<PAGE>
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)
October 31, 1994
(Exact name of registrant as specified in its charter)
Southwall Technologies Inc.
Delaware 0-15930 94-2551470
-------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1029 Corporation Way, Palo Alto, California 94303
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(415) 962-9111
Not Applicable
-------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
Effective October 31, 1994, pursuant to a Purchase Agreement among
Southwall Technologies Inc. (the "Registrant"), Southwall-Sunflex, Inc. (a
wholly-owned subsidiary of the Registrant), Sunflex, L.P. ("Sunflex") and the
Sunflex Partners dated October 25, 1994, the Registrant, through its wholly-
owned subsidiary, Southwall-Sunflex, Inc. (herein collectively referred to as
Registrant) purchased all of the outstanding partnership interests in Sunflex, a
California limited partnership. The Registrant acquired Sunflex for an
aggregate purchase price equal to the net book value of Sunflex, approximately
$500,000, which will be fully paid over the next four calendar years only if
Sunflex's operating income meets or exceeds $800,000. Partial payments may be
made based on a formula and the amount, if any, of operating income. The
acquisition was accounted for as a purchase.
Sunflex assembles and markets aftermarket mesh, glass and film anti-
reflective filters primarily for personal computer monitors.
Item 7. Financial Statements and Exhibits
---------------------------------
The Registrant has attached the following financial statements of
Sunflex, L.P., a California limited partnership.
(a) Financial Statements of Business Acquired
-----------------------------------------
The following are attached:
i. For the years ended December 31, 1991 and 1992
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Partners' Capital
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
ii. For the year ended December 31, 1993
Report of Independent Accountants
Consolidated Balance Sheet
2
<PAGE>
Consolidated Statement of Operations
Consolidated Statement of Partners' Capital
Consolidate Statement of Cash Flow
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
-------------------------------
The Registrant has also attached hereto the following financial
information reflecting the Registrant's best estimates of the pro forma
effective of the Purchase on the Registrant.
The following are attached:
Introductory Statement
Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1993.
Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1994.
Unaudited Notes to Pro Forma Combined Statements of Operations.
(c) Exhibits
--------
10.81* Purchase Agreement Among Southwall Technologies Inc.,
Southwall-Sunflex, Inc., Sunflex, L.P., and the Sunflex
Partners effective October 31, 1994.
23.1 Consent of Price Waterhouse LLP, independent accountants.
23.2 Consent of Coopers & Lybrand LLP, independent
accountants.
____________________
* Previously filed as an exhibit to Registrant's Form 10-K for the year ended
December 31, 1994.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this Form 8-K to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 14, 1995 SOUTHWALL TECHNOLOGIES INC.
By /s/Martin M. Schwartz
Martin M. Schwartz
President and Chief
Executive Officer
4
<PAGE>
SUN-FLEX, L.P.
(a California limited partnership)
--------
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1991 and 1992
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Sun-Flex, L.P.:
We have audited the accompanying consolidated balance sheets of Sun-Flex, L.P.
(a California limited partnership) as of December 31, 1991 and 1992, and the
related consolidated statements of operations, partners' capital, and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sun-Flex, L.P. as
of December 31, 1991 and 1992 and results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
San Jose, California
July 7, 1995
<PAGE>
SUN-FLEX, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1991 AND 1992
<TABLE>
<CAPTION>
1991 1992
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 224,181 $ 89,635
Accounts receivable, less allowance for
doubtful accounts of none and $28,924
at 1991 and 1992, respectively 832,943 543,430
Receivables and affiliates 30,988
Inventories 162,184 193,832
Prepaid expenses 102,189 56,253
---------- ----------
Total current assets 1,352,485 883,150
Property and equipment, net 982,797 790,815
Patents, net 220,838 195,842
Organization costs, net 32,195 23,797
Long-term deposits 8,604 8,604
---------- ----------
$2,596,919 $1,902,208
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable 234,219 236,918
Accrued expenses and other current
liabilities 252,916 212,546
Note payable 100,000
---------- ----------
Total current liabilities 487,135 549,464
Other liabilities 32,283
---------- ----------
Total liabilities 519,418 549,464
Commitments (Note 5)
Partners' capital 2,077,501 1,352,744
---------- ----------
Total liabilities and partners' capital $2,596,919 $1,902,208
========== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
2
<PAGE>
SUN-FLEX, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1992
<TABLE>
<CAPTION>
1991 1992
---- ----
<S> <C> <C>
Net sales $3,941,811 $2,554,613
Cost of goods sold 1,524,667 1,297,047
---------- ----------
Gross profit 2,417,144 1,257,566
---------- ----------
General and administrative expense 822,048 782,838
Research and development expense 114,754 120,110
Selling and marketing expense 1,045,511 1,004,952
---------- ----------
Total expenses 1,982,313 1,907,900
---------- ----------
Operating income (loss) 434,831 (650,334)
Interest income, net 38 6,181
Foreign currency loss (20,953) (10,546)
---------- ----------
Income (loss) before provision for
income taxes 413,916 (654,699)
Provision for foreign income taxes 24,257 20,058
---------- ----------
Net income (loss) $ 389,659 $ (674,757)
========== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
3
<PAGE>
SUN-FLEX, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1992
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Balances, January 1, 1991 $ 75,136 $2,062,706 $2,137,842
Distributions (65,153) (384,847) (450,000)
Net income 155,864 233,795 389,659
--------- ---------- ----------
Balances, December 31, 1991 165,847 1,911,654 2,077,501
Distributions (9,630) (40,370) (50,000)
Net loss (269,903) (404,854) (674,757)
--------- ---------- ----------
Balances, December 31, 1992 $(113,686) $1,466,430 $1,352,744
========= ========== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
4
<PAGE>
SUN-FLEX, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1992
<TABLE>
<CAPTION>
1991 1992
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 389,659 $(674,757)
Adjustments to reconcile net income (loss)
to cash from operating activities:
Provision for doubtful accounts 28,924
Depreciation and amortization 395,293 402,736
Changes in assets and liabilities:
Accounts receivable 41,721 260,589
Receivable from affiliate 66,524 30,988
Inventories (94,819) (31,648)
Prepaid expenses (102,189) 45,936
Accounts payable 147,672 2,699
Accrued expenses and other current
liabilities (586,232) (72,653)
--------- ---------
Net cash provided by (used in)
operating activities 257,629 (7,186)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (91,125) (177,360)
Other (8,604)
--------- ---------
Net cash used in investing
activities (99,729) (177,360)
--------- ---------
Cash flows from financing activities:
Borrowing under line of credit 100,000
Payments of partners' distributions (450,000) (50,000)
--------- ---------
Net cash provided by (used in)
financing activities (450,000) 50,000
--------- ---------
Net decrease in cash (292,100) (134,546)
Cash, beginning of year 516,281 224,181
--------- ---------
Cash, end of year $ 224,181 $ 89,635
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Foreign income taxes paid $26,122 $20,169
======= =======
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
5
<PAGE>
SUN-FLEX, L.P.
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
1. Partnership:
-----------
Sun-Flex, L.P. (the Partnership) was a limited partnership organized under
the state laws of California in October 1990 and commenced operations on
November 1, 1990, concurrent with the purchase of the operating assets of
an existing business from Sun-Flex Company, Inc. and Daca International
B.V. (the Acquisition). The general partner was Micromesh Corporation. The
Partnership was formed to manufacture, sell and distribute micromesh and
glass filters for cathode ray tube terminals.
The Partnership's manufacturing facilities were maintained by its wholly
owned subsidiary, Sun-Flex Ireland Limited in Sligo, Ireland. The
subsidiary was responsible for manufacturing the product, which was sold
exclusively to the Partnership. The Partnership then sold the product to
distributors and end-users.
The Partnership was funded by Micromesh Corporation, as the general
partner, contributing $20,000 in cash and the limited partners contributing
$1,980,000 in cash.
The Partnership agreement prescribed that taxable income shall be allocated
40% to the general partner and 60% to the limited partners equally in
proportion to the amount of their respective capital contributions as of
the last day of such taxable year.
Cash available for distribution, as determined by the general partner,
shall be allocated 1% to the general partner and 99% to the limited
partners equally in proportion to the amount of their respective capital
contributions until each of them has received cumulative distributions
equal to their respective initial contributions.
Thereafter, distributions shall be made 40% to the general partner and 60%
to the limited partners equally in proportion to the amount of their
respective capital contributions as of the date on which such distribution
is being made.
Effective October 31, 1994, the Partnership was purchased by Southwall
Technologies Inc. for approximately $500,000, which will only be paid from
the Partnership's operating income, if any, over the four year period
ending in 1998. The Partnership was dissolved upon purchase by Southwall
Technologies Inc. and is now operated as a subsidiary of Southwall
Technologies Inc.
Continued
6
<PAGE>
SUN-FLEX, L.P.
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Summary of Significant Accounting Policies:
------------------------------------------
Financial Statement Presentation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary (see Note 1). All significant intercompany
accounts and transactions have been eliminated.
Foreign Currency Translation:
The U.S. dollar is considered to be the functional currency for the
Company's foreign operation. Accordingly, nonmonetary assets and
liabilities have been translated into U.S. dollars at a historical rate;
monetary assets and liabilities have been translated into U.S. dollars
using the exchange rate at the balance sheet date, and revenues and
expenses have been generally translated into U.S. Dollars at the weighted
average exchange rate during the period. Foreign currency transaction gains
and losses, as well as the effects of translation are included in the
accompanying statements of operations.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with maturities of
three months or less from date of purchase to be cash equivalents.
Concentration of Credit Risk:
The Company's cash and cash equivalents were on deposit with a local U.S.
and an Irish financial institution. These deposits bear the credit risk
associated with the financial institutions.
Foreign accounts receivables comprised 81% and 52% of total receivables at
December 31, 1991 and 1992, respectively. At December 31, 1992, no single
customer comprised more than 10% of total accounts receivable. Two
international distributors represented 46% and 16% of total accounts
receivable at December 31, 1991.
Continued
7
<PAGE>
SUN-FLEX, L.P.
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
The Company sells and licenses its products to companies across many
industries, directly and through distributors and value-added resellers.
The Company generally does not require collateral and performs ongoing
credit evaluations of its customers. The Company maintains an allowance for
credit losses and such losses have been within management's expectations.
Inventories:
Inventories are stated at the lower of weighted average cost (which
approximates first-in, first-out basis) or market.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
assets which are five years for machinery and equipment, seven years for
furniture and fixtures and three and one-half years for tooling which is
maintained overseas. Upon the disposition of fixed assets, the cost and
related accumulated depreciation are removed from the accounts and the
resulting gains or losses are included in operations.
Organization Costs:
Organization costs are amortized on a straight-line basis over five years.
Accumulated amortization was $9,794 and $18,192 at December 31, 1991 and
1992, respectively.
Patents:
Patents were recorded in the Acquisition at their estimated fair value on
that date. Amortization is calculated using a straight-line basis over an
estimated life of ten years, which is the shorter of the term remaining
under the patent or the related life cycle of the product covered by the
patent. Accumulated amortization was $29,162 and $54,158 at December 31,
1991 and 1992, respectively.
Continued
8
<PAGE>
SUN-FLEX, L.P.
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
Revenue Recognition:
Revenue is recognized upon shipment of the product to the customer.
Research and Development:
Research and development expenditures are charged to operations as
incurred.
Advertising Costs:
Advertising costs are charged to operations as incurred. Advertising costs
were $51,583 and $75,357 in 1991 and 1992, respectively.
Income Taxes:
The individual partners report their proportionate share of the
Partnership's net income or loss for income tax purposes. Accordingly, no
provision for U.S. federal and state income taxes has been provided in
these financial statements. Taxes on the foreign subsidiary are based on
the local tax rates, and are determined using the liability method for
calculating deferred income taxes and are included in the consolidated
results of operations. The foreign deferred income tax assets and
liabilities as of December 31, 1991 and 1992 were not material.
Continued
9
<PAGE>
SUN-FLEX, L.P.
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Consolidated Balance Sheet Detail:
---------------------------------
INVENTORIES:
Inventories at December 31, 1991 and 1992 consisted of:
<TABLE>
<CAPTION>
1991 1992
---- ----
<S> <C> <C>
Finished goods for resale $ 42,326 $103,990
Raw materials 119,858 89,842
-------- --------
$162,184 $193,832
======== ========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1991 and 1992 consisted of:
<TABLE>
<CAPTION>
1991 1992
---- ----
<S> <C> <C>
Tooling $ 46,358 $ 217,286
Machinery and equipment 1,283,138 1,289,017
Furniture and fixtures 26,647 27,201
---------- ----------
$1,356,143 $1,533,504
Less accumulated depreciation (373,346) (742,689)
---------- ----------
$ 982,797 $ 790,815
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1991 and 1992 was
$320,991 and $369,343, respectively.
Continued
10
<PAGE>
SUN-FLEX, L.P.
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
3. Consolidated Balance Sheet Detail, continued:
---------------------------------
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities at December 31, 1991 and
1992 consisted of:
<TABLE>
<CAPTION>
1991 1992
---- ----
<S> <C> <C>
Commissions payable and
payroll related liabilities $ 58,231 $ 76,133
Customer rebates payable 71,853 17,924
Professional fees payable 69,896 47,129
Income taxes payable 37,088 36,977
Other liabilities 15,848 34,383
-------- --------
$252,916 $212,546
======== ========
</TABLE>
4. Note Payable to Bank:
--------------------
In May 1992, the Partnership obtained a working capital line of credit from
a bank. The line of credit agreement provided for borrowings of 80% of
eligible domestic accounts receivable and 60% of eligible international
accounts receivable not to exceed $1,000,000. The borrowings bore interest
at the bank's prime rate plus 1.5% (7.5% as of December 31, 1992).
Borrowings under the line of credit agreement were collateralized by
substantially all the assets of the Partnership and are subject to certain
restrictive covenants regarding minimum cash flows, profitability, tangible
net worth, current ratios and debt ratios. The Partnership was not in
compliance with two covenants at December 31, 1992. The Partnership had
borrowed $100,000 against this line as of December 31, 1992 and this amount
was repaid in 1993.
Continued
11
<PAGE>
SUN-FLEX, L.P.
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Commitments:
-----------
The Partnership rented its office facility in Sunnyvale, California, and
its manufacturing facility in Sligo, Ireland, as well as certain equipment
under noncancelable operating leases. Under the terms of the facility lease
agreements, the Partnership was responsible for taxes and insurance
relating to the facilities. Future minimum lease payments are as follows:
1993 $105,792
1994 58,392
1995 48,735
1996 48,735
1997 48,735
Thereafter 113,715
--------
$424,104
========
Rent expense for the years ended December 31, 1991 and 1992 were $77,073
and $78,112, respectively.
6. Related Party Transactions:
--------------------------
The Partnership and Oktel, L.P. (Oktel) were related parties under common
control and management. During 1992, the Partnership reimbursed Oktel for
expenses of $198,639 paid by Oktel on behalf of the partnership.
Continued
12
<PAGE>
SUN-FLEX, L.P.
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Income Taxes:
------------
Domestic and foreign components of pretax income are as follows:
<TABLE>
<CAPTION>
1991 1992
---- ----
<S> <C> <C>
Domestic $393,755 $(680,685)
Foreign 20,161 25,986
-------- ---------
Pre-tax income (loss) $413,916 $(654,699)
======== =========
</TABLE>
The Company's effective foreign tax rate differs from the foreign statutory
rate of 10% due to certain permanent differences which are not tax
deductible which include interest charges from a non-resident parent
company and other expenses.
13
<PAGE>
[LOGO]
Sunflex, L.P.
(a California Limited Partnership)
Consolidated Financial Statements
December 31, 1993
<PAGE>
[LETTERHEAD OF PRICE WATERHOUSE LLP]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Sunflex, L.P.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations of partners' capital and of cash flows
present fairly, in all material respects, the financial position of Sunflex,
L.P. (a California limited partnership) and its subsidiary at December 31, 1993,
and the results of their operations and their cash flows for the year, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/PRICE WATERHOUSE LLP
-----------------------
Price Waterhouse LLP
San Jose, California
August 8, 1995
<PAGE>
Sunflex, L.P.
(a California limited partnership)
Consolidated Balance Sheet
December 31, 1993
<TABLE>
--------------------------------------------------------------------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 393,000
Accounts receivable, less allowance for
doubtful accounts of $4,000 474,000
Inventories 207,000
Prepaid expenses 27,000
----------
Total current assets 1,101,000
Property and equipment, net 415,000
Patents, net 171,000
Organization costs, net 15,000
Long term deposits 9,000
----------
Total assets $1,711,000
==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 222,000
Accrued expenses and other current liabilities 123,000
Note payable--current portion 200,000
----------
Total liabilities 545,000
Notes payable 289,000
Commitments (Note 5)
Partners' capital 877,000
----------
Total liabilities and partners' capital $1,711,000
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Sunflex, L.P.
(a California limited partnership)
Consolidated Statement of Operations
Year Ended December 31, 1993
<TABLE>
--------------------------------------------------------------------------------
<S> <C>
Net sales $2,417,000
Cost of goods sold 1,484,000
----------
Gross profit 933,000
----------
General and administrative 533,000
Research and development 79,000
Selling and marketing 752,000
----------
Total costs and expenses 1,364,000
Operating loss (431,000)
Interest expense (23,000)
Interest income 5,000
Foreign currency loss (20,000)
----------
Loss before provision for foreign income taxes (469,000)
Provision for foreign income taxes (7,000)
----------
Net loss $ (476,000)
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Sunflex, L.P.
(a California limited partnership)
Consolidated Statement of Partners' Capital
Year Ended December 31, 1993
<TABLE>
--------------------------------------------------------------------------------
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at December 31, 1992 $(113,000) $1,466,000 $1,353,000
Net loss (190,000) (286,000) (476,000)
--------- ---------- ----------
Balance at December 31, 1993 $(303,000) $1,180,000 $ 877,000
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Sunflex, L.P.
(a California limited partnership)
Consolidated Statement of Cash Flows
Year Ended December 31, 1993
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Year Ended
December 31,
1993
<S> <C>
Cash flows from operating activities:
Net loss $(476,000)
Adjustments to reconcile net loss
to cash provided by operating activities:
Depreciation and amortization 416,000
Changes in assets and liabilities:
Accounts receivable 69,000
Inventories (13,000)
Prepaid expenses 29,000
Accounts payable (15,000)
Accrued expenses and other current liabilities (90,000)
---------
Net cash used in operating activities (80,000)
---------
Cash flows from investing activities:
Purchases of property and equipment (6,000)
---------
Net cash used in investing activities (6,000)
---------
Cash flows from financing activities:
Note payable to Partners 489,000
Payments on line of credit (100,000)
---------
Net cash provided by financing activities 389,000
---------
Net increase in cash 303,000
Cash and cash equivalents, beginning of year 90,000
---------
Cash and cash equivalents, end of year $ 393,000
=========
Supplemental cash flow information:
Foreign income taxes paid $ 23,000
=========
Interest paid $ 23,000
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Sunflex, L.P.
(a California limited partnership)
Notes to Consolidated Financial Statements
December 31, 1993
--------------------------------------------------------------------------------
1. Partnership
Sunflex, L.P. (the Partnership) was a limited partnership organized under
the state laws of California in October 1990 and commenced operations on
November 1, 1990, concurrent with the purchase of the operating assets of
an existing business. The general partner was Micromesh Corporation. The
Partnership was formed to manufacture, sell and distribute micromesh and
glass filters for cathode ray tube terminals.
The Partnership's manufacturing facilities are maintained by its
wholly-owned subsidiary, Sunflex Ireland Limited in Sligo, Ireland. The
subsidiary was responsible for manufacturing the Partnership's products.
The Partnership was funded by Micromesh Corporation, as the general
partner, contributing $20,000 in cash and the limited partners contributing
$1,980,000 in cash.
The Partnership agreement prescribed that taxable income or loss shall be
allocated 40% to the general partner and 60% to the limited partners
equally in proportion to the amount of their respective capital
contributions as of the last day of such taxable year.
Cash available for distribution, as determined by the general partner, was
allocated 1% to the general partner and 99% to the limited partners equally
in proportion to the amount of their respective capital contributions until
each of them has received cumulative distributions equal to their
respective initial contributions. Thereafter, distributions would be made
40% to the general partner and 60% to the limited partners equally in
proportion to the amount of their respective capital contributions as of
the date on which such distribution is being made.
Effective October 31, 1994, the Partnership was purchased by Southwall
Technologies Inc. (Southwall) for approximately $500,000, which will only
be paid from the Partnership's operating income, if any, over the four year
period ending in 1998. The Partnership was dissolved upon purchase by
Southwall and is now operated as a subsidiary of Southwall.
2. Summary of Significant Accounting Policies
Financial Statement Presentation
The consolidated financial statements include the accounts of the
Partnership and its wholly owned subsidiary (see Note 1). All significant
intercompany accounts and transactions have been eliminated.
<PAGE>
Sunflex, L.P.
(a California limited partnership)
Notes to Consolidated Financial Statements
December 31, 1993
--------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is considered to be the functional currency for the
Partnership's foreign operation. Accordingly, nonmonetary assets and
liabilities have been translated into U.S. dollars at a historical rate;
monetary assets and liabilities have been translated into U.S. dollars
using the exchange rate at the balance sheet date, and revenues and
expenses have been generally translated into U.S. dollars at the weighted
average exchange rate during the period. Foreign currency transaction gains
and losses, as well as the effects of translation are included in the
accompanying statements of operations.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with maturities of
three months or less from date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Partnership's cash and cash equivalents were on deposit with a local
U.S. and an Irish financial institution. These deposits bear the credit
risk associated with the financial institutions.
Foreign accounts receivable comprised 70% of total receivables at December
31, 1993. At December 31, 1993, three international distributors accounted
for 16%, 14% and 11% of total accounts receivable, respectively. One
international distributor represented 19% of total revenues for the year
ended December 31, 1993.
The Partnership sells and licenses its products to companies across many
industries, directly and through distributors and value-added resellers.
The Partnership generally does not require collateral and performs ongoing
credit evaluations of its customers. The Partnership maintains an allowance
for credit losses and such losses have been within management's
expectations.
INVENTORIES
Inventories are stated at the lower of weighted average cost (which
approximates first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is generally
provided over five years for machinery and equipment and over seven years
for furniture and fixtures. Tooling, which is maintained overseas, is
depreciated on a straight-line basis over three years. Upon the disposition
of fixed assets, the cost and related accumulated depreciation are removed
from the accounts and the resulting gain or losses are included in
operations.
<PAGE>
Sunflex, L.P.
(a California limited partnership)
Notes to Consolidated Financial Statements
December 31, 1993
--------------------------------------------------------------------------------
Organization Costs
Organization costs are amortized on a straight-line basis over five years.
Accumulated amortization was $27,000 at December 31, 1993.
Patents
Patents were recorded in the 1990 acquisition at their estimated fair value
at that time. Amortization is calculated using a straight-line basis over
an estimated life of ten years, which is the shorter of the term remaining
under the patent or the related life cycle of the product covered by the
patent. Accumulated amortization was $79,000 at December 31, 1993.
Revenue Recognition
Revenue is recognized upon shipment of the product to the customer.
Research and Development
Research and development expenditures are charged to operations as
incurred.
Advertising Cost
Advertising costs are charged to operations as incurred. Advertising costs
were $5,000 in 1993.
Income Taxes
The individual partners report their proportionate share of the
Partnership's net income or loss for income tax purposes. Accordingly, no
provision for U.S. federal and state income taxes has been provided in the
financial statements. Taxes on the foreign subsidiary are based on the
local tax rates, are determined using the liability method for calculating
deferred income taxes and are included in the consolidated results of
operations. The foreign deferred income tax assets and liabilities as of
December 31, 1993 were not material.
3. Consolidated Balance Sheet Detail
Inventories at December 31, 1993 consisted of:
Finished goods for resale $158,000
Raw materials 49,000
--------
$207,000
========
<PAGE>
Sunflex, L.P.
(a California limited partnership)
Notes to Consolidated Financial Statements
December 31, 1993
--------------------------------------------------------------------------------
Property and equipment at December 31, 1993 consisted of:
<TABLE>
<S> <C>
Tooling $ 222,000
Machinery and equipment 1,291,000
Furniture and fixtures 27,000
----------
1,540,000
1,125,000
----------
$ 415,000
==========
</TABLE>
Depreciation expense was $382,000 in 1993.
Accrued expenses and other current liabilities at December 31, 1993
consisted of:
<TABLE>
<S> <C>
Customer rebates payable $ 29,000
Commissions and payroll related liabilities 38,000
Professional fees payable 25,000
Other liabilities 31,000
----------
$ 123,000
==========
</TABLE>
4. NOTES PAYABLE
Notes payable is comprised of loans aggregating $489,000 obtained on
September 1, 1993 from the general partner and certain other limited
partners of the Partnership. The notes bear interest at 10% per annum, with
monthly interest only payments starting on September 30, 1993. In 1994,
payments aggregating $200,000 were made to the partners and the balance was
converted to partnership capital in conjunction with the acquisition of the
Partnership by Southwall (Note 1).
<PAGE>
Sunflex, L.P.
(a California limited partnership)
Notes to Consolidated Financial Statements
December 31, 1993
--------------------------------------------------------------------------------
5. Commitments
The Partnership rented its office facility in Sunnyvale, California, and
its manufacturing facility in Sligo, Ireland, as well as certain equipment
under noncancelable operating leases. Under the terms of the facility lease
agreements, the Partnership is responsible for taxes and insurance relating
to the facilities. Future minimum lease payments were as follows:
1994 $ 93,000
1995 49,000
1996 49,000
1997 49,000
1998 49,000
Thereafter 61,000
--------
$350,000
========
Rent expense for the year ended December 31, 1993 was $100,000.
6. Related Party Transactions
The Partnership and Oktel, L.P. (Oktel) were related parties under common
control and management. During 1993, the Partnership reimbursed Oktel for
expenses of $270,000 paid by Oktel on behalf of the Partnership.
7. Income Taxes
Domestic and foreign components of pretax loss are as follows for the year
ended December 31, 1993:
Domestic $(275,000)
Foreign (194,000)
---------
Pre-tax loss $(469,000)
=========
The Company's effective foreign tax rate differs from the foreign statutory
rate of 10% due to certain permanent differences which are not tax
deductible, which include interest charges from a nonresident parent
company, other expenses and minimum tax liabilities.
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
AND
SUNFLEX, L.P.
PRO FORMA COMBINED FINANCIAL INFORMATION
<PAGE>
SOUTHWALL TECHNOLOGIES INC. AND SUNFLEX, L.P.
PRO FORMA COMBINED FINANCIAL INFORMATION
INTRODUCTORY STATEMENT
Effective October 31, 1994, pursuant to a Purchase Agreement among
Southwall Technologies Inc. (the "Company"), Southwall-Sunflex, Inc. (a wholly-
owned subsidiary of the Southwall), Sunflex, L.P. ("Sunflex") and the Sunflex
Partners dated October 25, 1994, the Company, through its wholly-owned
subsidiary, Southwall-Sunflex, Inc. purchased all of the outstanding partnership
interests in Sunflex, a California limited partnership. The Company acquired
Sunflex for an aggregate purchase price equal to the net book value of Sunflex,
approximately $500,000, which will be fully paid over the next four calendar
years only if Sunflex's operating income meets or exceeds $800,000. Partial
payments may be made based on a formula and the amount, if any, of operating
income. The acquisition was accounted for as a purchase.
Sunflex assembles and markets aftermarket mesh, glass and film anti-
reflective filters primarily for personal computer monitors.
On March 1, 1995, the Company filed its Annual Report on Form 10-K for
the year ended December 31, 1994. The consolidated balance sheet as of December
31, 1994 included in the aforementioned Form 10-K includes Southwall-Sunflex,
Inc. and, accordingly, a pro forma combined balance sheet will not be presented
in this Current Report on Form 8-K.
The following unaudited pro forma combined statements of operations
give effect to the acquisition of Sunflex by Southwall as if the acquisition had
taken place as of the beginning of the periods presented. The unaudited pro
forma combined statements of operations for the years ended December 31, 1993
and 1994, give effect to the combination by combining the results of operations
of the Company for the year ended December 31, 1993 and 1994, with the results
of operations of Sunflex for the years ended December 31, 1993 and 1994. The
results of operations of Sunflex for the two-month period ended December 31,
1994 are included in the results of operations of the Company for the year ended
December 31, 1994. The unaudited pro forma combined statements of operations do
not necessarily indicate the operating results that would have been achieved had
the transaction been in effect as of the beginning of the periods presented and
should not be construed as representative of future operations.
2
<PAGE>
SOUTHWALL TECHNOLOGIES INC. AND SUNFLEX, L.P.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1993
------------------------------------------------------
Pro Forma
-------------------------
Southwall Sunflex Adjustments Combined
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Net Revenues $18,501 $2,417 $20,918
Costs and Expenses:
Cost of revenues 13,128 1,484 14,612
Research & development 2,068 79 2,147
Selling, general & administrative 4,814 1,285 (356) 5,743
------- ------ ----- -------
Total Costs & Expenses 20,010 2,848 (356) 22,502
Loss from operations (1,509) (431) 356 (1,584)
Interest income (expense), net 191 (38) 153
------- ------ ----- -------
Income before taxes (1,318) (469) 356 1,431
Provision for income taxes 6 7 13
------- ------ ----- -------
Net loss $(1,324) $ (476) $ 356 $(1,444)
======= ====== ===== =======
Net loss per share $ (.23) $ (.25)
======= =======
Weighted average shares of common stock and
dilutive common stock equivalents 5,792 5,792
======= =======
</TABLE>
3
<PAGE>
SOUTHWALL TECHNOLOGIES INC. AND SUNFLEX, L.P.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1993
------------------------------------------------------
Pro Forma
-------------------------
Southwall Sunflex Adjustments Combined
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Net Revenues $21,739 $1,551 $23,290
Costs and Expenses:
Cost of revenues 17,247 1,199 18,446
Research & development 2,310 78 2,388
Selling, general & administrative 6,095 962 (308) 6,749
------- ------ ----- -------
Total Costs & Expenses 25,652 2,239 (308) 27,583
Loss from operations (3,913) (688) 308 (4,293)
Interest income (expense), net 24 (31) (7)
------- ------ ----- -------
Income before taxes (3,889) (719) 308 (4,300)
Provision for income taxes (1) 17 16
------- ------ ----- -------
Net loss $(3,888) $ (736) $ 308 $(4,316)
======= ====== ===== =======
Net loss per share $ (.67) $ (.74)
======= =======
Weighted average shares of common stock and
dilutive common stock equivalents 5,808 5,808
======= =======
</TABLE>
4
<PAGE>
SOUTHWALL TECHNOLOGIES INC. AND SUNFLEX, L.P.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(unaudited)
The following is an explanation of the pro forma adjustments:
<TABLE>
<CAPTION>
Year Ended Year Ended
Adjustment December 31, 1993 December 31, 1994
---------- ----------------- -----------------
<S> <C> <C>
Note 1 $230 $227
Note 2 36 30
Note 3 55 22
Note 4 35 29
---- ----
$356 $308
==== ====
</TABLE>
NOTE 1. Several of the positions at Sunflex have been eliminated as a result of
the acquisition, including the positions of the president, controller and an
international sales manager. These positions are redundant with those already
in existence at the Company and the Company will provide these functions with no
increase in their existing staff.
NOTE 2. At the time of the acquisition, the Company moved the Sunflex
operations to the Company's existing space in order to save facility costs and
better utilize existing space. The new facilities occupied by the Sunflex
operations are less expensive than those vacated by Sunflex.
NOTE 3. Sunflex incurred outside accounting and legal services that will be
significantly reduced as a result of the acquisition.
NOTE 4. The Company will amortize the negative goodwill of $105,000 associated
with the transaction over a period of three years, resulting in reduced general
and administrative costs.
5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Exhibit Descriptions Page Number
------- -------------------- -----------
<S> <C> <C>
10.81* Purchase Agreement Among Southwall N/A
Technologies Inc., Southwall-Sunflex,
Inc., Sunflex, L.P. and the Sunflex
Partners effective October 31, 1994.
23.1 Consent of Price Waterhouse LLP, independent
accountants.
23.2 Consent of Coopers & Lybrand LLP, independent
accountants.
</TABLE>
________________
* Previously filed as an exhibit to Registrant's Form 10-K for the year ended
December 31, 1994.
6
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of Southwall Technologies Inc. on Form S-8 Nos. 33-28599 (filed on
May 9, 1989), 33-37247 (filed on October 11, 1990), 33-42753 (filed on September
16, 1991) and 33-51758 (filed on September 8, 1992) of our report dated August
8, 1995 appearing on page 20 of this Current Report on Form 8-K dated August 14,
1995.
/s/ PRICE WATERHOUSE LLP
------------------------
Price Waterhouse LLP
San Jose, California
August 14, 1995
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Southwall Technologies Inc. on Form S-8 Nos. 33-28599 (filed on May 9, 1989),
33-37247 (filed on October 11, 1990), 33-42753 (filed September 16, 1991) and
33-51758 (filed September 8, 1992) of our report dated July 7, 1995 on our
audits of the consolidated financial statements of Sun-Flex, L.P. as of and for
the years ended December 31, 1991 and 1992 which report is included in this
current report on Form 8-K.
/s/ COOPERS & LYBRAND L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
San Jose, California
August 14, 1995
