1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): SEPTEMBER 4, 2001.
COMMISSION FILE NUMBER 0-23111
A NOVO BROADBAND, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 31-1239657
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3011 GREENE STREET, HOLLYWOOD, FLORIDA 33020
(Address of Principal Executive Offices) (Zip Code)
2
ITEM 2. ACQUISITION OF ASSETS
On September 4, 2001, A Novo Broadband, Inc. ("A Novo") consummated its
acquisition of substantially all of the assets of the equipment repair business
of Broadband Services, Inc. ("BSI") and ICS Sub, Inc. ("ICS"), BSI's
wholly-owned subsidiary. The acquisition was consummated pursuant to that
certain Asset Purchase Agreement dated as of August 13, 2001 between A Novo, BSI
and ICS. The purchase price was approximately $8 million, subject to
post-closing adjustments, and the assumption of certain related liabilities of
BSI and/or ICS. A Novo used existing cash reserves and a bridge loan from an
affiliate to finance the transaction.
BSI and ICS are providers of products and services to the broadband and
communications industry and prior to this reported transaction were engaged in,
among other businesses, the business of servicing and repairing customer premise
equipment and related equipment for broadband network operators and equipment
manufacturers, including line gear and power supplies.
A Novo intends to integrate the acquired assets and business into its
existing operations.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of business acquired.
See Appendix A attached hereto.
(b) Pro forma financial information.
To the extent required by this Item, pro forma financial information
relative to the business acquired will be filed by an amendment to this Current
Report on Form 8-K within 60 days after the date on which this initial report on
Form 8-K must be filed.
(c) Exhibits.
Exhibit 2.1. Asset Purchase Agreement dated as of August 13, 2001 between A
Novo Broadband, Inc., ICS Sub, Inc. and Broadband Services, Inc.
Exhibit 99.1. Press Release issued September 4, 2001.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the issuer has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: September 17, 2001
A NOVO BROADBAND, INC.
By: /s/ Louis Brunel
-----------------------------------------
Louis Brunel, Chief Executive Officer and
President
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EXHIBIT INDEX
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Exhibit No. Description
----------- -----------
2.1 Asset Purchase Agreement dated as of August 13, 2001
between A Novo Broadband, Inc., ICS Sub, Inc. and
Broadband Services, Inc.
99.1 Press Release issued September 4, 2001.
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APPENDIX A
REPAIR DIVISION OF BROADBAND SERVICES, INC.
FINANCIAL STATEMENTS
AUDITOR'S REPORT A-1
FINANCIAL STATEMENTS:
Balance Sheets A-2
Statements of Operations and
Parent's Equity A-3
Statements of Cash Flows A-4
Notes to Financial Statements A-5
6
REPAIR DIVISION OF BROADBAND SERVICES, INC.
Financial Statements
As Of June 30, 2001 and December 31, 2000
Together With Report Of Independent Public Accountants
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Broadband Services, Inc. and ANOVO Broadband, Inc.:
We have audited the accompanying balance sheets of the REPAIR DIVISION OF
BROADBAND SERVICES, INC. and its predecessor (the "Division") as of December 31,
2000 and June 30, 2001, and the related statements of operations and parent's
equity and cash flows for the periods from January 1, 1999 through December 13,
1999, December 14, 1999 through December 31, 1999, January 1, 2000 through
December 31, 2000 and January 1, 2001 through June 30, 2001. These financial
statements are the responsibility of the Division'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. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Division as of December 31,
2000 and June 30, 2001, and the results of its operations and its cash flows for
the periods from January 1, 1999 through December 13, 1999, December 14, 1999
through December 31, 1999, January 1, 2000 through December 31, 2000 and January
1, 2001 through June 30, 2001, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
Denver, Colorado,
August 8, 2001.
A-1
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REPAIR DIVISION OF BROADBAND SERVICES, INC. AND PREDECESSOR
-----------------------------------------------------------
BALANCE SHEETS
--------------
December 31, June 30,
ASSETS 2000 2001
------ ------------ ------------
CURRENT ASSETS:
Cash $ 1,350 $ 1,350
Accounts receivable, net of allowance for doubtful
accounts of $384,767 and $98,271 1,418,651 1,688,515
Unbilled accounts receivable 1,985 288,803
Inventory, net 317,557 520,411
Other current assets 71,839 71,839
------------ ------------
Total current 1,811,382 2,570,918
PROPERTY AND EQUIPMENT, net 643,914 826,850
GOODWILL, net 385,700 336,980
OTHER ASSETS 62,321 62,321
------------ ------------
Total assets $ 2,903,317 $ 3,797,069
============ ============
LIABILITIES AND PARENT'S EQUITY
-------------------------------
CURRENT LIABILITIES:
Accounts payable $ 244,344 $ 355,646
Accrued expenses 374,476 438,391
------------ ------------
Total current liabilities 618,820 794,037
OTHER NONCURRENT LIABILITIES 6,734 --
PARENT'S EQUITY 2,277,763 3,003,032
------------ ------------
Total liabilities and parent's equity $ 2,903,317 $ 3,797,069
============ ============
The accompanying notes are an integral part of these statements.
A-2
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REPAIR DIVISION OF BROADBAND SERVICES, INC. AND PREDECESSOR
-----------------------------------------------------------
STATEMENTS OF OPERATIONS AND PARENT'S EQUITY
--------------------------------------------
Predecessor Successor
----------------- -----------------
Period From Period From
January 1, 1999 December 14, 1999 Six Months
Through Through Year Ended Ended
December 13, December 31, December 31, June 30,
1999 1999 2000 2001
----------------- ---------------- --------------- -------------
REVENUES $ 9,012,584 $ 475,094 $ 7,155,597 $ 4,406,501
COST OF REVENUE 5,889,037 284,115 4,119,618 2,574,053
------------ ------------ ------------ ------------
GROSS MARGIN 3,123,547 190,979 3,035,979 1,832,448
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and
administrative 2,301,770 164,143 3,376,560 1,669,836
Depreciation and amortization 278,421 7,046 193,592 143,112
------------ ------------ ------------ ------------
Total operating
expenses 2,580,191 171,189 3,570,152 1,812,948
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 543,356 19,790 (534,173) 19,500
OTHER INCOME (EXPENSE) -- (28) (2,301) 2,077
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
INCOME TAXES 543,356 19,762 (536,474) 21,577
INCOME TAXES 217,342 7,905 -- 8,631
------------ ------------ ------------ ------------
NET INCOME (LOSS) 326,014 11,857 (536,474) 12,946
PURCHASE OF REPAIR DIVISION -- 3,322,076 -- --
ADVANCES FROM PARENT, net 423,731 262,878 (782,574) 712,323
PARENT'S EQUITY,
beginning of period 2,261,613 -- 3,596,811 2,277,763
------------ ------------ ------------ ------------
PARENT'S EQUITY,
end of period $ 3,011,358 $ 3,596,811 $ 2,277,763 $ 3,003,032
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
A-3
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REPAIR DIVISION OF BROADBAND SERVICES, INC. AND PREDECESSOR
-----------------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
Predecessor Successor
--------------- ----------------
Period From Period From
January 1, 1999 December 14, 1999 Six Months
Through Through Year Ended Ended
December 13, December 31, December 31, June 30,
1999 1999 2000 2001
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 326,014 $ 11,857 $ (536,474) $ 12,946
Reconciliation of net income (loss)
to net cash (used in) provided
by operating activities-
Depreciation and amortization 278,421 7,046 193,592 143,112
Provisions for bad debts 42,367 2,312 43,929 17,712
Changes in operating assets
and liabilities-
Accounts receivable (1,048,831) (457,183) 1,200,353 (574,394)
Inventory 179,437 9,511 340,495 (202,854)
Prepaid expenses and
other assets (11,019) -- (80,637) --
Accounts payable and
accrued expenses (77,102) 163,579 85,301 175,217
Other noncurrent liabilities -- -- (26,933) (6,734)
------------ ------------ ------------ ------------
Net cash (used in) provided
by operating activities (310,713) (262,878) 1,219,626 (434,995)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of predecessor -- (3,322,076) -- --
Purchase of property and equipment (112,518) -- (437,052) (277,328)
------------ ------------ ------------ ------------
Net cash used in investing
activities (112,518) (3,322,076) (437,052) (277,328)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances from parent, net -- 262,878 (782,574) 712,323
Parent's equity in Division -- 3,322,076 -- --
Advances from predecessor's parent 423,731 -- -- --
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 423,731 3,584,954 (782,574) 712,323
------------ ------------ ------------ ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 500 -- -- --
CASH AND CASH EQUIVALENTS,
at beginning of period 850 1,350 1,350 1,350
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
at end of period $ 1,350 $ 1,350 $ 1,350 $ 1,350
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
A-4
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REPAIR DIVISION OF BROADBAND SERVICES, INC. AND PREDECESSOR
-----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. BUSINESS AND ORGANIZATION:
--------------------------
The Triple S.S.S. Corp., a Delaware corporation, was formed on September 9, 1999
as a holding company, and on December 9, 1999 changed its name to Broadband
Services, Inc. ("BSI" or the "Company"). On December 14, 1999, BSI purchased two
business units (distribution and repair services) from ITOCHU Cable Services,
Inc. ("ITOCHU").
The Repair Division (the "Division") was one of the business units purchased
from ITOCHU and is primarily engaged in the repair of cable television
equipment. The Repair Division of ITOCHO is hereafter referred to as the
"Predecessor."
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
---------------------------------------------
Basis of Presentation
---------------------
The accompanying financial statements include the assets, liabilities and
related operating results of the Division and excludes all other assets,
liabilities and related operations of the Company and its subsidiaries.
To prepare these financial statements, management allocated certain assets,
liabilities, revenues and expenses to the Division. Management believes such
allocations are reasonable; however, the allocations could differ from amounts
that would be determined if the Division operated on a stand-alone basis.
Because of the Division's relationship with the Company and its subsidiaries,
the assets, liabilities, revenues and expenses are not necessarily indicative of
what would have occurred had the Division operated as a stand-alone entity.
These financial statements are not necessarily indicative of future financial
position or results of operations. Corporate overhead expenses are included in
the accompanying statements of operations and have been allocated to the
Division based on the Company's management's assessment of the proportion of
indirect costs incurred by the Division. The Company's management believes that
the allocation method utilized reasonably reflects the level of services
provided by the Company to the Division.
Parent's equity reflects the Company's investment in the Division, accumulated
earnings and losses of the Division and intercompany activity with the Company.
Parent's equity also reflects deemed contributions for charges recognized in
these financial statements for which no asset or liability is recorded.
Cash
----
Cash represents petty cash on hand at each location.
Inventories
-----------
Inventories, consisting principally of items used in the repair of cable
communications devices, are stated at the lower of cost or market. Cost is
determined on a weighted average cost basis.
A-5
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Concentration of Credit Risk and Revenues
-----------------------------------------
Financial instruments which potentially subject the Division to concentrations
of credit risk are primarily accounts receivable. Accounts receivable are
typically unsecured and are concentrated in the cable industry. Approximately
83% and 28% of the Division's gross trade receivables balance were represented
by one customer as of June 30, 2001 and December 31, 2000, respectively.
One customer accounted for the following percentage of revenues in each period:
Year ended December 31, 2000 57%
Six months ended June 30, 2001 74%
For the periods January 1, 1999 through December 13, 1999, and December 14, 1999
through December 31, 1999, this customer accounted for the majority of the
Predecessor's and the Division's revenue.
The loss of this customer would have a significant adverse impact on the
Division.
Fair Value of Financial Instruments
-----------------------------------
The Division's financial instruments consist of cash, accounts receivable and
payable. The carrying values of cash, accounts receivable and payable
approximate their fair values due to their short term nature.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the respective assets.
When property is sold or otherwise disposed of, the cost and related accumulated
depreciation is removed from the accounts and any resulting gain or loss is
included in income. The costs of normal maintenance and repairs are charged to
expense when incurred.
Impairment of Long-Lived Assets
-------------------------------
The Division reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Impairment is indicated when the carrying amount of the asset is
greater than amounts recoverable from future undiscounted cash flows. If a
long-lived asset is deemed impaired, it is written down to its fair value.
Revenue Recognition
-------------------
Revenue is recognized on the repair of cable television equipment when the
service is completed.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Division 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
A-6
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statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Goodwill
--------
Goodwill, which represents the excess of purchase price over the fair value of
identifiable net assets acquired, is amortized on a straight-line basis over
five years. Accumulated amortization was $101,500 and $150,220 as of December
31, 2000, and June 30, 2001, respectively.
Income Taxes
------------
The Division is not a taxable entity. The Division's operating results are
included with the Company for federal income tax purposes. Although the Division
contributes temporary differences to the Company's deferred tax balances, the
Company does not allocate income tax payables or deferred income taxes to the
Division. The provisions included in the accompanying financial statements were
calculated based on the income of the Division and the Company's estimated
effective tax rate as follows:
Period from January 1, 1999 through December 13, 1999 40%
Period from December 14, 1999 through December 31, 1999 40%
Year ended December 31, 2000 0%
Six months ended June 30, 2001 40%
New Accounting Standards
------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets". These statements prohibit
pooling-of-interests accounting for transactions initiated after June 30, 2001,
require the use of the purchase method of accounting for all combinations after
June 30, 2001, and establish new standards for accounting for goodwill and other
intangibles acquired in business combinations. Goodwill will continue to be
recognized as an asset, but will not be amortized as previously required by APB
Opinion No. 17, "Intangible Assets." Certain other intangible assets with
indefinite lives, if present, may also not be amortized. Instead, goodwill and
other intangible assets will be subject to periodic (at least annual) tests for
impairment and recognition of impairment losses in the future could be required
based on a new methodology for measuring impairments prescribed by these
pronouncements. The revised standards include transition rules and requirements
for identification, valuation and recognition of a much broader list of
intangibles as part of business combinations than prior practice, most of which
will continue to be amortized. The Division's prospective financial statements
may be significantly affected by the results of future periodic tests for
impairment. In addition, the amount and timing of non-cash charges related to
intangibles acquired in business combinations will change significantly from
prior practice.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which will be effective for fiscal years beginning after June 15,
2002. This statement requires companies to recognize asset retirement
liabilities when they are incurred, measure them at their fair value, and
classify the accrued amount as a liability in the balance sheet. Additionally,
the recorded asset retirement liability is accreted to the ultimate payout
amount, with the accretion being classified as interest expense. The Company
does not expect the adoption of this statement to have a material impact on its
financial position and its results of operations.
A-7
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3. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment are comprised of the following:
Estimated December 31, June 30,
Lives 2000 2001
---------- ------------- ---------
Furniture and Fixtures 5-7 years $ 50,785 $ 56,145
Transportation Equipment 5 years 6,953 6,953
Machinery and Equipment 3-5 years 444,923 674,964
Software and Computer Equipment 3 years 51,617 82,376
Telecommunication and Headend Equipment 5 years 143,713 144,271
Leasehold Improvements 5 years 45,061 55,671
-------- ----------
Property and equipment, at cost 743,052 1,020,380
Accumulated depreciation (99,138) (193,530)
-------- ----------
Property and equipment, net $643,914 $ 826,850
======== ==========
Depreciation expense was as follows:
January 1, 1999 through December 13, 1999 $178,182
December 14, 1999 through December 31, 1999 2,986
January 1, 2000 through December 31, 2000 96,152
January 1, 2001 through June 30, 2001 94,392
4. ACCRUED EXPENSES:
-----------------
Accrued expenses consist of the following:
December 31, June 30,
2000 2001
------------- ---------
Accrued wages $154,525 $210,709
Accrued vacation 92,907 116,894
Accrued other 127,044 110,788
-------- --------
$374,476 $438,391
======== ========
A-8
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5. COMMITMENTS AND CONTINGENCIES:
------------------------------
Leases
------
The Company leases certain facilities and equipment on behalf of the Division.
Minimum future rental payments under non-cancelable operating leases as of June
30, 2001 are as follows:
For the year ending December 31,
2001 $ 277,905
2002 402,804
2003 341,274
2004 181,699
----------
Total $1,203,682
==========
Rent expense under operating leases was approximately $376,578, $516,012,
$11,620 and $299,522 for the six months ended June 30, 2001, the year ended
December 31, 2000, and the period from December 14, 1999 through December 31,
1999, and the period from January 1, 1999 through December 13, 1999,
respectively.
Litigation
----------
The Division is involved in disputes arising in the ordinary course of business.
In the opinion of management, the outcome of these disputes will not have a
material adverse effect on the Division's financial position or results of
operations.
6. STOCK OPTION PLAN:
------------------
The Division participates in the 2000 Stock Incentive Plan (the "Plan") of the
Company. Options issued under the Plan are for the Company's common stock, with
a maximum number of shares to be issued over the term of the Plan of 3,636,363.
All options under the Plan have an exercise price equal to the fair market value
of the Company's stock on the date of grant. Options under the Plan vest at a
rate of 25% per year over a four year period, and have a term of 10 years. At
December 31, 2000 and June 30, 2001, 168,300 options were held by employees of
the Division, respectively, of which zero and 42,075 options were exercisable at
December 31, 2000 and June 30, 2001, respectively.
7. ACQUISITION:
------------
The acquisition of the Division from ITOCHU on December 14, 1999 has been
accounted for using the purchase method of accounting. The results of operations
for the Predecessor has been presented for the period from January 1, 1999 to
December 13, 1999 as a predecessor to the Division. The purchase consideration
has been allocated among the net assets acquired based on the estimated fair
value at the date of acquisition. The purchase consideration for the business
unit was comprised of $3.3 million paid in cash and assumption of $400,000 of
trade liabilities. The excess of purchase price over identifiable net assets
acquired of approximately $487,000 has been allocated to goodwill of the
acquired business unit and amortized using the straight-line method over the
estimated useful life of 5 years.
A-9
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The purchase consideration for the Division has been allocated to the
identifiable assets acquired as follows (amounts in thousands):
Cash $ --
Accounts receivable, net 2,209
Inventory, net 668
Prepaid and other 53
Property and equipment 305
Goodwill 487
------
Purchase consideration $3,722
======
A-10