U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 6, 2001
------------------------------------------------
Date of Report (date of earliest event reported)
Adpads Incorporated
----------------------------------------------------
Exact Name of Registrant as Specified in its Charter
Colorado 0-28373 84-1306598
- --------------------------- --------------- ----------------------
State or Other Jurisdiction Commission File IRS Employer Identifi-
of Incorporation Number cation Number
108 Fortunato Place, Neptune, New Jersey 07753
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Address of Principal Executive Officer, Including Zip Code
(732) 918-8004
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Registrant's Telephone Number, Including Area Code
1000 Highway 34, Matawan, New Jersey 07747
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Former Name or Former Address, if Changed Since Last Report
This Form 8-K/A of Adpads Incorporated ("Adpads" or the "Company")
constitutes Amendment No. 2 to Adpad's Current Report on Form 8-K (the
"Original Form 8-K") which was filed with the Securities and Exchange
Commission (the "SEC") on December 21, 2001. This amendment sets forth the
information required by Items 7(a) and 7(b) omitted from the original Form
8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. With respect to the
acquisition of Blue Flying Fish, Inc. and Subsidiaries ("BFFI"), by Adpads
Incorporated ("Adpads" or the "Company"), the following financial statements
are presented below:
Page
-----
UNAUDITED FINANCIAL STATEMENTS FOR THE FIVE MONTHS ENDED
NOVEMBER 30, 2001 - BLUE FLYING FISH INC AND SUBSIDIARIES
Consolidated Balance Sheet - November 30, 2001 (unaudited) .... F-1 - F-2
Consolidated Statement of Operations for the five months
ended November 30, 2001 (unaudited) ........................... F-3
CONSOLIDATED FINANCIAL STATEMENTS FOR BUHL INDUSTRIES, INC. AND
SUBSIDIARY FOR THE YEARS ENDED MAY 31, 2001 AND 2000:
Independent Accountants' Report ................................ F-4
Consolidated Balance Sheets - May 31, 2001 and 2000 ............ F-5
Consolidated Statements of Operations for the years ended
May 31, 2001, 2000 and 1999 .................................... F-6
Consolidated Statements of Stockholders' Deficiency for the
years ended May 31, 2001, 2000 and 1999 ........................ F-7
Consolidated Statements of Cash Flows for the years ended
May 31, 2001, 2000 and 1999 .................................... F-8
Notes to Consolidated Financial Statements ..................... F-9 - F-15
(b) PRO FORMA FINANCIAL INFORMATION. The following are the pro forma
financial statements of Adpads Incorporated and Blue Flying Fish and
Subsidiaries included therewith:
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED AND CONDENSED
FINANCIAL DATA ................................................... F-16
Unaudited Pro Forma Combined Statement of Operations
(Historical) ................................................... F-17
Notes to the Unaudited Pro Forma Combined Statements of
Operations ..................................................... F-18
2
BLUE FLYING FISH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
November 30,
2001
------------
Current Assets:
Cash $ 39,248
Accounts receivable, less allowance
for doubtful accounts of $4,000 612,083
Inventories 778,171
Prepaid expenses 40,060
----------
Total Current Assets 1,469,562
----------
Property, plant and equipment - net 775,511
Goodwill 1,011,381
Intangible assets 151,024
----------
TOTAL ASSETS $3,407,478
==========
F-1
BLUE FLYING FISH AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
November 30,
2001
------------
Current Liabilities:
Accounts payable $1,432,795
Accrued expenses 479,807
Loan payable 831,531
Current portion long term debt 214,487
Due to shareholders 518,128
----------
Total Current Liabilities 3,476,748
Stockholders' Deficiency:
Common stock, $.00001 per share,
authorized 20,000,000 shares; outstanding
14,500,000 shares 1,450
Additional paid-in capital 4,949
Deficit (75,669)
----------
Total Stockholders' Deficiency (69,270)
----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $3,407,478
==========
F-2
BLUE FLYING FISH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Five Months Ended
November 30,
2001
-----------------
Sales $1,029,649
Costs and Expenses:
Cost of sales 570,970
General and administrative expenses 501,032
----------
1,072,002
----------
Loss from operations (42,353)
Other income - net 329
----------
Loss before interest expense (42,024)
Interest expense 33,645
----------
Net loss $ (75,669)
==========
F-3
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Buhl Industries, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Buhl
Industries, Inc. and Subsidiary as of May 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for each of the three years in the period ended May 31, 2001. 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 auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Buhl
Industries, Inc. and Subsidiary as of May 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended May 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ AMPER, POLITZINER & MATTIA P.A.
March 28, 2002
Edison, New Jersey
F-4
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
May 31,
Assets
2001 2000
---------- ----------
Current assets
Cash and cash equivalents $ 31,156 $ 8,864
Accounts receivable, trade-net of allowance
for doubtful accounts of $4,000 and $5,000 440,692 605,072
Accounts receivable - related party 3,116 15,945
Inventory 688,722 850,054
Other current assets 49,361 83,105
---------- ----------
1,213,047 1,563,040
Property and equipment, less accumulated
depreciation 369,637 477,570
Other assets
Patent, less accumulated amortization of
$24,000 and $16,000 112,544 120,584
Other assets 73,874 103,761
---------- ----------
$1,769,102 $2,264,955
========== ==========
Liabilities and Stockholders' Deficiency
Current liabilities
Line of credit $ 717,448 $ 789,755
Notes payable, current maturities 428,865 271,507
Accounts payable and accrued expenses 881,082 785,495
Accounts payable-related party 337,629 30,707
---------- ----------
2,365,024 1,877,464
Long term debt, net of current maturities 864 305,812
Stockholders' loans payable 272,483 237,915
Stockholders' deficiency
Preferred stock, $1.00 par value, 9% non-
cumulative, 1,000 shares authorized, 190
shares issued 190,000 190,000
Common stock, no par value, 1,000 shares
authorized, 380 shares issued and outstanding 380,000 380,000
Additional paid-in capital 2,425,000 2,255,000
Accumulated deficit (3,408,800) (2,600,767)
Less treasury stock, at cost 190 and 115
shares of preferred stock) (455,469) (380,469)
---------- ----------
(869,269) (156,236)
---------- ----------
$1,769,102 $2,264,955
========== ==========
See accompanying notes to consolidated financial statements.
F-5
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended May 31,
2001 2000 1999
---------- ----------- -----------
Net sales (including $213,000,
$120,000 and $-0- from related
party) $4,889,732 $ 5,306,422 $ 6,042,115
Cost of goods sold (including
$807,000, $122,000 and $-0-
from related party) 4,343,358 4,738,872 5,426,120
---------- ----------- -----------
Gross profit 546,374 567,550 615,995
---------- ----------- -----------
Other expenses
Selling 444,609 559,123 464,244
General and administrative 561,659 696,162 542,855
Research and development 104,908 104,981 610,033
---------- ----------- -----------
1,111,176 1,360,266 1,617,132
---------- ----------- -----------
Loss from operations (564,802) (792,716) (1,001,137)
Interest expense and bank charges (239,181) (282,653) (299,248)
---------- ----------- -----------
Loss before income taxes (803,983) (1,075,369) (1,300,385)
Income tax benefit - - 416,655
---------- ----------- -----------
Net loss $ (803,983) $(1,075,369) $ (883,730)
========== =========== ===========
See accompanying notes to consolidated financial statements.
F-6
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Deficiency
For the Years Ended May 31, 2001, 2000 and 1999
Number Number Additional Number Total
of of Paid-in Accumulated of Treasury Stockholders'
Shares Amount Shares Amount Capital Deficit Shares Stock Deficiency
------ -------- ------ -------- ---------- ----------- ------ ---------- -------------
Balance at
June 1, 1998 380 $380,000 190 $190,000 $ - $ (641,668) 115 $(380,469) $ (452,137)
Net loss - - - - - (883,730) - - (883,730)
------ -------- ------ -------- ---------- ----------- ------ ---------- -------------
Balance at
June 1, 1999 380 380,000 190 190,000 - (1,525,398) 115 (380,469) (1,335,867)
Net loss - - - - - (1,075,369) - - (1,075,369)
Capital
contribution - - - - 2,255,000 - - - 2,255,000
------ -------- ------ -------- ---------- ----------- ------ ---------- -------------
Balance at
May 31, 2000 380 380,000 190 190,000 2,255,000 (2,600,767) 115 (380,469) (156,236)
Net loss - - - - - (803,983) - - (803,983)
Dividends - - - - - (4,050) - - (4,050)
Purchase of
treasury stock - - - - - - 75 (75,000) (75,000)
Capital
contribution - - - - 170,000 - - - 170,000
------ -------- ------ -------- ---------- ----------- ------ ---------- -------------
Balance at
May 31, 2001 380 $380,000 190 $190,000 $2,425,000 $(3,408,800) 190 $ (455,469) $ (869,269)
====== ======== ====== ======== ========== =========== ====== ========== =============
See accompanying notes to consolidated financial statements.
F-7
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended May 31,
2001 2000 1999
---------- ----------- -----------
Cash flows from operating activities
Net loss $ (803,983) $(1,075,369) $ (883,730)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 142,716 168,212 202,820
(Gain) loss on disposition of equipment (26,292) 135,799 -
(Increase) decrease in
Accounts receivable - trade and related
parties 177,209 192,440 263,446
Inventory 161,332 267,940 428,576
Other current assets 33,744 (25,347) -
Other assets 37,833 (65,755) (261,582)
Increase (decrease) in
Accounts payable and accrued expenses -
trade and related parties 402,509 (42,442) 153,895
---------- ----------- -----------
Net cash provided by (used in) operating
activities 125,068 (444,522) (96,575)
---------- ----------- -----------
Cash flows from investing activities
Payments for purchase of property and equipment (8,400) (50,205) (64,820)
---------- ----------- -----------
Net cash provided by (used in) investing
activities (8,400) (50,205) (64,820)
---------- ----------- -----------
Cash flows from financing activities
Reduction in revolving line of credit (72,307) - -
Net proceeds from notes payable - 64,755 200,000
Principal payments on long-term debt (147,590) (799,824) (309,524)
Proceeds from additional paid-in capital 170,000 1,173,958 -
(Payments on) / proceeds from stockholders'
loans (44,479) - 307,815
---------- ----------- -----------
Net cash provided by (used in) financing
activities (94,376) 438,889 198,291
---------- ----------- -----------
Net change in cash and cash equivalents 22,292 (55,838) 36,896
Cash and cash equivalents - beginning 8,864 64,702 27,806
---------- ----------- -----------
Cash and cash equivalents - ending $ 31,156 $ 8,864 $ 64,702
========== =========== ===========
Supplemental disclosure of cash paid
Interest $ 176,000 $ 160,000 $ 238,000
Income taxes - - -
See accompanying notes to consolidated financial statements.
F-8
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS
Buhl Industries, Inc. and Subsidiary (the "Company") are manufacturers and
distributors of two lines of business. One is overhead projectors and
advanced optical products used in lighting studios, and the other is tungsten
and metal halide lampholders. Their facility is located in Fairlawn, New
Jersey. The overhead projector and lampholder businesses are about equal in
size based on gross revenue. The optical products business is referred to as
Buhlite and is a division of Buhl Industries, Inc. Credit is granted to
substantially all customers, the majority of whom are Board of Educations
located in the United States.
The Company has entered into an agreement with its European distributor to
manufacture certain overhead projectors. The European distributor has entered
into an agreement with Istra Vega of Slovania to manufacture the units (see
Note 8).
ORGANIZATION
The consolidated financial statements include the accounts of Buhl Industries,
Inc. and its wholly owned Subsidiary, Buhl Electric, Inc. after elimination of
all significant intercompany balances and transactions.
REVENUE RECOGNITION
The Company recognizes revenue when goods are shipped and title passes to the
customer.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS No., 121"). SFAS No. 121 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
F-9
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed on the straight-line method over estimated useful
lives as follows:
Machinery and equipment 5 - 20 years
Office equipment 5 - 7 years
Furniture and fixtures 7 - 10 years
Leasehold improvements 10 - 40 years or life
of lease, whichever is shorter
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered.
PATENT
The cost of patent acquired is amortized on the straight-line basis over the
remaining life of 17 years. Amortization expense charged to operations during
the years ended May 31, 2001, 2000, and 1999 was $8,000 in each year. The
Company evaluated the recoverability of its patent. Management believes that
there is no impairment at this time.
LOAN ACQUISITION COSTS
Professional fees and other expenses associated with debt acquisition are
amortized on the straight-line method over the three-year term of the note and
are included in other assets. Amortization expense charged to operations
during the year ended May 31, 2001, 2000, and 1999 was $30,000, $5,000, and
$0, respectively.
At May 31, 2001 and 2000, net loan acquisition costs of $60,000 and $90,000
are included in other assets.
RESEARCH AND DEVELOPMENT COSTS
The Company strongly believes that its future success depends on its ability
to refine, adapt and enhance the technology developed for its low-energy lamp
product line as well as develop new applications and products in its lamp
socket business. Accordingly, the Company intends to continue to make
investments in the development of new technologies, the commercialization of
product enhancements that builds on the Company's existing technological base,
and the refinement and development of additional applications for its
products.
F-10
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS (Continued)
RESEARCH AND DEVELOPMENT COSTS (Continued)
The Company's research and development efforts are directed primarily in its
low-energy lamp technology product line. The patented "Buhlite" is a low
power, high efficiency system of light collection optics powered by ceramic
metal Halide lamp technology. Significant efforts are being directed toward
architectural improvements as well as enhancements in digital multiplexing
(DMX).
Over the course of the past five years the Company has invested more than
$1,035,000 in its research, development and product enhancement efforts.
Research and development activities, especially with respect to new products
and technologies, are subject to significant risks, and there can be no
assurance that any of the Company's efforts in these areas will be completed
successfully.
Research and development costs are expensed as incurred.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. As amended by SFAS No. 138,
SFAS No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement did not have a material impact on the Company's financial position
and results of operations.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill
and indefinite lived intangible assets are no longer amortized, but are
reviewed annually for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives. The amortization provisions of SFAS No. 142 apply to goodwill
and intangible assets acquired after June 30, 2001.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived assets and for Long-Lived assets to be Disposed of"
and also supercedes the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for segments of a business to be disposed
of. Among its many provisions, SFAS No. 144 retains the fundamental
requirements of both previous standards, however, it resolves significant
implementation issues related to FASB Statement No. 121 and broadens the
separate presentation of discontinued operations in the income statement
required by APB Opinion No. 30 to include a component of an entity (rather
than a segment of a business). The provisions of SFAS No. 144 are effective
for financial statements issued for fiscal years beginning after December 15,
2001 with early application encouraged. The Company does not believe, based
on current circumstances, the effect of adoption of SFAS No. 144 will be
material.
F-11
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 2 - INVENTORY
May 31,
2001 2000
---------- ----------
Raw materials $ 469,000 $ 716,000
Finished goods 220,000 134,000
---------- ----------
$ 689,000 $ 850,000
========== ==========
NOTE 3 - PROPERTY AND EQUIPMENT
May 31,
2001 2000
---------- ----------
Machinery and equipment $1,639,000 $1,699,000
Office equipment 94,000 94,000
Furniture and fixtures 41,000 41,000
Leasehold improvements 57,000 57,000
---------- ----------
1,831,000 1,891,000
Less accumulated depreciation 1,461,000 1,413,000
---------- ----------
Property and equipment, net $ 370,000 $ 478,000
========== ==========
Depreciation expense for the years ended May 31, 2001, 2000, and 1999 was
$105,000, $155,000, and $190,000, respectively.
NOTE 4 - LINE OF CREDIT
The Company entered into a three-year revolving line-of-credit agreement with
a financing company in March 2000, which is collateralized by substantially
all corporate assets and is personally guaranteed by several stockholders.
The revolving credit facility has an overall limitation of $2,775,000, not to
exceed a defined combination of 75% of eligible accounts receivable plus 75%
of the appraised orderly liquidation value of finished goods inventory and 75%
of the appraised orderly liquidation value of machinery and equipment.
Interest is charged at the prime rate plus 2.25% and is payable monthly.
Additionally, the Company is required to pay an administration fee of $750 per
month, and facility fees of 3/4 of 1% of the line of credit payable at the
closing date; and 1/2 of 1% of the unused line of credit payable on each
anniversary of the closing date thereafter.
The lender recategorized a portion of the line of credit as an equipment term
loan. Details are included in the long-term debt footnote.
The bank's prime rate at May 31, 2001 was 7.0%.
The note agreements contain requirements for maintaining defined levels of net
worth (as defined) and working capital. At May 31, 2001, the Company was not
in compliance with these covenants. Under the terms of the agreement, the
bank can require the Company to repay the debt on demand and the line of
credit has been classified as a current liability.
F-12
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 5 - LONG-TERM DEBT
May 31,
2001 2000
---------- ----------
Note payable to a bank through December
2001, payable at $4,348 per month including
interest at 11% with the balance payable at
maturity. The note is collateralized by
substantially all the assets of the
Company. $ 177,000 $ 196,000
Note payable to a financing company through
May 2005, payable at $6,250 per month plus
interest at prime plus 2.25%. The note is
collateralized by substantially all the
assets of the Company and personally
guaranteed by several stockholders. (1) 250,000 376,000
Capital lease payable to a financing company
through September 2002, payable at $216 per
month including interest at 13.5%, collater-
alized by specific equipment. 3,000 5,000
---------- ----------
430,000 577,000
Less current maturities 429,000 271,000
---------- ----------
Long-term debt, net of current maturities $ 1,000 $ 306,000
========== ==========
______________
(1) At May 31, 2001, the Company was not in compliance with debt covenants
(see Note 4), and accordingly has classified approximately $250,000 of
equipment loans as a current liability.
______________
The approximate aggregate amount of all long-term debt maturities for the
years ending May 31, is as follows:
2002 $254,000
2003 75,000
2004 75,000
2005 25,000
F-13
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 6 - OPERATING LEASES
The Company has a five year lease for office and warehouse space expiring
February, 2006. Monthly payments are $7,300. The Company is required to pay
utilities and insurance relating to the leased facility. The Company leases
certain equipment and vehicles under various operating leases expiring through
September 2002.
The future minimum rental payments in excess of one year follow:
2002 $ 95,000
2003 89,000
2004 88,000
2005 88,000
2006 65,000
--------
$425,000
========
Rent expense for all operating leases for 2001, 2000, and 1999 was $185,000,
$187,000, and $230,000, respectively.
NOTE 7 - INCOME TAXES
Deferred tax attributes resulting from differences between financial
accounting amounts and tax bases of assets and liabilities at May 31, 2001 and
2000 are as follows:
Allowance for doubtful accounts $ 2,000 $ 2,200
Valuation allowance (2,000) (2,200)
----------- -----------
Net current deferred tax asset $ - $ -
=========== ===========
Noncurrent assets (liabilities)
Property and equipment $ (135,000) $ (135,000)
Net operating loss carryforward 1,552,000 1,232,000
Deferred state tax liability (92,000) (92,000)
----------- -----------
1,325,000 1,005,000
Valuation allowance (1,325,000) (1,005,000)
----------- -----------
Net noncurrent deferred tax asset $ - $ -
=========== ===========
As of May 31, 2001, the Company has available federal net operating loss
carryforwards of approximately $2,750,000, which begin to expire in 2017.
Available state net operating loss carryforwards of approximately $3,300,000
begin to expire in 2005.
Due to recent operating losses, management believes the deferred tax assets
are not likely to be utilized and therefore have been offset entirely through
a valuation allowance. The valuation allowance increased $320,000 and
$583,000 as of May 31, 2001 and 2000 to $1,327,000 and $1,007,000,
respectively.
F-14
BUHL INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 8 - RELATED PARTY TRANSACTIONS
A stockholder owns 10% of an entity engaged in the lampholder business in
Europe.
NOTE 9 - PREFERRED STOCK
Preferred stock is non-voting. The Company purchased the remaining shares of
preferred stock at par as of May 31, 2001. A corporate note was issued to all
remaining preferred stockholders.
NOTE 10 - STOCKHOLDERS' LOAN PAYABLE
Notes payable to stockholders bear interest at 6.5% per annum, mature April
2005, and are subordinated to the financing company debt (see Note 5).
Interest expense on the stockholders' loans payable was $14,000, $118,000, and
$54,000, for 2001, 2000 and 1999.
NOTE 11 - NON CASH FINANCING ACTIVITIES
During the year ended May 31, 2001, the Company borrowed $79,050 from
stockholders to purchase 75 shares of preferred stock for $75,000 and pay
dividends. During the year ended May 31, 2000, the Company reclassed
$1,081,000 of loans to stockholders to additional paid in capital as capital
contributions.
NOTE 12 - SUBSEQUENT EVENT
On October 25, 2001, the shareholders of the Company tendered all of its
outstanding shares of the Company common stock in exchange for 3,000,000
restricted shares of the .001 par value common stock of Blue Flying Fish, Inc.
("BFFI").
On December 6, 2001, the shareholders of BFFI tendered all of the outstanding
common stock of BFFI to Adpads Incorporated ("APAD") in exchange for 4,783,333
authorized but unissued restricted shares of the Series A Convertible
Preferred Stock of APAD and 18,800,000 authorized unissued restricted shares
of common stock of APAD.
F-15
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED AND CONDENSED FINANCIAL DATA
The Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 2001 (the "Pro Forma Statements of Operations") have been
prepared to reflect the purchase of BFFI by the Company as of the beginning of
the period presented in the Pro Forma Statements of Operations. The Pro Forma
Financial Statements do not reflect any anticipated costs savings or any
synergies that are anticipated to result from the BFFI acquisition. There can
be no assurance that any such cost savings or synergies will occur. The pro
forma financial statements do not purport to be indicative of the results of
operations or financial position of the Company that would have actually been
obtained had such transactions been completed as of the assumed dates and for
the period presented, or which may be obtained in the future. The pro forma
adjustments are described in the accompanying notes and are based upon
available information and certain assumptions that the Company believes are
reasonable. The pro forma financial statements should be read in conjunction
with the separate historical consolidated financial statements of Adpads and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition" and "Results of Operations" included in Adpad's Form 10-KSB for the
year ended December 31, 2001 previously filed with the Securities and Exchange
Commission the May 31, 2001 historical financial statements of BFFI's
operating subsidiary Buhl Industries Inc and Subsidiary, and the notes thereto
included elsewhere herein.
The allocation of the purchase price has been made to major categories of
assets and liabilities in the accompanying Pro Forma Financial Statements.
The pro forma adjustments represent the Company's purchase accounting
adjustments and are based upon certain assumptions that the Company believes
to be reasonable. The Company does not anticipate any major changes to the
allocation.
F-16
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
HISTORICAL
AdPad BFFI Pro Forma
Year Ended Year Ended Combined
December 31, December 31, Pro Forma Statement of
2001 2001 Adjustments Operations
------------ --------------- ------------ ------------
Historical
Net sales $ 180,804 $ 4,415,010 $ - $ 4,595,814
----------- ----------- -----------
Costs and expenses:
Cost of sales 53,096 3,715,185 3,768,281
Selling, general and
administrative 408,952 1,937,412 2,346,364
Interest expense 24,383 199,220 223,603
----------- ----------- -----------
486,431 5,851,817 6,338,248
----------- ----------- -----------
Loss from operations (305,627) (1,436,807) (1,742,434)
Other income 9,000 2,020 11,020
----------- ----------- -----------
Loss before income taxes (296,627) (1,434,787) (1,731,414)
Income tax provision - - -
----------- ----------- -----------
Net loss $ (296,627) $(1,434,787) $(1,731,414)
=========== =========== ===========
Loss per common share-
basic and diluted $ (0.01) $ (0.03)
=========== ===========
Weighted average number of
common shares outstanding-
basic and diluted 25,239,826 48,439,826
=========== ===========
See Notes to Unaudited Pro Forma Balance Sheet.
F-17
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(a) For purposes of the Pro Forma Statement of Operations for the year
ended December 31, 2001, the BFFI Statement of Operations for the period ended
November 30, 2001 and Buhl Statement of Operations for the nine months ended
September 30, 2001 were combined with Adpad's historical statement of
operations for the year ended December 31, 2001.
The acquisition was accounted for using the purchase method of
accounting. Under purchase accounting, the total purchase price was allocated
to all of the tangible and intangible assets and related liabilities, if any,
of BFFI based upon their respective fair values as of the closing date.
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and
Intangible Assets". Major provisions of these Statements are as follows: all
business combinations initiated after June 30, 2001 must use the purchase
method of accounting; the pooling of interest method of accounting is
prohibited; goodwill and intangible assets with indefinite lives are not
amortized but are tested for impairment annually, except in certain
circumstances, and whenever there is an impairment indicator; all acquired
goodwill must be assigned to reporting units for purposes of impairment
testing; effective January 1, 2002, goodwill will no longer be subject to
amortization.
The Proforma Statement of Operations reflect no amortization of acquired
goodwill.
(b) On December 6, 2001 the Company completed the acquisition of the
outstanding common stock of BFFI in exchange for shares of the Company's
common stock and Series A convertible preferred stock. The purchase price was
approximately $1.5. The Company issued a total of 18,800,000 shares of common
stock and 4,783.333 of its Series A Convertible Preferred Stock to the
shareholders of BFFI. The purchase price included the value of common shares
issued and the acquired goodwill of BFFI. The assets and liabilities of BFFI
equaled their fair market value and no further allocations were made. The
excess of the purchase price over net assets acquired is approximately $1.5
million.
F-18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amended Report to be signed on its behalf by
the undersigned, hereunto duly authorized.
ADPADS INCORPORATED
Dated: October 16, 2002 By:/s/ Erica Ventley
Erica Ventley, CFO and
Acting Principal Executive Officer
3