0000898430-95-001614.txt : 19950816 0000898430-95-001614.hdr.sgml : 19950816 ACCESSION NUMBER: 0000898430-95-001614 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941031 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950815 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWALL TECHNOLOGIES INC /DE/ CENTRAL INDEX KEY: 0000813619 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 942551470 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15930 FILM NUMBER: 95564224 BUSINESS ADDRESS: STREET 1: 1029 CORPORATION WAY CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 4159629111 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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) October 31, 1994 (Exact name of registrant as specified in its charter) Southwall Technologies Inc. Delaware 0-15930 94-2551470 ------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1029 Corporation Way, Palo Alto, California 94303 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 962-9111 Not Applicable ------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 2. Acquisition or Disposition of Assets ------------------------------------ Effective October 31, 1994, pursuant to a Purchase Agreement among Southwall Technologies Inc. (the "Registrant"), Southwall-Sunflex, Inc. (a wholly-owned subsidiary of the Registrant), Sunflex, L.P. ("Sunflex") and the Sunflex Partners dated October 25, 1994, the Registrant, through its wholly- owned subsidiary, Southwall-Sunflex, Inc. (herein collectively referred to as Registrant) purchased all of the outstanding partnership interests in Sunflex, a California limited partnership. The Registrant acquired Sunflex for an aggregate purchase price equal to the net book value of Sunflex, approximately $500,000, which will be fully paid over the next four calendar years only if Sunflex's operating income meets or exceeds $800,000. Partial payments may be made based on a formula and the amount, if any, of operating income. The acquisition was accounted for as a purchase. Sunflex assembles and markets aftermarket mesh, glass and film anti- reflective filters primarily for personal computer monitors. Item 7. Financial Statements and Exhibits --------------------------------- The Registrant has attached the following financial statements of Sunflex, L.P., a California limited partnership. (a) Financial Statements of Business Acquired ----------------------------------------- The following are attached: i. For the years ended December 31, 1991 and 1992 Report of Independent Accountants Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Partners' Capital Consolidated Statements of Cash Flow Notes to Consolidated Financial Statements ii. For the year ended December 31, 1993 Report of Independent Accountants Consolidated Balance Sheet 2 Consolidated Statement of Operations Consolidated Statement of Partners' Capital Consolidate Statement of Cash Flow Notes to Consolidated Financial Statements (b) Pro Forma Financial Information ------------------------------- The Registrant has also attached hereto the following financial information reflecting the Registrant's best estimates of the pro forma effective of the Purchase on the Registrant. The following are attached: Introductory Statement Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1993. Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1994. Unaudited Notes to Pro Forma Combined Statements of Operations. (c) Exhibits -------- 10.81* Purchase Agreement Among Southwall Technologies Inc., Southwall-Sunflex, Inc., Sunflex, L.P., and the Sunflex Partners effective October 31, 1994. 23.1 Consent of Price Waterhouse LLP, independent accountants. 23.2 Consent of Coopers & Lybrand LLP, independent accountants. ____________________ * Previously filed as an exhibit to Registrant's Form 10-K for the year ended December 31, 1994. 3 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized. Date: August 14, 1995 SOUTHWALL TECHNOLOGIES INC. By /s/Martin M. Schwartz Martin M. Schwartz President and Chief Executive Officer 4 SUN-FLEX, L.P. (a California limited partnership) -------- CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1991 and 1992 [LETTERHEAD OF COOPERS & LYBRAND] REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Sun-Flex, L.P.: We have audited the accompanying consolidated balance sheets of Sun-Flex, L.P. (a California limited partnership) as of December 31, 1991 and 1992, and the related consolidated statements of operations, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sun-Flex, L.P. as of December 31, 1991 and 1992 and results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. San Jose, California July 7, 1995 SUN-FLEX, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1991 AND 1992
1991 1992 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 224,181 $ 89,635 Accounts receivable, less allowance for doubtful accounts of none and $28,924 at 1991 and 1992, respectively 832,943 543,430 Receivables and affiliates 30,988 Inventories 162,184 193,832 Prepaid expenses 102,189 56,253 ---------- ---------- Total current assets 1,352,485 883,150 Property and equipment, net 982,797 790,815 Patents, net 220,838 195,842 Organization costs, net 32,195 23,797 Long-term deposits 8,604 8,604 ---------- ---------- $2,596,919 $1,902,208 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable 234,219 236,918 Accrued expenses and other current liabilities 252,916 212,546 Note payable 100,000 ---------- ---------- Total current liabilities 487,135 549,464 Other liabilities 32,283 ---------- ---------- Total liabilities 519,418 549,464 Commitments (Note 5) Partners' capital 2,077,501 1,352,744 ---------- ---------- Total liabilities and partners' capital $2,596,919 $1,902,208 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 2 SUN-FLEX, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1992
1991 1992 ---- ---- Net sales $3,941,811 $2,554,613 Cost of goods sold 1,524,667 1,297,047 ---------- ---------- Gross profit 2,417,144 1,257,566 ---------- ---------- General and administrative expense 822,048 782,838 Research and development expense 114,754 120,110 Selling and marketing expense 1,045,511 1,004,952 ---------- ---------- Total expenses 1,982,313 1,907,900 ---------- ---------- Operating income (loss) 434,831 (650,334) Interest income, net 38 6,181 Foreign currency loss (20,953) (10,546) ---------- ---------- Income (loss) before provision for income taxes 413,916 (654,699) Provision for foreign income taxes 24,257 20,058 ---------- ---------- Net income (loss) $ 389,659 $ (674,757) ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 SUN-FLEX, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1992
General Limited Partner Partners Total ------- -------- ----- Balances, January 1, 1991 $ 75,136 $2,062,706 $2,137,842 Distributions (65,153) (384,847) (450,000) Net income 155,864 233,795 389,659 --------- ---------- ---------- Balances, December 31, 1991 165,847 1,911,654 2,077,501 Distributions (9,630) (40,370) (50,000) Net loss (269,903) (404,854) (674,757) --------- ---------- ---------- Balances, December 31, 1992 $(113,686) $1,466,430 $1,352,744 ========= ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 4 SUN-FLEX, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1992
1991 1992 ---- ---- Cash flows from operating activities: Net income (loss) $ 389,659 $(674,757) Adjustments to reconcile net income (loss) to cash from operating activities: Provision for doubtful accounts 28,924 Depreciation and amortization 395,293 402,736 Changes in assets and liabilities: Accounts receivable 41,721 260,589 Receivable from affiliate 66,524 30,988 Inventories (94,819) (31,648) Prepaid expenses (102,189) 45,936 Accounts payable 147,672 2,699 Accrued expenses and other current liabilities (586,232) (72,653) --------- --------- Net cash provided by (used in) operating activities 257,629 (7,186) --------- --------- Cash flows from investing activities: Purchases of property and equipment (91,125) (177,360) Other (8,604) --------- --------- Net cash used in investing activities (99,729) (177,360) --------- --------- Cash flows from financing activities: Borrowing under line of credit 100,000 Payments of partners' distributions (450,000) (50,000) --------- --------- Net cash provided by (used in) financing activities (450,000) 50,000 --------- --------- Net decrease in cash (292,100) (134,546) Cash, beginning of year 516,281 224,181 --------- --------- Cash, end of year $ 224,181 $ 89,635 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Foreign income taxes paid $26,122 $20,169 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 5 SUN-FLEX, L.P. (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------- 1. Partnership: ----------- Sun-Flex, L.P. (the Partnership) was a limited partnership organized under the state laws of California in October 1990 and commenced operations on November 1, 1990, concurrent with the purchase of the operating assets of an existing business from Sun-Flex Company, Inc. and Daca International B.V. (the Acquisition). The general partner was Micromesh Corporation. The Partnership was formed to manufacture, sell and distribute micromesh and glass filters for cathode ray tube terminals. The Partnership's manufacturing facilities were maintained by its wholly owned subsidiary, Sun-Flex Ireland Limited in Sligo, Ireland. The subsidiary was responsible for manufacturing the product, which was sold exclusively to the Partnership. The Partnership then sold the product to distributors and end-users. The Partnership was funded by Micromesh Corporation, as the general partner, contributing $20,000 in cash and the limited partners contributing $1,980,000 in cash. The Partnership agreement prescribed that taxable income shall be allocated 40% to the general partner and 60% to the limited partners equally in proportion to the amount of their respective capital contributions as of the last day of such taxable year. Cash available for distribution, as determined by the general partner, shall be allocated 1% to the general partner and 99% to the limited partners equally in proportion to the amount of their respective capital contributions until each of them has received cumulative distributions equal to their respective initial contributions. Thereafter, distributions shall be made 40% to the general partner and 60% to the limited partners equally in proportion to the amount of their respective capital contributions as of the date on which such distribution is being made. Effective October 31, 1994, the Partnership was purchased by Southwall Technologies Inc. for approximately $500,000, which will only be paid from the Partnership's operating income, if any, over the four year period ending in 1998. The Partnership was dissolved upon purchase by Southwall Technologies Inc. and is now operated as a subsidiary of Southwall Technologies Inc. Continued 6 SUN-FLEX, L.P. (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. Summary of Significant Accounting Policies: ------------------------------------------ Financial Statement Presentation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary (see Note 1). All significant intercompany accounts and transactions have been eliminated. Foreign Currency Translation: The U.S. dollar is considered to be the functional currency for the Company's foreign operation. Accordingly, nonmonetary assets and liabilities have been translated into U.S. dollars at a historical rate; monetary assets and liabilities have been translated into U.S. dollars using the exchange rate at the balance sheet date, and revenues and expenses have been generally translated into U.S. Dollars at the weighted average exchange rate during the period. Foreign currency transaction gains and losses, as well as the effects of translation are included in the accompanying statements of operations. Cash and Cash Equivalents: The Company considers all highly liquid investments with maturities of three months or less from date of purchase to be cash equivalents. Concentration of Credit Risk: The Company's cash and cash equivalents were on deposit with a local U.S. and an Irish financial institution. These deposits bear the credit risk associated with the financial institutions. Foreign accounts receivables comprised 81% and 52% of total receivables at December 31, 1991 and 1992, respectively. At December 31, 1992, no single customer comprised more than 10% of total accounts receivable. Two international distributors represented 46% and 16% of total accounts receivable at December 31, 1991. Continued 7 SUN-FLEX, L.P. (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. Summary of Significant Accounting Policies, continued: ------------------------------------------ The Company sells and licenses its products to companies across many industries, directly and through distributors and value-added resellers. The Company generally does not require collateral and performs ongoing credit evaluations of its customers. The Company maintains an allowance for credit losses and such losses have been within management's expectations. Inventories: Inventories are stated at the lower of weighted average cost (which approximates first-in, first-out basis) or market. Property and Equipment: Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets which are five years for machinery and equipment, seven years for furniture and fixtures and three and one-half years for tooling which is maintained overseas. Upon the disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are included in operations. Organization Costs: Organization costs are amortized on a straight-line basis over five years. Accumulated amortization was $9,794 and $18,192 at December 31, 1991 and 1992, respectively. Patents: Patents were recorded in the Acquisition at their estimated fair value on that date. Amortization is calculated using a straight-line basis over an estimated life of ten years, which is the shorter of the term remaining under the patent or the related life cycle of the product covered by the patent. Accumulated amortization was $29,162 and $54,158 at December 31, 1991 and 1992, respectively. Continued 8 SUN-FLEX, L.P. (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. Summary of Significant Accounting Policies, continued: ------------------------------------------ Revenue Recognition: Revenue is recognized upon shipment of the product to the customer. Research and Development: Research and development expenditures are charged to operations as incurred. Advertising Costs: Advertising costs are charged to operations as incurred. Advertising costs were $51,583 and $75,357 in 1991 and 1992, respectively. Income Taxes: The individual partners report their proportionate share of the Partnership's net income or loss for income tax purposes. Accordingly, no provision for U.S. federal and state income taxes has been provided in these financial statements. Taxes on the foreign subsidiary are based on the local tax rates, and are determined using the liability method for calculating deferred income taxes and are included in the consolidated results of operations. The foreign deferred income tax assets and liabilities as of December 31, 1991 and 1992 were not material. Continued 9 SUN-FLEX, L.P. (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 3. Consolidated Balance Sheet Detail: --------------------------------- INVENTORIES: Inventories at December 31, 1991 and 1992 consisted of:
1991 1992 ---- ---- Finished goods for resale $ 42,326 $103,990 Raw materials 119,858 89,842 -------- -------- $162,184 $193,832 ======== ========
PROPERTY AND EQUIPMENT Property and equipment at December 31, 1991 and 1992 consisted of:
1991 1992 ---- ---- Tooling $ 46,358 $ 217,286 Machinery and equipment 1,283,138 1,289,017 Furniture and fixtures 26,647 27,201 ---------- ---------- $1,356,143 $1,533,504 Less accumulated depreciation (373,346) (742,689) ---------- ---------- $ 982,797 $ 790,815 ========== ==========
Depreciation expense for the years ended December 31, 1991 and 1992 was $320,991 and $369,343, respectively. Continued 10 SUN-FLEX, L.P. (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ------ 3. Consolidated Balance Sheet Detail, continued: --------------------------------- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: Accrued expenses and other current liabilities at December 31, 1991 and 1992 consisted of:
1991 1992 ---- ---- Commissions payable and payroll related liabilities $ 58,231 $ 76,133 Customer rebates payable 71,853 17,924 Professional fees payable 69,896 47,129 Income taxes payable 37,088 36,977 Other liabilities 15,848 34,383 -------- -------- $252,916 $212,546 ======== ========
4. Note Payable to Bank: -------------------- In May 1992, the Partnership obtained a working capital line of credit from a bank. The line of credit agreement provided for borrowings of 80% of eligible domestic accounts receivable and 60% of eligible international accounts receivable not to exceed $1,000,000. The borrowings bore interest at the bank's prime rate plus 1.5% (7.5% as of December 31, 1992). Borrowings under the line of credit agreement were collateralized by substantially all the assets of the Partnership and are subject to certain restrictive covenants regarding minimum cash flows, profitability, tangible net worth, current ratios and debt ratios. The Partnership was not in compliance with two covenants at December 31, 1992. The Partnership had borrowed $100,000 against this line as of December 31, 1992 and this amount was repaid in 1993. Continued 11 SUN-FLEX, L.P. (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. Commitments: ----------- The Partnership rented its office facility in Sunnyvale, California, and its manufacturing facility in Sligo, Ireland, as well as certain equipment under noncancelable operating leases. Under the terms of the facility lease agreements, the Partnership was responsible for taxes and insurance relating to the facilities. Future minimum lease payments are as follows: 1993 $105,792 1994 58,392 1995 48,735 1996 48,735 1997 48,735 Thereafter 113,715 -------- $424,104 ======== Rent expense for the years ended December 31, 1991 and 1992 were $77,073 and $78,112, respectively. 6. Related Party Transactions: -------------------------- The Partnership and Oktel, L.P. (Oktel) were related parties under common control and management. During 1992, the Partnership reimbursed Oktel for expenses of $198,639 paid by Oktel on behalf of the partnership. Continued 12 SUN-FLEX, L.P. (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 7. Income Taxes: ------------ Domestic and foreign components of pretax income are as follows:
1991 1992 ---- ---- Domestic $393,755 $(680,685) Foreign 20,161 25,986 -------- --------- Pre-tax income (loss) $413,916 $(654,699) ======== =========
The Company's effective foreign tax rate differs from the foreign statutory rate of 10% due to certain permanent differences which are not tax deductible which include interest charges from a non-resident parent company and other expenses. 13 [LOGO] Sunflex, L.P. (a California Limited Partnership) Consolidated Financial Statements December 31, 1993 [LETTERHEAD OF PRICE WATERHOUSE LLP] REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Sunflex, L.P. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations of partners' capital and of cash flows present fairly, in all material respects, the financial position of Sunflex, L.P. (a California limited partnership) and its subsidiary at December 31, 1993, and the results of their operations and their cash flows for the year, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/PRICE WATERHOUSE LLP ----------------------- Price Waterhouse LLP San Jose, California August 8, 1995 Sunflex, L.P. (a California limited partnership) Consolidated Balance Sheet December 31, 1993 -------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 393,000 Accounts receivable, less allowance for doubtful accounts of $4,000 474,000 Inventories 207,000 Prepaid expenses 27,000 ---------- Total current assets 1,101,000 Property and equipment, net 415,000 Patents, net 171,000 Organization costs, net 15,000 Long term deposits 9,000 ---------- Total assets $1,711,000 ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable $ 222,000 Accrued expenses and other current liabilities 123,000 Note payable--current portion 200,000 ---------- Total liabilities 545,000 Notes payable 289,000 Commitments (Note 5) Partners' capital 877,000 ---------- Total liabilities and partners' capital $1,711,000 ==========
The accompanying notes are an integral part of these consolidated financial statements. Sunflex, L.P. (a California limited partnership) Consolidated Statement of Operations Year Ended December 31, 1993 -------------------------------------------------------------------------------- Net sales $2,417,000 Cost of goods sold 1,484,000 ---------- Gross profit 933,000 ---------- General and administrative 533,000 Research and development 79,000 Selling and marketing 752,000 ---------- Total costs and expenses 1,364,000 Operating loss (431,000) Interest expense (23,000) Interest income 5,000 Foreign currency loss (20,000) ---------- Loss before provision for foreign income taxes (469,000) Provision for foreign income taxes (7,000) ---------- Net loss $ (476,000) ==========
The accompanying notes are an integral part of these consolidated financial statements. Sunflex, L.P. (a California limited partnership) Consolidated Statement of Partners' Capital Year Ended December 31, 1993 -------------------------------------------------------------------------------- General Limited Partner Partners Total Balance at December 31, 1992 $(113,000) $1,466,000 $1,353,000 Net loss (190,000) (286,000) (476,000) --------- ---------- ---------- Balance at December 31, 1993 $(303,000) $1,180,000 $ 877,000 ========= ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. Sunflex, L.P. (a California limited partnership) Consolidated Statement of Cash Flows Year Ended December 31, 1993
-------------------------------------------------------------------------------- Year Ended December 31, 1993 Cash flows from operating activities: Net loss $(476,000) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization 416,000 Changes in assets and liabilities: Accounts receivable 69,000 Inventories (13,000) Prepaid expenses 29,000 Accounts payable (15,000) Accrued expenses and other current liabilities (90,000) --------- Net cash used in operating activities (80,000) --------- Cash flows from investing activities: Purchases of property and equipment (6,000) --------- Net cash used in investing activities (6,000) --------- Cash flows from financing activities: Note payable to Partners 489,000 Payments on line of credit (100,000) --------- Net cash provided by financing activities 389,000 --------- Net increase in cash 303,000 Cash and cash equivalents, beginning of year 90,000 --------- Cash and cash equivalents, end of year $ 393,000 ========= Supplemental cash flow information: Foreign income taxes paid $ 23,000 ========= Interest paid $ 23,000 =========
The accompanying notes are an integral part of these consolidated financial statements. Sunflex, L.P. (a California limited partnership) Notes to Consolidated Financial Statements December 31, 1993 -------------------------------------------------------------------------------- 1. Partnership Sunflex, L.P. (the Partnership) was a limited partnership organized under the state laws of California in October 1990 and commenced operations on November 1, 1990, concurrent with the purchase of the operating assets of an existing business. The general partner was Micromesh Corporation. The Partnership was formed to manufacture, sell and distribute micromesh and glass filters for cathode ray tube terminals. The Partnership's manufacturing facilities are maintained by its wholly-owned subsidiary, Sunflex Ireland Limited in Sligo, Ireland. The subsidiary was responsible for manufacturing the Partnership's products. The Partnership was funded by Micromesh Corporation, as the general partner, contributing $20,000 in cash and the limited partners contributing $1,980,000 in cash. The Partnership agreement prescribed that taxable income or loss shall be allocated 40% to the general partner and 60% to the limited partners equally in proportion to the amount of their respective capital contributions as of the last day of such taxable year. Cash available for distribution, as determined by the general partner, was allocated 1% to the general partner and 99% to the limited partners equally in proportion to the amount of their respective capital contributions until each of them has received cumulative distributions equal to their respective initial contributions. Thereafter, distributions would be made 40% to the general partner and 60% to the limited partners equally in proportion to the amount of their respective capital contributions as of the date on which such distribution is being made. Effective October 31, 1994, the Partnership was purchased by Southwall Technologies Inc. (Southwall) for approximately $500,000, which will only be paid from the Partnership's operating income, if any, over the four year period ending in 1998. The Partnership was dissolved upon purchase by Southwall and is now operated as a subsidiary of Southwall. 2. Summary of Significant Accounting Policies Financial Statement Presentation The consolidated financial statements include the accounts of the Partnership and its wholly owned subsidiary (see Note 1). All significant intercompany accounts and transactions have been eliminated. Sunflex, L.P. (a California limited partnership) Notes to Consolidated Financial Statements December 31, 1993 -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION The U.S. dollar is considered to be the functional currency for the Partnership's foreign operation. Accordingly, nonmonetary assets and liabilities have been translated into U.S. dollars at a historical rate; monetary assets and liabilities have been translated into U.S. dollars using the exchange rate at the balance sheet date, and revenues and expenses have been generally translated into U.S. dollars at the weighted average exchange rate during the period. Foreign currency transaction gains and losses, as well as the effects of translation are included in the accompanying statements of operations. CASH AND CASH EQUIVALENTS The Partnership considers all highly liquid investments with maturities of three months or less from date of purchase to be cash equivalents. CONCENTRATION OF CREDIT RISK The Partnership's cash and cash equivalents were on deposit with a local U.S. and an Irish financial institution. These deposits bear the credit risk associated with the financial institutions. Foreign accounts receivable comprised 70% of total receivables at December 31, 1993. At December 31, 1993, three international distributors accounted for 16%, 14% and 11% of total accounts receivable, respectively. One international distributor represented 19% of total revenues for the year ended December 31, 1993. The Partnership sells and licenses its products to companies across many industries, directly and through distributors and value-added resellers. The Partnership generally does not require collateral and performs ongoing credit evaluations of its customers. The Partnership maintains an allowance for credit losses and such losses have been within management's expectations. INVENTORIES Inventories are stated at the lower of weighted average cost (which approximates first-in, first-out basis) or market. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is generally provided over five years for machinery and equipment and over seven years for furniture and fixtures. Tooling, which is maintained overseas, is depreciated on a straight-line basis over three years. Upon the disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or losses are included in operations. Sunflex, L.P. (a California limited partnership) Notes to Consolidated Financial Statements December 31, 1993 -------------------------------------------------------------------------------- Organization Costs Organization costs are amortized on a straight-line basis over five years. Accumulated amortization was $27,000 at December 31, 1993. Patents Patents were recorded in the 1990 acquisition at their estimated fair value at that time. Amortization is calculated using a straight-line basis over an estimated life of ten years, which is the shorter of the term remaining under the patent or the related life cycle of the product covered by the patent. Accumulated amortization was $79,000 at December 31, 1993. Revenue Recognition Revenue is recognized upon shipment of the product to the customer. Research and Development Research and development expenditures are charged to operations as incurred. Advertising Cost Advertising costs are charged to operations as incurred. Advertising costs were $5,000 in 1993. Income Taxes The individual partners report their proportionate share of the Partnership's net income or loss for income tax purposes. Accordingly, no provision for U.S. federal and state income taxes has been provided in the financial statements. Taxes on the foreign subsidiary are based on the local tax rates, are determined using the liability method for calculating deferred income taxes and are included in the consolidated results of operations. The foreign deferred income tax assets and liabilities as of December 31, 1993 were not material. 3. Consolidated Balance Sheet Detail Inventories at December 31, 1993 consisted of: Finished goods for resale $158,000 Raw materials 49,000 -------- $207,000 ======== Sunflex, L.P. (a California limited partnership) Notes to Consolidated Financial Statements December 31, 1993 -------------------------------------------------------------------------------- Property and equipment at December 31, 1993 consisted of: Tooling $ 222,000 Machinery and equipment 1,291,000 Furniture and fixtures 27,000 ---------- 1,540,000 1,125,000 ---------- $ 415,000 ==========
Depreciation expense was $382,000 in 1993. Accrued expenses and other current liabilities at December 31, 1993 consisted of: Customer rebates payable $ 29,000 Commissions and payroll related liabilities 38,000 Professional fees payable 25,000 Other liabilities 31,000 ---------- $ 123,000 ==========
4. NOTES PAYABLE Notes payable is comprised of loans aggregating $489,000 obtained on September 1, 1993 from the general partner and certain other limited partners of the Partnership. The notes bear interest at 10% per annum, with monthly interest only payments starting on September 30, 1993. In 1994, payments aggregating $200,000 were made to the partners and the balance was converted to partnership capital in conjunction with the acquisition of the Partnership by Southwall (Note 1). Sunflex, L.P. (a California limited partnership) Notes to Consolidated Financial Statements December 31, 1993 -------------------------------------------------------------------------------- 5. Commitments The Partnership rented its office facility in Sunnyvale, California, and its manufacturing facility in Sligo, Ireland, as well as certain equipment under noncancelable operating leases. Under the terms of the facility lease agreements, the Partnership is responsible for taxes and insurance relating to the facilities. Future minimum lease payments were as follows: 1994 $ 93,000 1995 49,000 1996 49,000 1997 49,000 1998 49,000 Thereafter 61,000 -------- $350,000 ======== Rent expense for the year ended December 31, 1993 was $100,000. 6. Related Party Transactions The Partnership and Oktel, L.P. (Oktel) were related parties under common control and management. During 1993, the Partnership reimbursed Oktel for expenses of $270,000 paid by Oktel on behalf of the Partnership. 7. Income Taxes Domestic and foreign components of pretax loss are as follows for the year ended December 31, 1993: Domestic $(275,000) Foreign (194,000) --------- Pre-tax loss $(469,000) ========= The Company's effective foreign tax rate differs from the foreign statutory rate of 10% due to certain permanent differences which are not tax deductible, which include interest charges from a nonresident parent company, other expenses and minimum tax liabilities. SOUTHWALL TECHNOLOGIES INC. AND SUNFLEX, L.P. PRO FORMA COMBINED FINANCIAL INFORMATION SOUTHWALL TECHNOLOGIES INC. AND SUNFLEX, L.P. PRO FORMA COMBINED FINANCIAL INFORMATION INTRODUCTORY STATEMENT Effective October 31, 1994, pursuant to a Purchase Agreement among Southwall Technologies Inc. (the "Company"), Southwall-Sunflex, Inc. (a wholly- owned subsidiary of the Southwall), Sunflex, L.P. ("Sunflex") and the Sunflex Partners dated October 25, 1994, the Company, through its wholly-owned subsidiary, Southwall-Sunflex, Inc. purchased all of the outstanding partnership interests in Sunflex, a California limited partnership. The Company acquired Sunflex for an aggregate purchase price equal to the net book value of Sunflex, approximately $500,000, which will be fully paid over the next four calendar years only if Sunflex's operating income meets or exceeds $800,000. Partial payments may be made based on a formula and the amount, if any, of operating income. The acquisition was accounted for as a purchase. Sunflex assembles and markets aftermarket mesh, glass and film anti- reflective filters primarily for personal computer monitors. On March 1, 1995, the Company filed its Annual Report on Form 10-K for the year ended December 31, 1994. The consolidated balance sheet as of December 31, 1994 included in the aforementioned Form 10-K includes Southwall-Sunflex, Inc. and, accordingly, a pro forma combined balance sheet will not be presented in this Current Report on Form 8-K. The following unaudited pro forma combined statements of operations give effect to the acquisition of Sunflex by Southwall as if the acquisition had taken place as of the beginning of the periods presented. The unaudited pro forma combined statements of operations for the years ended December 31, 1993 and 1994, give effect to the combination by combining the results of operations of the Company for the year ended December 31, 1993 and 1994, with the results of operations of Sunflex for the years ended December 31, 1993 and 1994. The results of operations of Sunflex for the two-month period ended December 31, 1994 are included in the results of operations of the Company for the year ended December 31, 1994. The unaudited pro forma combined statements of operations do not necessarily indicate the operating results that would have been achieved had the transaction been in effect as of the beginning of the periods presented and should not be construed as representative of future operations. 2 SOUTHWALL TECHNOLOGIES INC. AND SUNFLEX, L.P. PRO FORMA COMBINED STATEMENT OF OPERATIONS (Amounts in thousands, except per share data) (unaudited)
Year Ended December 31, 1993 ------------------------------------------------------ Pro Forma ------------------------- Southwall Sunflex Adjustments Combined --------- ------- ----------- -------- Net Revenues $18,501 $2,417 $20,918 Costs and Expenses: Cost of revenues 13,128 1,484 14,612 Research & development 2,068 79 2,147 Selling, general & administrative 4,814 1,285 (356) 5,743 ------- ------ ----- ------- Total Costs & Expenses 20,010 2,848 (356) 22,502 Loss from operations (1,509) (431) 356 (1,584) Interest income (expense), net 191 (38) 153 ------- ------ ----- ------- Income before taxes (1,318) (469) 356 1,431 Provision for income taxes 6 7 13 ------- ------ ----- ------- Net loss $(1,324) $ (476) $ 356 $(1,444) ======= ====== ===== ======= Net loss per share $ (.23) $ (.25) ======= ======= Weighted average shares of common stock and dilutive common stock equivalents 5,792 5,792 ======= =======
3 SOUTHWALL TECHNOLOGIES INC. AND SUNFLEX, L.P. PRO FORMA COMBINED STATEMENT OF OPERATIONS (Amounts in thousands, except per share data) (unaudited)
Year Ended December 31, 1993 ------------------------------------------------------ Pro Forma ------------------------- Southwall Sunflex Adjustments Combined --------- ------- ----------- -------- Net Revenues $21,739 $1,551 $23,290 Costs and Expenses: Cost of revenues 17,247 1,199 18,446 Research & development 2,310 78 2,388 Selling, general & administrative 6,095 962 (308) 6,749 ------- ------ ----- ------- Total Costs & Expenses 25,652 2,239 (308) 27,583 Loss from operations (3,913) (688) 308 (4,293) Interest income (expense), net 24 (31) (7) ------- ------ ----- ------- Income before taxes (3,889) (719) 308 (4,300) Provision for income taxes (1) 17 16 ------- ------ ----- ------- Net loss $(3,888) $ (736) $ 308 $(4,316) ======= ====== ===== ======= Net loss per share $ (.67) $ (.74) ======= ======= Weighted average shares of common stock and dilutive common stock equivalents 5,808 5,808 ======= =======
4 SOUTHWALL TECHNOLOGIES INC. AND SUNFLEX, L.P. NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS (unaudited) The following is an explanation of the pro forma adjustments:
Year Ended Year Ended Adjustment December 31, 1993 December 31, 1994 ---------- ----------------- ----------------- Note 1 $230 $227 Note 2 36 30 Note 3 55 22 Note 4 35 29 ---- ---- $356 $308 ==== ====
NOTE 1. Several of the positions at Sunflex have been eliminated as a result of the acquisition, including the positions of the president, controller and an international sales manager. These positions are redundant with those already in existence at the Company and the Company will provide these functions with no increase in their existing staff. NOTE 2. At the time of the acquisition, the Company moved the Sunflex operations to the Company's existing space in order to save facility costs and better utilize existing space. The new facilities occupied by the Sunflex operations are less expensive than those vacated by Sunflex. NOTE 3. Sunflex incurred outside accounting and legal services that will be significantly reduced as a result of the acquisition. NOTE 4. The Company will amortize the negative goodwill of $105,000 associated with the transaction over a period of three years, resulting in reduced general and administrative costs. 5 INDEX TO EXHIBITS
Exhibit Sequential Number Exhibit Descriptions Page Number ------- -------------------- ----------- 10.81* Purchase Agreement Among Southwall N/A Technologies Inc., Southwall-Sunflex, Inc., Sunflex, L.P. and the Sunflex Partners effective October 31, 1994. 23.1 Consent of Price Waterhouse LLP, independent accountants. 23.2 Consent of Coopers & Lybrand LLP, independent accountants.
________________ * Previously filed as an exhibit to Registrant's Form 10-K for the year ended December 31, 1994. 6
EX-23.1 2 CONSENT OF PRICE WATERHOUSE Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements of Southwall Technologies Inc. on Form S-8 Nos. 33-28599 (filed on May 9, 1989), 33-37247 (filed on October 11, 1990), 33-42753 (filed on September 16, 1991) and 33-51758 (filed on September 8, 1992) of our report dated August 8, 1995 appearing on page 20 of this Current Report on Form 8-K dated August 14, 1995. /s/ PRICE WATERHOUSE LLP ------------------------ Price Waterhouse LLP San Jose, California August 14, 1995 EX-23.2 3 CONSENT OF COOPERS & LYBRAND Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Southwall Technologies Inc. on Form S-8 Nos. 33-28599 (filed on May 9, 1989), 33-37247 (filed on October 11, 1990), 33-42753 (filed September 16, 1991) and 33-51758 (filed September 8, 1992) of our report dated July 7, 1995 on our audits of the consolidated financial statements of Sun-Flex, L.P. as of and for the years ended December 31, 1991 and 1992 which report is included in this current report on Form 8-K. /s/ COOPERS & LYBRAND L.L.P. ---------------------------- Coopers & Lybrand L.L.P. San Jose, California August 14, 1995