1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A (Amendment No. 1 to Current Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934) Date of Report January 5, 1998 Commission File No. 0-25826 HARMONIC LIGHTWAVES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 77-0201147 (State of incorporation) (I.R.S. Employer Identification No.) 549 Baltic Way Sunnyvale, CA 94089 (408) 542-2500 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) -------------- The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report on Form 8-K dated January 5, 1998 as set forth in the pages attached hereto. ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS The following financial statements, pro forma financial information and exhibits are filed as part of this report. (a) Financial statements of business acquired: o Report of Independent Public Accountants. o Consolidated Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996. o Consolidated Statements of Operations for the nine month period ended September 30, 1997 (unaudited), and for the eleven month period ended December 31, 1996. o Consolidated Statements of Changes in Shareholders' (Deficit) Equity for the nine months ended September 30, 1997 (unaudited) and for the eleven month period ended December 31, 1996. o Consolidated Statements of Cash Flows for the nine month period ended September 30, 1997 (unaudited), and for the eleven month period ended December 31, 1996. o Notes to Consolidated Financial Statements. 2 (b) Pro forma financial information required: Pro forma Combined Condensed Consolidated Balance Sheet as of September 26, 1997 with respect to Registrant and September 30, 1997 with respect to N.M. New Media Communication Ltd. ("NMC"), a corporation organized under the laws of the State of Israel. Pro forma Condensed Consolidated Statement of Operations for the nine months ended September 26, 1997 with respect to Registrant and the nine months ended September 30, 1997 with respect to NMC, and the year ended December 31, 1996. (c) Exhibits. EXHIBITS 2.1 Stock Purchase Agreement (the "Purchase Agreement") dated as of September 16, 1997, among Registrant, NMC and the Sellers, including Exhibit 2.4 (a) (iv) attached thereto. Previously filed. 2.2 First Amendment to Stock Purchase Agreement dated November 25, 1997 among Registrant, NMC and the Sellers. Previously filed. 20.1 Press Release dated September 16, 1997, announcing the signing of the Purchase Agreement. Previously filed. 23.1 Consent of Independent Public Accountants. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned, hereunto duly authorized. Harmonic Lightwaves, Inc. Dated: March 23, 1998 By: /s/ROBIN N. DICKSON ----------------------------------------- Robin N. Dickson, Chief Financial Officer 2 3 IBDO ALMAGOR & Co. CPA (ISR) 7 Abba Hillel Rd. P.O. Box 3600 Zip 52134, Ramat-Gan, Israel Tel: 972-3-5760606 Fax: 972-3-5754671 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF N.M. NEW MEDIA COMMUNICATION LTD. We have audited the accompanying balance sheet of N. M. NEW MEDIA COMMUNICATION LTD. ("the Company") at December 31, 1996 and the consolidated balance sheet as at that date, the statement of operations, statement of changes in shareholders' equity and the statement of cash flows - of the Company and consolidated - for the eleven month period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards, including those prescribed by the Auditors' (Mode of Performance) Regulations (Israel), 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether it derives from an error in the financial statements or from a misrepresentation included therein. An audit also includes assessing the accounting principles used and significant estimates made by the 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 aforementioned financial statements, present fairly, in all material respects, the financial position -- of the Company and consolidated - at December 31, 1996 and the results of operations, changes in shareholders' equity and cash flows - of the Company and consolidated - for the eleven-month period ended December 31, 1996 in conformity with accounting principles generally accepted in the United States. IBDO ALMAGOR CO. CERTIFIED PUBLIC ACCOUNTANTS Ramat-Gan, Israel May 28, 1997 3 4 N.M. NEW MEDIA COMMUNICATION LTD. BALANCE SHEET (IN U.S. DOLLARS) The accompanying notes are an integral part of these financial statements. 4
SEPTEMBER 30, 1997 AS AT DECEMBER 31, 1996 ------------------ -------------------------------- CONSOLIDATED CONSOLIDATED COMPANY ------------ ------------ ------------ (UNAUDITED) ASSETS CURRENT ASSETS (Note 3) Cash and cash equivalents 25,668 362,062 362,062 Trade receivables 179,249 87,500 87,500 Other receivables and prepaid expenses 108,372 147,063 310,572 Payments on account of software license 517,480 466,680 -- Payments on account of supplier 451,854 -- -- Inventories 273,831 132,878 -- ------------ ------------ ------------ 1,556,454 1,196,183 760,134 ------------ ------------ ------------ INVESTMENTS Investment in consolidated subsidiary (Note 4) -- -- 11,852 Long-term loan (Note 5) 9,347 23,767 23,767 ------------ ------------ ------------ 9,347 23,767 35,619 ------------ ------------ ------------ PROPERTY AND EQUIPMENT (Note 6) Cost 277,425 145,987 145,987 Less - Accumulated depreciation (44,341) (10,960) (10,960) ------------ ------------ ------------ 233,085 135,027 135,027 ------------ ------------ ------------ 1,798,886 1,354,977 930,780 ============ ============ ============ 5 N.M. NEW MEDIA COMMUNICATION LTD. BALANCE SHEET (IN U. S. DOLLARS) The accompanying notes are an integral part of these financial statements. 5
SEPTEMBER 30, 1997 AS AT DECEMBER 31, 1996 ------------------ -------------------------------- CONSOLIDATED CONSOLIDATED COMPANY ------------ ------------ ------------ (UNAUDITED) LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES (Note 7) Short-term credits from banks 249,547 36,191 33,064 Payables: Trade 225,701 464,399 43,329 Advanced payment from customer 355,631 -- -- Other and accrued expenses 92,712 57,958 57,958 ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 923,591 558,548 134,351 ------------ ------------ ------------ LONG-TERM LOANS (Note 8) 1,048,594 349,250 349,250 OTHER LIABILITIES 42,201 -- -- ------------ ------------ ------------ COMMITMENTS (Note 9) SHAREHOLDERS' (DEFICIT) EQUITY Share capital (Note 10) 470 447 447 Additional paid-in capital 1,670,186 890,906 890,906 Accumulated deficit (1,886,156) (444,174) (444,174) ------------ ------------ ------------ TOTAL SHAREHOLDERS' (DEFICIT) EQUITY (215,500) 447,179 447,179 ------------ ------------ ------------ 1,798,886 1,354,977 930,780 ============ ============ ============ 6 N.M. NEW MEDIA COMMUNICATION LTD. STATEMENT OF OPERATIONS (IN U.S. DOLLARS) The accompanying notes are an integral part of these financial statements. 6
ELEVEN MONTHS ENDED NINE MONTHS ENDED EIGHT MONTHS ENDED DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 -------------------------------- CONSOLIDATED CONSOLIDATED CONSOLIDATED COMPANY ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) Revenues from system sales (Note 12a) 593,289 149,405 318,392 235,508 Cost of production of systems (Note 12b) 188,416 133,400 117,741 87,568 ------------ ------------ ------------ ------------ GROSS PROFIT 404,873 16,005 200,651 147,940 ------------ ------------ ------------ ------------ Research and development expenses (Note 12c) 279,699 -- 112,328 112,328 Marketing and selling expenses (Note 12d) 917,567 89,493 296,779 288,577 General and administrative expenses (Note 12e) 577,835 224,852 223,058 177,918 ------------ ------------ ------------ ------------ 1,775,101 314,345 632,165 578,823 ------------ ------------ ------------ ------------ OPERATING LOSS BEFORE FINANCIAL EXPENSES, NET (1,370,227) (298,340) (431,514) (430,883) Financial expenses, net (Note 12f) 73,903 (8,640) 12,660 24,820 ------------ ------------ ------------ ------------ OPERATING LOSS (1,444,130) (306,980) (444,174) (455,703) Company's share in income of consolidated subsidiary -- -- -- 11,529 ------------ ------------ ------------ ------------ NET LOSS FOR THE PERIOD (1,444,130) (306,980) (444,174) (444,174) =========== ============= ============ ============ LOSS PER SHARE DATA: (Note 2j) Loss per share (992) 230 (415) (415) ============ ============= ============ ============ Weighted average number of shares used in computation 1,456 415 1,070 1,070 ============ ============= ============= ============ 7 N.M. NEW MEDIA COMMUNICATION LTD. STATEMENT OF CASH FLOWS (IN U.S. DOLLARS) The accompanying notes are an integral part of these financial statements. 7
ELEVEN MONTHS ENDED NINE MONTHS ENDED EIGHT MONTHS ENDED DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 -------------------------------- CONSOLIDATED CONSOLIDATED CONSOLIDATED COMPANY ------------ ------------ ------------ ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Loss for the period (1,444,130) (306,980) (444,174) (444,174) Adjustments to reconcile loss for the period to net cash used in operating activities (471,257) (271,251) (294,845) (291,395) ------------ ------------ ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (1,915,387) (578,231) (739,019) (735,569) ------------ ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Grant of long-term loan -- (34,077) (31,377) (31,377) Repayment of long-term loans 13,027 141,642 7,746 7,746 Investment in consolidated subsidiary -- -- -- (323) Investment in property and equipment (132,147) 3,415 (145,987) (145,987) ------------ ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (119,121) (172,304) (169,618) (169,941) ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issue of shares 783,615 430,437 891,353 891,353 Receipt of long-term loans from shareholder 696,614 325,807 298,198 298,198 Receipt of long-term bank loans 18,654 63,681 58,730 58,730 Repayment of long-term bank loans (8,764) (910) (3,329) (3,329) Short-term credit, net 207,996 228,329 25,747 22,620 ------------ ------------ ------------ ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,698,114 1,047,344 1,270,699 1,267,572 ------------ ------------ ------------ ------------- NET (DECREASE) INCREASE IN CASH AND CASE EQUIVALENTS (336,394) 296,810 362,062 362,062 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 362,062 -- -- -- ------------ ------------ ------------ ------------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 25,668 296,810 362,062 362,062 ============ ============ ============ ============= 8 N.M. NEW MEDIA COMMUNICATION LTD. STATEMENT OF CASH FLOWS (IN U.S. DOLLARS) The accompanying notes are an integral part of these financial statements. 8
NINE MONTHS ENDED EIGHT MONTHS ENDED DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 -------------------------------- CONSOLIDATED CONSOLIDATED CONSOLIDATED COMPANY ------------ ------------ ------------ ----------- (UNAUDITED) Appendix - Adjustments to reconcile loss for the period to net cash used in operating activities INCOME AND EXPENSES NOT INVOLVING CASH FLOWS: Depreciation 33,437 4,214 10,960 10,960 Company's share in income of consolidated subsidiary -- -- -- (11,529) Erosion of long-term loans granted 1,278 249 (137) (137) Increase in value of long-term loans received (4,589) -- 6,096 6,096 Interest accrued on long-term loan 2,903 -- -- -- ------------ ------------ ------------ ----------- 33,028 4,463 16,919 5,390 ------------ ------------ ------------ ----------- CHANGES IN ASSETS AND LIABILITIES: Increase in trade receivables (91,749) (108,494) (87,500) (87,500) Decrease (increase) in other receivables 37,183 (49,854) (147,063) (310,572) Increase in payments on account of software licenses (50,800) (201,773) (466,680) -- Increase in payments on account of supplier (451,854) (451,854) -- -- Increase in inventories (140,953) (84,634) (132,878) -- Increase in trade payables (238,698) 87,239 464,399 43,329 Increase in payment from customer 355,631 -- -- -- Increase in other payables 34,754 81,802 57,958 57,958 Increase in other liabilities 42,201 -- -- -- ------------ ------------ ------------ ------------ (504,285) 275,714 (311,764) (296,785) ------------ ------------ ------------ ------------ (471,257) (271,251) (294,845) (291,395) ============ ============ ============ ============ 9 N.M. NEW MEDIA COMMUNICATION LTD. STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY (IN U.S. DOLLARS) The accompanying notes are an integral part of these financial statements. 9
ADDITIONAL TOTAL SHARE PAID-IN ACCUMULATED SHAREHOLDERS' CAPITAL CAPITAL DEFICIT EQUITY --------- --------- --------- --------- MOVEMENT IN THE ELEVEN-MONTH PERIOD ENDED DECEMBER 31, 1996: Issue of shares 447 -- -- 447 Issue of shares (net of issue expenses) -- 890,906 -- 890,906 Loss for the period -- -- (447,174) (444,174) --------- --------- --------- --------- BALANCE AS AT DECEMBER 31, 1996 447 890,906 (444,174) 447,179 - ----------------------------------- ========= ========= ========= ========= Issue of shares (Unaudited) 23 -- -- 23 Issue of shares net of issue expenses (Unaudited) -- 779,280 -- 779,280 Loss for the period (Unaudited) (1,444,130) (1,444,130) Currency translation (Unaudited) -- -- 2,148 2,148 BALANCE AS AT SEPTEMBER 30, 1997 470 1,670,186 (1,886,156) (215,500) - ----------------------------------- ========= ========= ========= ========= 10 N.M. NEW MEDIA COMMUNICATION LTD. NOTES TO FINANCIAL STATEMENTS NOTE 1 - GENERAL a. The Company was incorporated and commenced operations on February 12, 1996. The Company is engaged in the development, marketing and sale of solutions for data transfer by cable or satellite, the sale and supply of applications and the provision of related services. b. REPORTING CURRENCY These financial statements have been prepared in U.S. dollars ("dollar"). The currency of the primary economic environment in which the operations of the Company are conducted is the dollar. Thus, the dollar is the functional currency of the Company. c. DEFINITIONS THE COMPANY - N.M. NEW MEDIA COMMUNICATION LTD. THE GROUP - the Company and its consolidated subsidiary, N.M. TECHNOLOGIES, LTD. THE PARENT COMPANY - N.M. NEW MEDIA ENTERTAINMENT LTD. RELATED PARTIES - as defined in Opinion No. 29 of the Institute of Certified Public Accountants in Israel, including interested party as defined in the Securities Law, 1968. Transactions with related parties are presented in Note 12g. NOTE 2 - SIGNIFICANT ACCOUNTING PRINCIPLES a. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements include the financial statements of the company and a company in which the Company holds 100% of the control and ownership therein. Material inter-company balances transactions have been eliminated on consolidation. The consolidated financial statements have been prepared on the basis of the audited financial statements of the consolidated subsidiary at the balance sheet date. In the opinion of the Company, unaudited statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of results for the interim period. b. RATE OF EXCHANGE AND LINKAGE TERMS Balances linked to the Israeli consumer price index ("C.P.I.") are presented according to the index for calculating the corresponding balance. Monetary balances in, or linked to, foreign currency are presented at the representative exchange rates at the balance sheet date. Information on the Israeli C.P.I. and the exchange rate of the dollar is as follows: 10 11 c. CASH EQUIVALENTS Cash equivalents include liquid deposits, the original maturity date of which was not more than three months. d. INVENTORY Inventory is stated at the lower of cost or market value. The cost was determined by the "first-in-first-out" method. e. INVESTMENTS IN CONSOLIDATED SUBSIDIARY The investment in a subsidiary's shares is presented on equity basis. f. FIXED ASSETS Fixed assets are presented at cost less accumulated depreciation and amortization. Depreciation is calculated by the straight-line method, at annual rates calculated as sufficient to write off the assets over their estimated useful lives. Rates of depreciation and amortization are as follows:
DECEMBER 31, 1996 ----------------- Dollar 3.251 Israeli C.P.I. 143.1 PERCENTAGE CHANGES DURING THE PERIOD: Dollar 4.3% Israeli C.P.I. 8.66% g. RECOGNITION OF REVENUE FROM SYSTEMS SALES The Company recognizes revenues from system sales on shipment to the customer. Demonstration models for which the customer acceptance has not been received, are not recognized as a sale. h. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses are charged to the statement of operations as they arise. i. DEFERRED INCOME TAXES Deferred income taxes are provided for temporary differences between the assets and liabilities, as measured in the financial statements, and for tax purposes at the tax rates expected to be in effect when these differences reverse, in accordance with Statement 109 of the FASB (Accounting for Income Taxes). 11
% --- Motor vehicles 15 Office furniture and equipment 7 - 25 (Mainly - 25%) Machinery and equipment 25 12 j. LOSS PER SHARE Loss per share is computed for NIS 1 of share capital on the basis of the weighted average share capital outstanding during the period. NOTE 3 - SUPPLEMENTARY INFORMATION ON CURRENT ASSETS
DECEMBER 31, 1996 --------------------------- CONSOLIDATED COMPANY ------------ ------- US$ US$ ---------- ---------- a. CASH AND CASH EQUIVALENTS Cash 2,062 2,062 Cash equivalents (see d1 below) 360,000 360,000 ---------- ---------- 362,062 362,062 ========== ========== b. OTHER RECEIVABLES AND PREPAID EXPENSES Prepaid expenses 33,436 33,436 Value added tax 66,129 66,129 Parent company (see d2 below) 23,153 23,153 Subsidiary (see d2 below) -- 163,509 Interested party (see d2 below) 6,504 6,504 Income tax payments 1,981 1,981 Other 15,860 15,860 ---------- ---------- 147,063 310,572 ========== ========== d. ADDITIONAL INFORMATION 1. Cash equivalents include bank deposits linked to the dollar, bearing weighted annual interest of 4%. 2. The balances of the parent company, a subsidiary and an related party are linked to the Israeli C.P.I. and are non-interest bearing. The highest debit balances during the period were US$ 23 thousand, US$ 164 thousand and US$ 32 thousand, respectively. 3. Disclosure and presentation of financial instruments - see Note 14. 12
SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------ --------------------------- CONSOLIDATED CONSOLIDATED COMPANY ------------------ ------------ ---------- US$ US$ US$ ------------------ ------------ ---------- (UNAUDITED) c. INVENTORY Systems 273,831 76,239 -- Packing materials -- 6,639 -- Payment on account of system components (see Note 9h) -- 50,000 -- ---------- ---------- ---------- 273,831 132,878 -- ========== ========== ========== 13 NOTE 4 - INVESTMENT IN SUBSIDIARY a. COMPRISED AS FOLLOWS (Company only) b. ADDITIONAL INFORMATION On February 14, 1996, the Company established a wholly-owned subsidiary by the name of New Media Technologies, Ltd., which is engaged in the purchase and construction of digital data transfer systems through the use of cables, called "Cyber-City". NOTE 5 - LONG-TERM LOAN The loan which was made to an related party, is linked to the Israeli C.P.I., is non-interest bearing and is repayable in monthly installments of US$ 1.5 thousand per month. NOTE 6 - FIXED ASSETS a. COMPRISED AS FOLLOWS (Company and consolidated)
DECEMBER 31, 1996 US$ ---------- Shares - Cost 323 Company's share in post-acquisition results 11,529 ---------- 11,852 ========== b. LIENS - see Note 11. 13
DECEMBER 31, 1996 -------------------------------------------- ACCUMULATED NET BOOK COST DEPRECIATION VALUE ---- ------------ ----- US$ US$ US$ ---------- ---------- ---------- Furniture and equipment 38,846 4,035 34,811 Research and development equipment 33,794 3,196 30,598 Motor vehicles 73,347 3,729 69,618 ---------- ---------- ---------- 145,987 10,960 135,027 ========== ========== ========== 14 NOTE 7 - SUPPLEMENTARY INFORMATION ON CURRENT LIABILITIES c. ADDITIONAL INFORMATION 1. The balance of the bank overdraft is unlinked and bears weighted annual interest of 20%. 2. The balance of the current maturities of long-term loans are linked to the Israeli C.P.I. and bear weighted annual interest of 6.75%. 3. The related party balance is linked to the Israeli C.P.I. and is non-interest bearing. 4. Disclosure and presentation of financial instruments - see Note 14. d. SECURITIES - see Note 11. 14
DECEMBER 31, 1996 --------------------------- CONSOLIDATED COMPANY ------------ ------- US$ US$ ---------- ---------- a. SHORT-TERM BANK CREDIT BANKS - Overdraft (see c1 below) 25,747 22,620 Current maturities of long-term loans (see c2 below) 10,444 10,444 ---------- ---------- 36,191 33,064 ========== ========== b. OTHER PAYABLES AND ACCRUED EXPENSES Salaries and related accruals 44,102 44,102 Other accrued expenses 10,176 10,176 Interested parties (see c3 below) 3,680 3,680 ---------- ---------- 57,958 57,958 ========== ========== 15 NOTE 8 - LONG-TERM LOANS b. LINKAGE TERMS AND INTEREST RATES The debt is linked to the Israeli C.P. I. The debt from related parties are non-interest bearing. The bank debt bears annual interest of 6.75%. c. MATURITY DATES
DECEMBER 31, 1996 US$ ------------ a. COMPRISED AS FOLLOWS (Company and consolidated) Related parties 304,860 Banks 54,834 Less - current maturities (10,444) ------------ 44,390 349,250 ============ d. SECURITIES - see Note 11. NOTE 9 - COMMITMENTS a. On March 12, 1996, the Company signed an agreement with the parent company and IES Electronic Industries Ltd., ("IES"), whereby shares constituting a 25.1% holding in the Company were issued to IES for US$ 400 thousand. Pursuant to the agreement, IES loaned the Company US$ 300 thousand (see Note 8 above). Subsequent to the balance sheet date, IES loaned the Company a further US$ 200 thousand. In addition it was provided that the Company, would appropriate, each year, 25% of its distributable earnings to repaying the abovementioned loans. 15
DECEMBER 31, 1996 ----------------- US$ ------------ Banks - First year (current maturities) 10,444 Second year 11,118 Third year 11,833 Fourth year 12,595 Fifth year and thereafter 8,844 ------------ 44,390 54,834 Related parties - maturity date not determined 304,860 ------------ 359,694 ============ 16 Furthermore, it was provided in the said agreement with I.E.S., that the Company would order hardware from Combox Ltd. ("Combox"), a company under the control of IES. On December 25, 1996, an agreement was signed by the subsidiary and Combox, whereby Combox would supply at no cost demonstration systems in the value of US$ 200 thousand. b. On March 12, 1996, the Company signed an employment agreement with the Company's general manger, pursuant to which the latter would receive monthly salary at a total cost to Company of US$ 9 thousand. The salary is linked to the Israeli C.P.I. and increased in real terms by 10% in the first year of employment. As well as salary, the general manager is entitled to an annual bonus of 5% of the Company's annual pre-tax income of an amount between US$ 300 thousand US$ 1 million, 3% of the annual pre-tax income of an amount between US$ 1 million and US$ 2 million and 2% of the annual pre-tax income of an amount above US$ 2 million. Furthermore, it was agreed that the annual bonus would not be paid after the Company issues its shares to the public. The term of the agreement is two years with an option to extend the agreement further without limit. The Company may terminate the agreement and dismiss the general manager with six months' advance notice and the general manager may terminate the agreement and resign with three months' advance notice. c. On March 12, 1996, the Group signed an agreement with the parent company, pursuant to which the parties decided that in consideration of the initiating activities which the parent company carried out for the Group, the signing of an agreement for marketing and distribution of "ACCS" systems with KMS (a German company) for US$ 500 thousand in a back-to-back agreement with IBM Israel Ltd., the parent company will be entitled to US$ 50 thousand to be paid out of the funds the parent Company will receive from KMS. d. On March 12, 1996, the Company and the parent company signed an agreement, pursuant to which the Company paid the parent company US$ 23 thousand for the purchase of the rights to the "Windows" version of the "Cyber City" software. e. On March 12, 1996, the Group signed an agreement with the parent company, pursuant to which the Group will pay the parent company US$ 2 thousand per month for its participation in the parent company's office expenses, mainly in respect of rent, communications and secretarial services. f. On September 30, 1996, the Company signed an agreement with its subsidiary, setting out their mutual relationships relating to the sale and marketing of solutions for data transfer by cable or satellite. According to the agreement, the Company will purchase user-licenses of the operation software and modems and core hardware from the subsidiary at the subsidiary's cost plus 25% mark-up, for the sale and marketing the products to the Company's customers. The consideration will be paid by the Company to the subsidiary within 21 days of receiving the amounts from customers for the abovementioned sales or another date to be determined by the parties. g. On March 1, 1996, the Company signed an agreement with its subsidiary for the provision of various management services for a monthly payment of US$ 3 thousand linked to the Israeli C.P.I. The agreement is for an unlimited period, though may be cancelled with 14 days' advance notice. h. On April 28, 1996, the subsidiary signed an agreement with IBM Israel Ltd., ("IBM"), whereby IBM agreed to grant the subsidiary the marketing rights to the versions of ACCS systems. In accordance with the agreement, the subsidiary made its first order for the software licenses for US$ 700 thousand, of which US$ 500 thousand had been paid in advance as at December 31, 1996. The subsidiary's obligation to purchase and pay for the first order is subject to IBM's obligation to develop a new version of the system and, in particular, the operation software, in accordance with IBM's development program. Furthermore, it was agreed that continuation of development will be subject to the subsidiary fulfilling its commitment to purchase user-license of the amounts and on the dates outlined in the agreement. Through December 31, 1996, the subsidiary had utilized software licenses amounting to US$ 33 thousand. 16 17 The agreement extends to December 31, 1999. According to the agreement, IBM received an option to acquire shares of the subsidiary which will entitle it 20% interest in Company's share capital against a payment of an amount equal to 80% of the price which IES paid for the share capital to which it was entitled or was paid by the first investor that replaces it. The option extends to a period of one year from the agreement date (until April 28, 1997). i. On November 6, 1996, the Company signed an investment agreement with a group of investors from the United States ("the Investors"), whereby the Company issued to the Investors 67 ordinary shares constituting a 4.8%-interest in the Company for consideration of US$ 500 thousand. In addition, the Investors received two options enabling them to increase their shareholdings. By the terms of the first option, which was exercised at the end of March 1997, 67 ordinary shares constituting a 4.6% interest in the Company were issued to the Investors for US$ 500 thousand. The second option allows the Investors to invest a further US$ 1 million in exchange for an additional 2.86%-interest in the Company, within two years or until the Company has issued shares to the public j. On December 29, 1996, the Company signed, in concert with others, an agreement to establish a company by the name of Cyber Set Middle East Ltd., ("Cyber Set"), with the object of operating and marketing the satellite-operated "Cyber City" system for trade and private customers in Israel. Pursuant to the agreement, the Company will be engaged in providing the service using the "Amos" satellite in Israel and other satellites in Israel, North America and Europe commencing March 1997. The Company will sell to Cyber Set the hardware and software included in the system to Cyber Set. The parties will not contract with another party, either as promoter or partner, to operate the service in Israel, Europe or North America, other than through the Company. The parties will retain a 50%-ownership interest in Cyber Set. The Company and others have undertaken to invest in equal proportions in Cyber Set the amounts required for its operations. Any party which does not make this investment (hereinafter, "the declining party") will not be entitled to its share allocation, even though its holding will be diluted, if the other party invests its full share in the additional capital in exchange for its share allocation alone and not as an investment in any other way. The declining party will be given an option to purchase from the Company, by way of an allocation, shares of a number which would be allocated to it in exchange for payments of its share in the additional capital. The option is valid for 12 months from the date on which the shareholder invests its additional rightful share as outlined above. It was agreed by the parties that in the event of a new investor's joining, the share of each of the parties would be diluted proportionally. A new investor's joining will be effected only with the unanimous consent of the members of the Board of directors. The Board of Directors of Cyber Set will be selected by the two parties in such a way that will achieve equal representation for the Company and for the others. The Chairman of the Board of Directors will be appointed from the directors who will be appointed by the parties and will be replaced by rotation each year. The Chairman will not have a surplus, extra or casting vote in the board decisions. k. The Company has signed a letter of intent with Cellular Vision Technology & Telecommunication L.P. ("CT&T") in the United States to supply the "Cyber City" system of a volume of at least 100,000 units for end-users for US$ 30 million. Supply is planned through August 31, 1998. Through December 31, 1996, the Company sold systems to CT&T in accordance with the abovementioned agreement totaling US$ 103 thousand. On December 26, 1996, an order for systems was received for the supply of systems during 1997 for US$ 2.3 million and payment on account totaling US$ 560 thousand was received. The agreement between the parties was not signed. l. Subsequent to the balance sheet date, the Company established a wholly-owned subsidiary in the United States called New Media Inc., which is intended to act as its marketing arm in the United States. 17 18 NOTE 10 - SHARE CAPITAL a. COMPOSITION OF SHARE CAPITAL AS AT DECEMBER 31, 1996 b. CHANGES IN SHARE CAPITAL 1. On February 12, 1996, the Company issued 1,000 ordinary shares to the parent company at par value. 2. On April 30, 1996 and on July 9, 1996, the Company issued to IES 138 ordinary shares for consideration of US$ 150 thousand and 198 ordinary shares for consideration of US$ 250 thousand, respectively. 3. On November 6, 1996, the Company issued 67 ordinary shares to foreign investors for consideration of US$ 500 thousand. c. ADDITIONAL INFORMATION 1. Pursuant to an agreement between the parent company and IES, it was provided that in the event that the Company decides on the issuance of options to employees, the options will not be entitled to more than 12% of the Company's shares. 2. Pursuant to an agreement between the Company and foreign investors, the said investors received two options which allow them to increase their shareholdings (see Note 9i above). NOTE 11 - LIENS AND SECURITIES Liabilities to banks as at December 31, 1996 totaling US$ 55 thousand are secured by fixed liens on motor vehicles and insurance rights. 18
NUMBER OF SHARES ---------------- ISSUED AND AUTHORIZED FULLY PAID ---------- ---------- Ordinary shares of NIS 1 par value 20,000 1,403 ====== ===== 19 NOTE 12 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION 19
ELEVEN MONTHS ENDED DECEMBER 31, 1996 ------------------------------------- CONSOLIDATED COMPANY ------------ ------- US$ US$ --- --- a. CLASSIFICATION OF SALES BY GEOGRAPHICAL DISTRIBUTION Europe 215,178 176,658 North America 103,214 58,850 ------------ ------------ 318,392 235,508 ============ ============ b. COST OF PRODUCTION OF SYSTEMS Purchase of systems 76,921 Purchase of software licenses 33,320 Purchase of packing materials 7,500 Purchase of systems from subsidiary -- 87,568 ------------ ------------ 117,741 87,568 ============ ============ c. RESEARCH AND DEVELOPMENT EXPENSES Subcontractors 63,420 115,358 Salaries and related expenses 48,908 48,908 ------------ ------------ 112,328 112,328 ============ ============ d. SELLING AND MARKETING EXPENSES Salaries and related expenses 115,358 63,420 Foreign travel 83,762 83,762 Advertising and sales promotion 54,364 54,364 Exhibitions 29,560 23,352 Others 27,440 25,446 Less - Participation of Marketing Promotion Fund (13,705) (13,705) ------------ ------------ 296,779 288,577 ============ ============ e. GENERAL AND ADMINISTRATIVE EXPENSES Salaries and related expenses 41,951 41,951 Rent and maintenance 60,129 50,010 Professional services 91,327 87,066 Depreciation 10,960 10,960 Others 18,691 18,691 Less - management fees from subsidiary -- (30,760) ------------ ------------ 223,058 177,918 ============ ============ 20 (1) See Note 9e. (2) See Note 9g. (3) See Note 9f. (4) See Note 9b. 20
ELEVEN MONTHS ENDED DECEMBER 31, 1996 ------------------------------------- CONSOLIDATED COMPANY ------------ ------- US$ US$ ------------ ------------ f. FINANCIAL EXPENSES, NET Interest expense on-- Short-term credit 6,667 4,763 Long-term loans 7,903 7,903 ------------ ------------ 14,570 12,666 ------------ ------------ Financial income from-- Interest on short-term bank deposits (7,136) (7,136) Exchange rate differences, net 5,226 19,290 ------------ ------------ (1,910) 12,154 ------------ ------------ 12,660 24,820 ============ ============ g. TRANSACTIONS WITH RELATED PARTIES 1. PARENT COMPANY- Expenses- Participation in office maintenance expenses (1) 18,466 8,347 Research and development expenses 23,014 23,014 2. CONSOLIDATED SUBSIDIARY Revenues- Management fees (2) -- 36,760 Expenses - Purchase of systems (3) -- 87,568 3. RELATED PARTIES WHO ARE MANAGERS AND DIRECTORS Expenses- Salaries and related expenses (4) 75,931 75,931 21 NOTE 13 - TAXES ON INCOME a. The Group's tax loss carryforwards, totaling US$ 481 thousand, are denominated in NIS and linked to the Israeli C.P.I. b. The Group is assessed under the provisions of the Income Tax Law (Inflationary Adjustments), 1985, pursuant to which results for tax purposes are measured in real terms in accordance with changes in the Israeli C.P.I. c. The Company has not received final tax assessments since its incorporation. NOTE 14 - DISCLOSURE AND PRESENTATION OF FINANCIAL INSTRUMENTS a. LINKAGE TERMS OF MONETARY BALANCES (Consolidated) b. FAIR VALUE OF FINANCIAL INSTRUMENTS The financial instruments of the Group include non-derivative assets - cash and cash equivalents, trade receivables, other receivables and prepaid expenses and long-term loans, as well as non-derivative liabilities - short-term bank credit, trade payables, other payables and accrued expenses and long-term debt. Due to their nature, there is no material variance between their fair value and the value at which they are stated in the financial statements. c. CURRENCY AND INTEREST RISK Since the Group's revenues are denominated in foreign currency while some of its purchases and expenses are in Israeli currency, the Group has exposure to fluctuations in the exchange rates of the U.S. dollar. In addition, the Group has assets in foreign currency held partly against liabilities under various linkage and interest terms. The Group does not usually enter into contracts in derivative financial instruments to reduce its exposure to risk arising from changes in exchange rate or interest rate. NOTE 15 - SUBSEQUENT EVENTS (UNAUDITED) a. On March 24, 1997, the Company issued to an investor 67 ordinary shares constituting a 4.6% holding in the Company for proceeds of US$ 500 thousand. The issue was made pursuant to an option held by the investor. b. On May 19, 1997, the Company issued to foreign investors 16 ordinary shares constituting a 1.08% holding in the Company for proceeds of US$ 287 thousand. c. On March 30, 1997, the Company signed an agreement with an American company to supply the Company with hardware components for the Cyber-City system for US$ 4.3 million during the years 1997-1998. In addition, the agreement includes another agreement to develop the components. As at September 10, 1996, the Company had paid the American company a total of US$ 523 thousand on account of the hardware components and the development, as mentioned in the agreement. d. On September 16, 1997, the shareholders of the Company signed an agreement with Harmonic Lightwaves, Inc. ("Harmonic"), a company publicly traded on NASDAQ, to sell their shareholdings in the Company for 1,037,911 shares of Harmonic Common Stock. In addition, the Company signed an agreement with Harmonic to receive loans of a cumulative amount of US$1 million through December 31, 1997. On September 4, 1997, the Company received an advance of US $500 thousand from Harmonic Lightwaves, Inc. pursuant to the loan agreement. The loan is linked to the dollar and bears interest at 7% per annum. e. On September 9, 1997, the Company signed with another company an agreement cancelling the contract to establish the companies, Cyber-Set Middle East Ltd., ("Middle East") and Cyber-Set International ("International") which was signed on December 29, 1996. The Company transferred all of its shares in Middle East and International to the other company at their nominal value. 21
DECEMBER 31, 1996 ----------------------------------------------------------------------------------- IN FOREIGN CURRENCY LINKED TO THE UNLINKED AND UNLINKED AND OR LINKED THERETO ISRAELI C.P.I. INTEREST BEARING NON-INTEREST BEARING TOTAL US$ US$ US$ US$ US$ -------- -------- -------- -------- -------- ASSETS Current assets 449,562 29,658 -- 83,970 563,190 Investments -- 23,767 -- -- 23,767 -------- -------- -------- -------- -------- 449,562 53,425 -- 83,970 586,957 -------- -------- -------- -------- -------- LIABILITIES Current liabilities -- 14,126 25,747 518,677 558,550 Long-term liabilities -- 349,250 -- -- 349,250 -------- -------- -------- -------- -------- -- 363,376 25,747 518,677 907,800 -------- -------- -------- -------- -------- Excess assets over liabilities (excess liabilities over assets) 449,562 (309,951) (25,747) (434,707) (320,843) ======== ======== ======== ======== ======== 22 ITEM 7 (b) - PRO FORMA FINANCIAL INFORMATION The following pro forma combined condensed financial statements of Harmonic Lightwaves, Inc. ("Harmonic") have been prepared to give effect to the January 5, 1998 acquisition of N.M. New Media Communication Ltd. ("NMC") using the purchase method of accounting. Consideration for the acquisition was $17,581,000 consisting of issuance of 1,037,911 shares of Harmonic's Common Stock, payment of $1,000 cash and the assumption by Harmonic of NMC stock options to purchase 138,758 shares of Harmonic's Common Stock. The pro forma combined condensed consolidated balance sheet assumes the acquisition took place in September 1997 and combines Harmonic's September 26, 1997 unaudited condensed consolidated balance sheet with NMC's September 30, 1997 unaudited condensed consolidated balance sheet. The pro forma combined condensed consolidated statements of operations assume that the acquisition took place as of the beginning of each of the periods presented and combines Harmonic's condensed consolidated statement of operations for the year ended December 31, 1996 and NMC's condensed consolidated statement of operations for the eleven month period ended December 31, 1996; and Harmonic's unaudited condensed consolidated statement of operations for the nine months ended September 26, 1997 with the unaudited condensed consolidated statement of operations of NMC for the nine months ended September 30, 1997. The inclusion of a shorter period for NMC than for Harmonic in the condensed consolidated statements of operations for 1996 was due to NMC's commencement of business on February 12, 1996. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of operating results or financial position that would have occurred if the acquisition had been consummated as of the dates indicated, nor is it necessarily indicative of future operating results or financial position. 22 23 HARMONIC LIGHTWAVES, INC. PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) The accompanying notes are an integral part of these consolidated financial statements. 23
HARMONIC NMC -------- --- SEPTEMBER 26, SEPTEMBER 30, 1997 1997 ADJUSTMENTS(2) PRO FORMA --------- --------- --------- --------- ASSETS Current assets: Cash and cash equivalents $ 9,938 $ 26 13 (a) $ 9,951 Accounts receivable, net 21,495 218 (31)(a) 21,682 Inventories 14,360 274 263 (a) 14,897 Prepaid expenses and other assets 2,419 1,039 45 (a) 3,728 --------- --------- --------- --------- Total current assets 48,712 1,557 264 50,033 (5)(a) Notes receivable 500 9 (500)(b) 4 Property and equipment, net 10,416 233 11 (a) 10,660 Other assets 122 -- 1,512 (c) 1,634 --------- --------- --------- --------- $ 59,250 $ 1,799 $ 1,282 $ 62,331 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank borrowings -- 250 -- 250 Accounts payable $ 4,725 $ 226 -- $ 4,951 Accrued liabilities 4,910 448 -- 5,358 --------- --------- --------- --------- Total current liabilities 9,635 924 -- 10,559 --------- --------- --------- --------- Long-term debt -- 1,049 (500)(b) 549 Other liabilities 326 42 -- (c) 368 216 (d) (14,000)(d) Stockholders' equity (deficit) 49,289 (216) 15,566 (d) 50,855 --------- ---------- --------- --------- $ 59,250 $ 1,799 $ 1,282 $ 62,331 ========= ========= ========= ========= 24 HARMONIC LIGHTWAVES, INC. PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) The accompanying notes are an integral part of these consolidated financial statements. 24
HARMONIC NMC -------- --- NINE MONTHS NINE MONTHS ENDED ENDED SEPT. 26, 1997 SEPT. 30, 1997 ADJUSTMENTS(3) PRO FORMA -------------- -------------- ----------- --------- Net sales $ 57,092 $ 593 $ -- $ 57,685 Cost of sales 30,466 188 -- 30,654 --------- --------- --------- --------- Gross profit 26,626 405 -- 27,031 --------- --------- --------- --------- Operating expenses: Research and development 8,519 280 -- 8,799 Sales and marketing 9,907 917 -- 10,824 General and administrative 3,597 578 227(a) 4,402 --------- --------- --------- --------- Total operating expenses 22,023 1,775 227 24,025 --------- --------- --------- --------- Income from operations 4,603 (1,370) (227) 3,006 Interest and other income, net 514 (74) -- 440 --------- --------- --------- --------- Income before income taxes 5,117 (1,444) (227) 3,446 Provision for income taxes 768 -- -- 768 --------- --------- --------- --------- Net income $ 4,349 $ (1,444) (227) $ 2,678 ========= ========== ========= ========= Basic net income per share $ 0.42 -- -- $ 0.24 ========= ========= ========= ========= Diluted net income per share $ 0.38 -- -- $ 0.21 ========= ========= ========= ========= Average number of shares outstanding 10,321 -- 1,038 11,359 ========= ========= ========= ========= Average number of shares outstanding assuming dilution 11,573 -- 1,038 12,611 ========= ========= ========= ========= 25 HARMONIC LIGHTWAVES, INC. PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) The accompanying notes are an integral part of these consolidated financial statements. 25
HARMONIC NMC -------- --- YEAR ELEVEN MONTHS ENDED ENDED DEC. 31, 1996 DEC. 30, 1996 ADJUSTMENTS(3) PRO FORMA ------------- ------------- ----------- --------- Net sales $ 60,894 $ 318 $ -- $ 61,212 Cost of sales 33,163 117 -- 33,280 --------- --------- --------- --------- Gross profit 27,731 201 -- 27,932 --------- --------- --------- --------- Operating expenses: Research and development 9,237 112 -- 9,349 Sales and marketing 9,827 297 -- 10,124 General and administrative 3,463 223 277(a) 3,963 --------- --------- --------- --------- Total operating expenses 22,527 632 277 23,436 --------- --------- --------- --------- Income from operations 5,204 (431) (277) 4,496 Interest and other income, net 1,025 (13) -- 1,012 --------- --------- --------- --------- Income before income taxes 6,229 (444) (277) 5,508 Provision for income taxes 311 -- -- 311 --------- --------- --------- --------- Net income $ 5,918 $ (444) (277) $ 5,197 ========= ========== ========= ========= Basic net income per share $ 0.59 -- -- $ 0.47 ========= ========= ========= ========= Diluted net income per share $ 0.52 -- -- $ 0.42 ========= ========= ========= ========= Average number of shares outstanding 10,106 -- 921 11,027 ========= ========= ========= ========= Average number of shares outstanding assuming dilution 11,474 -- 921 12,395 ========= ========= ========= ========= 26 HARMONIC LIGHTWAVES, INC. NOTES TO PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS NOTE 1 - THE ACQUISITION The total purchase price of $17,581,000 was allocated to the acquired assets, in-process technology and goodwill based on an independent valuation of the fair market values. The allocation of the purchase price is as follows (in thousands): NOTE 2 - ADJUSTMENTS TO THE BALANCE SHEET a. The total purchase price allocated to the acquired assets, in-process technology and goodwill are based on an independent valuation of the fair market values which results in an increase in total assets of $270,000 from the balances presented within the NMC September 30, 1997 consolidated balance sheet. b. Reflects elimination of advances to NMC. c. Reflects the recording of goodwill. d. Includes the elimination of NMC's accumulated deficit, the recording by Harmonic of the in-process technology and the issuance of Common Stock to affect the transaction. NOTE 3 - ADJUSTMENTS TO THE STATEMENTS OF OPERATIONS a. To reflect the amortization of goodwill over the estimated useful life of five years. NOTE 4 - NONRECURRING CHARGES The $14 million nonrecurring charge resulting from acquired in-process technology has been reflected in the pro forma combined condensed balance sheet as of September 1997. However, this charge has been excluded from the pro forma combined condensed statement of operations for the year ended December 31, 1996 and the nine months ended September, 1997. This charge will be included in the actual consolidated statement of operations of Harmonic for the quarter ended April 3, 1998. 26
Total purchase price $ 17,581 ======== Current assets $ 1,820 Property and equipment 244 Other non-current assets 5 In-process technology 14,000 -------- Goodwill $ 1,512 ======== 27 EXHIBIT INDEX EXHIBIT DESCRIPTION NUMBER 2.1 Stock Purchase Agreement (the "Purchase Agreement") dated as of September 16, 1997, among Registrant, NMC and the Sellers, including Exhibit 2.4 (a) (iv) attached thereto. Previously filed. 2.2 First Amendment to Stock Purchase Agreement dated November 25, 1997 among Registrant, NMC and the Sellers. Previously filed. 20.1 Press Release dated September 16, 1997, announcing the signing of the Purchase Agreement. Previously filed. 23.1 Consent of Independent Public Accountants.
1 Exhibit 23.1 IBDO ALMAGOR & CO. CPA (ISR) 7 Abba Hillel Rd. P.O. Box 3600 Zip 52134, Ramat-Gan, Israel Tel: 972-3-5760606 Fax: 972-3-5754671 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ------------------------------------------ As independent public accountants, we hereby consent to the inclusion in the amendment to the Current Report (File No. 02-25826) on Form 8-K of Harmonic Lightwaves, Inc. of January 5, 1998 of our report dated May 28, 1997 with respect to the financial statements of N.M. New Media Communications Ltd. Ramat-Gan, Israel IBDO Almagor & Co. March 17, 1998 Certified Public Accountants (Isr.)