UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
AMENDMENT NO. 1 TO
FORM 8-K
(Amending Form 8-K filed on June 11, 1999)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 4, 1999
APPLIED DIGITAL SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
Missouri
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(State or other jurisdiction of incorporation)
000-26020
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(Commission File Number)
43-1641533
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(IRS Employer Identification No.)
400 Royal Palm Way, Suite 410, Palm Beach, Florida 33480
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: 561-366-4800
Applied Cellular Technology, Inc.
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(Former Name)
<PAGE>
Item 7. Financial Statements and Exhibits.
On June 11, 1999, the Registrant, Applied Digital Solutions, Inc. (formerly
Applied Cellular Technology, Inc.) filed a Current Report on Form 8-K reporting
the acquisition of Bostek, Inc. and Micro Components International, Incorporated
(collectively, "Bostek"). By this amendment, the Registrant is filing the
required financial statements and pro forma financial information.
(a) Financial Statements of Businesses Acquired
Financial statements of Bostek for the year ended December 31,
1998 are attached as Exhibit 99.3 hereto.
(b) Pro Forma Financial Information
Pro forma financial information is attached as Exhibit 99.4
hereto.
(c) Exhibits
99.3 Financial Statements of Bostek for the year ended December
31, 1998.
99.4 Pro forma financial information
<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.
APPLIED DIGITAL SOLUTIONS, INC.
(Registrant)
Date: August 11, 1999 /s/ Michael Krawitz
-------------------------------
Assistant Vice President
and General Counsel
Exhibit 99.3
BOSTEK, INC. AND AFFILIATE
COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 1998
<PAGE>
BOSTEK, INC. AND AFFILIATE
DECEMBER 31, 1998
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Financial Statements
Combined Balance Sheet 2
Combined Statement of Income and Retained Earnings 3
Combined Statement of Cash Flows 4
Notes to Combined Financial Statements 5 - 11
<PAGE>
April 6, 1999
(Except for Note 13, which is as of June 4, 1999)
To the Board of Directors
Bostek, Inc. and Affiliate
Hanover, MA
Re: Independent Auditor's Report
Bostek, Inc.
Micro Components International, Inc.
Gentlemen:
We have audited the accompanying combined balance sheet of Bostek,
Inc.(a Massachusetts corporation) and affiliate as of December 31,
1998, and the related combined statements of income and retained
earnings, and cash flows for the year then ended. These combined
financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the combined financial
statements are free of material misstatement. An audit include
examining, on a test basis, evidence supporting the amounts and
disclosures in the combined 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 audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of
Bostek, Inc. and affiliate as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Respectfully submitted,
DI PESA & COMPANY
Certified Public Accountant
- 1 -
<PAGE>
BOSTEK, INC. AND AFFILIATE
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 105,096
Account Receivable Trade, Net (Note 1) 4,739,295
Inventory (Note 1) 5,454,646
Prepaid Expenses 75,645
Due from Employees 130,691
Due from Realty Trust (Note 3) 93,695
-----------
TOTAL CURRENT ASSETS 10,599,068
PROPERTY AND EQUIPMENT, NET (Note 1) 258,501
-----------
TOTAL ASSETS $10,857,569
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line-of-Credit (Note 4) $ 6,115,000
Accounts Payable 426,505
Warranty Reserve (Note 5) 250,000
Accrued Expenses 14,334
Accrued State Taxes 64,939
-----------
TOTAL CURRENT LIABILITIES 6,870,778
STOCKHOLDERS' EQUITY
Common Stock (Note 12) $ 247,914
Additional Paid-in Capital 33,000
Less: Treasury Stock, At Cost (Note 12) ( 81,000)
Retained Earnings 3,786,877
----------
TOTAL STOCKHOLDERS' EQUITY 3,986,791
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,857,569
===========
See Independent Auditor's Report and accompanying notes.
- 2 -
<PAGE>
BOSTEK, INC. AND AFFILIATE
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUE $ 60,772,443
COST OF SALES 53,366,139
------------
GROSS PROFIT ON SALES 7,406,304
OPERATING EXPENSES 5,720,778
------------
INCOME FROM OPERATIONS 1,685,526
OTHER INCOME (EXPENSE)
Gain on Sale of Investments (Note 8) $ 381,665
Interest Income 10,800
Interest Expense (Note 4) (353,250) 39,215
--------- ------------
INCOME BEFORE PROVISION
FOR TAXES 1,724,741
PROVISION FOR INCOME TAXES (Note 1) 27,972
---------
NET INCOME 1,696,769
RETAINED EARNINGS - BEGINNING BALANCE 3,180,893
LESS: DIVIDENDS PAID ( 1,090,785)
-----------
RETAINED EARNINGS - ENDING BALANCE $ 3,786,877
===========
See Independent Auditor's Report and accompanying notes.
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<PAGE>
BOSTEK, INC. AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $ 1,696,769
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation 45,500
Allowance for Bad Debts ( 294,613)
Changes in Assets and Liabilities:
Accounts Receivable ( 638,364)
Inventory (1,984,695)
Prepaid Expenses ( 37,149)
Due from Employees ( 64,588)
Accounts Payable ( 479,602)
Warranty Reserve ( 402,777)
Accrued Expenses ( 224,748)
Accrued State Taxes 19,939
Due from Related Parties 37,302
-----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (2,327,026)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed Assets $( 207,605)
-----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES ( 207,605)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid $(1,090,785)
Loans from Officers ( 482,789)
Net Borrowings on Line of Credit 3,115,000
Proceeds from Issuance of Common Stock 200
Capital Contributions 30,000
----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 1,571,626
----------
NET CHANGE IN CASH ( 963,005)
CASH - BEGINNING OF YEAR 1,068,101
----------
CASH - END OF YEAR $ 105,096
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest Expense Paid $ 353,250
Taxes Paid - State $ 98,230
See Independent Auditor's Report and accompanying notes.
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<PAGE>
BOSTEK, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of Operations
Bostek, Inc. and its affiliate Micro Components International, Inc.
were incorporated in the Commonwealth of Massachusetts in 1990 and
1998, respectively. The Companies operate as a single segment as
wholesalers/retailers of personal computer hardware and peripheral
products. Micro Components International, Inc. the affiliate, is not a
subsidiary of Bostek, Inc. but does have the same shareholders and
directors.
In March 1998, Bostek established a new method of distribution for
personal computer products and components, American Discount Warehouse
("ADW"). ADW sells personal computer related equipment to individual
consumers over the Internet. For 1998, ADW was treated as a DBA (Doing
Business As) of Bostek.
B. Combined Statements
The accompanying combined financial statements include the accounts of
Bostek, Inc. and Micro Components International, Inc.
The Companies are affiliated by virtue of having the same stockholders
and not through parent subsidiary stock ownership. All significant
intercompany balances have been eliminated and there were no
intercompany sales transactions for the year ended December 31, 1998.
C. Method of Accounting
The financial statements are prepared using the accrual basis of
accounting in compliance with generally accepted accounting
principles. They accordingly reflect all significant receivables,
payables and other liabilities.
D. Revenue Recognition
Bostek, Inc. and Micro Components recognize revenues when the product
is shipped. The Companies' return policy provides for money back
guarantees on certain items. An allowance for potential product
returns based upon historical trends has been established.
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<PAGE>
BOSTEK, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
E. Accounts Receivable
The Companies provide for bad debts on the allowance method of
accounting. The allowance for uncollectible accounts was $483,387 in
1998.
F. Inventories
Inventories consist of computer hardware and components and are stated
at historical cost (determined under the first-in, first-out cost
method) or market whichever is lower. All inventories are of goods
available for immediate resale, with no raw materials or work in
process inventory. The personal computer industry is characterized by
rapid technological advancement and declining market prices. Should
demand for the current generation of personal computers prove to be
significantly less than anticipated, the ultimate realizable value of
such products could be substantially less than the amount shown on the
balance sheet.
G. Income Taxes
In 1995, Bostek, Inc. elected to be treated as an S Corporation under
provisions of the current Internal Revenue Code. The federal income
tax liability for Bostek, Inc.'s income is the responsibility of the
individual shareholders. Massachusetts laws vary from Federal in that
a company having receipts of $6,000,000 or more is liable for the
income measure of the corporate excise tax. Therefore, Bostek, Inc.
has made a provision for income taxes net of over accruals of previous
years of $27,972 for the year ending December 31, 1998.
Micro Components International, Inc. (a C Corporation) provides for
income taxes under the provisions of SFAS No. 109 "Accounting for
Income Taxes". SFAS No. 109 requires an asset and liability based
approach in accounting for income taxes. The Company has a net
operating loss of $430,870 for the year ended December 31, 1998. The
deferred tax asset associated with the potential future benefit from
this net operating loss is fully offset by a valuation allowance.
There are no other temporary differences.
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<PAGE>
BOSTEK, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
H. Property and Equipment
The Companies record property and equipment at cost. These assets are
depreciated using straight-line and accelerated methods over the
estimated lives of the respective assets. The difference in
depreciation calculated under current tax laws as compared to
generally accepted accounting principles is not material.
The following is a summary of property and equipment at cost, less
accumulated depreciation:
Furniture and Fixtures $ 475,685
Vehicles 108,224
----------
Total 583,909
Accumulated Depreciation (325,408)
---------
Net Property and Equipment $ 258,501
=========
I. Cash and Cash Equivalents
For the purpose of the Statement of Cash Flows, the Companies consider
all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents. The Companies did not
have any cash equivalents for the year ended December 31, 1998.
J. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses for the period. Actual results may differ from those
estimates.
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<PAGE>
BOSTEK, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 2 - OPERATING LEASES
The Companies leases office space, vehicles and equipment under
certain operating leases in excess of one year. Rent expense under
leases was $171,811 for 1998.
The following is a schedule of future minimum rental payments required
under the above leases:
Year Ending
December 31
-----------
1999 $197,120
2000 179,649
2001 160,884
2002 144,000
2003 144,000
-------
$825,653
========
NOTE 3 - RELATED PARTY TRANSACTIONS
Bostek, Inc. leases its corporate headquarters and warehouse
facilities from a trust controlled by the shareholders of the Company.
The lease is classified as an operating lease and provides for minimum
annual rentals of $144,000. There is also a mortgage on the property
of $250,000 payable to Citizens Bank of Massachusetts that is
guaranteed by the Company.
During 1998, the shareholders loans totaling $482,789 were paid.
- 8 -
<PAGE>
BOSTEK, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
Bostek, Inc. had sales to an entity in which the shareholders owned
greater than 40% of the stock. Effective May, 1998, shareholders no
longer owned stock in this Company. The following is a summary of
transactions and balances with related parties for 1998.
Sales to Related Parties $212,956
Cost of Sales to Affiliates 204,438
Due from Realty Trust 93,695
During 1998, the shareholders of Bostek, Inc. established Micro
Components International, Inc. The operations of the affiliate are
similar to those of the Company. The shareholders are in a position
to, and in the future may, influence the sales volume of the Company
for the benefit of the other company in the same line of business that
are under their control.
NOTE 4 - LINE-OF-CREDIT
On January 24, 1997, Bostek, Inc. entered into a revolving
line-of-credit agreement with a financial institution providing a
maximum loan balance of $8,000,000. The outstanding balance bears
interest at a rate equal to the bank's prime rate. The Loan Agreement
is collateralized by substantially all of the Company's assets.
Additionally, one of the principal shareholders pledged stock in the
Company as collateral. The Loan Agreement provides for certain
covenants including among others, minimum levels of working capital
and certain ratios. At December 31, 1998, the outstanding balance was
$6,115,000 bearing interest of 8.00%. This revolving line-of-credit
replaced all existing lines of credit.
On March 24, 1998, Bostek, Inc. increased its line-of-credit from
$8,000,000 to $10,000,000. All other terms of the loan remained
substantially the same.
The loan agreement on the revolving line-of-credit contains various
covenants pertaining to minimum requirements for accounts receivables
and inventory balances. At December 31, 1998, the Company was out of
compliance of their loan agreement. The bank has waived that
requirement of the agreement as of April 6, 1999.
- 9 -
<PAGE>
BOSTEK, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 5 - WARRANTY RESERVE
The Bostek, Inc. has an allowance for warranty products and returns.
This allowance is based upon the cost of handling returns and warranty
items using historical return rates and costs. The allowance for
warranty approximated $250,000 at December 31, 1998.
NOTE 6 - RETIREMENT PLAN
Bostek, Inc. provides a 401(k) deferred contribution plan for all
full-time employees who are over the age of twenty-one and have
completed one year of service. An employee is fully vested in matching
contributions after six years of service. Employees may contribute up
to 15% of their salary to the plan. Bostek, Inc. has the option to
make a discretionary matching contribution equal to a percentage of
each employee's contribution, the exact percentage to be determined
each year by the Company. Bostek, Inc.'s contributions for any plan
year shall not exceed the maximum amount allowable as a deduction to
the Company. Retirement expense for the year ended 1998 was $- 0 -.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Bostek, Inc. and its affiliate are involved in various claims arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's financial position, operating results, or cash
flows.
NOTE 8 - GAIN ON SALE OF INVESTMENT
During 1998, Bostek, Inc. accepted stock in lieu of payment of an
account receivable. The stock subsequently appreciated and the Company
sold the stock for a $381,665 gain in 1998.
NOTE 9 - ADVERTISING COSTS
Advertising costs are charged to operations when incurred. The
advertising expense for Bostek, Inc. for 1998 amounted to $436,644.
- 10 -
<PAGE>
BOSTEK, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable and
line-of-credit approximates fair value because of the short maturity
of those instruments. The fair value of the amounts due from employees
does not differ materially from the carrying value recorded in the
accompanying balance sheet.
NOTE 11 - NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS
130). Implementation of the standard had no material impact on the
company's financial statements as presented.
NOTE 12 - COMMON STOCK AND TREASURY STOCK
Shares
Shares Issued and
Company Type Authorized Outstanding Amount
------- ---- ---------- ----------- ------
Bostek, Inc. No Par 15,000 4,000 $ 247,714
Less Treasury Stock (2,000) ( 81,000)
Micro Components
International, Inc. No Par 10,000 2,000 200
---------
Total Common Stock $ 166,914
=========
NOTE 13 - SALE OF COMPANY
In June, 1999, Intellesale. Com, Inc. a subsidiary of Applied Cellular
Technology, Inc. purchased all of the outstanding shares of common
stock, no par value of Micro Components International, Incorporated
and Bostek, Incorporated for the aggregate purchase price of
$25,055,000 subject to adjustment as set forth in the Agreement of
Purchase and Sale.
- 11 -
Exhibit 99.4
APPLIED DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The accompanying unaudited pro forma condensed consolidated financial
statements reflect the consolidated financial position of Applied Digital
Solutions, Inc. (formerly Applied Cellular Technology, Inc.), (the "Company") as
of March 31, 1999, and the results of its condensed consolidated operations for
the three months ended March 31, 1999 and the year ended December 31, 1998 after
giving pro forma effect to the acquisition of Bostek, Inc. and Micro Components
International, Incorporated (collectively, "Bostek").
On June 4, 1999, our subsidiary, Intellesale.com, acquired all of the
outstanding common shares of Bostek in a transaction accounted for under the
purchase method of accounting. The aggregate purchase price was approximately
$25.1 million, of which approximately $10.1 million was paid in cash at closing
which was financed through borrowings under our Term Loan B facility with IBM
Credit Corporation, and the balance, approximately $15.0 million, will be
payable in cash or Intellesale.com stock over time. An additional $5.0 million
of purchase price is contingent upon Bostek achieving certain earnings targets
in the next twenty-four months. The purchase price for Bostek was assigned to
the assets acquired and the liabilities assumed based on their estimated fair
values at the acquisition date, which approximated their book values. Based on
such allocations, the aggregate purchase price exceeded the estimated fair value
of the net assets acquired (goodwill) by approximately $20.9 million, which is
being amortized over 20 years and will result in an annual amortization charge
of approximately $1.0 million. Any additional amounts paid out under the
purchase price contingency provision noted above are expected to result in
additional goodwill.
The unaudited pro forma condensed consolidated balance sheet is based
on the historical balance sheets of the Company and Bostek as of March 31, 1999
and has been prepared to reflect the acquisition by the Company of Bostek as of
March 31, 1999. The unaudited pro forma condensed consolidated statements of
operations are based on the historical statements of operations of the Company
and Bostek for the three months ended March 31, 1999 and for the year ended
December 31, 1998 and have been prepared to reflect the acquisition by the
Company of Bostek as if the acquisition occurred on January 1, 1999 and January
1, 1998, respectively. The unaudited pro forma financial information does not
purport to be indicative of actual results that would have been achieved had the
acquisitions actually been completed on the dates indicated on the following
pages nor of actual results which may be achieved in the future.
1
<PAGE>
<TABLE>
<CAPTION>
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Applied Digital Solutions, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 1999
($'000)
Company Bostek, Inc. and Proforma Proforma
Actual Affiliate (a) Adjustments Consolidated
<S> <C> <C> <C> <C>
Current assets $ 64,578 $ 10,816 $ - $ 75,394
Property, plant and equipment, net 15,914 329 - 16,243
Notes receivable 1,538 - - 1,538
Goodwill, net 41,708 - 20,946 (b) 62,654
Other assets 8,326 - - 8,326
--------- ---------- --------- ----------
Total assets $ 132,064 $ 11,145 $ 20,946 $ 164,155
========= ========== ========= ==========
Current liabilities $ 55,772 $ 6,836 $ 15,200 (b) $ 77,808
Long term debt 3,081 - 10,055 (b) 13,136
--------- ---------- --------- ----------
Total liabilities 58,853 6,836 25,255 90,944
Minority interest 3,204 - - 3,204
Stockholders' equity 70,007 4,309 (4,309) (b) 70,007
--------- ---------- --------- ----------
Total liabilities and stockholders' equity $ 132,064 $ 11,145 $ 20,946 $ 164,155
========= ========== ========= ==========
See accompanying notes to the unaudited pro forma condensed consolidated financial statements 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Applied Digital Solutions, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the three months ended March 31, 1999
($'000)
Company Bostek, Inc. and Proforma Proforma
Actual Affiliate (c) Adjustments Consolidated
<S> <C> <C> <C> <C>
Revenues $ 51,573 $ 20,180 $ - $ 71,753
Cost of goods sold 33,176 18,018 - 51,194
---------- --------- ------- -----------
Gross profit 18,397 2,162 - 20,559
Operating expenses 20,062 1,611 266 (d) 21,939
---------- --------- ------- -----------
Operating income (loss) (1,665) 551 (266) (1,380)
Interest income 134 - - 134
Interest expense (445) (94) (211)(e) (750)
---------- --------- ------- -----------
Income (loss) before (benefit) provision
for income taxes and minority interest (1,976) 457 (477) (1,996)
(Benefit) provision for income tax (575) - 71 (f) (504)
---------- --------- ------- -----------
Income (loss) before minority interest (1,401) 457 (548) (1,492)
Minority Interest 244 - - 244
---------- --------- ------- -----------
Net income (loss) (1,645) 457 (548) (1,736)
Dividends - - -
---------- --------- ------- -----------
Net income (loss) applicable to common
shareholders $ (1,645) $ 457 $ (548) $ (1,736)
========== ========= ======= ===========
Net (loss) per common share - Basic $ (0.04) $ (0.04)
Net (loss) per common share - Diluted $ (0.04) $ (0.04)
Weighted average number of common shares
outstanding - basic 41,236 41,236
Weighted average number of common shares
outstanding - diluted 41,909 41,909
See accompanying notes to the unaudited pro forma condensed consolidated financial statements 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Applied Digital Solutions, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 1998
($'000)
Company Bostek, Inc, and Proforma Pro Forma
Actual Affiliate (g) Adjustments Consolidated
<S> <C> <C> <C> <C>
Revenues $ 207,081 $ 60,772 $ - $ 267,853
Cost of goods sold 142,893 53,366 - 196,259
---------- ---------- --------- -------------
Gross profit 64,188 7,406 - 71,594
Operating expenses 55,253 5,720 1,095 (h) 62,028
---------- ---------- --------- -------------
Operating income 8,935 1,686 (1,095) 9,526
Interest and other income 420 392 - 812
Interest expense (1,653) (353) (846)(i) (2,852)
---------- ---------- --------- -------------
Income before provision for income taxes
and minority interest 7,702 1,725 (1,941) 7,486
Provision for income tax 2,588 28 267 (j) 2,883
---------- ---------- --------- -------------
Income before minority interest 5,114 1,697 (2,208) 4,603
Minority interest 424 - - 424
---------- ---------- --------- -------------
Net income 4,690 1,697 (2,208) 4,179
Dividends 44 - - 44
---------- ---------- --------- -------------
Net income applicable to
common shareholders $ 4,646 $ 1,697 $ (2,208) $ 4,135
========== ========== ========= =============
Net income per common share - Basic $ 0.14 $ 0.13
Net income per common share - Diluted $ 0.13 $ 0.12
Weighted average number of common shares
outstanding - basic 32,318 32,318
Weighted average number of common shares
outstanding - diluted 34,800 34,800
See accompanying notes to the unaudited pro forma condensed consolidated financial statements 4
</TABLE>
<PAGE>
APPLIED DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated balance sheet at March
31, 1999 gives effect to the financial position, as if the acquisition of Bostek
occurred on March 31, 1999. Such consolidated financial position is not
necessarily indicative of the consolidated financial position of the Company as
it may be in the future, or as it might have been had these events been
effective as of or prior to March 31, 1999.
The unaudited pro forma condensed consolidated statement of operations
for the three months ended March 31, 1999 gives effect to the consolidated
results of operations for the three months ended March 31, 1999 as if the
acquisition of Bostek occurred on January 1, 1999. These results are not
necessarily indicative of the consolidated results of operations of the Company
as they may be in the future, or as they might have been had these events been
effective on January 1, 1999.
The unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1998 gives effect to the consolidated results of
operations for the year ended December 31, 1998 as if the acquisition of Bostek
occurred on January 1, 1998. These results are not necessarily indicative of the
consolidated results of operations of the Company as they may be in the future,
or as they might have been had these events been effective on January 1, 1998.
The unaudited pro forma condensed consolidated financial information
should be read in conjunction with the historical financial statements of the
Company and of Bostek and related notes thereto.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE
SHEET AT MARCH 31, 1999 ARE AS FOLLOWS:
(a). Represents the historical unaudited condensed combined financial
position of Bostek at March 31, 1999.
(b). Reflects the adjustments necessary to record the purchase of Bostek,
Inc. and Affiliate, consisting of accruals of $15.0 million due to the
Bostek sellers in the future, accrued expenses in connection with the
acquisition of $0.2 million, and $10.055 million in additional
long-term debt incurred in connection with the payment to the Bostek
sellers at closing. Bostek's historical equity is eliminated and,
assuming the book value of Bostek's net assets represents their fair
value, (since Bostek consists primarily of current assets and
liabilities and property and equipment approximate fair value),
goodwill of $20.946 million has been recorded for the amount of excess
of cost over fair value of net assets acquired.
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PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 ARE AS
FOLLOWS:
(c). Represents the historical unaudited condensed combined results of
Bostek for the three months ended March 31, 1999.
(d). Represents the net increase to amortization expense for the three
months ended March 31, 1999 for goodwill relative to the acquisition of
Bostek amortized over a period of twenty years, as follows:
($ in thousands)
Pro forma Goodwill at January 1, 1999 $ 21,268
Divided by 20 years for annual amortization $ 1,063
Divided by 4 for quarterly amortization $ 266
(e). Represents the net increase to interest expense for the three months
ended March 31, 1999 associated with debt issued in connection with the
purchase of Bostek, based upon borrowing the $10.055 million paid to
the Bostek sellers at closing, borrowed at a 8.41% interest rate.
(f). Represents an increase in the tax provision due to Bostek's earnings,
as reduced by pro forma interest expense, multiplied by the Company's
effective income tax rate. Bostek was an S-Corp for tax purposes and
accordingly no provision was made for federal income taxes on a
pre-acquisition historical basis. Amortization is not deducted in
computing the pro forma income tax provision.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 ARE AS FOLLOWS:
(g). Represents the historical audited condensed combined results of
Bostek, Inc. and Affiliate for the year ended December 31, 1998.
(h). Represents the net increase to amortization expense for the year ended
December 31, 1998 for goodwill relative to the acquisition of Bostek
amortized over a period of twenty years, as follows:
($ in thousands)
Pro forma Goodwill at January 1, 1998 $ 21,905
Divided by 20 years for annual amortization $ 1,095
(i). Represents the net increase to interest expense for the year ended
December 31, 1998 associated with debt issued in connection with the
purchase of Bostek, based upon borrowing the $10.055 million paid to
the Bostek sellers at closing, borrowed at a 8.41% interest rate.
<PAGE>
(j). Represents an increase in the tax provision due to Bostek's earnings as
reduced by pro forma interest expense, multiplied by the Company's
effective income tax rate. Bostek was an S-Corp for tax purposes and
accordingly no provision was made for federal income taxes on a
pre-acquisition historical basis. Amortization is not deducted in
computing the pro forma income tax provision.
