SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 11, 1999
PUBLICARD, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 0-29794 23-0991870
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One Post Road, Fairfield, Connecticut 06430
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 254-3900
(Former name or former address, if changed since last report.)
The undersigned registrant hereby amends in its entirety Item 7 of its
Current Report on Form 8-K originally filed with the Securities and Exchange
Commission on February 26, 1999 as set forth below.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired
Audited financial statements of Amazing! Smart Card Technologies, Inc.
Report of Independent Public Accountants
Balance Sheets as of December 31, 1998 and 1997 Statements of
Operations for the years ended December 31, 1998 and 1997
Statements of Shareholders' Deficit for the years ended December 31,
1998 and 1997
Statements of Cash Flows for the years ended December 31, 1998 and
1997
Notes to Financial Statements
(b) Pro forma financial information
Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31,
1998 and Unaudited Pro Forma Condensed Combined Statement of Income for
the year ended December 31, 1998
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(c) Exhibits:
2.1 Agreement and Plan of Merger dated as of February 11, 1999 among
PubliCARD, Inc., ASCT Acquisition Corp., Amazing! Controls, Inc. and the
Security Holders of Amazing! Controls, Inc. (previously filed with
Current Report on Form 8-K filed on February 26, 1999)
23.1 Consent of Independent Public Accountants
<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.
PUBLICARD, INC.
(Registrant)
April 27, 1999 /s/ Antonio L. DeLise
Antonio L. DeLise, Vice President
Chief Financial Officer and Secretary
AMAZING! SMART CARD TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Amazing! Smart Card Technologies, Inc.:
We have audited the accompanying balance sheets of Amazing! Smart Card
Technologies, Inc. (a California corporation) as of December 31, 1998
and 1997, and the related statements of operations, shareholders' deficit
and cash flows for each of the two years in the period ended December 31,
1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 aspects, the financial position of Amazing! Smart Card
Technologies, Inc. as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the two years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/Arthur Andersen LLP
San Jose, California
April 16, 1999
<PAGE>
AMAZING! SMART CARD TECHNOLOGIES, INC.
BALANCE SHEETS
ASSETS
December 31,
1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 18,820 $ 113,148
Accounts receivable, less allowance for doubtful
accounts of $71,493 and $101,493 in 1998 and
1997, respectively 319,467 213,972
Inventories (Note 3) 389,583 372,515
Prepaid expenses and other current assets 23,256 190,807
Total current assets 751,126 890,442
PROPERTY AND EQUIPMENT, net (Note 3) 682,411 933,343
OTHER ASSETS 4,104 593,841
$ 1,437,641 $ 2,417,626
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 82,688 $ -
Accounts payable 955,188 465,253
Accrued liabilities 509,387 491,834
Total current liabilities 1,547,263 957,087
CONVERTIBLE NOTES PAYABLE TO SHAREHOLDER (Note 4) - 7,321,854
NOTES PAYABLE TO SHAREHOLDERS (Note 5) 623,247 -
CAPITAL LEASE OBLIGATIONS, net of current portion 19,238 -
Total liabilities 2,189,748 8,278,941
COMMITMENTS (Note 6)
SHAREHOLDERS' DEFICIT:
Convertible preferred stock: 50,000,000 shares
authorized; no shares issued or outstanding - -
Common stock: no par value; 50,000,000 shares
authorized; 39,300,000 and 13,350,000 shares
issued and outstanding at December 31, 1998 and
1997, respectively 9,842,542 1,114,830
Accumulated deficit (10,594,649) (6,976,145)
Total shareholders' deficit (752,107) (5,861,315)
$ 1,437,641 $ 2,417,626
The accompanying notes to financial statements are an integral part of these
financial statements.<PAGE>
AMAZING! SMART CARD TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31,
1998 1997
REVENUES $ 2,483,539 $ 3,349,975
COST OF REVENUES 2,382,843 3,027,958
Gross profit 100,696 322,017
OPERATING EXPENSES:
Research and development 318,338 719,907
Sales and marketing 738,317 941,280
General and administrative 1,405,221 1,320,600
Total operating expenses 2,461,876 2,981,787
LOSS FROM CONTINUING OPERATIONS (2,361,180) (2,659,770)
INTEREST AND OTHER EXPENSE, net 308,736 620,832
LOSS FROM CONTINUING OPERATIONS BEFORE
DISCONTINUED OPERATIONS (2,669,916) (3,280,602)
DISCONTINUED OPERATIONS (NOTE 1):
LOSS FROM OPERATIONS (274,696) (97,941)
LOSS ON DISPOSAL (673,892) -
LOSS FROM DISCONTINUED OPERATIONS (948,588) (97,941)
NET LOSS $ (3,618,504) $(3,378,543)
The accompanying notes to financial statements are an integral part of these
financial statements.<PAGE>
AMAZING! SMART CARD TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
Total
Common Stock Accumulated Shareholders'
Shares Amount Deficit Deficit
BALANCE AT DECEMBER 31,
1996 5,520,000 1,107,000 $(3,597,602) $(2,490,602)
Issuance of common
stock for cash at
$0.001 per share 7,830,000 7,830 - 7,830
Net loss - - (3,378,543) (3,378,543)
BALANCE AT DECEMBER 31,
1997 13,350,000 1,114,830 (6,976,145) (5,861,315)
Conversion of note
payable to
shareholder into
common stock (see
Note 4) 29,600,000 8,731,362 - 8,731,362
Repurchase of common
stock for cash
at $0.001 per
share (3,650,000) (3,650) - ( 3,650)
Net loss - - (3,618,504) (3,618,504)
BALANCE AT DECEMBER 31,
1998 39,300,000 $9,842,542 $(10,594,649 $(752,107)
The accompanying notes to financial statements are an integral part of these
financial statements.
<PAGE>
AMAZING! SMART CARD TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,618,504) $(3,378,543)
Adjustments to reconcile net loss to net
cash used in operating activities
Allowance for doubtful accounts - 34,493
Depreciation and amortization 338,628 433,752
Loss on disposal of fixed assets 129,947 170,140
Loss on disposal of discontinued operations 673,892 -
Changes in current assets and liabilities:
Accounts receivable (105,495) 203,240
Inventories (17,068) 338,929
Prepaid expenses and other assets 83,396 137,962
Accounts payable 489,935 (196,706)
Accrued liabilities 17,373 176,277
Net cash used in operating activities (2,007,896) (2,080,456)
CASH FLOWS FOR INVESTING ACTIVITIES:
Purchases of property and equipment (115,717) (292,007)
Proceeds from sale of fixed assets - 83,000
Net cash used for investing activities (115,717) (209,007)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable from
shareholders 2,032,935 2,025,429
Issuances of common stock - 7,830
Repurchases of common stock (3,650) -
Net cash provided by financing
activities 2,029,285 2,033,259
NET DECREASE IN CASH AND CASH EQUIVALENTS (94,328) (256,204)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 113,148 369,352
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 18,820 $ 113,148
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 800 $ 800
Noncash financing activity:
Conversion of note payable to
shareholder for common stock $ 8,731,542 $ -
The accompanying notes to financial statements are an integral part of these
financial statements.
<PAGE>
AMAZING! SMART CARD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
Amazing! Smart Card Technologies, Inc. (the "Company"), formerly known as
Amazing! Controls, Inc., was incorporated in California on December 20,
1996. Previously, the Company operated as WOW Technologies, Inc. The
Company develops and manufactures smart cards for use in satellite
television, telecommunications, identification and transportation.
In September 1997, the Company acquired all of the outstanding stock of
Amazing! Controls, B.V. ("ACBV"), which is based in the Netherlands, in
exchange for the assumption of liabilities and the forgiveness of certain
amounts due to the Company. The total purchase price was $546,000, and
the acquisition was accounted for as a purchase. Intangibles arising from
the acquisition were being amortized on a straight-line basis over three
years.
In connection with the acquisition, the purchase price was allocated to
the following items:
Property, plant and equipment, net $ 70,000
Other 257,000
Goodwill 219,000
$546,000
The results of operations of ACBV and the estimated fair value of the
assets acquired and liabilities assumed are included in the Company's
financial statements from the date of acquisition through the date of
divestiture of the operation in 1998.
In April 1998, the Company divested the operations of ACBV to certain
shareholders of the Company. The divestiture of ACBV resulted in a loss
on disposal of the net assets of the operations $674,000, primarily from
the writedown of intangibles acquired in the acquisition of ACBV and other
assets which no longer benefited the Company. The operating results of the
discontinued operation have been reported as discontinued operations in
the statements of operations for all years presented. The prior year
balance sheet as of December 31, 1997, has also been adjusted to reflect
the net current assets of ACBV of $77,000 as a single line item in other
current assets and to reflect the net noncurrent assets of $275,000 as a
single line item in other noncurrent assets. There were no remaining
assets on the Company's balance sheet as of December 31, 1998, related to
ACBV. Revenue of the discontinued operation was $170,000 and $154,000 for
the years ended December 31, 1998 and 1997, respectively.
On February 11, 1999 (the "Closing Date"), PubliCARD, Inc. ("PubliCARD")
completed the acquisition of the Company, pursuant to an Agreement and
Plan of Merger dated as of February 11, 1999 (the "Merger Agreement"),
whereby a wholly-owned subsidiary of PubliCARD merged with and into the
Company. As a result of this merger, the Company became a wholly-owned
subsidiary of PubliCARD. As consideration in the merger, the holders of
the Company's common stock received a total of 350,000 shares of common
stock of PubliCARD in exchange for their shares of common stock of the
Company. In addition, pursuant to the Merger Agreement, options to
purchase 200,000 shares of PubliCARD common stock with an exercise price
of $9.75 were granted to the shareholders of the Company.
The Company is subject to a number of risks, including but not limited to,
the dependence upon PubliCARD for its continuing financial support;
competition from larger, more established companies in the industry; the
successful development and marketing of its products; rapid technological
changes in the industry; and the dependence on key individuals. PubliCARD
has committed to continue to support the Company's working capital needs
for the foreseeable future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of short-term highly liquid investments
purchased with original maturities of three months or less.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and
accounts receivable. The Company places its cash and cash equivalents
with high credit quality financial institutions. The Company's accounts
receivable are derived from revenue earned from customers located in the
U.S., Europe and the Far East. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires
no collateral from its credit customers. The Company maintains an
allowance for doubtful accounts based upon the expected collectibility of
all accounts receivable. At December 31, 1998 and 1997, the top five
customers accounted for approximately 70% and 88% of total accounts
receivable, respectively.
Ten customers accounted for 65% and 62% of the Company's revenues for the
years ended December 31, 1998 and 1997, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and includes materials, labor and manufacturing overhead costs.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of the assets, generally three to five years, or the lease
term of the respective assets, if applicable.
Revenue Recognition
Revenues from product sales are recognized at the time the product is
shipped to the customer, with provisions established for estimated product
returns and allowances. Returns and allowances have been insignificant to
date.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of payroll costs, other direct expenses and overhead.
Software Development Costs
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," the Company
capitalizes eligible computer software development costs upon the
establishment of technological feasibility, which it has defined as
completion of a working model. To date, the amount of costs eligible for
capitalization, after consideration of factors such as realizable value,
were not material and, accordingly, all software development costs have
been charged to research and development in the accompanying statements of
operations.
Warranty Costs
Anticipated costs related to product warranties are charged to expense as
sales are recognized. The Company has not experienced significant
warranty claims to date.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." Under APB
Opinion No. 25, compensation cost is recognized based on the difference,
if any, on the date of grant between the fair value of the Company's stock
and the amount an employee must pay to acquire the stock.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for the reporting of comprehensive income and its components in
a full set of general-purpose financial statements for periods ending
after December 15, 1997. As the Company has no material items of other
comprehensive income, this statement has no impact on the Company's
financial statements.
During 1998, the Company adopted SFAS No. 131 "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 requires a new
basis of determining reportable business segments, i.e. the management
approach. This approach requires that business segment information used by
management to assess performance and manage company resources be the
source for information disclosure. On this basis, the Company is organized
and operates in one business segment, the development and manufacturing of
smart cards for use in satellite television, telecommunications,
identification and transportation. As a result, the adoption of SFAS No.
131 had no impact on the Company's disclosures or financial statements.
3. BALANCE SHEET COMPONENTS:
December 31,
1998 1997
Inventories, net:
Raw materials and work-in-progress $ 303,930 $ 320,131
Finished goods 85,653 52,384
$ 389,583 $ 372,515
Property and equipment:
Computer equipment $ 451,307 $446,484
Furniture and fixtures 107,313 88,461
Shop equipment 1,452,614 1,566,023
Leasehold equipment 90,222 139,818
2,101,456 2,240,786
Less: Accumulated depreciation
and amortization (1,419,045) (1,307,443)
$ 682,411 $ 933,343
4. CONVERTIBLE NOTES PAYABLE TO SHAREHOLDER:
The Company's operations to date have been funded by one of its major
shareholders through the issuance of convertible notes payable. In fiscal
1998, the shareholder converted $8,731,542 of convertible notes payable into
29,600,000 shares of common stock of the Company based on an agreed-upon
weighted-average conversion price of $0.295 per share. As of December 31,
1998, no amounts were outstanding under the notes payable.
5. NOTES PAYABLE TO SHAREHOLDERS:
As of December 31, 1998, the Company has outstanding notes payable of
$608,631 to two shareholders. The notes bear interest at the prime rate
plus 1% per annum (8.75% at December 31, 1998) and will mature on June 30,
2000. Under the terms of the notes, the holder of the notes has the option
to convert the note, wholly or partially, into preferred stock of the
Company at the fair value of the Company's common stock at the time of
conversion. Accrued interest at December 31, 1998, was $14,616.
6. COMMITMENTS:
Leases
The Company leases equipment and office space under various capital and
operating leases with various expiration dates through 2003. Rent expense
for the year ended December 31, 1998 and 1997, was $178,444 and $111,264,
respectively.
At December 31, 1998, future minimum lease payments under capital and
operating leases are as follows:
Year Ending December 31, Capital Operating
Leases Leases
1999 $ 60,932 $ 113,973
2000 40,619 4,533
2001 5,828 4,533
2002 5,828 3,400
2003 5,828 -
Total 119,035 $ 126,439
Less: Amounts representing
interest (17,109)
Present value of minimum
lease payments (Average
interest rate of 8%) 101,926
Less: Current portion (82,688)
Long-term portion $ 19,238
7. COMMON STOCK:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 50,000,000 shares of no par value common stock.
Stock Option Plan
In 1997, the Company adopted the 1997 Stock Option Plan (the "Plan"). The
Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock
options ("ISO") may be granted only to Company employees (including
officers and directors who are also employees). Nonqualified stock options
("NSO") may be granted only to Company employees and consultants. The
Company has reserved 4,000,000 shares of common stock for issuance under
the Plan.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the
date of grant as determined by the Board of Directors, provided, however,
that (i) the exercise price of an ISO and NSO shall not be less than 100%
and 85% of the estimated fair value of the shares on the date of grant,
respectively, and (ii) the exercise price of an ISO and NSO granted to a 0%
shareholder shall not be less than 110% of the estimated fair value of the
shares on the date of grant. To date, options granted generally vest over
four years.
Activity under the Plan was as follows:
Shares Weighted
Available Options Average
for Grant Outstanding Option Price
Inception of Plan 2,000,000 - -
Authorized 500,000 - -
Granted (1,587,200) 1,587,200 $0.01
Canceled 10,100 (10,100) $0.01
Balances,
December 31, 1997 922,900 1,577,100 $0.01
Authorized 1,500,000 - -
Granted (280,300) 280,300 -
Canceled 1,030,600 (1,030,600) $0.01
Balances,
December 31, 1998 3,173,200 826,800 $0.01
The weighted-average remaining contractual life of the options
outstanding at December 31, 1998 was 8.8 years. No options have been
exercised as of December 31, 1998.
Fair Value Disclosures
The Company accounts for the Plan under APB Opinion No. 25 under which no
compensation expense has been recognized, as all stock options are
exercisable at a price equal to the fair market value of the underlying
shares on the date of grant. There was no material difference between the
Company's net loss as reported and the pro forma net loss had compensation
expense for the plan been determined consistent with SFAS No. 123.
To determine compensation expense under SFAS No. 123, the Company used the
following assumptions to estimate that fair value of each option grant on
the date of grant using the Black-Scholes option valuation model: risk-free
interest rate of 6.0% for 1998 and 1997, average expected life of 4 years,
expected dividend yields of zero and expected volatility of 0.01%. The
weighted-average fair value of options granted during 1998 and 1997 was
approximately $0.01.
8. INCOME TAXES:
At December 31, 1998, the Company had approximately $9,410,000 of Federal
and state net operating loss carryforwards available to offset future
taxable income. These carryforwards expire in varying amounts through
2018, if not utilized. Under the Tax Reform Act of 1986, the amounts of
and benefits from net operating loss carryforwards may be impaired or
limited in certain circumstances. Events which cause limitations in the
amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than
50%, as defined, over a three-year period.
As of December 31, 1998 and 1997, the Company had gross deferred tax assets
of approximately $3,858,000 and $2,376,000, respectively. Management
believes that, based on a number of factors, the available objective
evidence creates sufficient uncertainty regarding the realizability of the
deferred tax assets such that a full valuation allowance has been recorded.
Deferred tax assets relate primarily to net operating loss carryforwards
and certain expenses and reserves that are not currently deductible for
income tax purposes.
9. EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) defined contribution plan covering all
employees. Contributions made by the Company are determined annually by
the Board of Directors. Employer contributions were $15,100 and $10,300
under this plan for the years ended December 31, 1998 and 1997,
respectively. <PAGE>
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the acquisition by PubliCARD, Inc. ("PubliCARD" or the
"Company") of all of the issued and outstanding common stock of Amazing!
Smart Card Technologies, Inc., previously known as Amazing! Controls, Inc.
("Amazing"), in a business combination accounted for by the purchase
method of accounting. The unaudited pro forma condensed combined
financial statements are derived from the historical financial statements
of PubliCARD and Amazing.
The unaudited pro forma condensed combined balance sheet gives effect to
the acquisition as if it had occurred on December 31, 1998. The unaudited
pro forma condensed combined statement of income for the year ended
December 31, 1998 gives effect to the acquisition as if it had occurred on
January 1, 1998. The pro forma adjustments are based on certain
assumptions that management believes are reasonable under the
circumstance. The pro forma information is not necessarily indicative of
the results that would have been reported had such event actually occurred
on the dates specified, nor is it intended to project PubliCARD's results
of operations or financial position for any future period or date. The
information set forth should be read in conjunction with PubliCARD's
audited consolidated financial statements for the year ended December 31,
1998 included in the Company's Form 10-K for the year ended December 31,
1998, and the audited financial statements of Amazing included elsewhere
in this Form 8-K/A.
<PAGE>
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1998
(in thousands of dollars)
PubliCARD Amazing Pro forma Pro forma
HistoricalHistoricalAdjustments Balances
ASSETS
Cash, including short-
term investments $18,482 $ 19 $ (623)(b) $17,478
(400)(c)
Trade receivables 1,988 319 - 2,307
Inventories 2,810 390 - 3,200
Other 1,999 23 - 2,022
Total current assets 25,279 751 (1,023) 25,007
Property, plant &
equipment, net 3,606 682 - 4,288
Goodwill 9,781 - 5,379 (a) 15,160
Other assets 1,262 4 - 1,266
$39,928 $1,437 $4,356 $45,721
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of
long-term debt $ 147 $ - $ - $ 147
Trade accounts payable 1,331 1,038 - 2,369
Accrued liabilities 4,384 509 - 4,893
Total current liabilities 5,862 1,547 - 7,409
Long-term debt 991 623 (623)(b) 991
Other non-current
liabilities 7,780 19 - 7,799
Total liabilities 14,633 2,189 (623) 16,199
Redeemable shares 3,378 - - 3,378
Shareholders' equity
Common shares 2,030 9,843 (9,843)(d) 2,065
35 (e)
Additional paid-in
capital 67,091 - 5,292 (e) 72,383
Accumulated deficit (38,891) (10,595) 10,595 (d) (39,991)
(1,100)(a)
Common shares held
in treasury (8,207) - - (8,207)
Unearned compensation (106) - - (106)
Total shareholders'
equity 21,917 (752) 4,979 26,144
$39,928 $ 1,437 $ 4,356 $45,721
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands of dollars except share and per share amounts)
PubliCARD Amazing Pro forma Pro forma
Historical Historical Adjustments Balances
Net sales $16,519 $ 2,483 $ - $19,002
Cost of sales 10,906 2,383 - 13,289
Gross Margin 5,613 100 - 5,713
Operating expenses:
General and administrative 5,488 1,405 - 6,893
Sales and marketing 792 738 - 1,530
Product development 740 318 - 1,058
In-process research and development 2,800 - - 2,800
Goodwill amortization 225 - 633 (f) 858
10,045 2,461 633 13,139
Income (loss) from operations (4,432) (2,361) (633) (7,426)
Other income (expenses):
Interest income 551 1 (18)(h) 534
Interest expense (339) (207) 207 (g) (339)
Cost of pensions-non operating (846) - - (846)
Other expense (1,021) (103) - (1,124)
(1,655) (309) 189 (1,775)
Net income (loss) from continuing
operation $ (6,087) $ (2,670) $ (444) $ (9,201)
Earnings (loss) per common share $ (.44) $ (0.65)
Weighted average number of shares
outstanding 13,716,243 350,000 (i) 14,066,243
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On February 11, 1999 (the "Closing Date"), PubliCARD completed the
acquisition of Amazing, pursuant to an Agreement and Plan of Merger dated as
of February 11, 1999 (the "Merger Agreement") whereby a wholly-owned
subsidiary of the Company merged with and into Amazing. As a result of this
merger, Amazing became a wholly-owned subsidiary of the Company. As
consideration in the merger, Mr. B.K. Marya (and related family trusts) and
Mr. Donald Witmer, the holders of Amazing's common stock, received a total
of 350,000 shares of common stock of the Company in exchange for their
shares of common stock of Amazing.
In addition, pursuant to the Merger Agreement, options to purchase 200,000
shares of PubliCARD common stock with an exercise price of $9.75 per share
were granted to the shareholders of Amazing. These PubliCARD options are
exercisable from the Closing Date until the fifth anniversary of the Closing
Date. Also, options to purchase 842,300 shares of Amazing common stock
outstanding immediately prior to the closing of the merger were converted
into options to purchase 7,503 shares of PubliCARD common stock with
exercise prices ranging from $1.12 to $10.10 per share. These PubliCARD
options vest over three or four years and are exercisable for a period of five
or ten years. Furthermore, pursuant to the Merger Agreement, the Company
issued on the Closing Date options to purchase 250,000 shares of PubliCARD
common stock to several employees of Amazing. These options have an exercise
price of $9.75 per share, vest over a three year period and will be
exercisable until the fifth anniversary of the Closing Date.
The merger consideration was determined as a result of arms length
negotiations between the Company and Amazing. The merger will be accounted
for under the purchase method of accounting.
Pursuant to the Merger Agreement, the Company is required to register the
shares of PubliCARD common stock issued in connection with the merger under
a shelf registration statement under the Securities Act of 1933.
Pursuant to the Merger Agreement, the Company satisfied certain indebtedness
of Amazing, including accrued interest, to a bank in the amount of
approximately $75,000
and to former shareholders of Amazing in the amount of approximately $717,000.
The repayment of certain indebtedness of Amazing by the Company was financed
with available cash on hand.
The pro forma adjustments included in the unaudited pro forma condensed
combinedfinancial statements were as follows:
(a) Under the purchase method of accounting, the purchase price is allocated to
the assets acquired and liabilities assumed based on their estimated
fair values. Allocations are subject to valuations as of the date of
the purchase transaction. The amount and components of the estimated
purchase price along with the preliminary allocation of the estimated
purchase price are as follows (in thousands):
Purchase price:
Estimated value of common stock and stock options $ 5,327
Estimated acquisition expenses 400
$ 5,727
Allocation of purchase price:
Negative book value of net assets of Amazing $ (752)
In-process research and development 1,100
Goodwill 5,379
$ 5,727
For purposes of the accompanying unaudited pro forma condensed combined
financial statements, the aggregate purchase price has been allocated to
the net assets acquired, with the remainder recorded as goodwill on the
basis of preliminary estimates of fair values. These preliminary
estimates of fair value were determined by management based on
information currently available. The Company has retained independent
valuation professionals to assist in the determination of the value to be
assigned to the individual assets acquired, including intangible assets
and in-process research and development. While the pro forma information
has been presented based on the best information currently available to
management, the final allocation of the purchase price will be based on a
complete evaluation of the assets and liabilities of Amazing. The final
valuation may result in values that are different from management's
estimates as included in the unaudited pro forma condensed combined
financial statements.
As stated above, the purchase price has been allocated on the basis of
preliminary estimates of fair value. Management currently estimates that
the allocation to in-process research and development will be approximately
$1.1 million. The unaudited pro forma condensed combined statement of
income excludes the write off of the estimated value of the acquired in-
process research and development due to its non-recurring nature. The
unaudited pro forma condensed combined balance sheet reflects an allocation
of $1.1 million to in-process research and development.
(b) Represents the repayment of Amazing's indebtedness, including accrued
interest, to a bank and to former shareholders of Amazing.
(c) Represents payment of acquisition related expenses.
(d) Represents the elimination of Amazing's equity accounts.
(e) Represents the estimated value of common stock and stock options
issued by the Company as consideration in the merger transaction.
(f) Represents the amortization of goodwill over an estimated life of five
years.
(g) Represents the elimination of interest expense on Amazing's
indebtedness which is assumed to be repaid as of the beginning of the
period presented.
(h) Represents the reduction of interest income due to the repayment of
Amazing's indebtedness and payment of acquisition expenses as of the
beginning of the period presented.
(i) Represents the issuance of shares of the Company's common stock to the
former shareholders of Amazing. <PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated April 16, 1999, relating to the financial
statements of Amazing! Smart Card Technologies, Inc. as of and the for years
ended December 31, 1998 and 1997 included in this Form 8-K/A Amendment No. 1
into PubliCARD, Inc.'s previously filed Registration Statement on Form S-1 File
No. 33-9344, Registration Statement on Form S-3 File No. 33-9344 and
Registration Statements on Form S-8 File Nos. 33-56838, 33-88876, 333-72411,
333-73037, 333-73307 and 333-74169.
/s/Arthur Andersen LLP
San Jose, California
April 26, 1999
