan.
On March 15, 2016, the Company's Board of Directors approved a repurchase of shares of the Company's Common Stock in an amount up to
$10.0 million
under a stock repurchase program scheduled to expire on March 10, 2017. On November 2, 2016, the Company's Board of Directors approved the termination of the Company's stock repurchase program. During the year ended
December 31, 2016
, the Company repurchased a total of
264,058
shares at a total cost of approximately
$2.7 million
, excluding commissions, under this stock repurchase program, leaving remaining authority to repurchase shares up to an additional
$7.3 million
, excluding commissions, under this stock repurchase program prior to its termination.
Equity Grants
MRV's equity plans provide for granting options, restricted stock or other forms of equity to purchase shares of MRV's Common Stock, to employees, directors and non-employees performing consulting or advisory services for the Company. Under these plans, stock options exercise prices generally equal the fair market value of MRV's Common Stock at the date of grant and restricted stock grants do not have exercise prices. The options generally vest over
one year
to
three years
with expiration dates of
ten years
from the date of grant and all outstanding restricted stock grants vest
one year
from the date of grant. The Company's 2015 Long Term Incentive Plan provides for granting options, restricted stock, and other forms of equity, and is at the discretion of the Board of Directors. As of
December 31, 2016
,
531,204
shares of Common Stock were available for future awards under the plan. (See Note 12,
Share-Based Compensation
)
Dividends
The payment of dividends on the Company's Common Stock is within the discretion of the Company's Board of Directors. The Board of Directors did not declare cash dividends during the years ended December 31, 2016, 2015 and 2014. The Board of Directors regularly evaluates its capital position to consider the return of cash to stockholders. The Board of Directors does not currently have plans to begin paying a regular dividend.
12. Share-Based Compensation
MRV records share-based compensation expense at fair value. The following table summarizes the impact on MRV's results of continuing operations of recording share-based compensation for the years ended
December 31, 2016
,
2015
and
2014
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31:
|
|
2016
|
|
2015
|
|
2014
|
Cost of goods sold
|
|
$
|
105
|
|
|
$
|
131
|
|
|
$
|
113
|
|
Product development and engineering
|
|
222
|
|
|
232
|
|
|
166
|
|
Selling, general and administrative
|
|
1,177
|
|
|
756
|
|
|
653
|
|
Total share-based compensation expense
(1)
|
|
$
|
1,504
|
|
|
$
|
1,119
|
|
|
$
|
932
|
|
|
|
(1)
|
Income tax benefits realized from stock option exercises and similar awards were immaterial in all periods.
|
Equity Incentive Plans
In May 2015, MRV's stockholders approved the 2015 Long Term Incentive Plan (LTIP) to replace MRV's outstanding equity compensation plan, the Omnibus Plan. Upon adoption of the 2015 Long Term Incentive Plan, no further shares were available for future grants of options or warrants under its predecessor plans including shares that become available as a consequence of the cancellation or forfeiture of outstanding options granted under such plans.
All stock options granted under the 2015 LTIP have a maximum contractual life of
ten
years from the date of the grant and typically vest over a period of
one
to
three
years from the date of the grant.
Share-Based Payment Awards
The Company granted
245,539
,
255,914
and
198,647
stock options during the years ended
December 31, 2016
,
2015
and
2014
, respectively, with the related average grant date fair value of
$4.89
,
$4.48
and
$6.95
per share, respectively. The Company granted restricted shares of
90,869
,
95,587
and
100,355
at average grant date fair values of
$10.95
,
$10.58
and
$13.91
per share during the years ended
December 31, 2016
,
2015
and
2014
, respectively. As of
December 31, 2016
, the total unrecognized share-based compensation balance for unvested securities, net of expected forfeitures, was
$2.0 million
, which is expected to be amortized over a weighted-average period of
1.8
years.
Stock Options
Valuation Assumptions
MRV uses the Black-Scholes option pricing model to estimate the fair value of stock option awards. The Black-Scholes model requires the use of subjective and complex assumptions including the option's expected life and the underlying stock price volatility. MRV bases volatility on the Company's historical quoted prices and peer company data. The expected term of options granted is based on the simplified method, using the mid-point between the vesting term and the original contractual term. The risk free interest rate is determined based on U.S. Treasury yields with equivalent remaining terms in effect at the time of the grant.
The following weighted average assumptions were used for estimating the fair value of options granted during the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31:
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
|
1.4
|
%
|
|
1.7
|
%
|
|
2.0
|
%
|
Dividend yield
(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
Volatility
|
|
46
|
%
|
|
43
|
%
|
|
50
|
%
|
Expected life (in years)
|
|
5.9
|
|
|
5.9
|
|
|
5.9
|
|
|
|
(1)
|
As the Company does not pay a dividend on a regular basis, and dividends paid in the past have been special in nature, a dividend rate of zero was used.
|
Share-Based Payment Award Activity
The following table summarizes option share-based payment award activity for the three-year period ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
under option
|
|
Weighted average
exercise price
|
|
Weighted average
remaining contractual term
(in years)
|
|
Aggregate
intrinsic value
|
Balance as of December 31, 2013
|
|
349,454
|
|
|
|
$
|
28.15
|
|
|
|
|
4.34
|
|
|
$
|
48,939
|
|
Granted
|
|
198,647
|
|
|
|
$
|
14.11
|
|
|
|
|
|
|
|
|
Exercised
|
|
(6,812
|
)
|
|
|
$
|
10.55
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(133,339
|
)
|
|
|
$
|
26.58
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
407,950
|
|
|
|
$
|
22.12
|
|
|
|
|
4.89
|
|
|
$
|
22,479
|
|
Granted
|
|
255,914
|
|
|
|
$
|
10.46
|
|
|
|
|
|
|
|
|
Exercised
|
|
(16,878
|
)
|
|
|
$
|
11.27
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(183,073
|
)
|
|
|
$
|
23.84
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
463,913
|
|
|
|
$
|
15.10
|
|
|
|
|
7.96
|
|
|
$
|
614,591
|
|
Granted
|
|
245,539
|
|
|
|
$
|
10.93
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(15,415
|
)
|
|
|
$
|
9.42
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(94,064
|
)
|
|
|
$
|
20.77
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
599,973
|
|
|
|
$
|
12.68
|
|
|
|
|
8.05
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest, December 31, 2016
|
|
544,232
|
|
|
|
$
|
12.86
|
|
|
|
|
7.94
|
|
|
$
|
—
|
|
Exercisable, December 31, 2016
|
|
219,956
|
|
|
|
$
|
15.57
|
|
|
|
|
6.48
|
|
|
$
|
—
|
|
The following table summarizes significant ranges of outstanding and exercisable options at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise prices
|
|
Options
outstanding
as of
December 31,
2016
|
|
Weighted
average
remaining
contractual
life (years)
|
|
Weighted
average
exercise
price
|
|
Options
exercisable
as of
December 31,
2016
|
|
Weighted
average
exercise
price of
exercisable
options
|
$9.10 - $9.20
|
|
21,998
|
|
|
6.86
|
|
$
|
9.12
|
|
|
18,609
|
|
|
$
|
9.10
|
|
$9.63 - $9.63
|
|
155,636
|
|
|
8.26
|
|
$
|
9.63
|
|
|
64,315
|
|
|
$
|
9.63
|
|
$9.72 - $10.55
|
|
14,007
|
|
|
5.59
|
|
$
|
10.06
|
|
|
12,675
|
|
|
$
|
10.09
|
|
$10.95 - $10.95
|
|
225,650
|
|
|
9.42
|
|
$
|
10.95
|
|
|
—
|
|
|
$
|
—
|
|
$12.12 - $13.40
|
|
63,416
|
|
|
8.38
|
|
$
|
12.78
|
|
|
30,086
|
|
|
$
|
12.94
|
|
$13.46 - $14.51
|
|
81,030
|
|
|
6.81
|
|
$
|
14.27
|
|
|
57,701
|
|
|
$
|
14.23
|
|
$16.80 - $27.60
|
|
19,461
|
|
|
4.75
|
|
$
|
23.79
|
|
|
17,795
|
|
|
$
|
24.18
|
|
$29.80 - $29.80
|
|
4,150
|
|
|
0.92
|
|
$
|
29.80
|
|
|
4,150
|
|
|
$
|
29.80
|
|
$32.00 - $32.00
|
|
1,200
|
|
|
1.33
|
|
$
|
32.00
|
|
|
1,200
|
|
|
$
|
32.00
|
|
$52.60 - $52.60
|
|
13,425
|
|
|
0.54
|
|
$
|
52.60
|
|
|
13,425
|
|
|
$
|
52.60
|
|
$9.10 - $52.60
|
|
599,973
|
|
|
8.05
|
|
$
|
12.68
|
|
|
219,956
|
|
|
$
|
15.57
|
|
Restricted Stock Awards
The Company accounts for the fair value of the restricted shares using the closing market price of the Company’s Common Stock on the date of grant.
The following table summarizes restricted stock award activity for the three-year period ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Awards
|
|
Weighted Average
Grant Date Fair Value Per Share
|
|
Aggregate
intrinsic value
|
Balance as of December 31, 2013
|
|
81,193
|
|
|
|
$
|
9.94
|
|
|
|
$
|
870,399
|
|
Granted
|
|
100,355
|
|
|
|
$
|
13.91
|
|
|
|
|
Released
|
|
(39,238
|
)
|
|
|
$
|
10.08
|
|
|
|
|
Canceled
|
|
(39,276
|
)
|
|
|
$
|
12.45
|
|
|
|
|
Balance as of December 31, 2014
|
|
103,034
|
|
|
|
$
|
12.80
|
|
|
|
$
|
1,023,128
|
|
Granted
|
|
95,587
|
|
|
|
$
|
10.58
|
|
|
|
|
Released
|
|
(41,136
|
)
|
|
|
$
|
12.58
|
|
|
|
|
Canceled
|
|
(14,306
|
)
|
|
|
$
|
12.79
|
|
|
|
|
Balance as of December 31, 2015
|
|
143,179
|
|
|
|
$
|
11.38
|
|
|
|
$
|
1,749,647
|
|
Granted
|
|
90,869
|
|
|
|
$
|
10.95
|
|
|
|
|
|
Released
|
|
(65,766
|
)
|
|
|
$
|
11.23
|
|
|
|
|
|
Canceled
|
|
(22,326
|
)
|
|
|
$
|
11.94
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
145,956
|
|
|
|
$
|
11.14
|
|
|
|
$
|
1,189,541
|
|
The following table summarizes certain stock option exercise and restricted share activity during the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31:
|
|
2016
|
|
2015
|
|
2014
|
Total intrinsic value of stock options exercised
|
|
$
|
34
|
|
|
$
|
42
|
|
|
$
|
17
|
|
Cash received from stock options exercised
|
|
$
|
145
|
|
|
$
|
190
|
|
|
$
|
72
|
|
Total value of restricted shares vested
|
|
$
|
697
|
|
|
$
|
380
|
|
|
$
|
525
|
|
13. Geographic Information
Following the completion of the sale of the Tecnonet business unit on December 3, 2015, MRV now has
one
reportable segment: Network Equipment.
The Network Equipment segment designs, manufactures, distributes and services optical networking solutions and Internet infrastructure products. Network Equipment revenue primarily consists of optical communication systems that include metro ethernet equipment, optical transport equipment, lab automation equipment, out-of-band network equipment, and the related service revenue and fiber optic components sold as part of system solutions.
Management evaluates reportable segment information pursuant to ASC 280, Segment Reporting. Based on this evaluation as of
December 31, 2016
, management has determined the Company operates as a single reportable segment.
Revenues:
The following table summarizes external revenue by geographic region (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31:
|
|
2016
|
|
% of revenue
|
|
2015
|
|
% of revenue
|
|
2014
|
|
% of revenue
|
United States
|
|
$
|
39,727
|
|
|
49
|
%
|
|
$
|
42,933
|
|
|
49
|
%
|
|
$
|
51,036
|
|
|
59
|
%
|
Americas (Excluding the U.S.)
|
|
8,250
|
|
|
10
|
%
|
|
6,828
|
|
|
8
|
%
|
|
1,507
|
|
|
2
|
%
|
Europe
|
|
14,531
|
|
|
18
|
%
|
|
19,463
|
|
|
22
|
%
|
|
20,478
|
|
|
24
|
%
|
Asia Pacific
|
|
17,807
|
|
|
23
|
%
|
|
18,975
|
|
|
21
|
%
|
|
13,517
|
|
|
15
|
%
|
Total
|
|
$
|
80,315
|
|
|
100
|
%
|
|
$
|
88,199
|
|
|
100
|
%
|
|
$
|
86,538
|
|
|
100
|
%
|
A significant percentage of the revenues generated in the Asia Pacific region are derived from Australia and accounted for
20%
,
18%
and
13%
of our consolidated revenue for the years ended
December 31, 2016
,
2015
and
2014
, respectively. Revenues generated in Europe and the Americas (excluding U.S.) did not reflect any significant individual country concentration for the years ended
December 31, 2016
,
2015
and
2014
.
Significant Customers:
Revenue from one customer accounted for
17%
,
19%
and
11%
of our consolidated revenue for the years ended
December 31, 2016
,
2015
and
2014
, respectively. As of
December 31, 2016
and
2015
, amounts due from this customer accounted for
11%
and
15%
of our consolidated gross accounts receivables, respectively. Revenue from another customer accounted for
12%
of our consolidated revenue for the years ended
December 31, 2016
,
2015
and
2014
. As of
December 31, 2016
and
2015
, amounts due from this customer accounted for
11%
and
5%
of our consolidated gross accounts receivables, respectively.
Long-lived Assets:
The following table summarizes long-lived assets, consisting of property and equipment, by geographic region (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
2016
|
|
2015
|
United States
|
|
$
|
2,336
|
|
|
$
|
2,808
|
|
Americas (Excluding the U.S.)
|
|
—
|
|
|
—
|
|
Europe
1
|
|
782
|
|
|
1,223
|
|
Asia Pacific
|
|
12
|
|
|
19
|
|
Total
|
|
$
|
3,130
|
|
|
$
|
4,050
|
|
(1) Includes Long-lived Assets held in Israel of
$0.8 million
and
$1.2 million
as December 31, 2015 and 2016, respectively.
14. Other Income (Expense), Net
Following is a summary of other income (expense), net (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31:
|
|
2016
|
|
2015
|
|
2014
|
Interest income
|
|
$
|
39
|
|
|
$
|
1
|
|
|
$
|
5
|
|
Gain (loss) on foreign currency transactions
|
|
(310
|
)
|
|
(133
|
)
|
|
441
|
|
Other (expense) income, net
|
|
5
|
|
|
84
|
|
|
225
|
|
Total
|
|
$
|
(266
|
)
|
|
$
|
(48
|
)
|
|
$
|
671
|
|
15. Quarterly Financial Data (Unaudited)
The following tables summarize MRV's Consolidated Statements of Operations for 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
March 31,
2016
|
|
June 30,
2016
|
|
September 30,
2016
|
|
December 31,
2016
|
Revenue
|
|
$
|
18,882
|
|
|
$
|
21,584
|
|
|
$
|
18,947
|
|
|
$
|
20,902
|
|
Cost of sales
|
|
9,079
|
|
|
11,513
|
|
|
9,981
|
|
|
10,636
|
|
Gross profit
|
|
9,803
|
|
|
10,071
|
|
|
8,966
|
|
|
10,266
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Product development and engineering
|
|
5,344
|
|
|
5,125
|
|
|
4,937
|
|
|
5,075
|
|
Selling, general and administrative
|
|
8,017
|
|
|
7,007
|
|
|
6,931
|
|
|
7,719
|
|
Total operating expenses
|
|
13,361
|
|
|
12,132
|
|
|
11,868
|
|
|
12,794
|
|
Operating loss
|
|
(3,558
|
)
|
|
(2,061
|
)
|
|
(2,902
|
)
|
|
(2,528
|
)
|
Other income (loss), net
|
|
(277
|
)
|
|
74
|
|
|
(180
|
)
|
|
117
|
|
Loss before provision for income taxes
|
|
(3,835
|
)
|
|
(1,987
|
)
|
|
(3,082
|
)
|
|
(2,411
|
)
|
Provision for income taxes
|
|
61
|
|
|
36
|
|
|
31
|
|
|
194
|
|
Net loss
|
|
$
|
(3,896
|
)
|
|
$
|
(2,023
|
)
|
|
$
|
(3,113
|
)
|
|
$
|
(2,605
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share — basic and diluted
|
|
$
|
(0.56
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.38
|
)
|
Basic and diluted weighted average shares
|
|
6,981
|
|
|
7,092
|
|
|
6,868
|
|
|
6,808
|
|
The above table includes adjustments to revenue for the quarters ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016 in the amounts of
$0.3 million
,
$0.4 million
,
$0.3 million
and
$0.5 million
, respectively, related to the reversing of an excess accrual for future product discounts upon the expiration of a customer contract.
The following tables summarize MRV's Consolidated Statements of Operations for 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
March 31,
2015
|
|
June 30,
2015
|
|
September 30,
2015
|
|
December 31,
2015
|
Revenue
|
|
$
|
22,185
|
|
|
$
|
24,519
|
|
|
$
|
22,933
|
|
|
$
|
18,562
|
|
Cost of sales
|
|
10,641
|
|
|
12,560
|
|
|
10,819
|
|
|
8,599
|
|
Gross profit
|
|
11,544
|
|
|
11,959
|
|
|
12,114
|
|
|
9,963
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Product development and engineering
|
|
5,125
|
|
|
5,310
|
|
|
4,901
|
|
|
5,112
|
|
Selling, general and administrative
|
|
7,736
|
|
|
7,379
|
|
|
7,281
|
|
|
6,570
|
|
Total operating expenses
|
|
12,861
|
|
|
12,689
|
|
|
12,182
|
|
|
11,682
|
|
Operating loss
|
|
(1,317
|
)
|
|
(730
|
)
|
|
(68
|
)
|
|
(1,719
|
)
|
Interest expense
|
|
(14
|
)
|
|
(22
|
)
|
|
(11
|
)
|
|
(8
|
)
|
Other income (loss), net
|
|
81
|
|
|
(296
|
)
|
|
188
|
|
|
(21
|
)
|
Income (loss) from continuing operations before provision for income taxes
|
|
(1,250
|
)
|
|
(1,048
|
)
|
|
109
|
|
|
(1,748
|
)
|
Provision (benefit) for income taxes
|
|
50
|
|
|
77
|
|
|
(39
|
)
|
|
2,783
|
|
Income (loss) from continuing operations
|
|
(1,300
|
)
|
|
(1,125
|
)
|
|
148
|
|
|
(4,531
|
)
|
Gain (loss) from discontinued operations
|
|
232
|
|
|
844
|
|
|
738
|
|
|
(2,185
|
)
|
Net income (loss)
|
|
$
|
(1,068
|
)
|
|
$
|
(281
|
)
|
|
$
|
886
|
|
|
$
|
(6,716
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share — basic
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
(0.18
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.65
|
)
|
From discontinued operations
|
|
0.03
|
|
|
0.12
|
|
|
0.11
|
|
|
(0.31
|
)
|
Net income (loss) per share — basic
|
|
$
|
(0.15
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.96
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share — diluted
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
(0.18
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.65
|
)
|
From discontinued operations
|
|
0.03
|
|
|
0.12
|
|
|
0.11
|
|
|
(0.31
|
)
|
Net income (loss) per share — diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.96
|
)
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
7,131
|
|
|
6,988
|
|
|
6,978
|
|
|
6,980
|
|
Diluted weighted average shares
|
|
7,131
|
|
|
6,988
|
|
|
7,014
|
|
|
6,980
|
|
The above table includes a
$2.6 million
increase in the provision for income taxes for the three months ended December 31, 2015 related to an increase in the Company's valuation allowance on deferred tax assets. (See Note 6,
Income Taxes
).
16. Subsequent Events
On January 9, 2017, the Company entered into an agreement to accelerate the termination date of its existing lease amendment for office space (Fulbright building) in Chatsworth, California (Los Angeles area) to January 31, 2017. The original lease term included an expiration date of March 31, 2017, and would have required remaining lease payments in the amount
$0.1 million
. This facility had remained idle since August 2016 when the Company consolidated its
two
existing Chatsworth facilities.
On February 1, 2017, the Company entered into an agreement to extend its current lease of office and warehouse space (Mason building) located in Chatsworth, California (Los Angeles area) through March 31, 2019, with no option to extend the lease term. The remaining lease payments will approximate
$0.6 million
.