UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 22, 2000
AVANEX CORPORATION
(Exact name of registrant as specified in its charter)
40919 Encyclopedia Circle
Fremont, California 94538
(Address of principal executive offices including zip code)
(510) 897-4188
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
This form 8-K/A amends form 8-K filed with the Securities and Exchange Commission on June 6, 2000 by including the financial statements and pro forma financial information referred to below.
Item 5. Other Events
Avanex Corporation (Avanex) has included herein the financial statements of Holographix, Inc. (Holographix) for the years ended December 31 1999, 1998 and 1997, for the three months ended March 31, 2000 and the pro forma financial information giving effect to the merger between Avanex and Holographix.
Item 7. Financial Statements and Pro Forma Information
(a) Financial Statements of Business Acquired
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
Report of Independant Accountants
Balance Sheets
Statements of Operations
Statement of Stockholders' Deficit
Statements of Cash Flows
Notes to Financial Statements
UNAUDITED INTERIM FINANICALS
MARCH 31, 2000
Balance Sheet
Statement of Operations
Statement of Cash Flows
Notes to Financial Statements
HOLOGRAPHIX, INC.
Financial Statements
December 31, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors
Holographix, Inc.:
We have audited the accompanying balance sheets of Holographix, Inc. as of December 31, 1999, 1998 and 1997, and the related statements of operations, stockholders' deficit and cash flows for each of the years in the three-year period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 financial position of Holographix, Inc. as of December 31, 1999, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the financial statements, the Company has working capital and stockholders' deficiencies that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
March 27, 2000
HOLOGRAPHIX, INC.
Balance Sheets
December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
Assets (note 4)
Current assets:
Cash and cash equivalents............... $ 187,161 $ 104,780 $ 189,239
Accounts receivable..................... 129,590 146,232 37,409
Inventories (note 7).................... 31,249 99,634 61,769
Prepaid expenses........................ 6,496 7,450 5,793
Other assets............................ -- 12,496 --
----------- ----------- -----------
Total current assets.............. 354,496 370,592 294,210
----------- ----------- -----------
Equipment and furniture:
Equipment 750,645 723,332 657,789
Leasehold improvements.................. 85,922 80,922 80,922
Furniture and fixtures.................. 75,729 75,729 75,729
----------- ----------- -----------
Total equipment and furniture..... 912,296 879,983 814,440
Less accumulated depreciation and
amortization.. (799,552) (751,281) (706,415)
----------- ----------- -----------
Net equipment and furniture....... 112,744 128,702 108,025
----------- ----------- -----------
Total assets...................... $ 467,240 $ 499,294 $ 402,235
=========== =========== ===========
Liabilities and Stockholders' Deficit
Current liabilities:
Secured notes payable (note 4).......... $ 260,000 $ 260,000 $ 260,000
Demand notes payable (note 4)........... 584,922 584,922 1,084,922
Trade accounts payable.................. 65,705 94,104 57,683
Accrued expenses........................ 21,239 19,062 42,086
Accrued interest (note 6)............... 511,859 419,537 938,531
Deferred compensation (note 6).......... 222,195 222,195 222,195
Customer deposits....................... 23,343 114,451 292,295
----------- ----------- -----------
Total current liabilities......... 1,689,263 1,714,271 2,897,712
----------- ----------- -----------
Commitments and contingencies
(notes 3, 6 and 11)
Redeemable convertible preferred stock,
voting, par value $.01 per share;
3,000,000 shares; issued and outstanding
633,334, 1,266,667 and 1,266,667 shares
and authorized liquidation preference
$750,000, $1,500,000 and 1,500,000 at
December 31, 1999, 1998 and 1997,
respectively (note 9)................... 1,295,069 2,463,470 2,336,804
----------- ----------- -----------
Stockholders' deficit (notes 9 and 10):
Common stock, voting, par value $.01 per
share; authorized 5,000,000 shares;
issued and outstanding 226,089,
191,089 and 177,089 shares at
December 31, 1999, 1998 and 1997,
respectively.......................... 2,261 1,911 1,771
Additional paid-in capital.............. 854,362 105,107 105,157
Accumulated deficit..................... (3,373,715) (3,785,465) (4,939,209)
----------- ----------- -----------
Total stockholders' deficit....... (2,517,092) (3,678,447) (4,832,281)
----------- ----------- -----------
Total liabilities and
stockholders' deficit........... $ 467,240 $ 499,294 $ 402,235
=========== =========== ===========
See accompanying notes to financial statements.
HOLOGRAPHIX, INC.
Statements of Operations
Years ended December 31, 1999, 1998 and 1997
1999 1998 1998
---------- ---------- ----------
Net sales (note 12)............................. $1,340,251 $1,632,003 $1,773,978
Cost of goods sold.............................. 851,746 975,756 1,415,540
---------- ---------- ----------
Gross profit................................ 488,505 656,247 358,438
Operating expenses.............................. 413,824 402,800 447,432
---------- ---------- ----------
Operating income (loss)..................... 74,681 253,447 (88,994)
---------- ---------- ----------
Other income (expenses):
Other income.................................. 8,050 -- --
Interest income............................... 3,272 7,969 7,365
Interest expense.............................. (92,654) (212,259) (208,949)
---------- ---------- ----------
Net (loss) income before
extraordinary item........................ (6,651) 49,157 (290,578)
Extraordinary gain on debt extinguishment
(note 4)...................................... -- 1,231,254 --
---------- ---------- ----------
Net (loss) income........................... $ (6,651) $1,280,411 $ (290,578)
Preference dividends.......................... (110,833) (126,667) (126,667)
---------- ---------- ----------
Net (loss) income available to
common stockholders....................... $ (117,484) $1,153,744 $ (417,245)
========== ========== ==========
Basic earnings per common share:
Net loss before extraordinary gain............ $ (0.57) $ (0.43) $ (3.55)
Extraordinary gain............................ -- 6.87 --
---------- ---------- ----------
Net (loss) income per common share.......... $ (0.57) $ 6.44 $ (3.55)
========== ========== ==========
Weighted average common shares outstanding... 204,509 179,209 117,545
========== ========== ==========
Diluted earnings per common share:
Net loss income before extraordinary gain..... $ (0.57) $ (0.43) $ (3.55)
Extraordinary gain............................ -- 6.87 --
---------- ---------- ----------
Net (loss) income per common share.......... $ (0.57) $ 6.44 $ (3.55)
========== ========== ==========
Weighted average common shares outstanding.... 204,509 179,209 117,545
========== ========== ==========
See accompanying notes to financial statements.
HOLOGRAPHIX, INC.
Statements of Stockholders Deficit
Years ended December 31, 1999, 1998 and 1997
Total
Additional stock-
Common paid-in Accumulated holders
stock capital deficit deficit
-------- ----------- ----------- -----------
Balance, December 31, 1996.... $ 1,129 $ 105,451 $(4,521,964) $(4,415,384)
Common stock issued......... 642 (294) - 348
Preferred share dividends... - - (126,667) (126,667)
Net loss.................... - - (290,578) (290,578)
-------- ----------- ----------- -----------
Balance, December 31, 1997.... 1,771 105,157 (4,939,209) (4,832,281)
Common stock issued......... 140 (50) - 90
Preferred share dividends... - - (126,667) (126,667)
Net income.................. - - 1,280,411 1,280,411
-------- ----------- ----------- -----------
Balance, December 31, 1998.... 1,911 105,107 (3,785,465) (3,678,447)
Common stock issued......... 350 (112) - 238
Preferred share dividends... - - (110,833) (110,833)
Net loss.................... - - (6,651) (6,651)
Retirement of preferred
shares.................... - 749,367 529,234 1,278,601
-------- ----------- ----------- -----------
Balance, December 31, 1999.... $ 2,261 $ 854,362 $(3,373,715) $(2,517,092)
======== =========== =========== ===========
See accompanying notes to financial statements.
HOLOGRAPHIX, INC.
Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net (loss) income ................................... $ (6,651) 1,280,411 (290,578)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Extraordinary item............................... -- (1,231,254) --
Depreciation and amortization.................... 48,271 44,864 40,174
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable..... 16,642 (108,823) (10,709)
Decrease (increase) in inventories............. 68,385 (37,865) 236,592
Decrease (increase) in prepaid expenses........ 954 (1,657) (41)
Decrease (increase) in other assets............ 12,496 (12,496) --
(Decrease) increase in trade accounts payable.. (28,399) 36,421 (137,837)
Increase (decrease) in accrued expenses
and interest................................. 94,499 189,236 204,882
Decrease in deferred revenue................... (91,108) (177,844) (12,096)
----------- ----------- -----------
Net cash provided by (used in)
operating activities....................... 115,089 (19,007) 30,387
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................................. (32,313) (65,542) (18,291)
Proceeds from disposal of equipment.................. -- -- 2,000
----------- ----------- -----------
Net cash used in investing activities........ (32,313) (65,542) (16,291)
----------- ----------- -----------
Cash flows from financing activities:
Notes payable repayments............................. -- -- (6,934)
Sale of common stock................................. 238 90 348
Repurchase and retirement of preferred stock......... (633) -- --
----------- ----------- -----------
Net cash (used in) provided by
financing activities....................... (395) 90 (6,586)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents..................................... 82,381 (84,459) 7,510
Cash and cash equivalents, beginning of year........... 104,780 189,239 181,729
----------- ----------- -----------
Cash and cash equivalents, end of year................. $ 187,161 $ 104,780 $ 189,239
=========== =========== ===========
Supplemental cash flow disclosures:
Extraordinary item (note 4).......................... $ -- $(1,231,254) $ --
=========== =========== ===========
Repurchase and retirement of preferred stock
(note 8)........................................... $ 1,279,234 $ -- $ --
=========== =========== ===========
Preferred share dividends in arrears (note 8)........ $ 110,833 $ 126,667 $ 126,667
=========== =========== ===========
See accompanying notes to financial statements.
HOLOGRAPHIX, INC.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
Holographix, Inc. (the "Company") is engaged in the design and manufacture of custom holographic based systems and replicated optics including gratings, mirrors, surface relief structures, and hybrid optics. The Company currently licenses, designs and manufactures custom scanning systems as well as custom holographic and optical components. Holographix's development and manufacturing facility is located in Hudson, Massachusetts.
Most of the Company's customers are located in the United States and Europe.
(b) Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market.
(d) Equipment, Furniture and Leasehold Improvements
Equipment, furniture and leasehold improvements are stated at cost.
(e) Depreciation and Amortization
Depreciation of equipment and furniture is calculated using the straight- line and accelerated methods over the estimated useful lives of the assets. Equipment held under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Estimated useful lives are as follows:
Equipment and furniture 5 - 10 years
Leasehold improvements 5 - 10 years
(f) Research and Development
Research and development costs are expensed as incurred and amounted to $327,267, $285,640, and $301,632 in 1999, 1998, and 1997, respectively.
(g) Income Taxes
The Company accounts for income taxes under the asset and liability method whereby deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
(h) Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
(i) Revenue Recognition
The Company recognizes revenue on product sales and consulting revenue when the related products are shipped or the related services are rendered.
(j) Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123,Accounting for Stock-Based Compensation,which established a fair value based method of accounting for stock-based compensation plans. Prior to its adoption of SFAS No. 123, the Company accounted for employee stock-based compensation under Accounting Principles Board ("APB") Opinion No. 25,Accounting for Stock Issued to Employees,which required the use of an intrinsic-value method of accounting for stock-based compensation. SFAS No. 123 allows the continued use of the intrinsic-value method of accounting prescribed by APB Opinion No. 25 as long as pro forma disclosures of net income (loss), as if the fair value method of accounting for stock-based compensation were applied, are presented.
(k) Fair Value of Financial Instruments
SFAS No. 107,Disclosures about Fair Value of Financial Instruments,defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and certain notes payable approximate fair value because of the short maturity of those instruments.
Notes payable which bear interest at the lowest applicable federal rate (see note 4) have an indeterminable fair value less than the carrying amount.
(l) Earnings Per Common Share
Basic earnings (loss) per common share has been computed by dividing: net income (loss) after preferred share dividends by the weighted-average number of shares of common stock outstanding during the year. When computing diluted earnings per common share, the Company assumes that the preferred stock is converted into common stock, unless the effect is anti-dillutive. Options to purchase common stock for the years ended December 31, 1999, 1998 and 1997 have not been included in these calculations of earnings per common share because the effect is anti-dilutive.
(2) Basis of Presentation
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company incurred net (loss) income of ($6,651), $1,280,411, and ($290,578) for the years ended December 31, 1999, 1998, and 1997, respectively. At December 31, 1999, the Company's negative working capital and stockholders' deficits were ($1,334,767) and ($2,517,092), respectively. These factors, among others, indicate that the Company may be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to obtain additional financing and ultimately to attain successful operations. The Company is currently in negotiations with a company regarding the sale of all of the Company's stock. Management is of the opinion that these negotiations will result in a formal agreement and that the Company will continue to meet its obligations and continue as a going concern.
(3) Leases
The Company, occupies office space under a noncancelable operating lease that expires in 2001. This lease requires the Company to pay all executory costs such as maintenance and insurance. Rental expense during 1999, 1998 and 1997 amounted to $48,686, $49,180 and $51,723 respectively. Future net minimum lease payments under all noncancelable operating leases as of December 31, 1999 are as follows:
Operating
Year ending December 31, lease
---------------------------------- ----------
2000........................... $ 36,465
2001........................... 13,047
2002........................... 1,338
2003........................... 279
----------
Total net minimum lease payments.. $ 51,129
==========
(4) Notes Payable
Notes payable at December 31, 1999, 1998 and 1997 consisted of the following:
1999 1998 1997
---------- ---------- ----------
Secured note payable, secured by
all assets of the Company and
due on demand to an investor.... $ 260,000 $ 260,000 $ 260,000
Note payable, due on demand,
to an investor.................. 500,000 500,000 500,000
12% notes payable, due on
demand, to an investor.......... -- -- 500,000
10% note payable, due on demand... 84,922 84,922 84,922
---------- ---------- ----------
$ 844,922 $ 844,922 $1,344,922
========== ========== ==========
Effective December 31, 1998, certain creditors agreed to forgive debt of $500,000 and accrued interest of $731,254. In addition, these creditors agreed to reduce the effective rate of interest on any existing debt ($760,000 at December 31, 1999 and 1998) to a rate equal to the lowest applicable federal rate for debt instruments with similar maturities and payment schedules determined pursuant to Section 1274(d) of the Internal Revenue Code of 1986 (6.1% and 4.6% at December 31, 1999 and 1998, respectively). The total amount of principal and accrued interest forgiven by the creditors has been recognized as an extraordinary item for the year ended December 31, 1998. The creditors also held certain of the Company's preferred stock at the time of debt forgiveness.
(5) Royalties
In 1996, the Company entered into licensing arrangements with various customers. In the first arrangement, the Company is responsible for the design of a holographic scanning unit and the production of prototypes. The customer is responsible for converting the design into a mass production product. A summary of the terms of the agreement is as follows:
- Royalties are payable semiannually as a percentage of total revenue from units sold, as defined in the licensing arrangement.
- The agreement is effective for the life of the patent assigned to the holographic scanning unit. However, if the customer has not generated a minimum cumulative product revenue from the product of $2 million within four years, the Company may terminate the agreement.
In the second arrangement, the Company is responsible for the design of an opto mechanical unit and the production of models. The customer is responsible for selling the units to third parties. Royalties are payable as a fixed payment per units sold and shipped as defined in the licensing arrangement.
The Company recognized royalties from the above arrangements of $52,229, $21,226 and $8,700 for the years ended December 31, 1999, 1998 and 1997, respectively.
(6) Deferred Compensation
As a result of cash flow difficulties from 1992 through 1995, the Company agreed with its then current employees to defer a portion of their compensation. The percentage of deferred compensation varied from 5% to 70%. In return, the Company agreed to pay such deferred compensation plus interest (at a rate of 10% per annum) when the Company improved its cash flow. The Company has made no payments against either the deferred compensation or the accrued interest amounts as of December 31, 1999.
(7) Inventories
Inventories at December 31, 1999, 1998 and 1997 consisted of the following:
1999 1998 1997
---------- ---------- ----------
Finished goods.................... $ 3,468 $ 15,532 $ 11,146
Work-in-process................... -- 10,125 83
Materials......................... 27,781 73,977 50,540
---------- ---------- ----------
$ 31,249 $ 99,634 $ 61,769
========== ========== ==========
(8)Income Taxes
The Company has net operating loss carryforwards available for financial reporting and income tax purposes of approximately $220,000 at December 31, 1999, expiring through 2011. During 1996, there was a change in stock ownership of the Company that exceeded 50%. A greater than 50% change in ownership of significant shareholders over a three year period could affect the use of this net operating loss. Pursuant to Section 382 of the Internal Revenue Code, the utilization of the Company's accumulated net operating losses of approximately $7,400,000 prior to the change in ownership were eliminated from utilization against future operating income. The net deferred tax asset is reduced by a valuation allowance because of the uncertainty of realization caused by continuing losses.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and a deferred tax liability are as follows:
December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Deferred tax assets:
Net operating loss and credit
carryforwards.................. $ 231,200 $ 218,400 $ 59,400
Accrued liabilities............. 185,500 172,800 92,200
Inventory....................... 21,500 43,200 5,100
---------- ---------- ----------
Total deferred tax amounts..... 438,200 434,400 156,700
Deferred tax liability:
Equipment, furniture and
leasehold improvements......... (3,500) (1,700) --
---------- ---------- ----------
Net deferred tax assets........... 434,700 432,700 156,700
Less: valuation allowance......... (434,700) (432,700) (156,700)
---------- ---------- ----------
$ -- $ -- $ --
========== ========== ==========
The net change in the valuation allowance for the years ended December 31, 1999, 1998 and 1997 was $2,000, $276,000 and $38,200, respectively. 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. Management has provided a valuation allowance based upon the level of historical taxable losses and projections for future taxable income over the periods during which the deferred tax assets are deductible.
(9) Redeemable Convertible Preferred Stock
The Company's redeemable convertible preferred stock has a liquidation preference of $750,000, $1,500,000 and $1,500,000 at December 31, 1999, 1998 and 1997, respectively, and carries a 10% per annum dividend, cumulative from the date of issue. Liquidation preference, as defined, is cost plus all accrued but unpaid dividends. Dividends in arrears were $545,069, $963,470 and $836,804 at December 31, 1999, 1998 and 1997, respectively. Preferred shareholders may, at their option, require the Company to repurchase their shares at cost plus accrued but unpaid dividends at any time. The redeemable convertible preferred stock is convertible at the option of the holder at any time into shares of common stock of the Company at an initial conversion rate of 1.18 shares of common stock for each share of redeemable convertible preferred stock, subject to adjustment for accrued and unpaid dividends.
On September 30, 1999, the Company repurchased and retired 633,333 shares of its preferred stock having a liquidation value of $1,279,234 for $633.
(10) Employee Stock Option Plan
In 1996, an incentive stock option plan was created for employees of the Company. Options granted under the plan vest 25% on the first anniversary of the date of grant and 6.25% per annual quarter thereafter. Vesting may be accelerated upon the sale of the Company or the majority of its assets to a third party. Options are priced at the fair market value of the common stock at the issue date as determined by the Board of Directors. The weighted average exercise price of all stock options issued under this plan is $0.01.
A summary of stock option activity for 1999, 1998 and 1997 follows:
1999 1998 1997
---------- ---------- ----------
Options outstanding, January 1.... 271,500 267,500 281,000
Options granted - $.01 each..... 109,500 8,000 --
Options exercised - $.01 each... (12,500) (4,000) (5,500)
Options canceled - $.01 each.... (12,500) -- (8,000)
---------- ---------- ----------
Options outstanding, December 31.. 356,000 271,500 267,500
========== ========== ==========
Employees are vested in 198,313 options outstanding at December 31, 1999.
Under the terms of the financing arrangements to carry out the Plan of Reorganization dated
January 14, 1991, an incentive stock option pool was created for employees of the Company. A maximum of 25% of capital was allocated to current employees and 5% was reserved for future employees. Options granted under the plan vest 25% at the date of grant and 25% on each subsequent anniversary date for three years. Vesting accelerates upon the sale of the Company or sale of a majority of its assets to a third party. Options were priced at the fair market value of common stock at the issue date as determined by the Board of Directors. The weighted average exercise price of all stock options under this plan are $0.005.
A summary of stock option activity in the 1991 Plan is as follows:
1999 1998 1997
---------- ---------- ----------
Options outstanding, January 1.... 293,750 303,750 382,500
Options exercised - $.005 each.. (22,500) (10,000) (58,750)
Options canceled - $.005 each... -- -- (20,000)
---------- ---------- ----------
Options outstanding, December 31.. 271,250 293,750 303,750
========== ========== ==========
Employees are vested in 271,250 options outstanding at December 31, 1999.
The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. In accordance with APB Opinion No. 25, no compensation cost has been recognized in connection with these plans. Had compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS No. 123, the effect on the Company's net income (losses) would have been insignificant.
On January 3, 2000, a new stock option plan was created,The 2000 Stock Option Plan, for employees, officers, directors of, and consultants to the Company. Between January 3, 2000 and February 28, 2000, stock options granted under this new plan to both employees and non-employees totaled 562,600, of which 62,000 vested immediately. The exercise price of these stock options ranges from $0.01 to $5.00.
(11) Contingencies
The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position.
(12) Major Customers
One customer accounted for 78%, 67% and 93% of the Company's sales in 1999, 1998 and 1997, respectively, and 88%, 94% and 93% of the Company's accounts receivable at December 31, 1999, 1998 and 1997, respectively. One other customer accounted for 26% of sales in 1998. No other customers accounted for more than 10% of sales in 1999, 1998 and 1997.
Sales to customers in foreign countries for the years ended December 31, 1999, 1998, and 1997 were $1,098,245, $1,515,336 and $1,679,972 respectively. At December 31, 1999, 1998 and 1997, accounts receivable from foreign customers totaled $137,460, $114,574 and $37,409, respectively.
HOLOGRAPHIX, INC.
Unaudited Financial Statements
March 31, 2000
HOLOGRAPHIX, INC.
Balance Sheet
March 31, 2000
(unaudited)
2000
-----------
Assets
Current assets:
Cash and cash equivalents............... $ 212,454
Accounts receivable..................... 242,466
Inventories (note 7).................... 44,108
Prepaid expenses........................ 8,626
Other assets............................ --
-----------
Total current assets.............. 507,654
-----------
Net equipment and furniture....... 109,102
-----------
Total assets...................... $ 616,756
===========
Liabilities and Stockholders' Deficit
Current liabilities:
Secured notes payable .................. $ 260,000
Demand notes payable ................... 584,922
Trade accounts payable.................. 158,720
Accrued expenses........................ 36,399
Accrued interest ....................... 536,873
Deferred compensation .................. 222,195
Customer deposits....................... 23,343
-----------
Total current liabilities......... 1,822,452
Redeemable convertible preferred stock 1,304,568
-----------
Total stockholders' deficit....... (2,510,264)
-----------
Total liabilities and
stockholders' deficit........... $ 616,756
===========
See accompanying notes to financial statements.
HOLOGRAPHIX, INC.
Statements of Operations
Three months ended March 31, 2000
(unaudited)
2000
----------
Net sales ........................................ $ 313,080
Cost of goods sold................................ 140,020
----------
Gross profit.................................. 173,060
Operating expenses:
Research and development........................ 94,539
Selling, general and administrative............. 40,435
----------
Total operating expenses.......................... 134,974
----------
Operating income (loss)....................... 38,086
----------
Other income (expenses):
Interest income................................. 2,583
Interest expense................................ (24,858)
----------
Net income.................................... 15,811
Preferece dividends............................. (15,833)
----------
Net loss available to common stockholders..... $ (22)
==========
Basic and diluted net loss per common share... $ (0.00)
==========
Weighted average common shares outstanding.... 251,214
==========
See accompanying notes to financial statements.
HOLOGRAPHIX, INC.
Statements of Cash Flows
Three months ended March 31, 2000
(unaudited)
2000
-----------
Cash flows from operating activities:
Net income ......................................... $ 15,811
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization.................... 12,756
Changes in operating assets and liabilities:
Increase in accounts receivable................ (112,876)
Increase in inventories........................ (12,860)
Increase in prepaid expenses................... (2,130)
Decrease in trade accounts payable............. 93,015
Decrease in accrued expenses
and interest................................. 40,178
-----------
Net cash provided by
operating activities....................... 33,894
Cash flows from investing activities:
Capital expenditures................................. (9,114)
-----------
Net cash used in investing activities........ (9,114)
-----------
Cash flows from financing activities:
Sale of common stock................................. 502
-----------
Net cash provided by
financing activities....................... 513
-----------
Net increase in cash and
cash equivalents..................................... 25,293
Cash and cash equivalents, beginning of year........... 187,161
-----------
Cash and cash equivalents, end of period............... $ 212,454
===========
See accompanying notes to financial statements.
HOLOGRAPHIX, INC.
Notes to Unaudited Financial Statements
March 31, 2000
(1) Basis of Presentation
The accompanying unaudited condensed financial statements as of March 31, 2000, and for the three month period ended March 31, 2000 has been prepared in accordance with generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position at March 31, 2000 and the operating results and cash flows for the three months ended March 31, 2000. These unaudited condensed financial statements should be read in conjunction with the Company's audited financial statements and notes for the year ended December 31, 1999, 1998 and 1997 included above in this 8-K/A filing.
The results of operations for the three months ended March 31, 2000 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2000.
(2) Earnings per Common Share
Basic and diluted net loss per common share is presented in conformity with the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). In accordance with FAS 128, basic and diluted net loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. All convertible preferred stock and outstanding stock options have been excluded from the calculation of diluted net loss per common share, as their inclusion would be antidilutive.
Item 7. Financial Statements and Pro Forma Information (continued)
(b) Pro Forma Financial Informaion
The Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations for the year ended June 30, 1999 and the nine months ended March 31, 2000 and the Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet as of March 31, 2000 are based on the historical financial statements of Avanex and Holographix, after giving effect to the acquisition of the business of Holographix under the purchase method of accounting and the assumptions and adjustments described in the accompanying Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements. The Unaudited Pro Forma Condensed Combined Consolidated Statements of Operations are presented as if the combination had taken place on July 1, 1998.
The Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations for the nine months ended March 31, 2000 combines the historical nine months ended March 31, 2000 for both Avanex and Holographix. The Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations for the year ended June 30, 1999 combines the historical year ended June 30, 1999 for Avanex and the twelve months ended June 30, 1999 for Holographix. The Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet is presented to give effect to the acquisition as if it occurred on March 31, 2000 and combines the balance sheet for Avanex as of March 31, 2000 with the balance sheet of Holographix as of March 31, 2000.
The Unaudited Pro Forma Condensed Combined Consolidated financial statements should be read in conjunction with the historical financial statements of Avanex and Holographix. The pro forma information does not purport to be indicative of the results that would have been reported if the above transaction had been in effect for the period presented or which may result in the future.
Unaudited Pro Forma Condensed Combined Consolidated
Statements of Operations
Avanex and Holographix
Year ended June 30, 1999
(in thousands, except per share data)
Pro Forma
Avanex
Pro and
Forma Holographix
Avanex Holographix Adjustments Combined
---------- ---------- ---------- ---------
Net revenue................................. $ 510 $ 1,411 $ -- $ 1,921
Cost of revenue............................. 531 899 480 (A) 1,910
---------- ---------- ---------- ---------
Gross profit (loss)..................... (21) 512 (480) 11
Research and development.................... 4,086 307 -- 4,393
Selling, general, and administrative.......... 1,679 75 -- 1,754
Stock compensation............................ 3,464 -- 3,833 (A) 7,297
Amortization of purchased intangibles......... -- -- 9,172 (A) 9,172
---------- ---------- ---------- ---------
Operating income (loss)................. (9,250) 130 (13,485) (22,605)
Other income (expenses):
Interest income........................... 148 5 -- 153
Interest expense.......................... (119) (149) -- (268)
---------- ---------- ---------- ---------
Net (loss) income before
extraordinary item.................... $ (9,221) $ (14)(E)$ (13,485) $ (22,720)
---------- ---------- ---------- ---------
Basic and diluted earnings ( loss) per share$ (4.97) $ (0.17) $ (9.63)
========== ========== =========
Average number of shares outstanding.......... 1,857 81 2,359 (D)
========== ========== =========
See accompanying notes to Avanex and Holographix unaudited pro forma condensed combined consolidated financial statements.
Unaudited Pro Forma Condensed Combined Consolidated
Statements of Operations
Avanex and Holographix
Nine months ended March 31, 2000
(in thousands, except per share data)
Pro Forma
Avanex
Pro and
Forma Holographix
Avanex Holographix Adjustments Combined
---------- ---------- ---------- ---------
Net revenue................................. $ 21,421 $ 994 $ (54)(B)$ 22,361
360 (A)
Cost of revenue............................. 14,975 573 (54)(B) 15,854
---------- ---------- ---------- ---------
Gross profit (loss)..................... 6,446 421 (360) 6,507
Research and development.................... 8,006 253 -- 8,259
Selling, general, and administrative.......... 7,341 91 -- 7,432
Stock compensation............................ 24,282 -- 2,875 (A) 27,157
Amortization of purchased intangibles......... -- -- 6,879 (A) 6,879
---------- ---------- ---------- ---------
Operating income (loss)................. (33,183) 77 (10,114) (43,220)
Other income (expenses):
Interest income........................... 2,362 5 -- 2,367
Interest expense.......................... (438) (75) -- (513)
---------- ---------- ---------- ---------
Net (loss) income....................... (31,259) 7 (10,114) (41,366)
Stock accretion......................... (37,743) (37,743)
---------- ---------- ---------- ---------
Net (loss) income attributable
to common stockholders................ $ (69,002) $ 7 $ (10,114) $ (79,109)
========== ========== ========== =========
Basic earnings ( loss) per share............$ (4.45) $ 0.07 $ (4.94)
========== ========== =========
Average number of shares outstanding.......... 15,503 99 16,005 (D)
========== ========== =========
Dilutive earnings (loss) per share...........$ (4.45) $ 0.02 $ (4.94)
========== ========== =========
Average number of shares outstanding assuming 15,503 284 16,005 (D)
dilution of convertible preferred stock... ========== ========== =========
See accompanying notes to Avanex and Holographix unaudited pro forma condensed combined consolidated financial statements.
Unaudited Pro Forma Condensed Combined Consolidated
Balance Sheet
Avanex and Holographix
March 31, 2000
(in thousands, except per share data)
Avanex
Pro and
Forma Holographix
Avanex Holographix Adjustments Combined
----------- ----------- ----------- ---------
Assets
Current assets:
Cash, cash equivalents and short-term in $ 198,101 $ 212 $ (2,924)(A) 195,389
Accounts receivable, net................ 4,034 242 (77)(B) 4,199
Inventories............................ 5,871 44 -- 5,915
Employee receivables and other current 3,480 10 -- 3,490
----------- ----------- ----------- ---------
Total current assets.............. 211,486 508 (3,001) 208,993
----------- ----------- ----------- ---------
Property and equipment, net............. 10,437 109 -- 10,546
Intangible assets, including goodwill..... -- -- 48,060 (A) 48,060
Long-term investments and other assets.. 50,247 -- -- 50,247
----------- ----------- ----------- ---------
Total assets...................... $ 272,170 $ 617 $ 45,059 317,846
=========== =========== =========== =========
Liabilities and Stockholders' Equity (
Current liabilities:
Notes payable.................. $ -- $ 845 $ -- 845
Short-term borrowings..................... 1,713 -- -- 1,713
Accounts payable........................ 5,050 159 (77)(B) 5,132
Accrued compensation and related expenses. 1,642 259 -- 1,901
Other accrued expenses.................. 3,398 23 -- 3,421
Accrued interest ....................... -- 1,098 -- 1,098
Current portion of capital lease obligatio 755 -- -- 755
----------- ----------- ----------- ---------
Total current liabilities......... 12,558 2,384 (77) 14,865
----------- ----------- ----------- ---------
Commitments and contingencies
Capital lease obligations................. 2,275 -- -- 2,275
(4,700)(A)
1,767 (A)
(15,330)(A)
Total stockholders' equity (deficit)...... 257,337 (1,767) 63,399 (A) 300,706
----------- ----------- ----------- ---------
Total liabilities and
stockholders' equity (deficit).. $ 272,170 $ 617 $ 45,059 317,846
=========== =========== =========== =========
See accompanying notes to Avanex and Holographix unaudited pro forma condensed combined consolidated financial statements.
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements
(A) On May 22, 2000, Holographix, Inc. and Avanex Corporation entered into an agreement for Avanex to purchase the business of Holographix by purchasing substantially all of the assets and assuming substantially all of the liabilities of Holographix. The transaction will be accounted for using the purchase method of accounting. On July 25, 2000 the transaction closed. Holographix currently operates as a wholly-owned subsidiary of Avanex.
The following unaudited pro forma financial statements reflect the issuance of 501,880 Avanex common shares and 287,952 Avanex stock options for substantially all of the assets of Holographix as of July 25, 2000. For accounting purposes, the Avanex common shares issued in the transaction were valued at $80.2727, which is the average of the closing market prices of Avanex's common shares for a period from five days before through five days after the date of the agreement and the announcement of the transaction. The options noted above were granted using the same terms and conditions as the Holographix options that were outstanding as of the closing date, except that the number of shares and option price were adjusted by an exchange ratio as determined by a formula set forth in the asset purchase agreement. The weighted average exercise price of these options is $0.03. The fair value of the options of $23.1 million, as well as estimated direct transaction expenses of $2.9 million, have been included as a part of the total purchase cost.
The total estimated purchase cost of Holographix is as follows (in thousands):
Value of securities issued .................. $40,287
Assupmtion of Holographix options............ $23,112
----------
$63,399
Estimated transaction costs and expenses..... 2,924
----------
$66,323
==========
The preliminary purchase price allocation as of March 31, 2000 is as follows (in thousands):
Annual Useful
Amount Amortization Lives
---------- ---------- ----------------------
Purchase Price Allocation:
Tangible net assets (liabilities)........ (1,767) n/a n/a
Intangible assets acquired:
Developed technology, holographix systems 2,400 480 5 years
Assembled workforce...................... 300 100 3 years
In-process research and development...... 4,700 n/a n/a
Deferred compensation expense............ 15,330 3,833 remaining vesting peri
Goodwill................................. 45,360 9,072 5 years
---------- ----------
Total estimated purchase price allocation... 66,323 13,485
========== ==========
PricewaterhouseCoopers LLP ("PwC") performed an allocation of the total purchase price of Holographix to its individual assets. The purchase price allocation is preliminary and, therefore, subject to change based on further analysis. Of the total purchase price, $4.7 million has been allocated to in-process research and development and will be charged to expense in the quarter ending September 30, 2000. Due to its non-recurring nature, the in-process research and development attributed to the Holographix transaction has been excluded in the pro forma statements of operations.
In addition, the purchase price was allocated to Holographix's tangible assets and specific intangible assets. The related amortization of the identifiable intangible assets is reflected as a pro forma adjustment to the Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations. The identifiable assets include existing technology and assembled workforce.
The acquired existing technology, which is comprised of products that are already technologically feasible, mainly includes holographic based laser scanning systems and the recording of custom holographic master gratings. Avanex expects to amortize the acquired existing technology of approximately $2.4 million on a straight-line basis over an average estimated remaining useful life of 5 years.
The acquired assembled workforce is comprised of 9 skilled employees. Avanex expects to amortize the value assigned to the assembled workforce of approximately $300,000 on a straight-line basis over an estimated remaining useful life of 3 years.
Deferred compensation expense is recognized for the intrinsic value of the unvested Avanex options granted to Holographix employees. The $15.3 million of deferred compensation will be amortized over the remaining vesting period, of approximately four years.
Goodwill, which represents the excess of the purchase price of an investment in an acquired business over the fair value of the underlying net identifiable assets and deferred compensation, is amortized on a straight-line basis over its estimated remaining useful life of 5 years.
In-Process Research and Development
Holographix's research and development staff are currently developing new products and processes that qualify as in-process research and development.
The in-process research and development relates to high quality holographic gratings and replicated optics. The in-process research and development efforts are focused on multiple product opportunities which include (1) transmission and reflection gratings, (2) mirrors on a variety of substrate materials, and (3) gratings on curved surfaces. Holographix's expertise in holographic mastering and high-speed replication of transmission and reflection gratings are needed to meet the volume production needs of the photonic proessor sector. Their proprietary replication techniques, based on light-cured photopolymers, make possible this mass-production of microstructured holographic optics. Holographix's experience mastering and replicating both reflection and transmission gratings provides customers with a competitive advantage by allowing them to investigate both reflection and transmission grating solutions when designing new products.
The value assigned to the in-process research and development was determined by considering the importance of each main project to the overall development plan, estimating the resulting net cash flows from the projects when completed and discounting the net cash flow to their present value. The projects vary in terms of percentage of completion from 10 to 80 percent based on research and development costs expended to date relative to the expected remaining costs to reach technological feasibility.
(B) Intercompany balances and sales between Avanex and Holographix have been eliminated for pro forma presentations.
(C) The pro forma combined provision for income taxes do not represent the amounts that would have resulted had Avanex and Holographix filed consolidated income tax returns during the periods presented.
(D) The pro forma basic and dilutive net earnings (loss) per share are based on the weighted average number of shares of Avanex common stock outstanding during each period and the number of shares (501,880) issued by Avanex in the transaction. Dilutive securities including options granted to replace the Holographix outstanding options are not included in the computation of pro forma dilutive net loss per share as their effect would be anti-dilutive.
(E) The extraordinary gain on debt extinguishments for Holographix that occurred in the twelve months ended June 30, 1999 has been excluded from the pro forma condensed combined consolidated statement of operations since it does not form part of continuing operations.
SIGNATURES
Pursuant to the requirement of the Security Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 4, 2000
| AVANEX CORPORATION |
| (Registrant) |
| By: | /s/ JESSY CHAO |
| Jessy Chao | |
| Vice President, Finance and Chief Financial Officer | |
| (Duly Authorized Officer and Principal Financial and Accounting Officer) |