================================================================================
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): June 23, 2005
SEMOTUS SOLUTIONS, 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.)
718 University Ave., Suite 202, Los Gatos, CA 95032
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(408) 399-6120
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13c-4(c) under the
Exchange Act (17 CFR 240.13e- 4(c))
================================================================================
ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS.
As reported in the Current Report on Form 8-K filed on June 27,
2005, by Semotus Solutions, Inc. ("Semotus"), Semotus acquired 100% of the
issued and outstanding capital stock of Clickmarks, Inc. for 4,107,982 shares of
Semotus common stock on June 23, 2005.
Semotus hereby files this Form 8-K/A to file the following financial
statements and related pro forma financial statements required pursuant to Item
9 of Form 8-K with respect to the acquisition:
(a) Financial Statements of Business Acquired. The audited
financial statements of Clickmarks are set forth beginning on
page 3 of this report.
Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Stockholders' Deficiency
Statements of Cash Flows
Notes to Financial Statements
(b) Pro forma financial information. The pro forma financial
information including Clickmarks is set forth beginning on page
14 of this report.
Unaudited Pro Forma Condensed Consolidated Financial
Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Unaudited Pro Forma Condensed Consolidated Statements 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., Clickmarks, Inc. and Semotus Acquisition
Company, Ltd. dated June 14, 2005
+ Incorporated by reference to Exhibit 2.1 of the Registrant's
Form 8-K filed on June 20, 2005.
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Clickmarks, Inc.
Los Gatos, California
I have audited the accompanying balance sheets of Clickmarks, Inc. (the
"Company") as of December 31, 2004 and 2003, and the related statements of
operations, stockholders' deficiency and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audits.
I conducted my audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that I 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. I believe that my audits provide a reasonable basis for
my opinion.
In my opinion, such financial statements present fairly, in all material
respects, the financial position of Clickmarks, Inc. at December 31, 2004 and
2003, and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Anthony Matusich
Anthony Matusich & Company
August 26, 2005
CLICKMARKS, INC.
BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
=============================================================================================================================
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 57,270 $ 338,675
Accounts receivable, net of allowance for doubtful accounts
of $13,537 and $29,017 in 2004 and 2003, respectively 315,096 262,586
Other current assets 43,782 77,584
------------ ------------
Total current assets 416,148 678,845
PROPERTY AND EQUIPMENT, Net 85,261 194,322
DEPOSITS -- 42,282
------------ ------------
TOTAL ASSETS $ 501,409 $ 915,449
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 25,699 $ 36,233
Accrued compensation and related benefits 159,098 168,466
Deferred revenue 27,489 41,091
Other current liabilities 23,200 74,469
------------ ------------
Total current liabilities 235,486 320,259
Total liabilities 235,486 320,259
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY (DEFICIENCY):
Series A convertible preferred stock - $.001par value; 1,000,000 shares authorized;
1,000,000 shares issued and outstanding in 2004 and 2003; liquidation preference (Note 4) 518,796 518,796
Series A-1 convertible preferred stock - $.001 par value; 800,000 shares authorized;
707,756 shares issued and outstanding in 2004 and 2003; liquidation preference (Note 4) 764,410 764,410
Series B convertible preferred stock - $.001 par value; 4,500,000 shares authorized;
3,025,184 shares issued and outstanding in 2004 and 2003; liquidation preference (Note 4) 4,653,890 4,653,890
Series C convertible preferred stock - $.001 par value; 11,556,217 shares authorized;
9,257,260 shares issued and outstanding in 2004 and 2003; liquidation preference (Note 4) 15,090,172 15,090,172
Series D convertible preferred stock - $.001 par value; 28,000,000 shares authorized;
22,528,269 shares issued and outstanding in 2004 and 2003; liquidation preference (Note 4) 4,843,107 4,843,107
Series D-1 convertible preferred stock - $.001 par value; 21,276,595 shrs. authorized;
9,152,151 shares issued and outstanding in 2004 and 2003; liquidation preference (Note 4) 1,062,282 --
Common stock - $.001 par value; 86,276,595 shares authorized; 7,484,873 and 7,484,873 shares
issued and outstanding in 2004 and 2003, respectively 381,269 381,269
Accumulated deficit (27,048,003) (25,656,454)
------------ ------------
Total stockholders' equity 265,923 595,190
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 501,409 $ 915,449
============ ============
See notes to financial statements.
-2-
CLICKMARKS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004 AND 2003
=============================================================================================================================
2004 2003
------------ ------------
REVENUE $ 1,732,080 $ 894,565
COST OF REVENUE 1,510,507 1,732,547
------------ ------------
GROSS PROFIT (LOSS) 221,573 (837,982)
------------ ------------
OPERATING EXPENSES:
Research and development 600,022 1,590,822
General and administrative 239,940 705,359
Sales and marketing 779,487 1,164,786
------------ ------------
Total operating expenses 1,619,449 3,460,967
------------ ------------
LOSS FROM OPERATIONS (1,397,876) (4,298,949)
OTHER INCOME (EXPENSE)
Interest income 3,511 16,965
Other income and expense, net 2,816 (4,683)
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,391,549) (4,286,667)
EXTRAORDINARY ITEM - Loss on Expropriation of Assets by Payroll Service -- (95,643)
------------ ------------
NET LOSS $ (1,391,549) $ (4,382,310)
============ ============
See notes to financial statements.
-3-
CLICKMARKS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED DECEMER 31, 2004 AND 2003
(Continued on page 5)
====================================================================================================================================
Series A Series A-1 Series B Series C
Convertible Preferred Stock Convertible Preferred Stock Convertible Preferred Stock Convertible Preferred Stock
------------------------- ------------------------- ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCES,
December 31, 2002 1,000,000 $ 518,796 707,756 $ 764,410 3,025,184 $ 4,653,890 9,257,260 $15,090,172
Issuance of Series D
convertible preferred
stock at $0.22 per
share, net of
issuances costs of
$20,898
Exercise of stock
options
Issuance of warrants
for common stock
Forgiveness of
shareholder notes
receivable
Stock compensation
Net loss
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCES,
December 31, 2003 1,000,000 518,796 707,756 764,410 3,025,184 4,653,890 9,257,260 15,090,172
Issuance of Series
D-1 convertible
preferred stock at
$0.1175 per share,
net of issuance costs
of $13,096
Net loss
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCES,
December 31, 2004 1,000,000 $ 518,796 707,756 $ 764,410 3,025,184 $ 4,653,890 9,257,260 $15,090,172
=========== =========== =========== =========== =========== =========== =========== ===========
See notes to financial statements.
-4-
CLICKMARKS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED DECEMER 31, 2004 AND 2003
(Continued from page 4)
===================================================================================================================================
Series D Series D-1
Convertible Preferred Convertible Preferred
Stock Stock Common Stock Shareholder
---------------------- --------------------- -------------------- Notes Accumulated
Shares Amount Shares Amount Shares Amount Receivable Deficit Total
---------- ---------- --------- ---------- --------- --------- ----------- ----------- -----------
BALANCES,
December 31, 2002 11,264,134 $2,385,393 -- $ -- 7,446,748 $ 257,197 $ (2,800) $(21,274,144) $ 2,392,914
Issuance of Series D
convertible preferred
stock at $0.22 per
share, net of
issuances costs of
$20,898 11,264,135 2,457,714 2,457,714
Exercise of stock
options 38,125 7,431 7,431
Issuance of warrants
for common stock 4,800 4,800
Forgiveness of
shareholder notes
receivable 2,800 2,800
Stock compensation 111,841 111,841
Net loss (4,382,310) (4,382,310)
---------- ---------- --------- ---------- --------- --------- ----------- ----------- -----------
BALANCES,
December 31, 2003 22,528,269 4,843,107 -- -- 7,484,873 381,269 -- (25,656,454) 595,190
Issuance of
Series D-1
convertible
preferred stock
at $0.1175 per
share, net of
issuance costs
of $13,096 9,152,151 1,062,282 1,062,282
Net loss (1,391,549) (1,391,549)
---------- ---------- --------- ---------- --------- --------- ----------- ----------- -----------
BALANCES,
December 31, 2004 22,528,269 $4,843,107 9,152,151 $1,062,282 7,484,873 $ 381,269 $ -- $(27,048,003) $ 265,923
========== ========== ========= ========== ========= ========= =========== =========== ===========
See notes to financial statements.
-5-
CLICKMARKS, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2004 AND 2003
======================================================================================================
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,391,549) $ (4,382,310)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 111,342 315,166
Issuance of stock warrants -- 4,800
Stock compensation -- 111,841
Forgiveness of shareholder note receivable -- 2,800
Changes in operating assets and liabilities:
Accounts receivable, net (52,509) (144,068)
Other current assets 76,083 (33,748)
Deposits and other assets -- 22,872
Accounts payable (6,783) (90,188)
Accrued compensation and related benefits (9,368) (22,933)
Deferred revenue (13,602) (16,915)
Other current liabilities (51,269) 67,246
------------ ------------
Net cash used in operating activities (1,337,655) (4,165,437)
------------ ------------
CASH USED IN INVESTING ACTIVITIES -
Purchases of property and equipment (2,281) (45,080)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation (3,751) (31,762)
Proceeds from issuance of common stock, for exercise of options -- 7,431
Proceeds from issuance of convertible Series D preferred stock, net -- 2,457,714
Proceeds from issuance of convertible Series D-1 preferred stock, net 1,062,282 --
------------ ------------
Net cash provided by financing activities 1,058,531 2,433,383
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (281,405) (1,777,134)
CASH AND CASH EQUIVALENTS, Beginning of period 338,675 2,115,809
------------ ------------
CASH AND CASH EQUIVALENTS, End of period $ 57,270 $ 338,675
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income tax $ 750 $ 1,600
============ ============
Cash paid for interest $ 191 $ 4,683
============ ============
See notes to financial statements
-6-
CLICKMARKS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - Clickmarks, Inc. (the "Company") was incorporated in the State
of California to develop market and sell software that enables
personalized content and applications on any device. The Company has
developed several software products which are customized and licensed to
wireless carriers and other companies.
SUBSEQUENT EVENT: MERGER - On June 23, 2005, the Company merged into
Semotus Solutions, Inc. ("Semotus"), a Nevada Corporation. Upon the
closing of merger, shareholders of the Company's Series D-1 preferred
stock received an aggregate of 4,107,981 shares of common stock of
Semotus and an aggregate of 300,000 shares of common stock of Verisium,
Inc ("Verisium"), a California corporation. These 300,000 shares of
common stock were held by the Company prior to the acquisition.
Each share of Series A preferred stock, Series A-1 preferred stock,
Series B preferred stock, Series C preferred stock, Series D preferred
stock was extinguished and cancelled without consideration. Each share of
Common Stock of the Company issued and outstanding was extinguished and
cancelled without consideration. Each share of preferred stock and common
stock warrants was also extinguished and cancelled without consideration.
Furthermore, the Company stock options terminated and expired without
consideration.
The Company became a wholly owned subsidiary of Semotus as a result of
the merger.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES - The Company operates in a
rapidly changing environment that involves a number of risks, some of
which are beyond the Company's control, that could have a material
adverse effect on the Company's business, operating results and financial
condition. These risks include, among others: variability and uncertainty
of revenues and operating results, the emerging nature of its market,
product and customer concentration, technological changes and new product
development risks, competition, intellectual property and related risks,
management of growth, dependence on key personnel, acquisitions and
investments, international operations, regulatory requirements and
expansion of distribution channels.
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 expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
instruments purchased with an original maturity of 90 days or less to be
cash equivalents. The Company maintains its cash in high quality
financial institutions. The balances, at times, may exceed federally
insured limits.
REVENUE RECOGNITION - The Company derives its revenue primarily from two
sources (i) license revenue, and (ii) service revenues, which include
support and maintenance, consulting and training revenue.
The Company applies the provisions of Statement of Position 97-2,
"Software Revenue Recognition," and related interpretations, to all
transactions involving the sale of hardware and related software. The
Company may sell license and services together. Service maintenance
includes contracts for technical support, hardware maintenance, bug
fixes, and patch releases. For arrangements with multiple elements, the
Company allocates revenue to each component of the arrangement using the
residual value method based on vendor specific objective evidence of the
undelivered elements. This means that the Company defers the
-7-
arrangement fee equivalent to the fair value of the undelivered elements
until these elements are delivered. The Company recognizes revenue for
maintenance services ratably over the contract term.
The Company recognizes revenue from the sale of licenses when persuasive
evidence of an arrangement exists, the license has been delivered, the
fee is fixed and determinable and collection of the resulting receivable
is reasonably assured. Delivery generally occurs when license is
delivered to a common carrier or downloaded by a customer.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful life of the related asset which is generally 3 to 7
years.
LONG-LIVED ASSETS - The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is evaluated by comparison of the carrying
amount of the applicable asset group to future undiscounted net cash
flows expected to be generated by the asset group. If the asset group is
evaluated as not being recoverable, it is written down to estimated fair
value.
INCOME TAXES - The Company accounts for income taxes under an asset and
liability approach. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes and operating loss and tax credit carryforwards
measured by applying currently enacted tax laws. Valuation allowances are
provided when necessary to reduce net deferred tax assets to an amount
that is more likely than not to be realized.
RESEARCH AND DEVELOPMENT - Research and development costs are expensed as
incurred.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees."
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net loss had the Company adopted the fair value
method for its stock-based awards to employees. Under SFAS No. 123, the
fair value of stock-based awards to employees is calculated through the
use of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective
assumptions, including expected time to exercise, which greatly affect
the calculated values.
The Company was acquired subsequently in June 2005 by Semotus Solutions,
Inc, a Nevada corporation. Each share of stock options granted to
employees was extinguished and cancelled without consideration.
NEW ACCOUNTING STANDARDS - In November 2004, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 151, INVENTORY COSTS, AN
AMENDMENT OF ARB NO. 43, CHAPTER 4. The statement clarifies that abnormal
amounts of idle facility expense, freight expense, freight, handling
costs, and wasted materials (spoilage) should be recognized as
current-period charges. In addition, this statement requires that
allocation of fixed production overheads to the costs of conversion be
based on normal capacity of the production facilities. The provisions of
this statement will be effective for inventory cost incurred during
fiscal years beginning after June 15, 2005. The Company is currently
evaluating, but has not yet determined, the impact of adopting the
provisions of this statement on its financial statements.
In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF NONMONETARY
ASSETS, AN AMENDMENT OF APB OPINION NO. 29. The statement eliminates the
exception from fair value measurement for nonmonetary exchanges of
similar productive assets in paragraph 21(b) of APB Opinion No. 29,
ACCOUNTING FOR NONMONETARY TRANSACTIONS, and replaces it with an
exception for exchanges that do not have commercial substance. This
statement specifies that a nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of this
statement shall be applied prospectively and is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15,
2005. The Company is currently evaluating, but has not yet determined,
the impact of adopting the provisions of this statement on its financial
statements.
-8-
In December 2004, the FASB issued Statement No. 123 (revised 2004),
ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement 123(R) requires all
entities to recognize compensation expense in an amount equal to the fair
value of share-based payments (e.g., stock options and restricted stock)
granted to employees for the first annual reporting period beginning
after December 15, 2005 for non-public companies. The Company will adopt
the provision in the fiscal year 2006 and include stock-based
compensation expense in the financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2004 and 2003 consists of:
2004 2003
------------ ------------
Computers, purchased software and equipment $ 1,430,420 $ 1,438,990
Furniture and fixtures 194,926 194,926
Leashold improvements 55,321 55,321
------------ ------------
Total 1,680,667 1,689,237
Accumulated depreciation (1,595,406) (1,494,915)
------------ ------------
Property and equipment, net $ 85,261 $ 194,322
============ ============
3. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under a noncancelable operating lease
which expires in 2005. Rent expense was $183,232 and $183,357 for the
years ended December 31, 2004 and 2003.
Future minimum lease payments under all noncancelable operating leases in
2004 are as follows:
Year ending December 31:
2005 $ 135,378
------------
Total $ 135,378
============
4. STOCKHOLDERS' DEFICIENCY
The terms of Series A, Series A1, Series B, Series C, Series D, Series
D-1 and Common Stock were modified significantly as a result of the
merger with Semotus Solutions, Inc.
Each share of Series A preferred stock, Series A-1 preferred stock,
Series B preferred stock, Series C preferred stock, Series D preferred
stock and common stock was extinguished and cancelled without
consideration. Each share of preferred stock and common stock warrants
was also extinguished and cancelled without consideration.
The significant terms of Series D-1 preferred stock ("Series D-1")
provided that:
o Each holder of Preferred D-1 will have the right to convert Preferred
D-1 at the option of the holder, at any time, into Common Stock at an
initial conversion rate of 1-to-1. Their conversion rate is subject
from time to time to anti-dilution adjustments. All Preferred Shares
will be automatically converted to Common Stock upon (i) the closing
of an underwritten public offering of shares of Common Stock of the
Company at a public offering price per share that values the Company
-9-
at least $50 million in an offering of not less than $10 million,
before deduction of underwriting discounts and registration expenses
or (ii) approval of the holders of a majority of the Preferred
Shares.
o In the event of any liquidation or winding up of the Company, the
holders of Preferred D-1 will be entitled to receive in preference to
the holders of Common Stock, Preferred A, Preferred A-1, Preferred B,
Preferred C and Preferred D an amount equal to three (3) time the
Preferred D-1 Original Purchase Price plus all declared but unpaid
dividends (if any). After payment of the Preferred D-1 preference,
the Preferred D, Preferred C, the Preferred B and then the Preferred
A and A-1, will be entitled to receive their respective original
purchase prices in preference to the holders of Common Stock.
o The holders of all series of preferred stock ( the "Preferred
Shares") are entitled to receive dividends at a rate of 8% of their
respective original purchase prices per annum in preference to any
dividend on Common Stock whenever funds are legally available, when,
if and as declared by the Board of Directors. Dividends are
non-cumulative.
o Each holder of Preferred Shares will have a right to that number of
votes equal to the number of shares of Common Stock issuable upon
conversion of Preferred Shares.
As a result of the merger, shareholders of Series D-1 preferred stock
received an aggregate of 4,107,981 shares of common stock of Semotus and
an aggregate of 300,000 shares of common stock of Verisium, which was
held by the Company prior to the merger.
STOCK OPTION PLAN - Under the Company's stock option plan (the "Plan"),
the Company was able to grant options to purchase or directly issue
8,070,547 shares of common stock to employees, outside directors and
consultants at a price not less than 100% of fair market value for
incentive stock options and consultants at a price not less than 85% for
nonstatutory stock options, depending on recipient. The options generally
vested over four years, with 25% vesting on the first anniversary date of
the vesting commencement date and thereafter ratably on a monthly basis
and expire ten years after grant. Stock option activity under the Plan
was as follows:
OPTIONS VESTED
---------------------------
Weighted
Average
Number of Exercise
Shares Price
------------ ------------
Balance, December 31, 2002 4,561,571 $ 0.03
------------ ------------
Granted (weighted average fair value
of $0.03 per share) 363,642 $ 0.03
Exercised (38,125) $ 0.03
Returned (1,390,419) $ 0.03
------------ ------------
Balance, December 31, 2003 3,496,669 $ 0.03
Granted (weighted average fair value
of $0.03 per share) -- $ 0.03
Exercised -- $ 0.03
Returned -- $ 0.03
------------ ------------
Balance, December 31, 2004 3,496,669 $ 0.03
============ ============
-10-
Additional information regarding options outstanding as of December 31,
2004 and 2003 was as follows:
OPTIONS OUTSTANDING OPTIONS VESTED
----------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life (Years) Price Vested Price
-------- ----------- ----------- ----------- ----------- -----------
$ 0.03 3,496,669 6.00 $ 0.03 2,574,435 $ 0.03
----------- ----------- ----------- ----------- -----------
$ 0.03 3,496,669 6.00 $ 0.03 2,574,435 $ 0.03
=========== =========== =========== =========== ===========
At December 31, 2004 and 2003, the Company had 3,410,069 shares available
for future grant under the Plan, respectively.
The Company was acquired subsequently in June 2005 by Semotus Solutions,
Inc., a Nevada corporation. Each share of stock options granted to
employees was extinguished and cancelled without consideration.
STOCK RESERVED FOR ISSUANCE
At December 31, 2004, the Company had reserved common stock for issuance
of the following:
Conversion of outstanding preferred stock 45,670,632
Warrants for convertible preferred stock 319,676
Exercise of common stock options 3,496,669
----------
Total 49,486,977
==========
NOTE RECEIVABLE FROM SHAREHOLDERS
In 1999, the Company entered into a full recourse loan with a founder. In
2003, upon approval of the board of directors of the Company, the loan
was forgiven in the amount of $2,800.
5. INCOME TAXES
No provision for federal or state income taxes has been recorded for the
years ended December 31, 2004 and 2003 as the Company has incurred net
operating losses.
-11-
The components of the net deferred tax assets at December 31, 2004
consist of:
2004 2003
------------ ------------
Deferred tax assets (liabilities):
Net operating loss carryforwards $ 10,828,795 $ 10,234,641
Research and development credit carryforwards 209,139 209,139
Accruals and reserves not currently deductible (18,248) 30,687
Other 192,105 295,415
------------ ------------
Total deferred tax assets 11,211,791 10,769,882
Valuation allowance (11,211,791) (10,769,882)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
At December 31, 2004, the Company has federal and state net operating
loss carryforwards of $25,192,529 and $22,348,999 expiring through 2024
and 2014, respectively. The Company also has federal and state tax
research and development credit carryforwards of $119,508 and $89,631,
expiring through 2024 for federal purposes and carried forward
indefinitely for state purposes.
Federal and California tax laws impose substantial restrictions on the
utilization of net operating loss and credit carryforwards in the event
of an "ownership change" for tax purposes, as defined in Section 382 of
the Internal Revenue Code. Accordingly, the Company's ability to utilize
these carryforwards may be limited as a result of such "ownership
change." Such a limitation could result in the expiration of
carryforwards before they are utilized.
Based upon available objective evidence, management believes it is more
likely than not that the net deferred tax assets will not be fully
realizable. Accordingly, management has established a valuation allowance
for all deferred tax assets.
6. EXTRAORDINARY ITEM
In October and November 2003, the Company's payroll service withdrew
funds from the Company's bank account and used the funds for other than
their intended purpose. Subsequently it was determined that the Company's
employees did not receive their salaries for a pay period and the taxing
authorities did not receive the Company's required payroll tax deposits.
Consequently, the Company was again liable for the employee payroll and
corresponding payroll taxes. The Company recouped a portion of the loss
from its insurance company. The extraordinary item is the net cost of
this occurrence to the Company.
7. RELATED PARTY TRANSACTIONS
During January 2003, the Company entered into a contractor agreement with
Clickmarks Pvt. Limited, having its principal business located in
Karachi, Pakistan. Clickmarks Pvt. Limited provides the Company with
offshore independent contractors in the areas of programming, systems
analysis, engineering, marketing and technical writing. An officer of the
Company is a 70% (seventy percent) owner of Clickmarks Pvt. Limited. The
Company paid Clickmarks Pvt. Limited $146,560 and $105,909 for such
services in 2004 and 2003, respectively.
During 2001, the Company entered into an agreement with WordWalla, Inc.,
a California corporation. An officer of the Company is on the board of
directors of WordWalla, Inc. In lieu of debt owed to the Company,
WordWalla, Inc. granted the Company non-exclusive license to use and
modify the source code of the WordWalla, Inc. software as well as
equipment. The software and equipment were valued at $75,000 (seventy
five thousand dollars) and $16,900 (sixteen thousand nine hundred
dollars), respectively. The license and equipment were amortized and
depreciated over two years and three years, respectively.
-12-
8. SUBSEQUENT EVENTS
MERGER - See footnote 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- Merger.
SALE OF ASSET - On January 28, 2005 the Company sold, assigned and
transferred intellectual property rights in a web-based software
application known as "Software Testing Tool" to Verisium, Inc. In
consideration for the "Software Testing Tool", the Company received
300,000 shares of Verisium, Inc. common stock. These common shares were
distributed to Series D-1 shareholders upon the closing of the merger
with Semotus.
LEASE TERMINATION - On June 30, 2005, the Company terminated its building
lease obligation, set to expire on December 31, 2005, in consideration of
payment in the sum of $34,720.
Furthermore, the agreement included a rent recapture clause that stated
that in the event the Landlord is able to re-lease the premises prior to
August 31, 2005, the Landlord shall pay the Company the amount of any
rental payments received by the Landlord from the new tenant for the
period up to August 31, 2005. Thus, the Company paid out $20,000 during
the initial termination and is currently waiting to payout the remaining
amount depending on whether the Landlord is able to re-lease the premises
within the allotted time.
-13-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On June 23, 2005, Semotus Solutions, Inc., a Nevada corporation ("We" or "Our")
acquired Clickmarks, Inc., a California Corp ("Clickmarks"). Clickmarks
technology enables the on-demand enterprise by non-invasively leveraging
existing information technology investments to deliver workflow automation,
portal integration, and mobilization solutions. Clickmarks' patented
Presentation Level Integration technology enables rapid creation of composite
applications and web services out of existing backend systems, which may be
delivered via web, portal, and mobile front-ends.
We issued an aggregate of 4,107,982 shares of our common stock in exchange for
all the outstanding stock of Clickmarks. 15% of these shares, 616,197 shares,
are being held in escrow and may be available to compensate Semotus for certain
damages as provided in the Merger Agreement. In addition, we issued 137,324
shares to Bathgate Capital Partners, LLC as a finder's fee, and 70,646 shares to
various Clickmarks' employees.
The acquisition will be accounted for as a purchase, with the assets acquired
and liabilities assumed recorded at fair values, and the results of Clickmarks'
operations are included in Semotus' 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' financial position and
results of operations. The unaudited pro forma condensed consolidated balance
sheet is based on the unaudited historical balance sheets of Semotus and
Clickmarks as of June 30, 2005 and March 31, 2005, respectively, and assumes
that the acquisition took place on the balance sheet date. The unaudited pro
forma condensed consolidated statements of operations are based on the audited
historical statements of operations of Semotus and Clickmarks for the years
ended March 31, 2005 and December 31, 2004 and on the unaudited three month
periods ended June 30, 2005 and March 31, 2005, respectively. The pro forma
condensed consolidated statements of operations assume the acquisition took
place at the beginning of the periods presented.
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 the periods
presented.
The accompanying unaudited pro forma condensed consolidated financial statements
should be read in conjunction with Semotus' historical financial statements and
notes thereto contained in our Annual and Quarterly Reports and the financial
statements of Clickmarks presented herein.
-14-
SEMOTUS SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
HISTORICAL
----------------------------
SEMOTUS
JUNE 30, CLICKMARKS
2005 MARCH 31, ADJUSTMENTS
(NOTE B1) 2005 (NOTE B1) PRO FORMA
------------ ------------ ------------ ------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 1,147,390 $ 75,115 $ (16,100) $ 1,206,405
Trade receivables 245,686 386,658 (269,718) 362,626
Prepaid expenses and other current assets 21,453 13,873 (4639) 30,687
------------ ------------ ------------ ------------
Total current assets 1,414,529 475,646 (290,457) 1,599,718
Property and equipment, net 29,009 66,653 (52,999) 42,663
Goodwill, net (Note B3) 1,860,162 -- 1,581,107 3,441,269
Other assets -- 20,282 (20,282) --
------------ ------------ ------------ ------------
Total assets $ 3,303,700 $ 562,581 $ 1,217,369 $ 5,083,650
============ ============ ============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loan $ 50,000 $ -- $ -- $ 50,000
Accounts payable 286,957 20,915 15,288 323,160
Accrued vacation 63,326 64,473 (29,653) 98,146
Other accrued liabilities 26,610 111,866 (37,969) 100,507
Deferred revenue 169,324 27,147 9,410 205,881
------------ ------------ ------------ ------------
Total current liabilities 596,217 224,401 (42,924) 777,694
------------ ------------ ------------ ------------
Total liabilities 596,217 224,401 (42,924) 777,694
------------ ------------ ------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY (DEFICIENCY):
Preferred Stock -- 26,764,817 (26,764,817) --
Notes Receivable -- (624,234) 624,234 --
Notes Preferred Stock -- 456,398 (456,398) --
Notes Common Stock -- 167,836 (167,836) --
Common Stock (elimination) 283,028 324,321 (324,321) 283,028
Common Stock issued as part of acquisition
(Note 3) -- -- 1,561,297 1,561,297
Additional paid-in capital 68,784,919 224,789 (224,789) 68,784,919
Accumulated other comprehensive loss (83,292) -- -- (83,292)
Accumulated deficit (66,277,172) (26,975,747) 27,012,923 (66,239,996)
------------ ------------ ------------ ------------
Total shareholders' equity 2,707,483 338,180 1,260,293 4,305,956
------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 3,303,700 $ 562,581 $ 1,217,369 $ 5,083,650
============ ============ ============ ============
See accompanying notes to unaudited pro forma
condensed consolidated financial information.
-15-
SEMOTUS SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
HISTORICAL
----------------------------
SEMOTUS CLICKMARKS
MARCH 31, DECEMBER 31, ADJUSTMENTS
YEARS ENDED: 2005 2004 (NOTE B2) PRO FORMA
- ------------ ------------ ------------ ------------ ------------
Revenues $ 1,806,295 $ 1,732,080 $ -- $ 3,538,375
Cost of revenues 363,163 1,510,507 -- 1,873,670
------------ ------------ ------------ ------------
Gross profit 1,443,132 221,573 -- 1,664,705
------------ ------------ ------------ ------------
Operating expenses:
(Exclusive of depreciation and amortization
and stock, option and warrant expense)
Research and development 525,930 600,022 -- 1,125,952
Sales and marketing 869,328 779,487 -- 1,648,815
General and administrative 839,077 128,598 -- 967,675
Stock, option and warrant expense (248,997) -- -- (248,997)
Depreciation and amortization 119,812 111,342 (49,469) 181,685
------------ ------------ ------------ ------------
Total operating expenses 2,105,150 1,619,449 (49,469) 3,675,130
------------ ------------ ------------ ------------
Operating income (loss) (662,018) (1,397,876) 49,469 (2,010,425)
Interest income -- 3,511 -- 3511
Other income 7,965 2,816 -- 10,781
------------ ------------ ------------ ------------
Total interest and other income 7,965 6,327 -- 14,292
Net loss (654,053) (1,391,549) 49,469 (1,996,133)
Other comprehensive income (loss) - Translation
adjustment (4016) -- -- (4016)
------------ ------------ ------------ ------------
Comprehensive loss $ (658,069) $ (1,391,549) $ 49,469 $ (2,000,149)
============ ============ ============ ============
Net loss per common share:
Basic $ (0.03) $ -- $ 0.01 $ (0.08)
Diluted $ (0.03) $ -- $ 0.01 $ (0.08)
Weighted average shares used in per share
calculation, basic and diluted 22,755,373 -- 3,699,755 26,455,128
============ ============ ============ ============
See accompanying notes to unaudited pro forma
condensed consolidated financial information.
-16-
SEMOTUS SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
HISTORICAL
----------------------------
SEMOTUS CLICKMARKS
JUNE 30, MARCH 31, ADJUSTMENTS
THREE MONTHS ENDED: 2005 2005 (NOTE B2) PRO FORMA
- ------------------- ------------ ------------ ------------ ------------
Revenues $ 409,390 $ 552,493 $ -- $ 961,883
Cost of revenues 129,145 245,633 -- 374,778
------------ ------------ ------------ ------------
Gross profit 280,245 306,860 -- 587,105
------------ ------------ ------------ ------------
Operating expenses:
(Exclusive of depreciation and amortization
and stock, option and warrant expense)
Research and development 139,708 128,890 -- 268,598
Sales and marketing 268,043 171,980 -- 440,023
General and administrative 252,804 107 -- 252,911
Stock, option and warrant expense 119,551 -- -- 119,551
Depreciation and amortization 21,114 18,607 (11,876) 27,845
------------ ------------ ------------ ------------
Total operating expenses 801,220 319,584 (11,876) 1,108,928
------------ ------------ ------------ ------------
Operating income (loss) (520,975) (12,724) 11,876 (521,823)
Interest income -- 51,349 -- 51,349
Other income 11,331 132,061 -- 143,392
------------ ------------ ------------ ------------
Total interest and other income 11,331 183,410 -- 194,741
Net Income (loss) (509,644) 170,686 11,876 (327,082)
Other comprehensive income (loss) - Translation
adjustment (4948) -- -- (4948)
------------ ------------ ------------ ------------
Comprehensive Income (loss) $ (514,592) $ 170,686 $ 11,876 $ (332,030)
============ ============ ============ ============
Net loss per common share:
Basic $ (0.02) $ -- $ 0.00 $ (0.01)
Diluted $ (0.02) $ -- $ 0.00 $ (0.01)
Weighted average shares used in per share
calculation, basic and diluted 25,038,727 -- 3,699,755 28,738,482
============ ============ ============ ============
See accompanying notes to unaudited pro forma
condensed consolidated financial information.
-17-
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) Semotus' Balance Sheet as of June 30, 2005 has been adjusted for the
elimination of Clickmarks' assets acquired and liabilities assumed.
Further, adjustments to the Clickmarks' balance sheet at March 31, 2005
have been made to bring it current to the acquisition date of June 23,
2005.
(2) The depreciation adjustment is to reduce the depreciation expense for
those assets that were either not acquired or reduced to net realizable
value as part of the acquisition.
(3) To reflect the acquisition of Clickmarks 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 Clickmarks are as follows:
Components of purchase price:
Semotus common stock (a) 3,699,755 shares
Value of common stock (b) $ 0.422 per share
-----------
Total purchase price $ 1,561,297
Excess of cost of net assets acquired $ 1,581,107
Clickmarks shareholders' equity (c) (19,810)
(a) Excludes contingent purchase consideration of up to 616,197 shares
that are currently being held in escrow and may be used by Semotus
for indemnification purposes related to certain representations
given in the Merger Agreement. Includes 137,324 shares issued to
Bathgate Capital Partners, LLC as a finder's fee, and includes
70,646 shares issued to various Clickmarks' employees.
(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) This is the residual value of the equity after calculating the fair
value of assets acquired and liabilities assumed and deducting the
investment banking fees.
(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 25,038,727
Shares issued in the Clickmarks acquisition 3,699,755
-------------
Pro forma basic and diluted weighted average common shares
outstanding 28,738,482
-18-
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: September 6, 2005 By: /s/ Anthony N. LaPine
-------------------------------------
Anthony N. LaPine,
President and Chief Executive Officer
-19-