SECURITIES AND EXCHANGE COMMISSION
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): January 17, 2003
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Advanced Photonix, Inc.
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(Exact Name of Registrant as specified in its Charter)
Delaware 1-11056 33-0325836
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1240 Avenida Acaso, Camarillo, California 93012
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(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number,
including area code: (805) 987-0146
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Item 2. Acquisition or Disposition of Assets.
(a) On January 17, 2003, Advanced Photonix, Inc. ("API"), purchased from
the Sellers named in the Stock Purchase Agreement, attached hereto as Exhibit
2.1, all of the issued and outstanding shares of common stock of Texas
Optoelectronics, Inc. ("TOI"), a privately owned custom manufacturer of
optoelectric components and assemblies. None of the Sellers is an affiliate of
API, or any of API's executive officers, directors or principal shareholders.
The purchase price was 1,000,000 shares of API Class A Common Stock, subject to
an adjustment based on the TOI's financial statements as of January 17, 2003. In
addition, at closing API paid off a debt of TOI in the total amount of
$1,200,000 representing principal and interest. This purchase price was
determined through arm's-length negotiations between the parties. API used
internally generated cash to pay off the TOI debt.
(b) The principal assets owned by Sellers are its customer base, its
equipment used in the manufacture and assembly of custom optoelectric
semiconductor based components, hybrid assemblies and other proprietary
solid-state light and radiation detection devices, and related inventory and raw
materials. API intends to terminate operations at TOI's facility in Garland,
Texas and move the TOI assets to API facilities where API intends to continue to
use these assets for these purposes.
Item 7. Financial Statements and Exhibits
(a) Financial Statements.
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The financial statements of Texas Optoelectronics, Inc. for the 11 months
ended November 30, 2002 audited by Farber & Hass LLP, Independent Certified
Public Accountants, are included in this filing.
(b) Pro Forma Information.
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It is impracticable to provide the pro forma financial information required
under this Item as of the date this Current Report on Form 8-K must be
filed. The required pro forma financial information will be filed by
amendment hereto as soon as practicable, but in any event not later than 60
days after the date hereof.
(c) Exhibits:
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Item Ref
in 17 CFR Exhibit
229.601(b) Exhibit Number
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2 Stock Purchase Agreement dated January 17, 2003, by 2.1
and among API and the Stockholders named therein.
23 Consent of Farber & Hass LLP, Independent Certified 23.1
Public Accountants, to the filing of the Financial
Statements of Texas Optoelectronics, Inc. included
herein.
Following are the financial statements of Texas Optoelectronics, Inc. for the
eleven months ended November 30, 2002, which include:
(1) Independent Auditors' Report
(2) Balance Sheet
(3) Statement of Operations
(4) Statement of Shareholders' Equity (Deficit)
(5) Statement of Cash Flows
(6) Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Texas Optoelectronics, Inc.:
We have audited the accompanying balance sheet of Texas Optoelectronics, Inc.
(the "Company") as of November 30, 2002 and the related consolidated statements
of operations, shareholders' deficit and cash flows for the eleven months ended
November 30, 2002. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of the Company at November 30, 2002
and the results of its operations and its cash flows for the eleven months ended
November 30, 2002 in conformity with accounting principles generally accepted in
the United States.
/s/ Farber & Hass LLP
January 8, 2003
Oxnard, CA
TEXAS OPTOELECTRONICS INC.
BALANCE SHEET
November 30, 2002
ASSETS
Current assets:
Cash and cash equivalents $ 205,110
Trade accounts receivable, net of reserves of $20,000 527,917
Inventory, net 304,918
Prepaid expenses and other current assets 73,508
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Total current assets 1,111,453
Property and equipment, net 106,343
Assets held for sale 10,395
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$1,228,191
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable $ 27,206
Accounts payable 164,864
Accrued payroll 73,268
Accrued bonuses 38,000
Customer advances 54,254
Other accrued expenses 63,312
Current portion of long-term debt 47,575
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Total current liabilities 468,479
Long-term debt, net of current portion 25,635
Long-term debt due to a shareholder 1,200,000
Shareholders' equity (deficit):
Preferred stock
no par value, 100,000,000 shares
authorized, none issued and outstanding --
Common stock
$0.01 par value, 100,000,000 shares
authorized, 14,363,395 shares issued and
outstanding 143,634
Additional paid-in capital 1,827,833
Accumulated deficit (2,437,390)
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Total shareholders' equity (deficit) (465,923)
Commitments and contingencies (Note 8)
$1,228,191
==========
The accompanying notes are an integral
part of these financial statements.
TEXAS OPTOELECTRONICS INC.
STATEMENT OF OPERATIONS
for the eleven months ended November 30, 2002
Net sales $2,836,954
Cost of goods sold 2,244,257
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Gross profit 592,697
Selling, general and administrative expenses 896,508
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Loss from operations (303,811)
Other income (expense):
Interest expense (171,828)
Interest income 2,810
Other income 6,507
Loss on sale of assets (23,189)
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Total Other Expense (185,700)
Net loss ($489,511)
==========
The accompanying notes are an integral
part of these financial statements.
TEXAS OPTOELECTRONICS INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
for the eleven months ended November 30, 2002
Preferred Additional Paid-In Accumulated
Stock Common Stock Capital Deficit Total
--------- ------------ ----------- ----------- -------
Balance, December 31, 2001 $ -0- $143,728 $1,827,833 ($1,947,879) $23,682
Issuance of preferred
stock (15,000,000 shares) 15,000 15,000
Purchase of common stock (94) (94)
(9,379 Shares)
Redemption of preferred stock (15,000) (15,000)
Net Loss (489,511) (489,511)
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Balance, November 30, 2002 $ -0- $143,634 $1,827,833 ($2,437,390) ($465,923)
=============================================================================================
The accompanying notes are an integral
part of these financial statements.
TEXAS OPTOELECTRONICS INC.
STATEMENT OF CASH FLOWS
for the eleven months ended November 30, 2002
Increase (Decrease) in Cash
Cash flows from operating activities:
Net loss ($489,511)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 85,687
Loss on sale of assets 23,189
Increase in trade accounts receivable (134,279)
Decrease in inventory 229,375
Decrease in prepaid expenses and other current assets 88,907
Increase in accounts payable 56,709
Decrease in accrued expenses and customer advances ( 61,785)
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Net cash used by operating activities (201,708)
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Cash flows from investing activities:
Proceeds from asset sales 347,241
Capital expenditures (11,262)
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Net cash provided by investing activities 335,979
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Cash flows from financing activities:
Principal payments on note payable (11,290)
Principal payment on shareholder notes (435,000)
Principal payment on capital leases (60,093)
Purchases of common stock (94)
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Net cash used in financing activities ( 506,477)
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Net decrease in cash in cash and cash equivalents (372,206)
Cash and cash equivalents at beginning of period 577,316
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Cash and cash equivalents at end of period 205,110
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 170,266
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Supplemental disclosure of non-cash financing activities:
Issuance of preferred stock for accrued interest $ 15,000
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Redemption of preferred stock by issuing debt $ 15,000
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Insurance premiums financed using a note payable $ 38,496
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The accompanying notes are an integral
part of these financial statements
TEXAS OPTOELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
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General
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The Company currently operates a facility in Garland, Texas. The
Company designs, manufactures and markets custom optoelectronic
components and assemblies. Custom assembly of printed circuit boards
and mechanical assemblies is performed in a strategic partner's
facility in Juarez, Mexico. The Company's fiscal year end is December
31.
Concentration of Credit Risk:
-----------------------------
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash, cash
equivalents and trade accounts receivable. At November 30, 2002,
substantially all cash and cash equivalents were on deposit at
Comerica Bank N.A.
At November 30, 2002, two customers accounted for 36% and 13%
respectively, of the Company's trade receivables. The Company performs
ongoing credit evaluations of its customers and normally does not
require collateral to support accounts receivable.
Cash Equivalents
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The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash
equivalents.
Revenue Recognition
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The Company enters into two basic types of subcontracts:
Progress Billed Subcontracts
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The Company bills customers based on total costs incurred, less a
percentage for retainage which is due as completed units are
delivered under the subcontract. Revenues and costs are
recognized using the percentage-of-completion method.
Non-progress Billed Subcontracts
--------------------------------
The Company bills customers as units are shipped and revenues and
costs are recognized on the same basis.
Changes in production performance and estimated total production costs
may result in revisions to cost and income and are recognized in the
period in which the revisions are determined. Changes which result in
contract losses are recognized in the period when the loss is
determined.
Cash received in advance of shipment is deferred as a liability in the
accompanying financial statements.
TEXAS OPTOELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS, Continued
Inventory
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Inventory is valued at the lower of cost or market with cost
determined using the first-in, first-out ("FIFO") method. Inventory is
comprised primarily of raw materials, work in process and finished
goods. A provision for obsolete and slow moving inventory is
recognized in the period when such determinations are made.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation and
amortization are provided by the straight-line method for financial
reporting purposes and the accelerated cost recovery system and the
modified accelerated cost recovery system for tax reporting purposes.
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets (3 to 5 years for personal property
and equipment and 31.5 years for the building). The cost of leasehold
improvements is amortized over the lesser of the length of the related
lease or the estimated useful lives of the assets. Gains and losses
from retirements and dispositions of property and equipment are
recognized in the period incurred. Maintenance and repairs are
expensed when incurred; renewals and betterments are capitalized.
Impairment of Long-Lived Assets and Assets to be Disposed of
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SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured as the amount by which the
carrying amounts of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
During 2002, the Company sold one of its manufacturing facilities and
reclassified certain excess assets with a book value of $10,395 to
Assets held for sale. The carrying value of the assets exceed their
fair value less costs to sell and no impairment loss was incurred.
Warranty Reserve:
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The Company offers a warranty of 3 months to one year for major
product groups and maintains a reserve against sales and anticipated
future losses.
Income Taxes
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The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
Use of Estimates
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Financial statements prepared in conformity with generally accepted
accounting principles require management to make estimates and
assumptions about reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and reported amount of
revenues and expenses. Management must also make estimates and
judgments about future results of operations related to specific
elements of the business in assessing recoverability of assets and
recorded values of liabilities. Actual results could differ from those
estimates.
TEXAS OPTOELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS, Continued
Research and Development
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The Company is engaged in a number of projects to develop products for
industries it believes have market prospects. The Company's research
and development costs are charged to operations when incurred.
Fair Value of Financial Instruments
-----------------------------------
The fair and carrying values of cash equivalents, accounts receivable,
accounts payable, short-term debt and accrued liabilities and those
potentially subject to valuation risk at November 30, 2002
approximated fair value due to their short maturity or nature.
The fair value of notes payable to a shareholder at November 30, 2002
are materially consistent with the related carrying values based on
current rates offered to the Company for instruments with similar
maturities.
Impact of New Accounting Standards:
-----------------------------------
Statement of Financial Standards ("SFAS") Nos. 141 "Business
Combinations" is effective for business combinations after June 30,
2001. It requires that the "purchase method" of accounting be used to
account for all business combinations and specifies criteria for an
acquired intangible asset to be recognized separately from goodwill.
SFAS No. 142 is effective for financial statements beginning after
December 15, 2000. It requires that goodwill no longer be amortized,
but tested for impairment on an annual basis. The Company adopted the
provisions of SFAS Nos. 141 and 142 on January 1, 2001.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." SFAS 143 establishes accounting standards for
recognition and measurement of a liability for the costs of asset
retirement obligations. Under SFAS 143, the costs of retiring an asset
will be recorded as a liability when the retirement obligation arises,
and will be amortized to expense over the life of the asset. The
Company does not expect any effect on financial position or results of
operations from the adoption of this statement.
SFAS 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS
144 superseded SFAS 121 and APB Opinion No. 30, "Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions". The provisions of SFAS 144 are effective in fiscal
years beginning after December 15, 2001, with early adoption
permitted, and in general are to be applied prospectively. The Company
adopted SFAS 144 on January 1, 2002. It did not have a material impact
on its results of operations or financial position.
In June 2002, the FASB issued SFAS 146 "Accounting for Costs
Associated with Exit or Disposal Activities", which nullifies EITF
Issue 94-3. SFAS 146 is effective for exit and disposal activities
that are initiated after December 31, 2002 and requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, in contrast to the date of
an entity's commitment to an exit plan, as required by EITF Issue
94-3. The Company will adopt the provision of SFAS 146 effective
January 1, 2003 and believes that this will not have a material impact
on its results from operations or financial position
2. Inventory:
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Inventory consists of the following at November 30, 2002
Raw materials and supplies $ 441,980
Work in process 79,913
Finished goods 186,430
Progress billed inventory (27,174)
Customer prepaid inventory (25,576)
Reserve for obsolete and slow moving inventory (350,655)
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$ 304,918
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TEXAS OPTOELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS, Continued
3. Property and equipment:
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Property and equipment at November 30, 2002 consisted of the
following:
Leasehold improvements $ 15,417
Furniture fixtures and equipment 617,514
Assets under capital leases 243,218
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876,149
Less accumulated depreciation and amortization 769,806
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$ 106,343
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Included in accumulated depreciation and amortization is $154,991
related to assets under capital leases.
4. Note Payable
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In August 2002, the Company financed $38,496 of insurance premiums.
The note is payable at $3,991 per month including interest at 7.99%
per annum. The note will mature in June 2003.
5. Long-Term Debt:
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Long-term debt consists of the following at November 30, 2002:
Note payable, to a shareholder, bearing interest
at 12% per annum payable monthly, principal payable
January 20, 2004 $425,000
Note payable, to a shareholder, bearing interest
at 12% per annum payable monthly, principal payable
January 20, 2004 765,000
Capitalized leases, bearing interest at rates
ranging from 11.4% to 20% per annum, principal and
interest of $6,216 due monthly 83,210
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1,273,210
Less current portion (47,575)
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$1,225,635
==========
Following is a summary of maturities of long-term debt for the fiscal
years ending December 31:
2003 $ 47,575
2004 1,210,709
2005 8,965
2006 5,961
2007 --
The shareholder loans are collateralized by a first and second lien on
all the Company's assets. The proceeds were used to pay off a Bank
line of credit and a note payable to a bank.
6. Capital Transactions:
---------------------
During the eleven months ended November 30, 2002, the Company
reacquired 9,379 shares of TOI's common stock for cash at the price
originally paid per share from a terminated employee pursuant to terms
of stock repurchase agreement.
TEXAS OPTOELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS, Continued
7. Preferred Stock:
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The Board of Directors is entitled to establish the rights of
preferred shares when issued. Currently, no preferred shares are
issued and outstanding and as such the voting rights, dividend rate,
and other preferences of the preferred shares are not determined.
8. Commitments and Contingencies:
------------------------------
The Company leases its facility in Garland, Texas under an operating
lease. The facility lease may be cancelled by giving a 240 day notice.
Future minimum rentals required under these leases are as follows for
the fiscal years ending:
2003 $48,414
2004 7,140
2005 --
2006 --
2007 --
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Total minimum payments $55,554
=======
Rental expense was $46,983 for the eleven months ended November 30,
2002.
From time to time, the Company is subject to various legal proceedings
arising in the ordinary conduct of its business. It is the opinion of
management that the ultimate disposition of any such proceedings would
not have a material adverse effect on the Company's financial
condition or results of operations.
9. Income Taxes:
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Temporary differences and carryforwards which give rise to deferred
tax asset and liabilities are summarized as follows:
Assets
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Vacation accrual $ 20,217
Inventory reserve 119,222
Research credit carryforward 114,733
Tax Loss carryforward 795,091
Inventory cost capitalization 16,870
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1,066,133
Liabilities
-----------
Depreciation 14,788
------------
Net deferred taxes 1,051,345
Valuation allowance (1,051,345)
------------
Total deferred taxes $ -0-
============
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers projected future
taxable income and tax planning strategies in making this assessment.
Based upon the level of historical taxable losses, management believes
it is more likely than not the Company will not realize the benefits
of these deductible differences and has established a valuation
allowance to fully reserve the deferred tax assets at November 30,
2002. Additionally, the ultimate realizability of net operating losses
may be limited by change of control provisions under Section 382 of
the Internal Revenue Code.
TEXAS OPTOELECTRONICS INC.
NOTES TO FINANCIAL STATEMENTS, Continued
The Company has net operating loss carryforwards of approximately
$2,300,000 which expire beginning in 2011. The research credit
carryforward expires beginning in 2003.
10. Major Customers:
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The Company has three major customers, which represent approximately
45% (20%, 15%, and 10% respectively) of the total sales for the eleven
months ended November 30, 2002. Amounts due from these customers
comprise approximately 18% of accounts receivable at November 30,
2002.
11. Subsequent Event (unaudited)
----------------------------
In November 2002, the Company's shareholders entered into a letter of
intent to sell all of the outstanding shares of the Company's Stock to
Advanced Photonix, Inc. for 1 million shares of common stock of
Advanced Photonix. The letter of intent also requires Advanced
Photonix to pay $1,200,000 to pay off the notes payable to
shareholders with accrued interest.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED PHOTONIX, INC.
By: /s/ Brock Koren
-----------------------------------
Brock Koren
President and Chief Executive Officer
Dated: January 31, 2003
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