SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MARCH 6, 2000
SMARTDISK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-27257 65-0733580
(Commission File Number) (I.R.S. Employer Identification No.)
3506 MERCANTILE AVENUE
NAPLES, FLORIDA 34104
(Address of principal executive offices) (Zip Code)
(941) 436-2500
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
Page 1
<PAGE>
EXPLANATORY NOTE
This current report on Form 8-K/A amends and supplements a current
report on Form 8-K filed by SmartDisk Corporation, a Delaware corporation (the
"Company"), on March 21, 2000 in connection with the acquisition on March 6,
2000 of VST Technologies, Inc., a Delaware corporation ("VST"), by the statutory
merger of VST with and into a wholly owned subsidiary of the Company.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The audited financial statements of VST as of, and for the
three years ended, December 31, 1999 are attached hereto as Exhibit 99.1 and are
incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma combined condensed balance sheet of
the Company as of December 31, 1999 and the unaudited pro forma combined
condensed statement of operations for the Company for the year ended December
31, 1999 are attached hereto as Exhibit 99.2 and are incorporated herein by
reference.
(c) Exhibits.
2 Agreement and Plan of Merger dated as of February 23,
2000.(1)
23.2 Consent of Arthur Andersen LLP with respect to the
Financial Statements of VST.
99.1 Financial Statements of VST listed in Item 7(a)
above.
99.2 Pro Forma Combined Condensed Financial Statements of
the Company listed in Item 7(b) above.
---------------
(1) Previously filed by the Company in its Current Report
on Form 8-K as filed with the Securities and Exchange
Commission on March 21, 2000.
Page 2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SMARTDISK CORPORATION
Date: May 11, 2000 By: /s/ Michael R. Mattingly
------------------------------
Michael R. Mattingly
Chief Financial Officer
Page 3
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT TITLE
- ----------- -------------
23.2 Consent of Arthur Andersen LLP dated as of May 8, 2000.
99.1 Financial Statements of VST Technologies, Inc.
99.2 Pro Forma Combined Condensed Financial Statements of
SmartDisk Corporation.
Page 4
EXHIBIT 23.2
ARTHUR ANDERSEN LOGO
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report dated February 29, 2000, except for the matter discussed in Note 1, as to
which the date is March 6, 2000 of our audit of the financial statements of VST
Technologies, Inc. as of December 31, 1998 and 1999 and for the three years then
ended, which report is included in this Form 8-K/A, into SmartDisk Corporation's
previously filed Registration Statement on Form S-8 (File No. 333-91341).
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 8, 2000
EXHIBIT 99.1
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
----
VST TECHNOLOGIES, INC.
Report of Independent Public Accountants ............................................ F-2
Balance Sheets of VST as of December 31, 1998 and 1999 .............................. F-3
Statements of Operations of VST for the Years Ended December 31, 1997,
1998 and 1999 ..................................................................... F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit of VST
for the Years Ended December 31, 1997, 1998 and 1999 .............................. F-5
Statements of Cash Flow of VST for the Years Ended December 31, 1997,
1998 and 1999 ..................................................................... F-6
Notes to Financial Statements of VST ................................................ F-7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VST Technologies, Inc.:
We have audited the accompanying balance sheets of VST Technologies, Inc.
(a Delaware corporation) as of December 31, 1999 and 1998 and the related
statements of operations, redeemable convertible preferred stock and
stockholders' deficit and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 VST Technologies, Inc. as
of December 31, 1999 and 1998 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 29, 2000 (except for the matter
discussed in Note 1, as to which the date
is March 6, 2000)
F-2
<PAGE>
VST TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
ASSETS --------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .............................................. $ 605,986 $ 796,834
Accounts receivable, net of reserves of approximately $2,385,000 in 1999
and $980,000 in 1998 ................................................. 4,426,241 11,178,440
Inventories ............................................................ 2,645,531 10,799,268
Prepaid expenses ....................................................... 112,102 165,566
Deferred tax asset (Note 4) ............................................ -- 1,485,000
------------ ------------
Total current assets ................................................. 7,789,860 24,425,108
------------ ------------
Property and Equipment, at cost: ........................................
Production equipment ................................................... 1,328,528 2,107,417
Computer equipment and software ........................................ 369,029 618,565
Furniture and fixtures ................................................. 293,155 412,408
Construction in progress ............................................... 9,900 61,538
------------ ------------
2,000,612 3,199,928
Less--Accumulated depreciation ......................................... 1,247,346 1,912,385
------------ ------------
753,266 1,287,543
------------ ------------
$ 8,543,126 $ 25,712,651
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit ......................................................... $ 1,500,000 $ 4,500,000
Current portion of capital lease obligation ............................ - 7,071
Accounts payable ....................................................... 3,452,386 9,121,474
Accrued payroll expenses ............................................... 362,419 698,801
Accrued other expenses ................................................. 463,967 918,443
Income taxes payable (Note 4) .......................................... -- 1,448,150
------------ ------------
Total current liabilities ............................................ 5,778,772 16,693,939
------------ ------------
Capital Lease Obligation, net of current portion ........................ -- 5,089
------------ ------------
Commitments (Note 9)
Redeemable Convertible Preferred Stock:
Series A redeemable convertible preferred stock, $0.01 par value-
Authorized--248,840 shares Issued and outstanding--214,949 shares,
recorded at redemption value ......................................... 3,721,169 3,995,570
Series B redeemable convertible preferred stock, $0.01 par value-
Authorized--243,440 shares Issued and outstanding--135,114 shares,
recorded at redemption value ......................................... 2,812,640 3,034,338
Series C redeemable convertible preferred stock, $0.01 par value-
Authorized--560,092 shares Issued and outstanding--553,744 shares,
recorded at redemption value ......................................... 4,495,295 4,943,828
Stockholders' Deficit:
Common stock, $0.01 par value- Authorized--2,813,708 shares
Issued and outstanding--101,037 shares ............................... 878 1,010
Additional paid-in capital ............................................. 725,496 744,187
Accumulated deficit .................................................... (8,991,124) (3,705,310)
------------ ------------
Total stockholders' deficit .......................................... (8,264,750) (2,960,113)
------------ ------------
$ 8,543,126 $ 25,712,651
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ---------------- --------------
<S> <C> <C> <C>
Revenues ....................................... $ 7,645,025 $24,605,867 $61,525,751
Cost of Revenues ............................... 6,182,709 19,189,060 45,773,589
----------- ----------- -----------
Gross margin ................................ 1,462,316 5,416,807 15,752,162
----------- ----------- -----------
Operating Expenses: ............................
Selling and marketing ......................... 2,172,582 2,789,188 3,764,981
Research and development ...................... 1,172,534 1,098,601 2,608,001
General and administrative .................... 1,421,604 2,182,687 2,901,823
----------- ----------- -----------
4,766,720 6,070,476 9,274,805
----------- ----------- -----------
Income (loss) from operations ............... (3,304,404) (653,669) 6,477,357
Interest Income ................................ 488 1,263 1,228
Interest Expense ............................... (305,405) (473,231) (261,185)
Other (Expense) Income, net .................... (42,737) 8,062 (5,060)
------------- ------------ -------------
Net income (loss) ........................... (3,652,058) (1,117,575) 6,212,340
Accretion of Dividends on Redeemable Convertible
Preferred Stock .............................. 279,308 487,951 926,526
------------- ------------ -----------
Net income (loss) attributable to
common stockholders ...................... $(3,931,366) $(1,605,526) $ 5,285,814
============= ============ ===========
Net Income (Loss) per Share: ...................
Basic ......................................... $ (44.78) $ (18.29) $ 57.58
============= ============ ===========
Diluted ....................................... $ (44.78) $ (18.29) $ 11.57
============= ============ ===========
Weighted Average Shares Outstanding: ...........
Basic ......................................... 87,799 87,799 91,803
============= ============ ===========
Diluted ....................................... 87,799 87,799 456,825
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE>
VST TECHNOLOGIES, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
SERIES A REDEEMABLE SERIES B REDEEMABLE SERIES C REDEEMABLE
------------------------ ------------------------ -----------------------
NUMBER OF REDEMPTION NUMBER OF REDEMPTION NUMER OF REDEMPTION
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 137,734 $2,143,393 -- $ -- -- $ --
Conversion of convertible
subordinated debt and
accrued interest to
redeemable convertible
preferred stock ............. 76,246 1,068,384 109,264 2,093,466 -- --
Issuance of Series B
preferred stock, net of
issuance costs of $28,745 -- -- 25,642 471,274 -- --
Accretion of dividends on
redeemable convertible
preferred stock ............. -- 249,047 -- 30,261 -- --
Proceeds from issuance of
warrants .................... -- -- -- -- -- --
Net loss ..................... -- -- -- -- -- --
------- ---------- ------- ---------- -- ----------
Balance, December 31, 1997 .... 213,980 3,460,824 134,906 2,595,001 -- --
Conversion of convertible
subordinated debt and
accrued interest to
redeemable convertible
preferred stock ............. -- -- -- -- 292,633 2,620,329
Issuance of Series C
preferred stock, net of
issuance costs of $54,939 -- -- -- -- 261,111 1,864,999
Accretion of dividends and
original issuance
discount on redeemable
convertible preferred
stock ....................... -- 260,345 -- 217,639 -- 9,967
Net loss ..................... -- -- -- -- -- --
------- ---------- ------- ---------- ------- ----------
Balance, December 31, 1998 .... 213,980 3,721,169 134,906 2,812,640 553,744 4,495,295
Accretion of dividends on
redeemable convertible
preferred stock ............. -- 260,351 -- 217,642 -- 448,533
Exercise of stock options .... -- -- -- -- -- --
Exercise of warrants ......... 969 14,050 208 4,056 -- --
Net income ................... -- -- -- -- -- --
------- ---------- ------- ---------- ------- ----------
Balance, December 31, 1999 .... 214,949 $3,995,570 135,114 $3,034,338 553,744 $4,943,828
======= ========== ======= ========== ======= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------------- ADDITIONAL STOCKHOLDERS'
NUMBER OF $0.01 PAR PAID-IN ACCUMULATED EQUITY
SHARES VALUE CAPITAL DEFICIT (DEFICIT)
----------- ----------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 87,799 $ 878 $580,957 $ (3,399,293) $ (2,817,458)
Conversion of convertible
subordinated debt and
accrued interest to
redeemable convertible
preferred stock ............. -- -- -- -- --
Issuance of Series B
preferred stock, net of
issuance costs of $28,745 -- -- -- --
Accretion of dividends on
redeemable convertible
preferred stock ............. -- -- -- (279,308) (279,308)
Proceeds from issuance of
warrants .................... -- -- 144,539 -- 144,539
Net loss ..................... -- -- -- (3,652,058) (3,652,058)
------ ------ -------- ------------ ------------
Balance, December 31, 1997 .... 87,799 878 725,496 (7,330,659) (6,604,285)
Conversion of convertible
subordinated debt and
accrued interest to
redeemable convertible
preferred stock ............. -- -- -- -- --
Issuance of Series C
preferred stock, net of
issuance costs of $54,939 -- -- -- (54,939) (54,939)
Accretion of dividends and
original issuance
discount on redeemable
convertible preferred
stock ....................... -- -- -- (487,951) (487,951)
Net loss ..................... -- -- -- (1,117,575) (1,117,575)
------ ------ -------- ------------ ------------
Balance, December 31, 1998 .... 87,799 878 725,496 (8,991,124) (8,264,750)
Accretion of dividends on
redeemable convertible
preferred stock ............. -- -- -- (926,526) (926,526)
Exercise of stock options .... 10,444 104 18,440 -- 18,544
Exercise of warrants ......... 2,794 28 251 -- 279
Net income ................... -- -- -- 6,212,340 6,212,340
------ ------ -------- ------------ ------------
Balance, December 31, 1999 .... 101,037 $1,010 $744,187 $ (3,705,310) $ (2,960,113)
======= ====== ======== ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-5
<PAGE>
VST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
---------------- ---------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ............................................... $ (3,652,058) $ (1,117,575) $ 6,212,340
Adjustments to reconcile net income (loss) to net cash
used in operating activities-
Depreciation ................................................... 458,846 531,583 665,039
Deferred tax asset ............................................. -- -- (1,485,000)
Amortization of original issue discount ........................ 144,539 -- --
Conversion of accrued interest to redeemable
preferred stock .............................................. 220,218 63,729 --
Changes in assets and liabilities-
Accounts receivable ........................................... (664,010) (3,014,739) (6,752,199)
Inventories ................................................... (407,065) (366,931) (8,153,737)
Prepaid expenses .............................................. 18,141 (2,382) (53,464)
Accounts payable .............................................. 863,433 840,638 5,669,088
Accrued expenses .............................................. 376,224 314,771 790,858
Income taxes payable .......................................... -- -- 1,448,150
------------ ------------ ------------
Net cash used in operating activities ........................ (2,641,732) (2,750,906) (1,658,925)
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment ............................. (631,083) (604,554) (1,175,696)
Decrease in other assets ........................................ 1,970 5,828 --
------------ ------------ ------------
Net cash used in investing activities ........................ (629,113) (598,726) (1,175,696)
------------ ------------ ------------
Cash Flows from Financing Activities:
Net borrowings under line of credit ............................. 680,560 544,440 3,000,000
Proceeds from issuance of convertible subordinated debt ......... 1,390,461 1,956,600 --
Repayments on capital lease obligation .......................... 500,000 -- (11,460)
Principal repayments on note payable ............................ (16,544) (483,456) --
Net proceeds from the sale of redeemable convertible
preferred stock ............................................... 471,274 1,810,060 --
Proceeds from exercise of stock options ......................... -- -- 18,544
Proceeds from exercise of warrants .............................. -- -- 18,385
Proceeds from issuance of warrants .............................. 144,539 -- --
------------ ------------ ------------
Net cash provided by financing activities .................... 3,170,290 3,827,644 3,025,469
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents ............. (100,555) 478,012 190,848
Cash and Cash Equivalents, beginning of year ..................... 228,529 127,974 605,986
------------ ------------ ------------
Cash and Cash Equivalents, end of year ........................... $ 127,974 $ 605,986 $ 796,834
============ ============ ============
Supplemental Disclosure of Noncash Financing Transactions:
Accretion of dividends on redeemable convertible
preferred stock ............................................... $ 279,308 $ 487,951 $ 926,526
============ ============ ============
Conversion of convertible subordinated debt and accrued
interest into redeemable convertible preferred stock .......... $ 3,161,850 $ 2,620,329 $ --
============ ============ ============
Equipment acquired under capital lease obligation ............... $ -- $ -- $ 23,620
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest .......................... $ 57,272 $ 331,019 $ 236,845
============ ============ ============
Cash paid during the year for taxes ............................. $ 2,400 $ 2,400 $ 36,850
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
VST Technologies, Inc. (the Company) was incorporated in Delaware to
develop, manufacture, distribute, market, sell and service peripheral computer
products for portable and desktop personal computers.
The Company is subject to the risks associated with emerging,
technology-oriented companies. Primary among these risks are competition from
substitute products and the need to successfully develop and market its current
and future products and, if it becomes necessary, to obtain additional
financing to fund operations. Management believes that the Company's current
cash position along with the availability under its line of credit and current
operating plan will be sufficient to fund operations for the next fiscal year.
On March 6, 2000, the Company was acquired by SmartDisk Corporation
(SmartDisk), a publicly held Company, for approximately $16.4 million in cash,
approximately 1.1 million shares of SmartDisk common stock and options to
acquire approximately 443,000 shares of SmartDisk common stock.
The accompanying financial statements reflect the application of the
accounting policies described below.
(A) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash equivalents. At December
31, 1998 and 1999, the Company's cash equivalents consist entirely of money
market funds.
(B) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Raw materials ............................... $1,344,782 $ 5,033,684
Work-in-process and finished goods .......... 1,300,749 5,765,584
---------- -----------
$2,645,531 $10,799,268
========== ===========
</TABLE>
(C) DEPRECIATION
The Company provides for depreciation by charges to operations using the
straight-line method based on the estimated useful lives of the related assets,
as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
- --------------------------------------------- ----------------------
<S> <C>
Production equipment ..................... 18 months
Computer equipment and software .......... 3-5 years
Furniture and fixtures ................... 5 years
</TABLE>
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF, the Company
F-7
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
reviews its long-lived assets (which consist primarily of property and
equipment) for impairment as events and circumstances indicate the carrying
amount of an asset may not be recoverable. The Company evaluates the
realizability of its long-lived assets based on profitability and cash flow
expectations for the related asset. Management believes that, as of each of the
balance sheet dates presented, none of the Company's long-lived assets were
impaired.
(D) REVENUE RECOGNITION
The Company recognizes revenue upon product shipment, at which time
ownership of the product is transferred. In addition, the Company also reserves
for anticipated product returns and customer allowances at that time.
(E) RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
(F) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(G) FINANCIAL INSTRUMENTS
The estimated fair market value of the Company's financial instruments,
which include cash and cash equivalents, accounts receivable and accounts
payable, approximates the carrying values of those instruments.
(H) CONCENTRATIONS OF CREDIT RISK
SFAS No. 105, DISCLOSURE ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments that subject the Company to significant
concentrations of credit risk primarily consist of cash and cash equivalents
and accounts receivable. The Company maintains its cash and cash equivalents
balances with well capitalized financial institutions. To control accounts
receivable credit risk, the Company performs credit evaluations of its
customers and maintains allowances for potential credit losses. The Company has
not experienced any significant loss on any particular customer during 1998 or
1999.
(I) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income (loss), as well as other
changes in stockholders' equity (deficit) except stockholder investments and
distributions. The Company's comprehensive income (loss) is equal to net income
(loss) for all periods presented.
F-8
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(J) STOCK-BASED COMPENSATION
The Company records stock-based compensation issued to employees using the
intrinsic value method, and stock-based compensation issued to nonemployees
using the fair value method. Stock-based compensation is recognized on options
issued to employees if the option exercise price is less than the market price
of the underlying stock on the date of grant.
(K) NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share in accordance with the
provisions of SFAS No. 128, EARNINGS PER SHARE. Under the provisions of SFAS
No. 128, net income (loss) per share is measured at two levels: basic net
income (loss) per share and diluted net income (loss) per share. Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
net income (loss) per is computed by dividing net income (loss) by the weighted
average number of dilutive common shares, options and warrants outstanding
during the period. Diluted weighted average shares reflects the dilutive
effect, if any, of common stock options and warrants based on the treasury
stock method. No common stock equivalents are considered dilutive in periods in
which a loss is reported because all such common equivalent shares are
antidilutive. The number of common stock equivalents that were excluded from
the calculation, as their effect would have been antidilutive, was 175,300,
208,764 and 86,446 in 1997, 1998 and 1999, respectively.
The calculations of basic and diluted weighted average shares outstanding
are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Basic weighted average shares outstanding ............ 87,799 87,799 91,803
Dilutive options and warrants ........................ -- -- 365,022
------ ------ -------
Diluted weighted average shares outstanding .......... 87,799 87,799 456,825
====== ====== =======
</TABLE>
(L) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133, as amended by SFAS No. 137, will be effective
for the Company's financial reporting beginning in the first quarter of 2001.
SFAS No. 133 will require the Company to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for gains and losses from changes in
the fair value of a particular derivative will depend on the intended use of
the derivative. The Company does not expect the adoption of SFAS No. 133 to
have a material impact on the results of its operations or financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
"Revenue Recognition." This bulletin, as amended, established guidelines for
revenue recognition and is effective for periods beginning after March 15,
2000. The Company does not expect that the adoption of the guidelines required
by SAB 101 will have a material impact on the financial statements.
F-9
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
(2) LINE OF CREDIT
During 1999, the Company entered into a new line of credit agreement (the
line) with a bank under which the Company may borrow up to $5,000,000 based
upon a borrowing base of 80% of eligible accounts receivable, as defined. The
line expires on June 30, 2000. Borrowings under the line are collateralized by
substantially all of the Company's assets and bear interest at the bank's prime
rate (8.50% at December 31, 1999) plus an incremental rate based on financial
performance. This incremental rate was 0.50% at December 31, 1999. The
agreement requires compliance with several financial covenants, with which the
Company was in compliance at December 31, 1999. As of December 31, 1999, there
was $4,500,000 outstanding under the line.
During 1999, the Company issued a warrant to a bank for the purchase of
6,348 shares of Series C redeemable convertible preferred stock (the Series C
preferred stock) (see Note 5(a)) at an exercise price of $8.10 per share. No
value has been ascribed to these warrants, as they have an immaterial effect on
the financial statements.
(3) CONVERTIBLE SUBORDINATED DEBT
The Company issued convertible demand notes payable (the 1997 notes) in
the amount of $1,535,000 during 1997. At December 31, 1997, $600,000 of these
notes were outstanding. In 1998, the Company issued an additional $2,556,600 of
such notes (the 1998 notes). In conjunction with the issuance of the 1998
notes, the outstanding 1997 notes were canceled and reissued as part of the
1998 notes. The 1998 notes were unsecured and bore interest at 12% per annum.
In connection with the issuance of the 1997 notes, the Company issued an
aggregate of 15,745 warrants, to which the Company allocated $144,539 of the
gross proceeds. The resulting original issuance discount was fully amortized in
1997.
In conjunction with the sale of the Series C preferred stock (see Note
5(a)), all principal plus accrued interest on the 1998 notes was converted into
292,633 shares of Series C preferred stock and the Company issued warrants to
purchase common stock at an exercise price of $0.10 (see Note 6(b)).
(4) INCOME TAXES
The Company provides for income taxes under the liability method in
accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under the provisions
of SFAS No. 109, the Company recognizes a current tax liability or asset for
current taxes payable or refundable and a deferred tax liability or asset for
the estimated future effects of temporary differences between the carrying
value of assets and liabilities for financial reporting and tax reporting
purposes to the extent that they are realizable.
F-10
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
(4) INCOME TAXES--(CONTINUED)
The Components of the deferred tax assets are as follows:
<TABLE>
<CAPTION>
1998 1999
--------------- --------------
<S> <C> <C>
Net operating loss carryforwards ............ $ 1,792,000 $ --
Allowance for bad debts ..................... 121,000 193,000
Accrued liabilities ......................... 361,000 1,041,000
Reserve for inventory obsolescence .......... 413,000 383,000
Reserve for stock rotation rights ........... -- (332,000)
Depreciation ................................ 144,000 200,000
------------ ----------
Total net deferred tax assets ............. 2,831,000 1,485,000
Valuation allowance ......................... (2,831,000) --
------------ ----------
$ -- $1,485,000
============ ==========
</TABLE>
During 1999, the Company recorded a deferred tax asset of $1,485,000 in
the accompanying balance sheet, as it was determined that it was more likely
than not that the Company would be able to realize this asset.
At December 31, 1998, the Company recorded a full valuation allowance
against its deferred tax asset due to the uncertainty surrounding the timing of
the realization of these tax benefits. Realization of these tax benefits were
dependent on generating sufficient taxable income.
The reconciliation between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Federal statutory rate ......................... (34)% (34)% 34%
State tax, net of federal tax benefit .......... (6) (6) 6
Change in valuation allowance .................. 40 40 (40)
--- --- ----
0 % 0 % 0 %
==== ==== ======
</TABLE>
(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK
During 1995, the Company issued 137,734 shares of Series A redeemable
convertible preferred stock (Series A preferred stock), $0.01 par value, at an
issuance price of $14.50 per share for net proceeds of approximately
$1,900,000. In 1997, the Company issued 76,246 and 109,264 shares of Series A
preferred stock and Series B redeemable preferred stock (Series B preferred
stock), respectively, pursuant to the conversion of $3,161,850 of convertible
subordinated debt and accrued interest. On May 6, 1997, the Company sold 25,642
shares of Series B preferred stock for net proceeds of $471,000. On December
23, 1998, the Company issued 553,744 shares of Series C preferred stock for net
cash proceeds of $1,810,000 and the conversion of $2,620,329 of convertible
subordinated debt and accrued interest. The rights and privileges of the Series
A, Series B and Series C preferred stock are as follows:
F-11
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK--(CONTINUED)
LIQUIDATION
In the event of liquidation, the Series A, Series B and Series C preferred
stockholders are entitled to $14.50, $19.50 and $8.10 per share plus accrued
and unpaid dividends (compounded at 8%, 8% and 10% of the original purchase
price), respectively, prior to any distribution to common stockholders. The
liquidation rights of the Series C preferred stockholders are senior to those
of both the Series A and Series B preferred stockholders.
VOTING
The preferred stockholders are entitled to voting rights equivalent to the
number of shares of common stock into which each preferred share can be
converted.
CONVERSION
Each class of preferred stock is convertible into common stock at a rate
of one share of common stock for each share of preferred stock, adjustable for
certain dilutive events. Each share of preferred stock will be automatically
converted into shares of common stock upon the closing of a public offering of
the Company's common stock, at a price per share of not less than $24.30 per
share (as adjusted for any stock dividend or stock distribution) and aggregate
gross proceeds of not less than $15,000,000.
RIGHT OF FIRST REFUSAL
The preferred stockholders have certain rights of first refusal that allow
them to participate ratably in any future issuance of stock to maintain their
original ownership percentage. This right terminates upon a public offering, as
defined.
DIVIDENDS
Cumulative dividends on preferred stock are paid out of available
earnings, as defined, if and when declared by the Board of Directors, at a rate
of 8%, 8% and 10% for Series A, Series B and Series C preferred stock,
respectively.
REDEMPTION
The Company may be required, upon an affirmative vote of the holders of at
least 50% of the then outstanding preferred shares, to redeem all of the
preferred stock in three equal installments, with the first installment on or
after December 1, 2003, and the second and third installments on the first and
second anniversary of such date, respectively. The redemption price of the
Series A, Series B and Series C preferred stock is $14.50, 19.50 and $8.10 per
share, respectively, plus an amount equal to an annual compounded rate of 8%,
8% and 10% of the original purchase price, respectively.
F-12
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
(6) STOCKHOLDERS' DEFICIT
(A) COMMON STOCK
The Company has authorized 2,813,708 shares of $0.01 par value common
stock. The Company has reserved 1,827,537 shares of common stock for the
conversion of the preferred stock and the issuance upon exercise of common
stock warrants and stock options.
(B) WARRANTS
The following table summarizes preferred stock warrant activity for the
three-year period ended December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE WEIGHTED
SHARES PER SHARE(#) AVERAGE PRICE(#)
----------- ---------------- -----------------
<S> <C> <C> <C>
Outstanding, December 31, 1996 ......... 31,712 $14.50-19.50 $16.12
Issued ................................ 23,437 19.50 19.50
------ ------------ ------
Outstanding, December 31, 1997 ......... 55,149 14.50-19.50 17.55
------ ------------ ------
Outstanding, December 31, 1998 ......... 55,149 14.50-19.50 17.55
Issued ................................ 6,348 8.10 8.10
Exercised ............................. (1,177) 14.50-19.50 15.38
------ ------------ ------
Outstanding, December 31, 1999 ......... 60,320 $ 8.10-19.50 $16.75
====== ============ ======
Exercisable, December 31, 1999 ......... 60,320 $ 8.10-19.50 $16.75
====== ============ ======
</TABLE>
The warrants may be exercised at any time after issuance and expire at
various dates through 2007. The warrants are subject to certain antidilution
provisions that allow the holders of these warrants to participate in property
and security dividends issued by the Company to common stockholders and to
participate in any common stock dividends or splits.
In addition to the preferred stock warrants granted above, in 1997, the
Company granted warrants for the purchase of 1,026 shares of common stock at an
exercise price of $19.50 per share and in 1998, the Company granted warrants to
purchase 138,436 shares of common stock, an exercise price of $0.10 per share,
in connection with the conversion of the convertible subordinated debt
described in Note 3 and the issuance of the Series C preferred stock (Note 5).
The warrants may be exercised at anytime after issuance and expire at various
dates through 2008. No value has been ascribed to these warrants, as they have
an immaterial effect on the financial statements.
(C) STOCK OPTION PLAN
Under the 1995 Stock Option Plan as amended (the Plan), the Company may
grant options to purchase up to 536,994 shares of common stock to be granted to
Company directors, officers, employees and consultants. Incentive stock options
may be granted under the Plan at a price not less than 100% of the fair market
value on the date of grant and expire at a maximum of 10 years from the date of
grant. Nonqualified stock options expire on dates determined in each optionee's
agreement, but they may be subject to earlier termination, as provided in the
Plan. The Plan terminates on July 5, 2005.
F-13
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
(6) STOCKHOLDERS' DEFICIT--(CONTINUED)
Information with respect to all stock option activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE WEIGHTED AVERAGE
SHARES PER SHARE OPTIONS PRICE
----------- -------------- -----------------
<S> <C> <C> <C>
Outstanding, December 31, 1996 ......... 81,244 $1.45-1.60 $1.46
Granted ............................... 41,381 1.60-1.95 1.93
Expired ............................... (3,500) 1.45-1.95 1.58
------ ---------- -----
Outstanding, December 31, 1997 ......... 119,125 $1.45-1.95 $1.62
Granted ............................... 49,500 1.95 1.95
Canceled .............................. (15,010) 1.95 1.95
------- ---------- -----
Outstanding, December 31, 1998 ......... 153,615 1.45-1.95 1.69
Granted ............................... 358,464 .81-4.00 .96
Canceled .............................. (8,100) 1.45-2.43 2.34
Exercised ............................. (10,444) 1.45-1.95 1.78
------- ---------- -----
Outstanding, December 31, 1999 ......... 493,535 $ .81-4.00 $1.15
======= ========== =====
Exercisable, December 31, 1999 ......... 396,606 $ .81-1.95 $1.10
======= ========== =====
Exercisable, December 31, 1998 ......... 115,502 $1.45-1.95 $1.64
======= ========== =====
Exercisable, December 31, 1997 ......... 67,652 $1.45-1.95 $1.45
======= ========== =====
</TABLE>
The range of exercise prices for common stock options outstanding and
options exercisable at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ------------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
$0.81 326,264 5.89 $ 0.81 259,443 $0.81
1.45 72,100 4.10 1.45 79,016 1.45
1.60 3,500 6.75 1.60 2,625 1.60
1.95 66,571 8.30 1.95 55,522 1.95
2.43 23,950 9.42 2.43 - 2.43
4.00 1,150 9.63 4.00 - 4.00
- ------------ ------- ---- --------- ------- -----
$.81-4.00 493,535 6.14 $.81-4.00 396,606 $1.10
============ ======= ==== ========= ======= =====
</TABLE>
The Financial Accounting Standards Board issued SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION, which requires the measurement of the fair value
of stock-based compensation to be included in the statement of operations or
disclosed in the notes to the financial statements. The Company has determined
that it will continue to account for stock-based compensation for employees
under Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under
F-14
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
(6) STOCKHOLDERS' DEFICIT--(CONTINUED)
SFAS No. 123 for stock-based compensation awarded in 1998 and 1999 using the
Black-Scholes option pricing model prescribed by SFAS No. 123. The underlying
assumptions used are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1998 1999
--------- --------- --------------
<S> <C> <C> <C>
Risk-free interest rate ........... 6.22% 4.65% 5.10-6.15%
Expected dividend yield ........... -- -- --
Expected lives (in years) ......... 7 7 7
Expected volatility ............... 65% 65% 65%
</TABLE>
During the years ended December 31, 1997, 1998 and 1999, the weighted
average value of option grants was $0.33, $1.25 and $0.30 per share,
respectively. The weighted average remaining contractual life of options
outstanding at December 31, 1997, 1998 and 1999 was 7.40, 7.21 and 6.14 years,
respectively.
The pro forma effect of SFAS No. 123 for the years ended December 31,
1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------- ---------------- -------------
<S> <C> <C> <C>
Net income (loss) .................... $ (3,652,058) $ (1,117,575) $6,212,340
Pro forma net income (loss) .......... $ (3,654,389) $ (1,196,147) $6,033,058
Pro forma net income (loss) per share-
Basic ............................... $ (41.62) $ (13.62) $ 65.72
Diluted ............................. $ (41.62) $ (13.62) $ 13.21
</TABLE>
(7) SIGNIFICANT CUSTOMERS
Three customers accounted for approximately 50%, 53% and 57% during 1997,
1998 and 1999, respectively, of the Company's revenue. As of December 31, 1998
and 1999, one and two customers, respectively, represented approximately 51%
and 56%, respectively, of the Company's accounts receivable balance.
(8) SIGNIFICANT VENDORS
During 1998 and 1999, the Company relied on another company to supply a
key component for the manufacture of some of the Company's peripheral products.
During 1997, there were no significant vendors.
(9) COMMITMENTS
The Company conducts its operations in leased facilities under an
operating lease agreement. The lease expires in April 2001 and future minimum
lease payments under this agreement are $435,505 for 2000. The Company recorded
approximately $162,010, $210,271 and $222,415 of rent expense in 1997, 1998 and
1999, respectively.
F-15
<PAGE>
VST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
(10) SEGMENT AND GEOGRAPHIC INFORMATION
The Company had adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 requires certain financial and
supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. The Company has determined that it
only operates in one segment. Gross revenues by significant geographic region
are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
North America ............. $6,763,436 78% $23,517,040 91% $58,354,476 92%
Europe .................... 326,780 4 2,097,522 8 3,664,183 6
Asia/Pacific Rim .......... 1,552,278 18 238,016 1 1,472,147 2
---------- -- ----------- -- ----------- --
$8,642,494 100% $25,852,578 100% $63,490,806 100%
========== === =========== === =========== ===
</TABLE>
(11) VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE,
BEGINNING OF CHARGED TO BALANCE,
ALLOWANCE FOR DOUBTFUL ACCOUNTS YEAR EXPENSE WRITE-OFFS END OF YEAR
- --------------------------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1999 ............ $299,968 $180,000 $ -- $479,968
December 31, 1998 ............ 75,000 267,277 (42,309) 299,968
December 31, 1997 ............ 54,315 64,927 (44,242) 75,000
</TABLE>
<TABLE>
<CAPTION>
BALANCE,
BEGINNING OF CHARGED TO BALANCE,
RESERVE FOR PRICE PROTECTION YEAR EXPENSE WRITE-OFFS END OF YEAR
- ------------------------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
December 31, 1999 ......... $280,000 $ 520,000 $ (394,869) $405,131
December 31, 1998 ......... 35,000 1,086,317 (841,317) 280,000
December 31, 1997 ......... -- 35,000 -- 35,000
</TABLE>
<TABLE>
<CAPTION>
BALANCE,
BEGINNING OF CHARGED TO BALANCE,
RESERVE FOR STOCK ROTATION YEAR EXPENSE WRITE-OFFS END OF YEAR
- ------------------------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1999 ......... $400,000 $1,100,000 $ -- $1,500,000
December 31, 1998 ......... 310,000 647,641 (557,641) 400,000
December 31, 1997 ......... 116,414 341,540 (147,954) 310,000
</TABLE>
(12) SUBSEQUENT EVENTS
On February 23, 2000, the Company signed an agreement to acquire
substantially all of the intellectual property of a privately held company and
supplier of software for high-performance storage solutions, for approximately
$400,000 in cash and 41,100 shares of the Company's common stock.
F-16
EXHIBIT 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed statement of
operations for the year ended December 31, 1999, and the unaudited pro forma
combined condensed balance sheet as of December 31, 1999 give effect to the VST
acquisition as if it had occurred on (i) January 1, 1999 in the case of the
statement of operations and (ii) December 31, 1999 in the case of the balance
sheet. These unaudited pro forma combined condensed financial statements are
based upon the historical financial information of VST appearing elsewhere in
this Form 8-K/A and of SmartDisk included in its Annual Report on Form 10-K for
the year ended December 31, 1999.
The VST acquisition has been accounted for as a purchase business
combination for financial accounting purposes. The total purchase price of the
acquisition was allocated to the tangible and intangible assets and liabilities
of VST based upon their respective fair values as of the date of the closing of
the acquisition, pending final determination of certain acquired balances. In
the opinion of management, the appropriate adjustments have been made to the
historical financial statements which are necessary to fairly present the pro
forma combined condensed financial statements. These pro forma adjustments are
described in the notes accompanying these unaudited pro forma combined condensed
financial statements. These unaudited pro forma combined condensed financial
statements are provided for information purposes only and do not purport to
represent what our results of operations or financial position would actually
have been had the transactions in fact occurred at such dates or to project our
results of operations or financial position at or for any future date or period.
Page 1
<PAGE>
SMARTDISK CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
SMARTDISK VST PRO FORMA PRO FORMA
CORPORATION(1) TECHNOLOGIES(2) ADJUSTMENTS COMBINED
---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term
investments................................... $ 45,720 $ 797 $ (16,434)(a) $ 30,083
Restricted cash................................. 1,050 - - 1,050
Accounts and notes receivable, net.............. 10,168 11,178 - 21,346
Inventories, net................................ 1,475 10,799 - 12,274
Other current assets............................ 1,353 166 - 1,519
Deferred tax asset.............................. - 1,485 - 1,485
------------ ------------ ------------- -----------
Total current assets................................. 59,766 24,425 (16,434) 67,757
Property and equipment, net.......................... 2,623 1,288 - 3,911
Goodwill and other intangible assets, net............ 883 - 93,167 (a) 94,050
Deposits and other assets............................ 172 - - 172
------------ ------------ ------------- -----------
Total Assets......................................... $ 63,444 $ 25,713 $ 76,733 $ 165,890
============ ============ ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 5,330 $ 9,122 $ - $ 14,452
Bank line of credit and discounted notes........ 4,894 4,500 - 9,394
Other accrued liabilities....................... 2,015 1,624 2,975 (a) 6,614
Income taxes payable............................ 1,110 1,448 - 2,558
Deferred revenue................................ 308 - - 308
------------ ------------ ------------- -----------
Total current liabilities............................ 13,657 16,694 2,975 33,326
Deferred income taxes and other...................... - 5 13,680 (a) 13,685
Redeemable convertible preferred stock............... - 11,974 (11,974)(a) -
Stockholders' equity (deficit): (1)(a)
Common stock.................................... 16 1 1 (a) 17
Capital in excess of par value.................. 71,247 744 (744)(a) 140,338
69,091 (a)
Treasury stock, at cost......................... (58) - - (58)
Accumulated other comprehensive income.......... 712 - - 712
Notes receivable from officers/employees........ (388) - - (388)
Accumulated deficit............................. (21,742) (3,705) 3,705 (a) (21,742)
------------ ------------ ------------- -----------
Total stockholders' equity (deficit)................. 49,787 (2,960) 72,052 118,879
------------ ------------ ------------- -----------
Total Liabilities and Stockholders' Equity........... $ 63,444 $ 25,713 $ 76,733 $ 165,890
============ ============ ============= ===========
<FN>
- --------------------
(1) Represents the balance sheet for SmartDisk as of December 31, 1999.
(2) Represents the balance sheet for VST, which we acquired on March 6,
2000, as of December 31, 1999.
</FN>
</TABLE>
Page 2
<PAGE>
SMARTDISK CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
SMARTDISK VST PRO FORMA PRO FORMA
CORPORATION(1) TECHNOLOGIES(2) ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
REVENUES
Product sales.............................. $ 37,262 $ 61,526 $ - $ 98,788
Research and development revenue................ 2,587 - - 2,587
Royalties....................................... 470 - - 470
------------ ------------ ------------- ------------
Total revenues.............................. 40,319 61,526 - 101,845
COST OF REVENUES..................................... 24,820 45,774 - 70,594
------------ ------------ ------------- ------------
GROSS PROFIT......................................... 15,499 15,752 - 31,251
OPERATING EXPENSES
Research and development........................ 5,869 2,608 - 8,477
Sales and marketing............................. 1,608 3,765 - 5,373
General and administrative...................... 6,259 2,902 - 9,161
Amortization of goodwill and other intangible
assets - - 28,169 (b) 28,169
------------ ------------ ------------- ------------
Total operating expenses.................... 13,736 9,275 28,169 51,180
------------ ------------ ------------- ------------
OPERATING INCOME (LOSS).............................. 1,763 6,477 (28,169) (19,929)
Interest and other income (expense), net............. 562 (265) (1,300)(c) (1,003)
------------ ------------ ------------- ------------
Net income (loss) before income taxes................ 2,325 6,212 (29,469) (20,932)
Income tax expense (benefit)......................... 1,965 (d)
1,367 - (6,593)(e) (3,261)
------------ ------------ ------------- ------------
NET INCOME (LOSS)................................... $ 958 $ 6,212 $ (24,841) $ (17,671)
============ ============ ============= ============
Earnings (loss) per share - basic.............. $ 0.09 $ (1.50)
Earnings (loss) per share - diluted............ $ 0.07 $ (1.50)
Weighted average shares used to calculate
earnings (loss) per share amounts
Basic........................................... 10,725 1,073(f) 11,798
Diluted......................................... 13,349 1,073(f) 11,798
<FN>
- -------------
(1) Represents actual results of operations for SmartDisk for the year
ended December 31, 1999.
(2) Represents the actual results of operations for VST, which we acquired
on March 6, 2000, for the year ended December 31, 1999.
</FN>
</TABLE>
Page 3
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The pro forma combined condensed balance sheet gives effect to the
acquisition as if it had occurred on December 31, 1999.
On March 6, 2000, SmartDisk Corporation acquired all the outstanding
shares of VST stock in exchange for approximately 1.073 million shares of
SmartDisk common stock and approximately $16.4 million in cash. In addition,
SmartDisk issued options to purchase a total of approximately 443,000 shares of
SmartDisk common stock in exchange for all issued and outstanding VST options.
The following adjustment has been reflected in the unaudited pro forma combined
condensed balance sheet.
(a) To reflect cash, common stock and options issued to the shareholders of
VST, and applicable purchase accounting entries, including the
elimination of VST's common stock, capital in excess of par value and
retained earnings. The Company also recorded additional goodwill and a
deferred income tax liability associated with separately identified
intangible assets.
Under purchase accounting, the total purchase price of the acquisition
was allocated to VST's assets and liabilities based on their relative fair
values as of the date of the closing of the acquisition, pending final
determination of certain acquired balances. The amounts and components of the
purchase price along with the allocation of the purchase price to net assets
acquired are presented below (in thousands).
PURCHASE PRICE
Cash................................................ $ 16,434
Common stock........................................ 1
Capital in excess of par............................ 49,299
Value of SmartDisk options issued................... 19,792
Transaction costs................................... 2,975
--------
Total purchase price................................ $ 88,501
========
NET ASSETS ACQUIRED
Book value of net tangible assets of VST............ $ 9,551
Intangible assets:
Non-compete agreements.......................... 21,300
Distribution channels........................... 4,900
VST trade name.................................. 4,800
Patents......................................... 2,200
Workforce in place.............................. 1,000
Deferred income taxes............................... (13,680)
Goodwill............................................ 58,430
--------
Net assets acquired................................. $ 88,501
========
Page 4
<PAGE>
NOTE 2. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
The pro forma combined condensed statement of operations gives effect
to the acquisition as if it had occurred on January 1, 1999.
(b) Adjustment to reflect the amortization of goodwill and other intangible
assets resulting from the allocation of purchase price. The pro forma
adjustment assumes goodwill and other intangible assets will be
amortized on a straight-line basis over the following lives. Historical
amortization of goodwill and other intangible assets for SmartDisk has
been included in general and administrative expenses.
Intangible assets:
Non-compete agreements 2 years
Distribution channels 2 years
VST trade name 2 years
Patents 3 years
Workforce in place 4 years
Goodwill 5 years
(c) To reflect an increase in interest expense assuming we borrowed the
approximately $16.4 million cash paid to VST security holders at
SmartDisk's effective borrowing rate of 8.5% on January 1, 1999 until
the date of our IPO at which time we would have paid down the debt. The
resulting decrease in cash proceeds would correspondingly decrease
interest income associated with cash, cash equivalents and short-term
investments.
(d) To reflect income tax expense at a rate of approximately 40% on income
earned by VST less pro forma interest expense.
(e) To reflect an income tax benefit at a rate of approximately 40% on
amortization expense on separately identified intangible assets.
(f) To reflect the shares issued as consideration for the acquisition.
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