<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report: July 30, 1999
Date of earliest event reported: June 22, 1999
E-TEK DYNAMICS, INC.
(Exact name of registrant as specified in charter)
Delaware 000-25103 59-2337308
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
1865 Lundy Avenue, San Jose, California
(Address of principal executive offices)
95131
(Zip Code)
Registrant's telephone number, including area code: (408) 546-5000
<PAGE>
E-TEK Dynamics, Inc. hereby amends the following items, financial
statements, exhibits, or other portions of its Current Report on Form 8-K,
originally filed with the Securities and Exchange Commission on July 7, 1999
(the "Form 8-K") as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The financial statements of E-TEK ElectroPhotonics Solutions
Corporation (formerly ElectroPhotonics Corporation) are attached
as Exhibit 99.1.
(b) Pro Forma Financial Information
The unaudited pro forma financial statements of E-TEK Dynamics,
Inc. are attached as Exhibit 99.2.
(c) Exhibits
Exhibit
Number Document
------ --------
23.1 Consent of Chartered Accountants
99.1 Financial statements of E-TEK ElectroPhotonics Solutions
Corporation
99.2 Pro Forma financial statements of E-TEK Dynamics, Inc.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: July 30, 1999 E-TEK DYNAMICS, INC.
By: /s/ Sanjay Subhedar
Sanjay Subhedar
Senior Vice President, Operations,
Chief Financial Officer and Secretary
3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Document
- ------ --------
23.1 Consent of Chartered Accountants
99.1 Financial statements of E-TEK ElectroPhotonics Solutions Corporation
99.2 Pro Forma financial statements of E-TEK Dynamics, Inc.
<PAGE>
Exhibit 23.1
CONSENT OF CHARTERED ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-71865), and the Registration Statement of
Form S-8, File No. 333-75123), each of E-TEK Dynamics, Inc., of our report dated
July 21, 1999, except as to Note 12(c) which is as of July 23, 1999, relating to
financial statements of E-TEK ElectroPhotonics Solutions Corporation (formerly
ElectroPhotonics Corporation) which appears as Exhibit 99.1 to this Form 8-K/A.
/s/ PRICEWATERHOUSECOOPERS LLP
Toronto, Canada
July 27, 1999 (except for note 12(c) which is at July 23, 1999).
<PAGE>
Exhibit 99.1
AUDITORS' REPORT
To the Shareholder of
E-TEK Electrophotonics Solutions Corporation
(formerly Electrophotonics Corporation)
We have audited the balance sheets of E-TEK Electrophotonics Solutions
Corporation (formerly Electrophotonics Corporation) as at April 30, 1999 and
July 31, 1998 and the statements of operations and deficit and cash flows for
the nine-month period ended April 30, 1999 and the year ended July 31, 1998.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at April 30, 1999 and July
31, 1998 and the results of its operations and its cash flows for the nine-
month period ended April 30, 1999 and the year ended July 31, 1998 in
accordance with generally accepted accounting principles in Canada.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Canada
July 21, 1999 (except for note 12(c)
which is as at July 23, 1999)
Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events that cast
substantial doubt on the company's ability to continue as a going concern,
such as those described in Note 1 to the financial statements. Our report to
the shareholders dated July 21, 1999, except for note 12(c) which is as at
July 23, 1999, is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditors'
report when these are adequately disclosed in the financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Canada
July 21, 1999 (except for note 12(c)
which is as at July 23, 1999)
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
BALANCE SHEETS
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
April July
30, 31,
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,714 $ 5,492
Accounts receivable -- net of allowance for doubtful
accounts of $40 (1998 -- $0).............................. 136 136
Investment tax credits recoverable......................... 399 510
Inventory.................................................. 225 48
Prepaid expenses and other receivables..................... 108 95
------- -------
3,582 6,281
Capital assets (note 4)...................................... 838 588
License -- net of accumulated amortization of $25 (1998 --
$0)......................................................... 145 170
------- -------
$ 4,565 $ 7,039
======= =======
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities................... $ 837 $ 708
Current portion of term loan (note 6)...................... 45 20
------- -------
882 728
Term loan (note 6)........................................... -- 40
------- -------
882 768
------- -------
SHAREHOLDERS' EQUITY
Capital stock (note 7)
Common shares.............................................. 7,865 7,519
Warrants................................................... -- 92
Contributed surplus........................................ 5 5
Stock options.............................................. 72 --
Deficit...................................................... (4,259) (1,345)
------- -------
3,683 6,271
------- -------
$ 4,565 $ 7,039
======= =======
Going concern (note 1)
</TABLE>
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
STATEMENTS OF OPERATIONS AND DEFICIT
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
April 30, July 31,
1999 1998
------------ ----------
<S> <C> <C>
Revenue................................................ $ 428 $ 686
Cost of goods sold..................................... 348 467
------- -------
Gross profit......................................... 80 219
Interest income........................................ 148 133
------- -------
228 352
------- -------
Operating expenses:
Research and development, net (note 5)............... 1,341 811
Marketing and sales.................................. 583 312
Administrative ...................................... 816 648
Interest............................................. 13 18
Amortization......................................... 389 139
------- -------
3,142 1,928
------- -------
Loss before income taxes............................... (2,914) (1,576)
Recovery of deferred income taxes...................... -- 43
------- -------
Loss for the period.................................... (2,914) (1,533)
Retained earnings (deficit)-- Beginning of period...... (1,345) 188
------- -------
Deficit -- End of period............................... $(4,259) $(1,345)
======= =======
Going concern (note 1)
</TABLE>
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
Nine-month
period ended Year ended
April 30, July 31,
1999 1998
------------ ----------
<S> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the period.................................. $(2,914) $(1,533)
Items not affecting cash
Amortization....................................... 389 139
Deferred income taxes.............................. -- (43)
Issuance of stock options for common shares for
services rendered................................. 72 --
------- -------
(2,453) (1,437)
Changes in non-cash operating working capital items
Accounts receivable.................................. -- (38)
Investment tax credits recoverable................... 111 (292)
Inventory............................................ (177) 149
Prepaid expenses and other receivables............... (13) (90)
Accounts payable and accrued liabilities............. 129 476
------- -------
(2,403) (1,232)
------- -------
Investing activities:
License.............................................. -- (170)
Capital asset purchases.............................. (614) (671)
------- -------
(614) (841)
Financing activities:
Repayment of bank term loan.......................... (15) (20)
Issuance of common shares............................ 254 7,507
Issuance of warrants................................. -- 109
Decrease in amounts due to shareholders.............. -- (29)
------- -------
239 7,567
------- -------
Increase (decrease) in cash and cash equivalents during
the period ........................................... (2,778) 5,494
Cash and cash equivalents -- Beginning of period....... 5,492 (2)
------- -------
Cash and cash equivalents -- End of period............. $ 2,714 $ 5,492
======= =======
Supplemental information:
Interest paid........................................ $ 10 $ 8
======= =======
Issuance of stock options for common shares for
services rendered................................... $ 72 $ --
======= =======
</TABLE>
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
(tabular amounts in thousands of dollars)
(amounts in Canadian dollars, except where otherwise noted)
1--GOING CONCERN
These financial statements are prepared on a going concern basis, which
assumes that E-TEK Electrophotonics Solutions Corporation (the company) will
realize its assets and discharge its liabilities in the normal course of
business. The company incurred an operating loss of $2,914,000 for the nine-
month period ended April 30, 1999 (July 31, 1998--$1,533,000) and reported a
deficit at April 30, 1999 of $4,259,000 (July 31, 1998-$1,345,000). The
ability of the company to continue as a going concern is dependent upon
obtaining adequate sources of financing and developing and maintaining
profitable operations. Should the company be unable to continue as a going
concern, assets and liabilities would require restatement on a liquidation
basis, which would differ materially from the going concern basis.
On June 22, 1999, the company was acquired by a U.S. public company (note
12(b)). Management anticipates that this transaction will provide the funding
and create the strategic alliances necessary to meet the company's plans.
Nevertheless, there are no assurances that these arrangements will be
successful or that, together with the projected cash flow from the operations
of the company, they will be sufficient to meet its obligations as they become
due.
2--NATURE OF OPERATIONS
The company was formed on June 18, 1999 through an amalgamation of 3030155
Nova Scotia Company and Electrophotonics Corporation Limited (see note 12(a)).
The business of the company was previously operated as Electrophotonics
Corporation, a company incorporated on August 9, 1993 under the laws of the
Province of Ontario, Canada.
The company is a developer of components and modules for optical networks.
The company is in the early stages of commercial manufacturing and marketing
of its products.
3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in Canadian dollars in
accordance with accounting principles generally accepted in Canada, which, in
the case of the Company, differ in certain respects from those in the United
States as explained in Note 11. The principal accounting policies of the
company are summarized below.
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 amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
Revenue from the sale of the company's products is recognized when shipment
occurs and title passes to the customer. A provision is made for estimated
warranty costs at the time of the sale. The
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
company calculates a return provision based on historical experience and makes
appropriate reserves at the time the revenue is recognized.
Cash and cash equivalents
The company considers all highly liquid investments with an original or
remaining maturity of three months or less at the date of purchase to be cash
equivalents.
Financial instruments
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, receivables, accounts payable and term
loan approximate fair value due to their short-term maturities.
Certain risks and concentrations
The company's financial instruments, which are exposed to concentration of
credit risk, consist primarily of cash and cash equivalents and accounts
receivable. The company maintains its accounts for cash and cash equivalents
with large low-credit-risk financial institutions in Canada in order to reduce
its exposure. The company performs ongoing credit valuations of its customers'
financial condition. At April 30, 1999, two customers accounted for 32% and
24% of total accounts receivable. At July 31, 1998, three customers accounted
for 34%, 23% and 21% of total accounts receivable. Revenue from a single
customer represented 41% of total revenue for the nine-month period ended
April 30, 1999 and 34% of total revenue for the year ended July 31, 1998.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at the exchange rate prevailing at the
balance sheet date. Non-monetary assets and liabilities and transactions are
translated at exchange rates prevailing at the respective transaction dates.
Revenue and expenses are translated at average rates prevailing during the
period. Exchange gains and losses are included in the statements of operations
and deficit.
Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is
determined by the first-in, first-out method.
Capital assets
Capital assets are recorded at cost, net of accumulated amortization.
Amortization charges are calculated on a straight-line basis over the
estimated three-year useful lives of the assets. Leasehold improvements are
amortized over the term of the lease plus one renewal period, or the estimated
lives, whichever is shorter. The Company reviews capital assets for impairment
whenever events or changes in circumstances indicate that the carrying amounts
of an asset may not be recoverable. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amounts by which
the carrying amount of the assets exceeds the projected future cash flows
arising from the asset.
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
Licences
External costs of licences are recorded at cost and amortized over their
estimated useful lives of five years. If the carrying amount of a licence is
no longer recoverable, the related unamortized cost is written down to fair
value.
Research and development
Research costs are expensed as incurred. Development costs are expensed as
incurred unless a project meets the criteria under generally accepted
accounting principles for deferral and amortization. The company has not
deferred any development costs to date. Investment tax credits earned on
scientific research and experimental development expenditures are accounted
for using the cost reduction method and accordingly are deducted from the
related research and development expenses or related assets in the year of
expenditure, provided there is reasonable assurance they will be realized.
Income taxes
The company follows the deferral method of tax allocation in accounting for
income taxes. Under the deferral method, income taxes are provided for based
on accounting income for tax purposes included in the financial statements,
regardless of when such income is subject to taxes under tax laws. The
differences between the taxes currently payable and taxes accrued are reported
as deferred income taxes on the balance sheet. Deferred tax assets for loss
carry-forwards are recorded when virtual certainty exists that the benefits
will be realized.
4--CAPITAL ASSETS
<TABLE>
<CAPTION>
April 30, 1999
------------------------
Accumulated
Cost amortization Net
------ ------------ ----
$ $ $
<S> <C> <C> <C>
Computer equipment 132 52 80
Technical equipment 278 120 158
Optical equipment 734 256 478
Furniture and fixtures 201 79 122
Leasehold improvements 41 41 --
------ ---- ----
1,386 548 838
====== ==== ====
<CAPTION>
July 31,1998
------------------------
Accumulated
Cost amortization Net
------ ------------ ----
$ $ $
<S> <C> <C> <C>
Computer equipment 68 20 48
Technical equipment 127 58 69
Optical equipment 440 70 370
Furniture and fixtures 101 32 69
Leasehold improvements 36 4 32
------ ---- ----
772 184 588
====== ==== ====
</TABLE>
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
5--RESEARCH AND DEVELOPMENT EXPENDITURES
<TABLE>
<CAPTION>
April July 31,
30, 1999 1998
-------- --------
$ $
<S> <C> <C>
Gross research and development expenditures 1,341 1,151
Less: Investment tax credits -- (340)
-------- --------
Research and development expenditures--net 1,341 811
======== ========
</TABLE>
6--TERM LOAN
The company has arranged a term loan, bearing interest at prime plus 2.5%,
repayable in monthly instalments of $1,667, guaranteed under the Small
Business Loans Act. Subsequent to April 30, 1999 the term loan was repaid in
full.
7--CAPITAL STOCK
a) Common shares
<TABLE>
<CAPTION>
April July
30, 31,
1999 1998
------- -------
<S> <C> <C>
Authorized...................................................
Unlimited common shares....................................
Issued and outstanding.......................................
2,331,374 (1998-2,288,174) common shares................. $ 7,865 $ 7,519
======= =======
</TABLE>
The common share transactions are as follows:
<TABLE>
<CAPTION>
April 30, 1999 July 31, 1998
---------------- ----------------
Number of Number of
shares Amount shares Amount
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Issued -- Beginning of period............ 2,288,174 $7,519 100 $ --
On stock split(i)........................ -- -- 999,900 --
On exercise of employee stock options
(i)..................................... 15,000 -- -- --
Issued for private placement #1 -- net of
issued costs (ii)....................... -- -- 430,000 1,265
Issued for private placement #2 -- net of
issue costs (iii)....................... 580,000 4,793
On conversion of warrants (ii), (iii).... 28,200 346 278,174 1,461
--------- ------ --------- -----
Issued-End of period..................... 2,331,374 7,865 2,288,174 7,519
========= ====== ========= =====
</TABLE>
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
b) Warrants
The warrant transactions are as follows:
<TABLE>
<CAPTION>
April 30, 1999 July 31, 1998
---------------- -----------------
Number of Number of
warrants Amount warrants Amount
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Issued--Beginning of period............. 28,200 $92 -- $
Issued in connection with private
placement #1 (ii)...................... -- -- 215,000 106
Issued for brokerage services (ii),
(iii).................................. -- -- 80,000 147
On conversion of brokerage warrants
(ii)................................... -- -- 22,500 10
Converted into common shares............ (28,200) (92) (278,174) (166)
Expired................................. -- -- (11,126) (5)
------- --- -------- ----
Issued--End of period................... -- 28,200 92
======= === ======== ====
</TABLE>
i) On September 25, 1997, the company subdivided each of the issued common
shares into 10,000 common shares, increasing the total number of common
shares issued and outstanding from 100 to 1,000,000 and the number of
stock options outstanding from 1.5 to 15,000. These options were
exercised for an aggregate total of $3 cash on November 2, 1998.
ii) Private placement #1
On September 26, 1997, the company issued 430,000 units at a price of
$3.50 per unit for cash proceeds of $1,505,000. Each unit consists of one
common share and one-half of a warrant, entitling the holder to purchase
an additional common share of the company for $4.75. The warrants expire
on June 30, 1998. Costs of the transaction include fees of $90,300 and an
issuance of 45,000 warrants with a fair value of $43,292. Each warrant
entitled the holder to purchase a unit consisting of one common share of
the company and one-half of a warrant for a price of $3.50 per unit. Each
whole warrant entitled the holder to purchase an additional common share
of the company for a price of $4.75 per share. These warrants expire on
June 30, 1998.
The fair values of the warrants were estimated using the Black-Scholes
option-pricing model. The following assumptions were used in the model: no
annual dividends, expected volatility of 70%, risk free interest rate of
3.81%, and expected life of nine months.
Based on the fair value of the underlying instruments within the units
$1,265,071 of the net proceeds was allocated to common shares and the
balance of $106,337 was allocated to the private placement #1 warrants.
During fiscal 1998, 204,250 private placement #1 warrants were exercised
for cash proceeds of $970,188. The remaining warrants expired on June 30,
1998. The amount of $5,000 attributed to the expired warrants has been
reflected as contributed surplus.
During fiscal 1998, 45,000 brokerage warrants were exercised for cash
proceeds of $157,500. Of the additional 45,000 half warrants acquired upon
the exercise of the brokerage warrants, 44,624 half warrants were
exercised for cash proceeds of $105,982 and the remaining 376 half
warrants expired on June 30, 1998.
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
iii) Private placement #2
On February 9, 1998, the company issued 580,000 common shares at a price
of $9.00 per share for cash proceeds of $5,220,000. Costs of the
transaction include fees of $313,200 and an issuance of 35,000 brokerage
warrants with a fair value of $114,091. Each warrant entitled the holder
to purchase one common share of the company for a price of $9.00 per
share. These warrants expire on February 5, 1999.
The fair values of the brokerage warrants were estimated using the Black-
Scholes option-pricing model. The following assumptions were used in the
model: no annual dividends, expected volatility of 70%, interest rate of
5.06%, and expected life of one year.
During fiscal 1998, 6,800 brokerage warrants were exercised for cash
proceeds of $61,200. During the nine-month period ended April 30, 1999,
the remaining 28,200 brokerage warrants were exercised for cash proceeds
of $253,900.
c) Stock Options
On September 26, 1997, the company approved a stock option plan for the
benefit of certain key employees, officers and directors. The plan allows
options to be issued aggregating not more than 10% of the issued and
outstanding shares of the company. Each option under the incentive plan allows
for the purchase of one common share and expires not later than ten years from
the date granted. Any unvested options may be cancelled if employment is
terminated.
<TABLE>
<CAPTION>
Number
-------
<S> <C>
Balance--July 31, 1997.......................................... 15,000
Granted at $3.50................................................ 114,750
Granted at $9.00................................................ 88,014
Exercised....................................................... --
Cancelled....................................................... --
-------
Balance--July 31, 1998.......................................... 217,764
Granted at $9.00................................................ 26,400
Exercised....................................................... (15,000)
Cancelled....................................................... (17,418)
-------
Balance--April 30, 1999......................................... 211,746
=======
</TABLE>
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
As at April 30, 1999, the company had stock options outstanding as follows:
<TABLE>
<CAPTION>
Fiscal
year Number of
Class of option holder issued options issued Expiry Exercise price
- ---------------------- ------- -------------- ------ --------------
$
<S> <C> <C> <C> <C>
December 2000-
Employees................ 1998 98,013 September 2002 3.50-9.00
August 2001-
1999 17,400 April 2002 9.00
December 2000-
Executive officers....... 1998 20,833 September 2002 3.50
Directors not executives December 2000-
or employees............ 1998 54,000 May 2003 3.50-9.00
October 2000-
Non-employees............ 1998 12,500 October 2002 3.50
1999 9,000 April 2002 9.00
-------
211,746
=======
</TABLE>
The options are subject to various vesting requirements as outlined in the
plan.
Non-employee options
The fair value of stock options granted to non-employees was estimated on
the date the non-employee earned the option using the Black-Scholes option-
pricing model with the following weighted average assumptions: no annual
dividend, expected volatility of 70%, interest rate of 4.88% and expected life
of three years. The weighted average fair value of stock options earned in the
nine-month period ended April 30, 1999 was $6.83. The resulting values have
been charged to the statements of operations and deficit in the period that
services were rendered. The fair value of the stock options charged to the
statements of operations and deficit in 1999 was $71,672.
8--INCOME TAXES
Investment tax credits
Investment tax credits have been claimed on qualifying research and
development expenditures and are subject to review and audit by Revenue
Canada. As a result, amounts recovered may differ from the amounts recorded in
the financial statements.
Assuming the Company is a qualifying corporation for the taxation year that
includes the nine-month period ended April 30, 1999, during the period ended
April 30, 1999, the company has generated refundable investment tax credits of
approximately $425,000. The benefit of these refundable investment tax credits
has not been recorded in the accounts.
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
The company has non-refundable investment tax credits available for carry-
forward against future years' federal income taxes payable of approximately
$153,000, expiring $108,000 in 2006 and $45,000 in 2007, and unclaimed
scientific research and development expenditures of $1,733,000 that may be
carried forward indefinitely. The benefit of these amounts has not been
recorded in the accounts.
Income taxes
The company has income tax loss carry-forwards of $2,077,000 for federal
purposes and $3,351,000 for provincial purposes. The benefit of these losses
has not been recorded in the accounts. The income tax loss carry-forwards
expire as follows:
<TABLE>
<CAPTION>
Federal Provincial
------- ----------
<S> <C> <C>
2000....................................................... $ -- $ 23
2001....................................................... 47
2002....................................................... -- 99
2003....................................................... 579 1,350
2004....................................................... 1,498 1,832
------ ------
2,077 3,351
====== ======
</TABLE>
9--COMMITMENTS
The company's commitments under premises and equipment leases are as
follows:
<TABLE>
<S> <C>
2000................................................................... $57
2001................................................................... 9
2002................................................................... 2
2003................................................................... 2
---
70
---
</TABLE>
10--UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
11--UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada (Canadian GAAP) which, in the case of
the company conform, in all material respects with generally accepted
accounting principles in the United States (U.S. GAAP), except as set forth
below.
Accounting for income taxes
Under Canadian GAAP, the deferral method is used, whereby deferred tax
assets for loss carry-forwards may be recognized if it is virtually certain
that the benefit will be realized. Under U.S. GAAP, the liability method is
used, whereby deferred tax assets for loss carry-forwards are recognized and
reduced by a valuation allowance if it is more likely than not that some or
all of the deferred tax assets will not be realized. The difference between
the deferral and liability methods has had no effect on the statements of
operations and deficit. The company has maintained its 100% valuation
allowance on the net deferred tax asset because of the lack of profitability
in the past, the risk that taxable income may not be generated in the future
and the non-transferable nature of the deferred tax asset.
The deferred tax balances are summarized as follows:
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
--------- --------
<S> <C> <C>
Deferred tax assets
Share issue costs....................................... $ 145 $ 178
Research expenses....................................... 773 482
Non-capital losses...................................... 1,125 404
------- ------
2,043 1,064
------- ------
Deferred tax liabilities
Capital assets.......................................... 152 179
Warranty and other provisions........................... 178 228
------- ------
330 407
------- ------
1,713 657
Valuation allowance....................................... (1,713) (657)
------- ------
Net deferred tax asset.................................... -- --
------- ------
</TABLE>
The valuation allowance increased by $1,056,000 during the nine-month period
ended April 30, 1999.
Accounting for stock-based compensation
Under U.S. GAAP, the company has elected to continue to measure compensation
cost related to awards of stock options using the intrinsic value based method
of accounting (APB25).
In accordance with APB25, the compensation component related to options
granted during the year ended July 31, 1998 is $518,468 and during the nine-
month period ended April 30, 1999 is $192,042, which would be amortized into
the results of operations over the option vesting period.
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
Under Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-based
Compensation," the company is required to have pro forma disclosures of the
loss for the period as if the fair value based method of accounting had been
applied for stock options granted to employees and directors.
For disclosure purposes, the fair value of each stock option granted to
employees and directors was estimated on the date of grant using the Black-
Scholes option-pricing model, with the following weighted average assumptions
used for stock options granted:
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
--------- ----------
<S> <C> <C>
Annual dividends.......................................... nil nil
Expected volatility....................................... -- --
Interest rate............................................. 4.98% 5.12%
Expected life............................................. 3 years 3.45 years
</TABLE>
Under the above model, the total value of stock options granted to employees
and directors was $628,604 during the year ended July 31, 1998 and $213,291
during the nine-month period ended April 30, 1999, which would be amortized on
a pro forma basis over the option vesting period. Had the company determined
compensation cost for these plans in accordance with SFAS No. 123, the company
pro forma loss would have been unchanged at $1,533,000 for the year ended July
31, 1998 and $2,986,000 for the nine-month period ended April 30, 1999.
Operations
The reconciliation of the loss determined in accordance with Canadian GAAP
to the loss determined as result of the application of the above-noted U.S.
accounting principles is as follows:
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
--------- --------
<S> <C> <C>
Loss for the period as reported............................. $(2,914) $(1,533)
Accounting for stock based compensation..................... (58) --
------- -------
Loss for the period in accordance with U.S. GAAP............ (2,972) (1,533)
======= =======
</TABLE>
12 SUBSEQUENT EVENTS
a) On June 14, 1999, Electrophotonics Corporation, a company incorporated
under the laws of the Province of Ontario, Canada, received a continuance to
carry on business in the Province of Nova Scotia, Canada, changed its name to
Electrophotonics Corporation Limited and amended its authorized capital to a
maximum of 100 million common shares. On June 18, 1999, Electrophotonics
Corporation Limited was amalgamated with 3030155 Nova Scotia Company, a
company incorporated under the laws of the Province of Nova Scotia, Canada, to
form an amalgamated company named E-TEK Electrophotonics Solutions
Corporation.
b) On June 22, 1999, the company was acquired by Lundy Technology Co.
(Lundy), a wholly owned subsidiary of E-TEK Dynamics Inc. (E-TEK), a U.S.
public company. Immediately prior to the acquisition, 101,068 stock options
were converted into common shares of the company for proceeds of $449,000.
Promissory notes pertaining to these stock option conversions of $246,000 were
issued by the company. Lundy acquired all of the company's outstanding common
shares, in exchange for a combination of approximately 400,000 shares of Class
A common stock of Lundy and US$26,728,000 in cash. Shares of Class A common
stock of Lundy are exchangeable into the shares of common stock
<PAGE>
E-TEK ELECTROPHOTONICS SOLUTIONS CORPORATION
(formerly Electrophotonics Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
April 30, 1999 and July 31, 1998
of E-TEK at the option of the holder within two years of the transaction. As
of June 22, 1999, the value of E-TEK common stock that could have been
received upon the conversion of the shares of Class A common stock of Lundy
was US$13,709,000. All unexercised options were cancelled on the date of the
transaction.
c) On July 23, 1999, the company entered into an agreement to lease premises
for future minimum commitments of approximately $1,260,000, payable over the
next five years commencing August 1, 1999.
<PAGE>
EXHIBIT 99.2
E-TEK DYNAMICS, INC. ACQUISITION OF ELECTROPHOTONICS CORPORATION
Unaudited Pro Forma Financial Information
On June 22, 1999, E-TEK Dynamics ("the Company" or "E-TEK") acquired
ElectroPhotonics Corporation ("ElectroPhotonics"), a Canadian-based privately
held company that develops optical networks components and modules. Under the
term of the agreement, E-TEK acquired all of the outstanding stock of
ElectroPhotonics in exchange for 400,000 shares of E-TEK's Common Stock and
$26.7 million in cash. The Company's shares were valued at $34.27 per share
based on the average closing price of E-TEK Common Stock three days before and
three days after the transaction, as quoted on the Nasdaq National Market. In
addition, the Company incurred $460,000 in acquisition costs. The transaction
was accounted for using the purchase method of accounting and the results of
ElectroPhotonics were included in the results of E-TEK from June 22, 1999, the
closing date of the transaction.
The following unaudited Pro Forma Consolidated Statement of Operations for
the year ended June 30, 1999 gives effect to the acquisition by E-TEK of
ElectroPhotonics as if it had occurred on July 1, 1998. It has been derived
from the Consolidated Statement of Operations of E-TEK for the year ended June
30, 1999 appearing elsewhere in the Prospectus and the unaudited Statement of
Operations of ElectroPhotonics for the period from July 1, 1998 to June 21,
1999. The unaudited Pro Forma Consolidated Statement of Operations should be
read in conjunction with the historical financial statements and notes thereto
of E-TEK and ElectroPhotonics included elsewhere in this Prospectus.
<PAGE>
E-TEK DYNAMICS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year ended June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
----------------------
Acquisition
E-TEK ElectroPhotonics(1) Adjustments Combined
-------- ------------------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues.............. $172,664 $ 430 -- $173,094
Cost of goods sold........ 85,123 330 -- 85,453
-------- ------- ------- --------
Gross profit.............. 87,541 100 -- 87,641
-------- ------- ------- --------
Operating expenses:
Research and
development............ 14,687 1,217 -- 15,904
Selling, general and
administrative......... 24,516 1,709 -- 26,225
Purchased in-process
research and
development............ 4,207 -- (4,207)(2) --
Amortization of
intangibles............ 300 -- 11,706 (2) 12,006
-------- ------- ------- --------
Total operating
expenses............. 43,710 2,926 7,499 54,135
-------- ------- ------- --------
Operating income (loss)... 43,831 (2,826) (7,499) 33,506
Interest income, net...... 2,211 127 (1,200)(3) 1,138
-------- ------- ------- --------
Income (loss) before
income taxes............. 46,042 (2,699) (8,699) 34,644
Provision for income
taxes.................... 18,417 -- (3,479)(4) 14,938
-------- ------- ------- --------
Net income (loss)......... 27,625 (2,699) (5,220) 19,706
Convertible Preferred
Stock accretion.......... 3,882 -- -- 3,882
-------- ------- ------- --------
Net income (loss)
available to Common
Stockholders............. $ 23,743 $(2,699) $(5,220) $ 15,824
======== ======= ======= ========
Net income per share:
Basic................... $ 0.55 $ 0.36
Diluted................. $ 0.45 $ 0.32
Shares used in net income
per share calculation:
Basic................... 43,152 392 (5) 43,544
Diluted................. 61,706 392 (5) 62,098
</TABLE>
See accompanying notes to unaudited Pro Forma Consolidated Statement of
Operations for explanation of pro forma acquisition adjustments.
<PAGE>
E-TEK DYNAMICS, INC. ACQUISITION OF ELECTROPHOTONICS CORPORATION
Notes to Unaudited Pro Forma Financial Information
(1) Basis of Presentation
The statement of operations of ElectroPhotonics has been prepared in
accordance with accounting principles generally accepted in the U.S. The
amounts were translated from Canadian dollars to US dollars using the average
exchange rate for the period.
(2) Allocation of Purchase Price and Related Amortization
The purchase price was allocated to tangible net assets and identifiable
intangible assets with remaining the unallocated purchase price attributed to
goodwill. The fair value of tangible assets approximated their historical book
value at June 22, 1999. The identifiable intangible assets and goodwill, along
with their estimated lives for amortization, are as follows (in thousands):
<TABLE>
<CAPTION>
Life
----
<S> <C> <C>
Developed technology............................................ $ 933 2
Core Technology................................................. 2,335 3
In-process research and development............................. 4,207
Trade names..................................................... 238 1
Acquired work forces............................................ 230 2
Goodwill........................................................ 31,149 3
</TABLE>
The value assigned to in-process research and development was expensed at
the time of acquisition in accordance with generally accepted accounting
principles. The Pro Forma Consolidated Statement of Operations excludes the
charge for in-process research and development due to the non-recurring nature
of the charge.
(3) Interest Income
In connection with the payment of $27.2 million in cash paid for the
acquisition, including acquisition costs, interest income was reduced for the
period from July 1, 1998 to June 22, 1999 using the 4.4% annual interest rate
earned in such funds.
(4) Income Taxes
The provision for income taxes was adjusted to reflect adjustments (2) and
(3).
(5) Shares Used in Net Income Per Share Calculation
The number of shares used in net income per share calculation was adjusted
as if the 400,000 shares for the acquisition were issued as of July 1, 1998.
