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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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): NOVEMBER 21, 2000
------------------------
FINISAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 000-27999 94-3038428
(State or other jurisdiction (Commission File Number) (I.R.S. Employer)
of Identification No.)
incorporation or
organization)
1308 MOFFETT PARK DRIVE 94089
SUNNYVALE, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 548-1000
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ITEM 2. ACQUISITION OF ASSETS.
This Form 8-K/A amends the Current Report on Form 8-K filed on December 6,
2000 to file the Financial Statements and Pro Forma Financial Information
identified in Items 7(a) and 7(b) below.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of Demeter Technologies, Inc., required by
Item 7(a) of Form 8-K, prepared pursuant to Rule 3-05 of Regulation S-X
and filed in accordance with Item 7(a)(4) of Form 8-K.
1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Demeter Technologies, Inc.
We have audited the accompanying balance sheet of Demeter
Technologies, Inc. as of October 31, 2000, and the related statements of
operations, stockholders' equity, and cash flows for the period from inception
(June 22, 2000) to October 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the 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 audit provides 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 Demeter Technologies, Inc.
at October 31, 2000, and the results of its operations and its cash flows for
the period from inception (June 22, 2000) to October 31, 2000, in conformity
with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 23, 2001
2
DEMETER TECHNOLOGIES, INC.
BALANCE SHEET
OCTOBER 31, 2000
ASSETS
Current assets:
Cash and cash equivalents................................. $ 564,333
Short-term investments.................................... 3,371,655
Accounts receivable (net allowance for doubtful accounts
of $1,646).............................................. 20,960
Inventories............................................... 233,026
Prepaid expenses and other current assets................. 107,706
-----------
Total current assets........................................ 4,297,680
Property, equipment, and improvements, net.................. 608,550
-----------
Total assets................................................ $ 4,906,230
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 527,042
Payable to American Xtal Technology, Inc.................. 827,725
Payable to private stockholders........................... 175,000
Other accrued liabilities................................. 209,877
-----------
Total current liabilities................................... 1,739,644
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value, 40,000,000 shares
authorized:
Convertible Series A, 20,000,000 shares designated,
$0.001 par value, 14,000,701 shares issued and
outstanding; aggregate liquidation preference of
$8,000,000............................................ 14,000
Common stock, $0.001 par value; 40,000,000 shares
authorized, 4,000,000 shares issued and outstanding..... 4,000
Additional paid-in capital................................ 17,992,000
Stock subscription receivable............................. (4,050,000)
Deferred stock compensation............................... (7,529,000)
Purchased technology...................................... (1,653,000)
Accumulated other comprehensive income.................... 33,919
Accumulated deficit....................................... (1,645,333)
-----------
Total stockholders' equity.................................. 3,166,586
-----------
Total liabilities and stockholders' equity.................. $ 4,906,230
===========
SEE ACCOMPANYING NOTES.
3
DEMETER TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
PERIOD FROM INCEPTION (JUNE 22, 2000) TO OCTOBER 31, 2000
Revenues.................................................... $ 53,754
-----------
Operating expenses:
Cost of revenues.......................................... 115,625
Research and development.................................. 518,259
General and administrative................................ 649,849
Amortization of deferred stock compensation............... 371,000
Amortization of purchased technology...................... 57,000
-----------
Total operating expenses.................................... 1,711,733
Loss from operations........................................ (1,657,979)
Interest and other income................................... 12,646
-----------
Net loss.................................................... $(1,645,333)
===========
SEE ACCOMPANYING NOTES.
4
DEMETER TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Period from inception (June 22, 2000) to October 31, 2000
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK DEFERRED
--------------------- -------------------- PAID-IN SUBSCRIPTION STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
---------- -------- --------- -------- ----------- ------------ ------------
Issuance of 4,000,000 shares of
common stock at $0.10 per
share.......................... -- $ -- 4,000,000 $4,000 $ 396,000 $ -- $ --
Issuance of shares of Series A
preferred stock at $0.5714 per
share.......................... 14,000,701 14,000 -- -- 7,986,000 (4,050,000) --
Issuance of warrant to purchase
up to 4,500,000 shares of
Series A convertible preferred
stock in exchange for purchased
technology..................... -- -- -- -- 1,710,000 -- --
Deferred stock compensation...... -- -- -- -- 7,900,000 -- (7,900,000)
Amortization of deferred stock
compensation................... -- -- -- -- -- -- 371,000
Amortization of purchased
technology..................... -- -- -- -- -- -- --
Unrealized gain on short-term
investments.................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
Comprehensive loss...............
---------- ------- --------- ------ ----------- ----------- -----------
Balance at October 31, 2000...... 14,000,701 $14,000 4,000,000 $4,000 $17,992,000 $(4,050,000) $(7,529,000)
========== ======= ========= ====== =========== =========== ===========
ACCUMULATED
OTHER TOTAL
CONTRIBUTED COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
TECHNOLOGY INCOME DEFICIT EQUITY
----------- ------------- ----------- -------------
Issuance of 4,000,000 shares of
common stock at $0.10 per
share.......................... $ -- $ -- $ -- $ 400,000
Issuance of shares of Series A
preferred stock at $0.5714 per
share.......................... -- -- -- 3,950,000
Issuance of warrant to purchase
up to 4,500,000 shares of
Series A convertible preferred
stock in exchange for purchased
technology..................... (1,710,000) -- -- --
Deferred stock compensation...... -- -- -- --
Amortization of deferred stock
compensation................... -- -- -- 371,000
Amortization of purchased
technology..................... 57,000 -- -- 57,000
Unrealized gain on short-term
investments.................... -- 33,919 -- 33,919
Net loss......................... -- -- (1,645,333) (1,645,333)
-----------
Comprehensive loss............... (1,611,414)
----------- ------- ----------- -----------
Balance at October 31, 2000...... $(1,653,000) $33,919 $(1,645,333) $ 3,166,586
=========== ======= =========== ===========
SEE ACCOMPANYING NOTES.
5
DEMETER TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (JUNE 22, 2000) TO OCTOBER 31, 2000
OPERATING ACTIVITIES
Net loss.................................................... $(1,645,333)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization............................. 6,655
Amortization of deferred stock compensation............... 371,000
Amortization of purchased technology...................... 57,000
Changes in operating assets and liabilities:
Accounts receivable..................................... (20,960)
Inventories............................................. (233,026)
Prepaid expenses and other current assets............... (107,706)
Accounts payable........................................ 527,042
Payable to American Xtal Technologies, Inc.............. 827,725
Other accrued liabilities............................... 209,877
-----------
Net cash used in operating activities....................... (7,726)
-----------
INVESTING ACTIVITIES
Purchase of property and equipment.......................... (615,205)
Purchase of short-term investments.......................... (3,337,736)
-----------
Net cash used in investing activities....................... (3,952,941)
-----------
FINANCING ACTIVITIES
Proceeds from issuance of Series A convertible preferred
stock..................................................... 3,950,000
Proceeds from issuance of common stock...................... 400,000
Payable to private stockholders............................. 175,000
-----------
Net cash provided by financing activities................... 4,525,000
-----------
Net increase in cash and cash equivalents and cash and cash
equivalents end of period................................. $ 564,333
===========
SEE ACCOMPANYING NOTES.
6
DEMETER TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Demeter Technologies, Inc. (the Company) was incorporated in the state of
Delaware on June 22, 2000 to engage in the development of long wavelength Fabry
Perot (FP) and Distributed Feedback (DFB) lasers for datacom and
telecommunications applications.
In June, 2000, the founders of the Company were issued 4,000,000 shares of
common stock in exchange for cash of $400,000. In August, 2000, the Company
issued 14,000,701 shares of Series A convertible preferred stock at $0.5714 per
share (see Note 6). Each preferred stockholder paid approximately one half in
cash and one half was recorded as a subscription receivable. Concurrently with
the Series A convertible preferred stock, the Company issued a warrant for
4,500,000 shares of Series A convertible preferred stock (see Note 6) to
American Xtal Technologies, Inc. (AXT) in exchange primarily for technology
related to FP lasers. AXT also leases certain facilities and equipment to the
Company (see Note 5). The president of the Company is the brother of the
president of AXT.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturity from the date of purchase of three months or less to be cash
equivalents.
SHORT-TERM INVESTMENTS
In accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company has classified its short-term
investments as available-for-sale. Available-for-sale securities are stated at
market value and unrealized holding gains and losses, net of the related tax
effect, are excluded from earnings and are reported as a separate component of
stockholders' equity until realized. A decline in the market value of the
security below cost that is deemed other than temporary is charged to earnings,
resulting in the establishment of a new cost basis for the security. The cost of
short-term investments sold is based on specific identification. The fair value
of short-term investments is based on quoted market prices. The difference
between market value and cost of these securities at October 31, 2000 was an
unrealized gain of $33,919.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
7
DEMETER TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, generally two to seven
years.
REVENUE RECOGNITION
Revenue is recognized at the time of product shipment and no significant
obligations remain, net of allowance for estimated returns. Warranty expenses
are also estimated and provided for at the time of shipment.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs were not
material for the period ending October 31, 2000.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk include cash, cash equivalents, short-term
investments, and accounts receivable. The Company places its cash, cash
equivalents, and short-term investments with high-credit quality financial
institutions. Such investments are generally in excess of FDIC insurance limits.
Concentrations of credit risk, with respect to accounts receivable, exist to the
extent of amounts presented in the financial statements. Accounts receivable
from two customers represented 66% and 21% of the total balance at October 31,
2000. Generally, the Company does not require collateral or other security to
support customer receivables. The Company performs periodic credit evaluations
of its customers and maintains an allowance for potential credit losses based on
historical experience and other information available to management. Losses to
date have been within management's expectations.
CURRENT VULNERABILITIES DUE TO CERTAIN CONCENTRATIONS
During the period from inception (June 22, 2000) to October 31, 2000,
revenues from two customers represented 50% and 31% of total revenues.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options and common stock purchase
right grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and has adopted the
disclosure-only alternative of Statement of Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123).
8
DEMETER TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) requires unrealized gains or losses on the
Company's available-for-sale investments to be included in other comprehensive
income. The net unrealized gain on available-for-sale securities for the period
from inception (June 22, 2000) to October 31, 2000 was $33,919.
2. SHORT-TERM INVESTMENTS
As of October 31, 2000, short-term investments consist of certificates of
deposit with a fair value of $3,371,655 and an amortized cost of $3,337,736. The
average maturity of the short-term investments was approximately two months and
the weighted-average effective interest rate was 6%.
3. INVENTORIES
Inventories consist of the following:
OCTOBER 31,
2000
-----------
Raw materials............................................... $188,380
Work in-process............................................. 18,560
Finished goods.............................................. 26,086
--------
$233,026
========
4. PROPERTY, EQUIPMENT, AND IMPROVEMENTS
Property and equipment consists of the following:
OCTOBER 31,
2000
-----------
Computers, machinery, and equipment......................... $304,894
Furniture and fixtures...................................... 32,065
Software.................................................... 36,799
Construction in progress.................................... 241,447
--------
615,205
Less accumulated depreciation and amortization.............. 6,655
--------
Property and equipment, net................................. $608,550
========
Construction in progress consists of leasehold improvements not placed into
service. No depreciation or amortization was recorded on these assets.
5. OPERATING LEASE COMMITMENTS
The Company leases its facilities and equipment under various agreements
with AXT expiring August 2003 and August 2002, respectively. Rent expense was
approximately $117,000 for the period ended
9
DEMETER TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
5. OPERATING LEASE COMMITMENTS (CONTINUED)
October 31, 2000. The Company has the option to extend the term of its operating
leases for three additional years for leased facilities and for two additional
years for leased equipment. The Company also has an option to purchase certain
of the equipment for the depreciated value of the equipment owned by AXT and at
the buy-out value of the equipment leased by AXT. At October 31, 2000, minimum
rental payments under operating leases are as follows:
Year ended October 31,
2001...................................................... $ 488,428
2002...................................................... 426,813
2003...................................................... 152,535
----------
$1,067,776
==========
AXT is currently constructing improvements at the leased facilities. AXT is
funding the entire cost of such improvements; however, the Company is obligated
to reimburse AXT on demand for any portion of such cost of improvements which
exceeds $1,150,000. In addition, the Company shall pay AXT additional monthly
rent equal to the total amount of AXT's depreciation costs of such improvements
plus the interest cost to AXT on any funds borrowed for such purpose or the
interest cost on any funds used to build such improvements (based on 10% per
annum simple interest, regardless of how AXT finances such improvements),
calculated on a monthly basis; the Company shall continue to pay such additional
rent monthly until AXT has recovered from the Company the entire building costs
of such improvements (up to $1,150,000).
6. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
Following the Company's incorporation in June 2000, the Company is
authorized to issue 80,000,000 shares consisting of 40,000,000 shares of common
stock, par value $0.001 per share and 40,000,000 shares of preferred stock, par
value $0.001. The board of directors has the authority to issue the undesignated
preferred stock in one or more series and to fix the rights, preferences,
privileges, and restrictions thereof.
SERIES A CONVERTIBLE PREFERRED STOCK
On August 10, 2000, the Company designated 20,000,000 shares as Series A
convertible preferred stock, and in August 2000, the Company issued 14,000,701
shares of Series A convertible preferred stock at $0.5714 per share, resulting
in cash proceeds of approximately $4,000,000 and a receivable of $4,000,000.
The holders of shares of Series A preferred stock are entitled to receive
dividends, out of assets legally available therefore, prior and in preference to
any declaration or payment of any dividend (payable other than in common stock
or other securities and rights convertible into or entitling the holders thereof
to receive, directly or indirectly, additional shares of common stock) on the
common stock, at the rate of 8% of the liquidation preference per share per
annum for the Series A preferred stock, payable when, as, and if declared by the
board of directors. Such dividends will not be cumulative. No dividends have
been declared.
10
DEMETER TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
6. STOCKHOLDERS' EQUITY (CONTINUED)
Each share of Series A convertible preferred stock is convertible, at the
option of the holder, at any time, into common stock at the current conversion
rate (currently one-for-one). Conversion is automatic upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, which results in a price per share of not less
than five times the then applicable conversion price and gross offering proceeds
of not less than $10,000,000 or upon the approval of the holders of at least a
majority of the outstanding shares of the preferred stock. The preferred stock
has voting rights on an as-if-converted to common stock basis.
Series A convertible preferred stockholders are entitled to receive, upon
liquidation, an amount per share equal to the issuance price, plus all declared
but unpaid dividends. Thereafter, the remaining assets and funds, if any, shall
be distributed pro rata among the common stockholders and Series A convertible
preferred stockholders on an as-if-converted basis.
WARRANTS AND RELATED PURCHASED TECHNOLOGY
On August 10, 2000, the Company granted a warrant to AXT to purchase up to
4,500,000 shares of the Company's Series A convertible preferred stock at
$0.5714 per share. The warrant may be exercised in whole or in part at any time,
and will expire the later of (i) August 10, 2005 and (ii) the closing of a
qualified public offering or the sale of substantially all of the assets of the
Company or the merger or consolidation with a public company. The value of the
warrant was estimated using the Black-Scholes option pricing model with the
following assumptions: weighted-average, risk-free interest rate of 5%,
estimated life of 5 years, volatility of 0.8%, and no dividend yield. The
warrant was primarily issued for access to certain technology related to FP
lasers. The Company has recorded the $1,710,000 estimated fair value of the
warrant as a contra-equity amount and is being amortized to income over the
5-year estimated life of the warrant.
2000 STOCK PLAN
In September 2000, the Company adopted the 2000 Stock Plan (the Plan) which
provides for the issuance of common stock options and common stock purchase
rights to employees and consultants of the Company of up to 3,000,000 shares of
the Company's common stock. The Plan permits the Company to (i) grant incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, and (ii) nonstatutory stock options, which are not intended to qualify as
incentive stock options. Options generally vest 25% upon completion of one year
of service and 1/48 per month thereafter. Options expire after 10 years.
During the period from inception (June 22, 2000) to October 31, 2000, the
Company granted options for 1,137,000 shares of common stock at an exercise
price of $0.25 per share. None of these options were exercised or canceled
during the period from inception (June 22, 2000) to October 31, 2000 and none of
the options were exercisable as of October 31, 2000. The weighted-average deemed
fair value of the options granted during the period from inception (June 22,
2000) to October 31, 2000 was $7.64 per share. The Company also reserved for
issuance 1,048,000 options at an exercise price of $0.25 per share to certain
individuals, not yet employees with the Company, with vesting commencing the
first day of employment with the Company. The weighted-average remaining
contractual life of the options outstanding as of October 31, 2000 was
9.8 years. As of October 31, 2000, 815,000 shares of common stock were available
for future grants.
11
DEMETER TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
6. STOCKHOLDERS' EQUITY (CONTINUED)
DEFERRED STOCK COMPENSATION
In connection with the grant of stock options to employees, the Company
recorded deferred stock compensation of $7,900,000 for the period from inception
(June 22, 2000) through October 31, 2000, representing the difference between
the deemed fair value of the Company's common stock for accounting purposes and
the option exercise price of these options at the date of grant. Deferred stock
compensation is presented as a reduction of stockholders' equity, with graded
amortization recorded over the four-year vesting period. The amortization
expense relates to options awarded to employees in all operating expense
categories. The Company will recognize additional deferred compensation for the
options reserved for issuance to certain individuals who have not yet commenced
employment with the Company.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Pro forma information regarding net income is required by SFAS 123 as if the
Company had accounted for its employee stock options granted under the fair
value method of SFAS 123. The fair value for the Company's stock option grants
was estimated at the date of grant using the minimum value option valuation
model. The minimum value option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's stock-based awards
have characteristics significantly different from those of traded options and
because changes in the subject input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not necessary
provide a reliable single measure of the fair value of its stock-based awards.
The fair value of these options was estimated at the date of grant using the
minimum value method option pricing model with the following weighted-average
assumptions: risk-free interest rates of 5%; no dividend yield; and a
weighted-average expected life of the option of five years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. For the period
from inception (June 22, 2000) to October 31, 2000 the pro forma net loss was
$(1,795,333).
SHARES RESERVED
Common stock subject to future issuance is as follows:
OCTOBER 31,
2000
-----------
Conversion of Series A convertible preferred stock.......... 14,000,701
Exercise of outstanding options............................. 1,137,000
Shares reserved for outstanding options..................... 1,048,000
Common stock available for grant under stock option plan.... 815,000
Common stock reserved for exercise of warrant for Company's
Series A convertible preferred stock...................... 4,500,000
----------
21,500,701
==========
12
DEMETER TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
7. INCOME TAXES
There is no provision for U.S. federal, U.S. state or foreign income taxes
as the Company has incurred operating losses since inception for all
jurisdictions.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets are as follows:
OCTOBER 31,
2000
------------
Deferred tax assets:
Net operating loss carryforwards.......................... $ 300,000
Other..................................................... 200,000
---------
Total deferred tax assets................................... 500,000
Valuation allowance......................................... (500,000)
---------
Net deferred tax assets..................................... $ --
=========
Realization of the deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance.
As of October 31, 2000, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $800,000, which expire in 2020. The
Company also had net operating loss carryforwards for state income tax purposes
of approximately $800,000 expiring in 2008. Utilization of the Company's net
operating loss may be subject to a substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue Code and similar
state provisions. Such an annual limitation could result in the expiration of
the net operating loss before utilization.
8. SEGMENTS AND GEOGRAPHIC INFORMATION
The Company operates in one reportable segment, the design, manufacture, and
marketing of lasers for datacom and telecommunications applications. During the
period from inception (June 22, 2000) to October 31, 2000, 10%, 50% and 40% of
the Company's revenues were from United States, Taiwan, and UK based entities,
respectively.
9. SUBSEQUENT EVENTS
On November 21, 2000, all of the stockholders' of the Company sold their
ownership interest to Finisar Corporation (Finisar). Finisar will record the
transaction using the purchase method of accounting. Pursuant to the Agreement
and Plan of Reorganization, Finisar issued 6,020,012 shares of its common stock
in exchange for the outstanding shares of Demeter common and preferred stock and
the outstanding warrant. In addition, Finisar assumed options to purchase the
Company's common stock and reserved 566,573 shares of Finisar common stock for
issuance upon the exercise of the assumed options.
13
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(CONTINUED)
(b) Unaudited consolidated pro forma financial statements of Finisar
Corporation, giving effect to the acquisition of Demeter
Technologies, Inc., prepared pursuant to Article 11 of Regulation S-X and
filed in accordance with Item 7(b)(1) of Form 8-K.
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Statement of Operations for the year ended
April 30, 2000 and the six months ended October 31, 2000 and the Unaudited Pro
Forma Condensed Balance Sheet as of October 31, 2000 are based on the historical
financial statements of Finisar Corporation ("Finisar"), Sensors Unlimited, Inc.
("Sensors") and Demeter Technologies, Inc. ("Demeter"), after giving effect to
the acquisition of Sensors and Demeter under the purchase method of accounting
and the assumptions and adjustments described in the accompanying Notes to the
Unaudited Pro Forma Condensed Financial Statements. The Unaudited Pro Forma
Condensed Statements of Operations are presented as if the combinations had
taken place on May 1, 1999.
The Unaudited Pro Forma Condensed Statement of Operations for the six months
ended October 31, 2000 combines the historical six months ended October 31, 2000
for Finisar (which includes one month of operations of Sensors), the historical
five months ended September 30, 2000 for Sensors and the period from June 22,
2000 (the date of incorporation) to October 31, 2000 for Demeter. The Unaudited
Pro Forma Condensed Statement of Operations for the year ended April 30, 2000
combines the historical year ended April 30, 2000 for Finisar, the twelve months
ended March 31, 2000 for Sensors and, since Demeter was not incorporated until
after April 30, 2000, only amortization of the purchase price adjustments for
the twelve months ended April 30, 2000 for Demeter. Since the acquisition of
Sensors occurred prior to October 31, 2000, the Unaudited Pro Forma Condensed
Balance Sheet is presented to give effect to the acquisition of Demeter as if it
occurred on October 31, 2000 and combines the balance sheet for Finisar as of
October 31, 2000, which includes the purchase of Sensors, with the balance sheet
of Demeter as of October 31, 2000.
The Unaudited Pro Forma Condensed Financial Statements should be read in
conjunction with the historical financial statements of Finisar, Sensors and
Demeter. 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.
14
FINISAR, SENSORS AND DEMETER
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FINISAR SENSORS DEMETER SENSORS DEMETER
YEAR ENDED 12 MONTHS ENDED YEAR ENDED PRO FORMA PRO FORMA FINISAR
APRIL 30, 2000 MARCH 31, 2000 APRIL 30, 2000 ADJUSTMENTS ADJUSTMENTS PRO FORMA
-------------- --------------- -------------- ----------- ----------- ---------
Revenue...................... $ 67,147 $11,254 $ -- $ -- $ -- $ 78,401
Cost of revenues............. 34,190 3,472 -- -- -- 37,662
Amortization of acquired
developed technology....... -- -- -- 10,986(A) 2,997(B) 13,983
-------- ------- ---- -------- -------- ---------
Gross profit................. 32,957 7,782 -- (10,986) (2,997) 26,756
Operating expenses:
Research and development... 13,806 690 -- -- -- 14,496
Sales and marketing........ 7,122 1,196 -- -- -- 8,318
General and
administrative........... 3,516 993 -- -- -- 4,509
Amortization of deferred
stock compensation....... 5,530 -- -- 2,915 (A) 3,325 (B) 11,770
Amortization of
intangibles.............. -- -- -- 60,008 (A) 30,614 (B) 90,622
-------- ------- ---- -------- -------- ---------
Total operating expenses..... 29,974 2,879 -- 62,923 33,939 129,715
-------- ------- ---- -------- -------- ---------
Income (loss) from
operations................. 2,983 4,903 -- (73,909) (36,936) (102,959)
Interest income (expense),
net........................ 3,252 (31) -- -- -- 3,221
Other income (expense),
net........................ (99) -- -- -- -- (99)
-------- ------- ---- -------- -------- ---------
Income (loss) before income
taxes...................... 6,136 4,872 -- (73,909) (36,936) (99,837)
Provision for income taxes... 3,255 284 -- (6,286)(A) (2,693)(B) (4,263)(D)
1,177 (C)
-------- ------- ---- -------- -------- ---------
Net income (loss)............ $ 2,881 $ 4,588 $ -- $(68,800) $(34,243) $ (95,574)
======== ======= ==== ======== ======== =========
Net income (loss) per share:
Basic........................ $ 0.03 $ (0.74)
======== =========
Diluted...................... $ 0.02 $ (0.74)
======== =========
Shares used in computing net
income (loss) per share:
Basic........................ 113,930 129,431 (E)
======== =========
Diluted...................... 144,102 129,431 (E)
======== =========
See accompanying notes to Finisar, Sensors and Demeter
unaudited pro forma condensed financial statements.
15
FINISAR, SENSORS AND DEMETER
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FINISAR SENSORS DEMETER
6 MONTHS 5 MONTHS PERIOD FROM SENSORS DEMETER
ENDED ENDED JUNE 22 TO PRO FORMA PRO FORMA FINISAR
OCT 31, 2000 SEP 30, 2000 OCT 31, 2000 ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ----------- ----------- ---------
Revenue.......................... $ 71,740 $8,723 $ 54 $ -- $ -- $ 80,517
Cost of revenues................. 42,499 3,454 116 -- -- 46,069
Amortization of acquired
developed technology........... 916 -- -- 4,577 (A) 1,499 (B) 6,992
-------- ------ ------- -------- -------- --------
Gross profit..................... 28,325 5,269 (62) (4,577) (1,499) 27,456
Operating expenses:
Research and development....... 10,634 1,110 518 -- -- 12,262
Sales and marketing............ 6,200 1,214 -- -- -- 7,414
General and administrative..... 3,107 1,044 650 -- -- 4,801
Amortization of deferred stock
compensation................. 2,882 -- 371 1,214 (A) 1,663 (B) 6,130
Amortization of intangibles.... 5,002 -- 57 25,003 (A) 15,307 (B) 45,369
Acquired in-process
research and development..... 23,027 -- -- -- -- 23,027
Other acquisition
compensation................. 554 -- -- -- -- 554
-------- ------ ------- -------- -------- --------
Total operating expenses......... 51,406 3,368 1,596 26,217 16,970 99,557
-------- ------ ------- -------- -------- --------
Income (loss) from operations.... (23,081) 1,901 (1,658) (30,794) (18,469) (72,101)
Interest income (expense), net... 8,500 (41) 13 -- -- 8,472
Other income (expense), net...... (43) -- -- -- -- (43)
-------- ------ ------- -------- -------- --------
Income (loss) before income
taxes.......................... (14,624) 1,860 (1,645) (30,794) (18,469) (63,672)
Provision for income taxes....... 4,637 100 -- (2,619)(A) (1,347)(B) 1,229(D)
458(C)
-------- ------ ------- -------- -------- --------
Net income (loss)................ $(19,261) $1,760 $(1,645) $(28,633) $(17,122) $(64,901)
======== ====== ======= ======== ======== ========
Net income (loss) per share:
Basic............................ $ (0.13) $ (0.39)
======== ========
Diluted.......................... $ (0.13) $ (0.39)
======== ========
Shares used in computing net
income (loss) per share:
Basic............................ 152,115 166,105 (E)
======== ========
Diluted.......................... 152,115 166,105 (E)
======== ========
See accompanying notes to Finisar, Sensors and Demeter
unaudited pro forma condensed financial statements.
16
FINISAR AND DEMETER
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
OCTOBER 31, 2000
(IN THOUSANDS)
PRO FORMA FINISAR
FINISAR DEMETER ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 75,872 $ 564 $ -- $ 76,436
Short-term investments............................. 193,360 3,372 -- 196,732
Accounts receivable--trade, net.................... 29,615 21 -- 29,636
Accounts receivable, other......................... 5,514 -- -- 5,514
Inventories........................................ 36,582 233 -- 36,815
Income tax receivable.............................. 1,539 -- -- 1,539
Deferred income taxes.............................. 2,384 -- -- 2,384
Prepaid expenses................................... 636 108 -- 744
-------- ------- -------- --------
Total current assets................................. 345,502 4,298 -- 349,800
Property, equipment and improvements, net............ 20,914 608 -- 21,522
Purchased intangible assets.......................... 60,638 -- 31,207 (B) 91,845
Goodwill............................................. 286,121 -- 151,014 (B) 437,135
Other assets......................................... 13,007 -- -- 13,007
-------- ------- -------- --------
Total assets......................................... $726,182 $ 4,906 $182,221 $913,309
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 16,053 $ 1,315 $ -- $ 17,368
Accrued compensation............................... 4,339 40 -- 4,379
Other accrued liabilities.......................... 11,894 384 2,600 (B) 14,878
Short-term debt.................................... 633 -- -- 633
-------- ------- -------- --------
Total current liabilities............................ 32,919 1,739 2,600 37,258
Long-term liabilities:
Deferred income taxes................................ 28,048 -- 17,803 (B) 45,851
Notes payable, long-term portion..................... 1,493 -- -- 1,493
Other long-term liabilities.......................... 893 -- -- 893
-------- ------- -------- --------
Total long-term liabilities.......................... 30,434 -- 17,803 48,237
-------- ------- -------- --------
Stockholders' equity:
Common stock....................................... 719,018 17,996 184,320 (B) 903,338
(17,996)(B)
Preferred stock.................................... -- 14 (14)(B) --
Notes receivable from stockholders................. (2,394) (4,050) 4,000 (B) (2,444)
Deferred stock compensation........................ (15,266) (7,529) (13,301)(B) (28,567)
7,529 (B)
-------- ------- -------- --------
Accumulated other comprehensive income............. 162 34 (34)(B) 162
Contributed technology............................. -- (1,653) 1,653 (B) --
Accumulated deficit................................ (38,691) (1,645) 1,645 (B) (44,675)
(5,984)(B)
-------- ------- -------- --------
Total stockholders' equity........................... 662,829 3,167 161,818 827,814
-------- ------- -------- --------
Total liabilities and stockholders' equity........... $726,182 $ 4,906 $182,221 $913,309
======== ======= ======== ========
See accompanying notes to Finisar, Sensors and Demeter
unaudited pro forma condensed financial statements.
17
NOTES TO FINISAR, SENSORS AND DEMETER
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(A) On August 16, 2000 Finisar and Sensors entered into an Agreement and
Plan of Reorganization (the "Agreement") pursuant to which Finisar acquired
Sensors. The transaction closed on October 17, 2000. Sensors is headquartered in
Princeton, New Jersey and is a leading supplier of optical components that
monitor the performance of dense wavelength division multiplexing or DWDM,
systems. Finisar designated September 30, 2000 as the acquisition date for
accounting purposes.
Pursuant to the Agreement, Finisar issued 18,962,141 shares of its common
stock in exchange for the outstanding shares of Sensors common stock. In
addition, Finisar assumed options to purchase Sensors common stock and reserved
381,417 shares of Finisar common stock for issuance upon the exercise of the
assumed options. At the closing of the merger transaction, the assumed Sensor
options converted into Finisar options vested to the extent of the greater of
(i) 25% of the total number of shares subject to the option or (ii) the vested
percentage of the Sensors option at the closing of the transaction, up to a
maximum of 50% of the total number of shares subject to the option. The unvested
portion of each assumed option will vest in three approximately equal annual
installments on each of the first three anniversaries of the date of closing of
the transaction, subject to the option holder's continued service with Finisar
or a subsidiary.
At the closing of the transaction, certificates representing 9,481,109
shares of Finisar common stock were issued to the former stockholders of Sensors
(the "Initial Consideration") and 9,481,032 shares of common stock, or
approximately one-half of the shares issued pursuant to the transaction, were
deposited into escrow with U.S. Bank Trust, National Association (the "Deferred
Consideration"). One-third of the shares deposited in escrow will be released on
each of the first three anniversaries of October 17, 2000, the closing date,
subject to the achievement of certain development milestones. If the milestones
are not achieved, the escrow shares will be cancelled and returned to the status
of authorized but unissued shares. Further, one-third of the escrow shares that
would otherwise be delivered to the principal shareholders of Sensors on the
third anniversary of the closing of the transaction will be subject to claims
for indemnification by Finisar under the Agreement and the procedures specified
in the escrow agreement. Those shares will remain in escrow until all pending
claims for indemnification have been resolved.
In addition to the Initial Consideration and Deferred Consideration, on each
of the first three anniversaries of the closing of the transaction, Finisar will
issue and deliver to the former shareholders of Sensors, on a pro rata basis,
additional shares of Finisar common stock (valued on the basis of the average
closing trading price per share of such stock on the Nasdaq National Market for
the ten trading days preceding the applicable payment date) (the "Additional
Consideration"). These shares of Finisar common stock, with an estimated value
of $48 million, will be distributed as follows:
(1) If on the first anniversary of the closing of the transaction, at least
75% of the key management and technical employees originally employed by
Sensors, or equivalent replacement employees, are then employed by
Finisar, Finisar will issue and deliver Finisar shares having an
aggregate value of $2.375 multiplied by the total number of shares
initially deposited in escrow, rounded to the nearest whole share;
(2) If on the second anniversary of the closing of the transaction, at least
65% of the key Sensors employees, or equivalent replacement employees,
are then employed by Finisar, Finisar will issue and deliver Finisar
shares having an aggregate value of $1.58333 multiplied by the total
number of escrow shares, rounded to the nearest whole share; and
(3) If on the third anniversary of the closing of the transaction, at least
50% of the key Sensors employees, or equivalent replacement employees,
are then employed by Finisar, and if prior to that date all six
development milestones set forth in the Agreement have been achieved,
Finisar
18
NOTES TO FINISAR, SENSORS AND DEMETER
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
will issue Finisar shares having an aggregate value of $0.79167
multiplied by the total number of escrow shares, rounded to the nearest
whole share.
Only the Initial Consideration has been recorded for accounting purposes
since the payment of the Deferred and Additional Consideration is contingent
upon future events that are not assured of occurring beyond a reasonable doubt.
The Deferred Consideration, if any, will be recorded as additional purchase cost
at the then current market price of the common stock when the milestones are
attained. The Additional Consideration, if any, will be recorded as additional
purchase cost at the then current market price of common stock on the first,
second and third anniversaries of the closing of the transaction. Accordingly,
Finisar's initial cost to acquire Sensors is calculated to be $356.1 million
using the price of $33.47 per share of Finisar common stock, which is the
average of the closing market prices of Finisar's common stock for a period from
three days before through three days after August 16, 2000, the day the
transaction was announced. The fair value of the assumed stock options of
$12.7 million, as well as estimated direct transaction expenses of
$26.1 million, have been included as a part of the total purchase cost. Sensors
currently operates as a wholly-owned subsidiary of Finisar.
The cost to acquire Sensors has been allocated to the assets acquired and
liabilities assumed according to their respective fair values, with the excess
purchase price being allocated to goodwill. The fair value of the acquired
assets and liabilities is based upon an independent valuation.
The estimated total initial purchase cost of Sensors is as follows (in
thousands):
Value of securities issued.................................. $317,342
Assumption of Sensors common stock options.................. 12,675
Estimated transaction costs and expenses.................... 26,111
--------
$356,128
========
The preliminary purchase price allocation as of September 30, 2000 is as
follows (in thousands):
ANNUAL
USEFUL LIFE AMORTIZATION OF
AMOUNT IN YEARS INTANGIBLES
-------- ----------- ---------------
Net tangible assets (liabilities) of
Sensors................................. $ (140)
Intangible assets acquired:
Developed technology.................... 54,930 5 $10,986
In-process research and development..... 23,027 N/A N/A
Assembled workforce..................... 1,539 3 513
Customer base........................... 1,901 3 634
Tradename............................... 3,336 5 667
Deferred compensation................... 8,744 3 2,915
Goodwill................................ 290,971 5 58,194
Deferred income tax....................... (28,180) 3-5 (6,286)
-------- -------
Total preliminary purchase price
allocation.............................. $356,128 $67,623
======== =======
An independent valuation specialist performed an allocation of the total
purchase price of Sensors to its individual assets. The purchase price was
allocated to Sensors' tangible assets, specific intangible assets such as
assembled workforce, customer base, tradename, and developed technology and to
in-process research and development.
19
NOTES TO FINISAR, SENSORS AND DEMETER
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The acquired developed technology, which is comprised of products that are
already technologically feasible, mainly includes optical components that
monitor the performance of dense wavelength division multiplexing networks.
Sensors' technology enables telecommunications companies to optimize the use of
existing bandwidth in fiber optic networks. Finisar will amortize the acquired
developed technology of approximately $54.9 million on a straight-line basis
over an average estimated remaining useful life of five years.
The acquired assembled workforce is comprised of all the skilled employees
and includes the estimated cost to replace existing employees, including
recruiting and training costs and loss of productivity costs. Finisar will
amortize the value assigned to the assembled workforce of approximately
$1.5 million on a straight-line basis over an average estimated useful life of
three years.
Acquired customer base is based on historical costs incurred and is
comprised of Sensors management's estimation of resources that have been devoted
to the development of the relationships with key customers. Finisar will
amortize the value assigned to customer relationships of approximately
$1.9 million on a straight-line basis over an average estimated useful life of
three years.
The acquired tradename is recognized for the intrinsic value of the Sensors
name and products in the marketplace. Finisar will amortize the value assigned
to the tradename of approximately $3.3 million on a straight-line basis over an
average estimated useful life of five years.
Deferred compensation expense is recognized for the intrinsic value of the
unvested Finisar options exchanged for options held by Sensors' employees. The
$8.7 million of deferred compensation will be amortized over the remaining
vesting period of approximately three 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, will be amortized on a straight-line basis
over its estimated remaining useful life of five years.
In-process research and development represents that portion of the purchase
price of an acquisition related to the research and development activities
which: i) have not demonstrated their technological feasibility, and ii) have no
alternative future uses. Accordingly, the Company recognized an expense of
$23.0 million during the quarter ended October 31, 2000 in conjunction with the
completion of this acquisition.
(B) On November 21, 2000 Finisar and Demeter entered into an Agreement and
Plan of Reorganization (the "Agreement") pursuant to which Finisar acquired
Demeter. The transaction also closed on November 21, 2000. Demeter is
headquartered in El Monte, California. Demeter Technologies was founded in
August 2000 and is focused on the development of long wavelength Fabry Perot and
distributed feedback lasers for datacom and telecommunications applications.
Pursuant to the Agreement, Finisar issued 6,020,012 shares of its common
stock in exchange for the outstanding shares of Demeter common stock. In
addition, Finisar assumed options to purchase Demeter common stock and reserved
566,573 shares of Finisar common stock for issuance upon the exercise of the
assumed options. The assumed options generally vest to the extent of 25% of the
total number of shares subject to the option at the end of one year after the
date of grant, with the remainder vesting in 36 equal monthly installments,
subject to the optionholder's continued service with Finisar or a subsidiary.
At the closing of the transaction, certificates representing 601,993 shares
of Finisar common stock were deposited into an escrow with the U.S. Bank Trust,
National Association. The escrow shares will be subject to claims for
indemnification by Finisar under the reorganization agreement and the procedures
20
NOTES TO FINISAR, SENSORS AND DEMETER
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
specified in the escrow agreement. Those shares will remain in escrow until all
pending claims for indemnification, if any, have been resolved.
Finisar's initial cost to acquire Demeter is calculated to be
$186.9 million using the price of $28.05 per share of Finisar common stock,
which is the average of the closing market prices of Finisar's common stock for
a period from three days before through three days after November 21, 2000, the
day the transaction was announced. The fair value of the assumed stock options
of $15.4 million, as well as estimated direct transaction expenses of $2.6
million, have been included as a part of the total purchase cost. Demeter
currently operates as a wholly-owned subsidiary of Finisar.
The cost to acquire Demeter has been allocated to the assets acquired and
liabilities assumed according to their respective fair values, with the excess
purchase price being allocated to goodwill. The fair value of the acquired
assets and liabilities is based upon an independent valuation.
The estimated total initial purchase cost of Demeter is as follows (in
thousands):
Value of securities issued.................................. $168,882
Assumption of Demeter common stock options.................. 15,438
Estimated transaction costs and expenses.................... 2,600
--------
$186,920
========
The preliminary purchase price allocation as of October 31, 2000 is as
follows (in thousands):
ANNUAL
USEFUL LIFE AMORTIZATION OF
AMOUNT IN YEARS INTANGIBLES
-------- ----------- ---------------
Net tangible assets of Demeter............ $ 3,217
Intangible assets acquired:
Developed technology.................... 29,972 10 $ 2,997
In-process research and development..... 5,984 N/A N/A
Assembled workforce..................... 997 3 332
Customer base........................... 238 3 79
Deferred compensation................... 13,301 4 3,325
Goodwill................................ 151,014 5 30,203
Deferred income tax....................... (17,803) 3-10 (2,693)
-------- -------
Total preliminary purchase price
allocation.............................. $186,920 $34,243
======== =======
An independent valuation specialist performed an allocation of the total
purchase price of Demeter to its individual assets. The purchase price was
allocated to Demeter's tangible assets, specific intangible assets such as
assembled workforce, customer base and developed technology and to in-process
research and development.
The acquired developed technology, which is comprised of products that are
already technologically feasible, mainly includes long wavelength Fabry Perot
and distributed feedback lasers for datacom and telecommunications applications.
Finisar will amortize the acquired developed technology of approximately
$30.0 million on a straight-line basis over an average estimated remaining
useful life of five years.
The acquired assembled workforce is comprised of all the skilled employees
and includes the estimated cost to replace existing employees, including
recruiting and training costs and loss of productivity
21
NOTES TO FINISAR, SENSORS AND DEMETER
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
costs. Finisar will amortize the value assigned to the assembled workforce of
approximately $0.9 million on a straight-line basis over an average estimated
useful life of three years.
Acquired customer base is based on historical costs incurred and is
comprised of Demeter management's estimation of resources that have been devoted
to the development of the relationships with key customers. Finisar will
amortize the value assigned to customer relationships of approximately
$0.2 million on a straight-line basis over an average estimated useful life of
three years.
Deferred compensation expense is recognized for the intrinsic value of the
unvested Finisar options exchanged for options held by Demeter's employees. The
$13.3 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, will be amortized on a straight-line basis
over its estimated remaining useful life of five years.
In-process research and development represents that portion of the purchase
price of an acquisition related to the research and development activities
which: i) have not demonstrated their technological feasibility, and ii) have no
alternative future uses. Accordingly, the Company will recognized an expense of
$6.0 million during the quarter ending January 31, 2001 in conjunction with the
completion of this acquisition.
(C) Historically, Sensors elected to be treated as an "S" corporation for
Federal income tax purposes; therefore the Sensors stockholders were liable for
income taxes on Sensors' taxable income. The pro forma provision for income
taxes includes estimated income taxes on Sensor's income at a tax rate of 30%.
(D) The pro forma combined provision for income taxes does not represent the
amounts that would have resulted had Finisar, Sensors and Demeter filed
consolidated income tax returns during the periods presented.
(E) The pro forma basic and diluted net earnings per share for the year
ended April 30, 2000 are based on the weighted average number of shares of
Finisar common stock outstanding, the initial 9,481,109 shares issued by Finisar
in the Sensors transaction and the 6,020,012 shares issued by Finisar in the
Demeter transaction. The pro forma basic and diluted net earnings per share for
the six months ended October 31, 2000 are based on the weighted average number
of shares of Finisar common stock outstanding, the 7,970,383 shares
(representing the difference between the shares issued by Finisar in the Sensors
transaction and the amount included in the weighted average number of shares of
Finisar common stock outstanding) and the 6,020,012 shares issued by Finisar in
the Demeter transaction.
22
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(CONTINUED)
(c) Exhibits.
EXHIBIT NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
2.1* Agreement and Plan of Reorganization, dated as of
November 21, 2000, by and among Finisar Corporation, a
Delaware corporation, Onyx Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Finisar, and
Demeter Technologies, Inc., a Delaware corporation.
Schedules and similar attachments to this Exhibit have not
been filed; Finisar will furnish supplementally a copy of
any omitted schedule to the Commission upon request.
- ------------------------
* Previously filed.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
FINISAR CORPORATION
Date: February 2, 2001 By: /s/ STEPHEN K. WORKMAN
-----------------------------------------
Stephen K. Workman
VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
24
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
2.1* Agreement and Plan of Reorganization dated as of
November 21, 2000 by and among Finisar Corporation, a
Delaware corporation, Onyx Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Finisar, and
Demeter Technologies, Inc., a Delaware corporation.
Schedules and similar attachments to this Exhibit have not
been filed; Finisar will furnish supplementally a copy of
any omitted schedule to the Commission upon request.
- ------------------------
* Previously filed.