UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 8-K/A
AMENDMENT NO. 1
TO CURRENT REPORT
Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 30, 2001
SEMOTUS SOLUTIONS, INC.
(Formerly Datalink.net, Inc.)
- - - - - - - - - - - - - - - - - - - - - - - -
(Exact Name of Registrant as Specified in its Charter)
Nevada 0-21069 36-3574355
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
1735 Technology Drive, Suite 790, San Jose, California 95110
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(408) 367-1700
--------------------------------------------------
(Registrant's Telephone Number, including area code)
ITEM 7. Financial Statements and Exhibits.
As reported in the Current Report on Form 8-K filed on May 30, 2001, by
Semotus Solutions, Inc. ("Semotus"), Semotus acquired 100% of the issued and
outstanding capital stock of Application Design Associates, Inc. (the
"Company"), for two hundred and fifty thousand (250,000) shares of Semotus
Solutions' common stock on May 15, 2001. Semotus may also issue additional
shares over the following three years, pursuant to an earn-out arrangement
and/or a price guarantee on Semotus' common stock.
Semotus hereby files this Form 8-K/A to file the following financial
statements and related pro forma financial statements required pursuant to Item
7 of Form 8-K with respect to the acquisition:
(a) Financial Statements of Business Acquired. The audited financial
statements of Application Design Associates are set forth
beginning on page 3 of this report.
Report of Independent Certified Public Accountants
Balance Sheet
Statement of Operations
Statement of Shareholders' Equity (Deficiency)
Statement of Cash Flows
Notes to Financial Statements
(b) Pro forma financial information. The pro forma financial
information including Application Design Associates is set forth
beginning on page 14 of this report.
Unaudited Pro Forma Condensed Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Unaudited Pro Forma Condensed Consolidated Statement of
Operations
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
(c) Exhibits. The following exhibits are filed with this report:
Exhibit Number Description
-------------- ---------------
2.1+ Merger Agreement by and among Semotus Solutions,
Inc., Application Design Associates, Inc., ADA
Acquisition, Inc. and John Hibben
2.2+ Registration Rights and Lock Up Agreement by and
among Semotus Solutions, Inc. and John Hibben
+ Incorporated by reference to the Registrant's Form 8-K filed on May
30, 2001.
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders of
Application Design Associates, Inc.
We have audited the accompanying balance sheet of Application Design Associates,
Inc. (An S Corporation) as of December 31, 2000, and the related statements of
operations, shareholders' equity (deficiency), and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform our 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 audit provides 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 Application Design Associates,
Inc. as of December 31, 2000, and the results of its operations and cash flows
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ BDO Seidman, LLP
-------------------------------------------
BDO Seidman, LLP
San Jose, California
July 13, 2001
APPLICATION DESIGN ASSOCIATES, INC.
BALANCE SHEET
December 31, 2000
--------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents (Note 9) $ 45,600
Accounts receivable 357,400
Prepaid expenses and other assets 40,800
--------------------------------------------------------------------------------
Total Current Assets 443,800
Restricted Investment (Notes 6 and 10) 162,400
Property and Equipment, net (Note 3) 48,000
Capitalized Software Development Cost, net 29,300
Deposits 5,200
--------------------------------------------------------------------------------
$ 688,700
================================================================================
Liabilities and Shareholders' Deficiency
Current Liabilities:
Bank borrowings (Note 4) $ 55,000
Accounts payable 100,600
Accrued expenses (Note 5) 19,600
Current portion, long-term debt (Notes 6, 10 and 11) 67,000
Obligations under capital lease (Note 7) 6,400
Deferred Revenues 270,100
--------------------------------------------------------------------------------
Total Current Liabilities 518,700
Long-term Debt, less current portion (Notes 6, 10 and 11) 691,600
--------------------------------------------------------------------------------
Total Liabilities 1,210,300
--------------------------------------------------------------------------------
Commitments and Contingencies (Notes 7, 9, and 10)
Shareholders' Deficiency (Notes 2, 6, 10, and 11):
Common stock, no par value; 50,000 shares authorized;
10,000 shares issued and outstanding 37,500
Notes receivable - related party (599,400)
Retained earnings 40,300
--------------------------------------------------------------------------------
Total Shareholders' Deficiency (521,600)
--------------------------------------------------------------------------------
$ 688,700
================================================================================
See accompanying notes to financial statements.
APPLICATION DESIGN ASSOCIATES, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 2000
--------------------------------------------------------------------------------
Revenues (Note (9):
Hardware $ 757,000
Software 200,100
Services and maintenance 1,115,300
--------------------------------------------------------------------------------
2,072,400
--------------------------------------------------------------------------------
Cost of Revenues:
Hardware 614,200
Software 84,300
Services and maintenance 396,600
--------------------------------------------------------------------------------
1,095,100
--------------------------------------------------------------------------------
Gross Profit 977,300
--------------------------------------------------------------------------------
Operating Expenses:
Research and development 202,700
Selling, general, and administrative 723,600
--------------------------------------------------------------------------------
Total Operating Expenses 926,300
--------------------------------------------------------------------------------
Income From Operations 51,000
--------------------------------------------------------------------------------
Other Income (Expense):
Interest income 7,300
Interest expense (17,600)
--------------------------------------------------------------------------------
Total Other Expense, net (10,300)
--------------------------------------------------------------------------------
Net Income $ 40,700
================================================================================
See accompanying notes to financial statements.
APPLICATION DESIGN ASSOCIATES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
Common
Stock
------------------------ Notes Retained
Shares Amount Receivable Earnings Total
-------------------------------------------------------------------------------------------------------
Balances, December 31, 1999,
as previously reported 10,000 $ 37,500 -- $ 27,200 $ 64,700
Correction of errors (Note 2) -- -- -- 59,800 59,800
-------------------------------------------------------------------------------------------------------
Balances December 31, 1999,
as restated 10,000 37,500 87,000 124,500
Cash dividends -- -- -- (87,400) (87,400)
Note receivable from
shareholder (Notes 6, 10
and 11) -- -- (607,200) -- (607,200)
Repayment of note receivable -- -- 7,800 -- 7,800
Net income -- -- -- 40,700 40,700
-------------------------------------------------------------------------------------------------------
Balances, December 31, 2000 10,000 $ 37,500 (599,400) $ 40,300 $ (521,600)
=======================================================================================================
See accompanying notes to financial statements.
APPLICATION DESIGN ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 2000
--------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income $ 40,700
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Interest earned from restricted cash (5,200)
Depreciation and amortization 34,800
Changes in operating assets and liabilities:
Accounts receivable (123,900)
Prepaid expenses and other assets 16,000
Accounts payable 59,700
Accrued expenses (60,100)
Deferred revenue 112,100
--------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 74,100
--------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Payments to acquire property and equipment (3,800)
--------------------------------------------------------------------------------
Net Cash Used In Investing Activities (3,800)
--------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from bank borrowings 125,000
Repayments of bank borrowings (80,000)
Repayments of long-term debt (35,000)
Repayments of obligations under capital lease (10,100)
Repayments of shareholder notes receivable 7,800
Dividends paid to shareholders (87,400)
--------------------------------------------------------------------------------
Net Cash Used In Financing Activities (79,700)
--------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (9,400)
Cash and Cash Equivalents, beginning 55,000
--------------------------------------------------------------------------------
Cash and Cash Equivalents, ending 45,600
================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 17,600
Non-cash financing activities:
Assumption of President's note payable to
bank in exchange for note receivable
(Notes 6, 10 and 11) $ 607,200
================================================================================
See accompanying notes to financial statements.
APPLICATION DESIGN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) The Company
Application Design Associates, Inc. (the Company), a Colorado S corporation, was
incorporated on March 28, 1986. The Company is a solution provider of
equipment-centric asset management and customer service management software.
Its vending maintenance system and auto tech link remote handheld software
combine to provide a complete solution for automation of customer call centers,
dispatching, equipment deployment, servicing, parts inventory, replenishment and
invoicing aspects of an equipment repair operation while interfacing to existing
corporate business functions and existing ERP solutions.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
(c) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
(d) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization are provided on the straight-line
method over the estimated useful lives of the assets, generally ranging from
five to seven years.
(e) Capitalized Software Costs
Costs incurred internally in creating computer software products to be sold,
leased, or otherwise marketed are charged to expense when incurred as research
and development until technological feasibility has been established for the
product. Thereafter, such costs are capitalized until the product is available
for general release to customers. Capitalized costs are amortized based on
either estimated current and future revenue for each product or straight-line
amortization over the shorter of three years or the remaining estimated life of
the product, whichever produces the higher expense for the period. As of
December 31, 2000, capitalized costs aggregated $43,900 with accumulated
amortization of $14,600.
(f) Revenue Recognition and Deferred Revenue
Under Statement of Position (SOP) 97-2, "Software Revenue Recognition", revenue
earned on software arrangements involving multiple elements is allocated to each
element arrangement based on the relative fair values of the elements. If there
is no evidence of the fair value for all the elements in a multiple element
arrangement all revenue from the arrangement is deferred until such evidence
exists or until all elements are delivered. In accordance with SOP 97-2, the
Company recognizes revenue from the sale of software licenses when all the
following conditions are met:
. Persuasive evidence of an arrangement exists,
. Delivery has occurred, or services have been rendered, and no significant
obligations remain,
. The price to the buyer is fixed or determinable, and
. Collectibility is reasonably assured.
Revenue from the sale of maintenance agreements is recognized ratably over the
term of the agreement, consulting and other services, during the period the
services are performed. Customer deposits or prepayments are recorded as
deferred revenue until services are performed or goods are delivered. Deferred
revenue as of December 31, 2000, was $270,100.
(g) Advertising Costs
The cost of advertising is expensed as incurred. Advertising costs for the year
ended December 31, 2000 aggregated $2,300.
(h) Long-Lived Assets
The Company periodically reviews its long-lived assets and certain identifiable
intangibles for impairment. When events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable, the Company writes
the asset down to its net realizable value.
(i) Income Taxes
The Company elected under the provisions of the Internal Revenue Code to be
taxed as an S corporation. As a result, income and losses of the Company are
passed through to the shareholders for income tax purposes. Accordingly, no
provision has been made for income taxes.
(j) Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents:
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates fair value.
Short term debt:
The fair value of short-term debt approximates cost because of the short
period of time to maturity.
Long-term debt:
The fair value of long-term debt is estimated based on current interest
rates available to the Company for debt instruments with similar terms and
remaining maturities.
As of December 31, 2000, the fair values of the Company's financial
instruments approximate their historical carrying amounts.
(k) Adoption of New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 as amended by SFAS Nos. 137
and 138, requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged assets or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133, as amended, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard to affect its financial statements.
In December 1999, the Securities and Exchange Commission (SEC) staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101). SAB 101 provides interpretive guidance on the recognition,
presentation and disclosure of revenue in the financial statements. SAB 101 did
not have a material affect on the Company's financial results upon adoption on
July 1, 2000.
(2) RESTATEMENT OF FINANCIAL DATA
During the year ended December 31, 2000, a restatement was made to the retained
earnings of the Company to reflect the capitalization of software development
costs and certain adjustments due to improper recognition of revenues in the
year ended December 31, 1999. The adjustment to capitalize software development
costs decreased 1999 research and development expenses by $43,900. The
adjustments due to improper revenue recognition decreased 1999 revenues and cost
of revenues by $40,900 and $56,800, respectively. The aggregate of these
adjustments resulted in an increase to retained earnings of $59,800 as of
December 31, 1999.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 2000, follows:
--------------------------------------------------------------------
Equipment $ 134,900
Furniture and fixtures 21,700
Demonstration software 12,900
--------------------------------------------------------------------
169,500
Less accumulated depreciation and amortization 121,500
--------------------------------------------------------------------
$ 48,000
====================================================================
Equipment included above under capital lease obligations aggregated
$20,700 in 2000, with related accumulated amortization of $6,200.
(4) BANK BORROWINGS
The Company has a $200,000 revolving line of credit with a bank, which expires
on November 12, 2001, bears interest at the bank's prime rate (10.5% at December
31, 2000) plus 1%, is secured by substantially all assets of the Company and
certain assets owned by the President of the Company, and is guaranteed by the
President of the Company. The line of credit requires the Company to comply
with certain covenants, which the Company was in compliance with as of December
31, 2000. The Company had $145,000 available on this line of credit as of
December 31, 2000.
(5) ACCRUED EXPENSES
A summary of accrued expenses as of December 31, 2000, follows:
--------------------------------------------------------------------
Payroll and related expenses $ 16,100
Sales and use taxes payable 3,500
--------------------------------------------------------------------
$ 19,600
====================================================================
(6) LONG-TERM DEBT
A summary of long-term debt as of December 31, 2000, follows:
Note payable to bank, with interest at 9.5%
due in monthly installments of $3,300
through November 2003, secured by
substantially all assets of the Company
and certain assets owned by the President
of the Company, and guaranteed by the
President of the Company (Note 11) $ 154,900
Note payable to bank, in connection with the purchase
by the President of the remaining 50% of the Company's
common stock, with interest at 11% due in monthly
installaments of $8,400 through September 2005,
secured by substantially all assets of the Company
and certain assets owned by the President of the
Company and co-signed by the President (Notes 10
and 11) $ 599,400
Equipment note payable, with interest at 10.9%,
due in monthly installments of $400 through
January 2002, secured by related equipment 4,300
--------------------------------------------------------------------------------
758,600
Less current portion 67,000
--------------------------------------------------------------------------------
$ 691,600
Principal repayments of long-term debt are due as follows (Note 11):
Years ended December 31,
------------------------------------------------------------
2001 $ 67,000
2002 69,600
2003 146,900
2004 51,400
2005 423,700
------------------------------------------------------------
$ 758,600
Restricted Investment
In connection with the note payable to bank, the Company invested $91,100
in certificates of deposit with its financial institution. These certificates of
deposit are required to be held as security for the note. The Company recorded
the certificates of deposit as restricted investments (Note 10).
(7) COMMITMENTS AND CONTINGENCIES
The Company leases its facility and certain equipment under operating leases.
The facility lease, which expires January 31, 2003, requires the Company to pay
certain maintenance and operating expenses such as utilities, property taxes and
insurance costs. Rent expense related to these leases was $92,000 for the year
ended December 31, 2000.
A summary of the future minimum lease payments under capitalized leases together
with the present value of such minimum lease payments and future minimum lease
payments required under non-cancelable operating leases with terms in excess of
one year follows:
Capitalized Operating
Years ended December 31, Leases Lease
------------------------------------------------------------------------------
2001 $ 7,600 $ 86,300
2002 -- 87,600
2003 -- 7,300
------------------------------------------------------------------------------
Future minimum lease payments 7,600 $ 181,200
=============
Less amount representing interest
(13.8%) 1,200
---------------------------------------------------------------
Present value of future minimum
lease payments $ 6,400
===============================================================
(8) DEFINED CONTRIBUTION PLAN
The Company has adopted a simplified employee pension plan (the Plan) such that
all employees were eligible to participate in the Plan and to be entitled to an
allocation of employer contributions after employed in at least 3 years of the
immediately preceding 5 years and attaining the age of 21. Employer
contributions are discretionary and limited to the maximum amount allowable
under the provisions of the Internal Revenue Code. No contribution was made in
the year ended December 31, 2000.
(9) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents, restricted cash,
and trade receivables. The Company places its cash and cash equivalents with
high quality financial institutions and, by policy, limits the amounts of credit
exposure to any one financial institution. As of December 31, 2000, the Company
has cash investments with banks that exceed the Federal Deposit Insurance
Corporation limit by approximately $90,900.
A significant portion of the Company's accounts receivable are derived from
beverage bottling companies with the remainder spread across many other
customers in various industries. The Company believes any risk of accounting
loss is significantly reduced due to provision being made at the date of sale
for allowances and its geographic sales areas. The Company performs credit
evaluation of its customers' financial condition whenever necessary. The Company
generally does not require cash collateral or other security to support customer
receivables.
For the year ended December 31, 2000, three customers accounted for 42%, 17%,
and 14% of net revenue, with accounts receivable of $38,700, $73,700, and
$60,800 as of December 31, 2000, respectively.
(10) SHAREHOLDERS' EQUITY (DEFICIENCY)
On September 18, 2000, the President of the Company, a 50% shareholder, acquired
5,000 shares of common stock, which represented the remaining 50% of the
Company's outstanding common stock, for $600,000. In connection with the
transaction, the President and the Company entered into a promissory note
payable to the Company's bank for $607,200, with interest at 11% due in monthly
installments of $8,400 through September 15, 2005 (Note 6). The note is secured
by substantially all assets of the Company and certain assets owned by the
President of the Company, and guaranteed by the President of the Company. As of
December 31, 2000, the note had principal and interest outstanding in the amount
of $599,400.
As of December 31, 2000, the Company has $162,400 in certificates of deposit
with its financial institution that is required to be held as security for both
the President's note above and the Company's note payable discussed in Note 6.
The Company recorded the certificates of deposit as restricted investments.
During 2000, the Company paid certain personal expenses for its shareholders,
including repayment of the note payable described above. The Company recorded
these payments as dividends to the shareholders.
(11) SUBSEQUENT EVENTS
In May 2001, the Company entered into an agreement to sell all its outstanding
common stock to Semotus Solutions, Inc. (Semotus), a Nevada corporation, in
exchange for 250,000 shares of Semotus common stock, accounted for under the
purchase method. The shareholder of the Company has a right to contingent
purchase consideration based upon operating performance for which an additional
750,000 shares of Semotus common stock may be issued over the next three years
should revenue targets be met. Further, up to a maximum of 1,000,000 shares may
be issued if by the end of the third year, the Semotus common stock price has
not reached $5.00 per share. Effective May 15, 2001, the Company became a
wholly owned subsidiary of Semotus.
Subsequent to the merger, the $599,400 note payable to the bank (Notes 6 and 10)
was amended so that the Company was no longer named as a guarantor and its
assets no longer held as collateral for the note.
In May 2001, the Company repaid the remaining balance of the $154,900 note
payable to the bank, as described in Note 6.
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
On May 15, 2001, Semotus Solutions, Inc., a Nevada corporation ("Semotus")
acquired Application Design Associates, Inc., a Colorado S-Corporation ("ADA").
ADA is a solution provider of equipment-centric asset management and customer
service management software.
Semotus issued an aggregate of 250,000 shares of its common stock in exchange
for all the outstanding stock of ADA. ADA had no options or rights to purchase
its stock outstanding at the time of the acquisition. The shareholder of ADA
has a right to contingent purchase consideration based upon operating
performance for which an additional 750,000 shares of Semotus common stock may
be issued over the next three years should revenue targets be met. Further, up
to a maximum of 1,000,000 shares may be issued if by the end of the third year,
the Semotus common stock price has not reached $5.00 per share.
The acquisition will be accounted for as a purchase, with the assets acquired
and liabilities assumed recorded at fair values, and the results of ADA's
operations included in Semotus's consolidated financial statements from the date
of the acquisition.
The accompanying unaudited pro forma condensed consolidated financial statements
illustrate the effect of the acquisition on Semotus's financial position and
results of operations. The unaudited pro forma condensed consolidated balance
sheet is based on the historical balance sheets of Semotus and ADA as of March
31, 2001 and December 31, 2000, respectively, and assumes that the acquisition
took place on the balance sheet date. The unaudited pro forma condensed
consolidated statement of operations is based on the historical statements of
operations of Semotus and ADA for the years ended March 31, 2001 and December
31, 2000, respectively. The pro forma condensed consolidated statement of
operations assume the acquisition took place at the beginning of Semotus's
fiscal year.
The unaudited pro forma condensed consolidated financial statements may not be
indicative of the actual results of the acquisition. In particular, the pro
forma condensed consolidated financial statements are based on management's
current estimate of the allocation of the purchase price, the actual allocation
of which may differ. The unaudited pro forma condensed consolidated statement
of operations may not be indicative of the actual results which would have been
obtained if the acquisition had occurred at the beginning of Semotus's fiscal
year.
The accompanying unaudited pro forma condensed consolidated financial statements
should be read in conjunction with Semotus's historical financial statements and
notes thereto contained in the Company's March 31, 2001 Annual Report on Form
10-KSB and the financial statements of ADA presented herein.
SEMOTUS SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Historical
------------------------------------------
Semotus ADA
March 31, December 31,
2001 2000 Adjustments Pro Forma
-------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,844,042 $ 45,600 $ - $ 7,889,642
Restricted cash 694,222 - - 694,222
Trade and other receivables 705,350 357,400 - 1,062,750
Inventory 387,547 - - 387,547
Prepaid expenses 155,959 40,800 - 196,759
-------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 9,787,120 443,800 - 10,230,920
RESTRICTED INVESTMENT - 162,400 - 162,400
PROPERTY AND EQUIPMENT, net 977,678 48,000 - 1,025,678
GMP INTELLECTUAL PROPERTY, net 5,780,000 - - 5,780,000
GOODWILL, net 4,760,746 - 1,172,200 (1) 5,932,946
OTHER ASSETS 464,417 34,500 498,917
-------------------------------------------------------------------------------------
TOTAL ASSETS $ 21,769,961 $ 688,700 $ 1,172,200 $ 23,630,861
=====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Bank borrowings $ - $ 55,000 $ - $ 55,000
Accounts payable 626,830 100,600 - 727,430
Accrued expenses and other current
liabilities 228,340 19,600 - 247,940
Current portion, long-term debt 694,222 67,000 (37,300) (3) 724,222
Current portion of capital lease obligation 38,222 6,400 - 44,622
Current portion of advances on technology
sales 307,390 - - 307,390
Deferred revenues 111,333 270,100 - 381,433
-------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,006,337 518,700 - 2,488,037
LONG-TERM DEBT, less current portion - 691,600 (562,400) (3) 129,200
CAPITAL LEASE OBLIGATION, less
current portion 63,447 - - 63,447
ADVANCES ON TECHNOLOGY SALES,
less current portion 835,170 - - 835,170
-------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,904,954 1,210,300 (599,400) 3,515,854
-------------------------------------------------------------------------------------
PREFERRED SHAREHOLDERS' EQUITY:
Series B convertible preferred stock 469 - - 469
Paid-in capital 5,681,987 - - 5,681,987
-------------------------------------------------------------------------------------
TOTAL PREFERRED SHAREHOLDERS'
EQUITY 5,682,456 - - 5,682,456
-------------------------------------------------------------------------------------
COMMON SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock and paid-in capital 55,376,660 37,500 (37,500) (1) 56,626,660
1,250,000 (1)
Accumulated other comprehensive loss (102,536) - - (102,536)
Notes receivable - related parties (1,106,612) (599,400) 599,400 (3) (1,106,612)
(Accumulated deficit) retained earnings (40,984,961) 40,300 (40,300) (1) (40,984,961)
-------------------------------------------------------------------------------------
TOTAL COMMON SHAREHOLDERS'
EQUITY (DEFICIENCY) 13,182,551 (521,600) 1,771,600 14,432,551
-------------------------------------------------------------------------------------
TOTAL LIABILITIES, PREFERRED AND COMMON
SHAREHOLDERS' EQUITY
(DEFICIENCY) $ 21,769,961 $ 688,700 $ 1,172,200 $ 23,630,861
=====================================================================================
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
SEMOTUS SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Historical
------------------------------------------
Semotus ADA
For the year ended
March 31, December 31,
2001 2000 Adjustments Pro Forma
-------------------------------------------------------------------------------------
REVENUES $ 5,547,963 $ 2,072,400 $ - $ 7,620,363
COST OF REVENUES 4,096,085 1,095,100 - 5,191,185
-------------------------------------------------------------------------------------
GROSS PROFIT 1,451,878 977,300 - 2,429,178
OPERATING EXPENSES:
Research and development 1,325,745 202,700 - 1,528,445
Sales and marketing 4,709,105 - - 4,709,105
General and administrative 7,766,182 723,600 234,440 (2) 8,724,222
-------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 13,801,032 926,300 234,440 14,961,772
-------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (12,349,154) 51,000 (234,440) (12,532,594)
OTHER INCOME (EXPENSE):
Net interest income (expense) 639,993 (10,300) - 629,693
Other income 415,780 - - 415,780
-------------------------------------------------------------------------------------
TOTAL OTHER INCOME, net 1,055,773 (10,300) - 1,045,473
-------------------------------------------------------------------------------------
NET LOSS (11,293,381) 40,700 (234,440) (11,487,121)
OTHER COMPREHENSIVE LOSS (21,136) - - (21,136)
-------------------------------------------------------------------------------------
COMPREHENSIVE LOSS $ (11,314,517) $ 40,700 $ (234,440) $ (11,508,257)
=====================================================================================
BASIC AND DILUTED LOSS PER
SHARE $ (0.74) $ (0.74)
BASIC AND DILUTED
WEIGHTED-AVERAGE
COMMON SHARES OUTSTANDING 15,199,895 15,449,895
=============== ================
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(A) BASIS OF PRESENTATION
Reference is made to the introduction to the unaudited pro forma condensed
financial information.
(B) PRO FORMA ADJUSTMENTS
The pro forma adjustments to the condensed balance sheet are as follows:
(1) To reflect the acquisition of ADA and the allocation of purchase price
on the basis of fair values of the assets acquired and the liabilities
assumed. The components of purchase price and its allocation of assets
and liabilities of ADA are as follows:
Components of purchase price:
Semotus common stock (a) 250,000 shares
Value of common stock (b) $ 5.00 per share
----------
Total purchase price $1,250,000
ADA shareholders' equity (c) 77,800
----------
Excess of cost of net assets acquired $1,172,200
(a) Excludes contingent purchase consideration of up to 750,000
shares that may be issued should revenue targets be met, as well
as up to 1,000,000 shares which may be issued if by the end of
the third year after the acquisition, the Semotus common stock
price has not reached $5.00.
(b) This represents the stock price at which no additional shares
will be issued, in accordance with EITF 97-15, "Accounting for
Contingency Arrangements Based on Security Prices in a Purchase
Business Combination."
(c) The fair value of assets acquired and liabilities assumed
approximates their book value.
The pro forma adjustments to the condensed consolidated statements of operations
are as follows:
(2) To record the amortization of excess of cost over fair value of net
assets acquired over the estimated benefit period of five years.
(3) To record the removal of ADA's liability for the note payable relating
to the purchase by the President of the Company of the remaining 50%
of the Company's outstanding common stock.
(C) PRO FORMA LOSS PER SHARE
The reconciliation of the common shares used in the calculation of pro forma
basic and diluted loss per share is as follows:
Semotus basic and diluted weighted average shares outstanding 15,199,895
Shares issued in the ADA acquisition 250,000
----------
Pro forma basic and diluted weighted average
common shares outstanding 15,449,895
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned,
hereunto duly authorized.
SEMOTUS SOLUTIONS, INC.
Date: July 30, 2001 By: /s/ Anthony N. LaPine
Anthony N. LaPine,
President and Chief Executive Officer