-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R+gS0YCKMABvdO5vWDlHVIQlAk+nwXSiX3UMtFJ7fM/SDQ2Uo65C2ChJFxRp23eH XoDtQxv/TDJCinJloR8l6A== 0000081050-99-000017.txt : 19990428 0000081050-99-000017.hdr.sgml : 19990428 ACCESSION NUMBER: 0000081050-99-000017 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990427 ITEM INFORMATION: FILED AS OF DATE: 19990427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLICARD INC CENTRAL INDEX KEY: 0000081050 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 230991870 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 333-72411 FILM NUMBER: 99601985 BUSINESS ADDRESS: STREET 1: ONE POST RD CITY: FAIRFIELD STATE: CT ZIP: 06430 BUSINESS PHONE: 2032543900 MAIL ADDRESS: STREET 1: ONE POST ROAD CITY: FAIRFIELD STATE: CT ZIP: 06430 FORMER COMPANY: FORMER CONFORMED NAME: PUBLICKER INDUSTRIES INC DATE OF NAME CHANGE: 19920703 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 11, 1999 PUBLICARD, INC. (Exact name of registrant as specified in its charter) Pennsylvania 0-29794 23-0991870 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) One Post Road, Fairfield, Connecticut 06430 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 254-3900 (Former name or former address, if changed since last report.) The undersigned registrant hereby amends in its entirety Item 7 of its Current Report on Form 8-K originally filed with the Securities and Exchange Commission on February 26, 1999 as set forth below. Item 7. Financial Statements and Exhibits (a) Financial statements of businesses acquired Audited financial statements of Amazing! Smart Card Technologies, Inc. Report of Independent Public Accountants Balance Sheets as of December 31, 1998 and 1997 Statements of Operations for the years ended December 31, 1998 and 1997 Statements of Shareholders' Deficit for the years ended December 31, 1998 and 1997 Statements of Cash Flows for the years ended December 31, 1998 and 1997 Notes to Financial Statements (b) Pro forma financial information Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 1998 and Unaudited Pro Forma Condensed Combined Statement of Income for the year ended December 31, 1998 Notes to Unaudited Pro Forma Condensed Combined Financial Information (c) Exhibits: 2.1 Agreement and Plan of Merger dated as of February 11, 1999 among PubliCARD, Inc., ASCT Acquisition Corp., Amazing! Controls, Inc. and the Security Holders of Amazing! Controls, Inc. (previously filed with Current Report on Form 8-K filed on February 26, 1999) 23.1 Consent of Independent Public Accountants SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PUBLICARD, INC. (Registrant) April 27, 1999 /s/ Antonio L. DeLise Antonio L. DeLise, Vice President Chief Financial Officer and Secretary AMAZING! SMART CARD TECHNOLOGIES, INC. FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Amazing! Smart Card Technologies, Inc.: We have audited the accompanying balance sheets of Amazing! Smart Card Technologies, Inc. (a California corporation) as of December 31, 1998 and 1997, and the related statements of operations, shareholders' deficit and cash flows for each of the two years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of Amazing! Smart Card Technologies, Inc. as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP San Jose, California April 16, 1999 AMAZING! SMART CARD TECHNOLOGIES, INC. BALANCE SHEETS ASSETS December 31, 1998 1997 CURRENT ASSETS: Cash and cash equivalents $ 18,820 $ 113,148 Accounts receivable, less allowance for doubtful accounts of $71,493 and $101,493 in 1998 and 1997, respectively 319,467 213,972 Inventories (Note 3) 389,583 372,515 Prepaid expenses and other current assets 23,256 190,807 Total current assets 751,126 890,442 PROPERTY AND EQUIPMENT, net (Note 3) 682,411 933,343 OTHER ASSETS 4,104 593,841 $ 1,437,641 $ 2,417,626 LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Current portion of capital lease obligations $ 82,688 $ - Accounts payable 955,188 465,253 Accrued liabilities 509,387 491,834 Total current liabilities 1,547,263 957,087 CONVERTIBLE NOTES PAYABLE TO SHAREHOLDER (Note 4) - 7,321,854 NOTES PAYABLE TO SHAREHOLDERS (Note 5) 623,247 - CAPITAL LEASE OBLIGATIONS, net of current portion 19,238 - Total liabilities 2,189,748 8,278,941 COMMITMENTS (Note 6) SHAREHOLDERS' DEFICIT: Convertible preferred stock: 50,000,000 shares authorized; no shares issued or outstanding - - Common stock: no par value; 50,000,000 shares authorized; 39,300,000 and 13,350,000 shares issued and outstanding at December 31, 1998 and 1997, respectively 9,842,542 1,114,830 Accumulated deficit (10,594,649) (6,976,145) Total shareholders' deficit (752,107) (5,861,315) $ 1,437,641 $ 2,417,626 The accompanying notes to financial statements are an integral part of these financial statements. AMAZING! SMART CARD TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS Years Ended December 31, 1998 1997 REVENUES $ 2,483,539 $ 3,349,975 COST OF REVENUES 2,382,843 3,027,958 Gross profit 100,696 322,017 OPERATING EXPENSES: Research and development 318,338 719,907 Sales and marketing 738,317 941,280 General and administrative 1,405,221 1,320,600 Total operating expenses 2,461,876 2,981,787 LOSS FROM CONTINUING OPERATIONS (2,361,180) (2,659,770) INTEREST AND OTHER EXPENSE, net 308,736 620,832 LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS (2,669,916) (3,280,602) DISCONTINUED OPERATIONS (NOTE 1): LOSS FROM OPERATIONS (274,696) (97,941) LOSS ON DISPOSAL (673,892) - LOSS FROM DISCONTINUED OPERATIONS (948,588) (97,941) NET LOSS $ (3,618,504) $(3,378,543) The accompanying notes to financial statements are an integral part of these financial statements. AMAZING! SMART CARD TECHNOLOGIES, INC. STATEMENTS OF SHAREHOLDERS' DEFICIT Total Common Stock Accumulated Shareholders' Shares Amount Deficit Deficit BALANCE AT DECEMBER 31, 1996 5,520,000 1,107,000 $(3,597,602) $(2,490,602) Issuance of common stock for cash at $0.001 per share 7,830,000 7,830 - 7,830 Net loss - - (3,378,543) (3,378,543) BALANCE AT DECEMBER 31, 1997 13,350,000 1,114,830 (6,976,145) (5,861,315) Conversion of note payable to shareholder into common stock (see Note 4) 29,600,000 8,731,362 - 8,731,362 Repurchase of common stock for cash at $0.001 per share (3,650,000) (3,650) - ( 3,650) Net loss - - (3,618,504) (3,618,504) BALANCE AT DECEMBER 31, 1998 39,300,000 $9,842,542 $(10,594,649 $(752,107) The accompanying notes to financial statements are an integral part of these financial statements. AMAZING! SMART CARD TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,618,504) $(3,378,543) Adjustments to reconcile net loss to net cash used in operating activities Allowance for doubtful accounts - 34,493 Depreciation and amortization 338,628 433,752 Loss on disposal of fixed assets 129,947 170,140 Loss on disposal of discontinued operations 673,892 - Changes in current assets and liabilities: Accounts receivable (105,495) 203,240 Inventories (17,068) 338,929 Prepaid expenses and other assets 83,396 137,962 Accounts payable 489,935 (196,706) Accrued liabilities 17,373 176,277 Net cash used in operating activities (2,007,896) (2,080,456) CASH FLOWS FOR INVESTING ACTIVITIES: Purchases of property and equipment (115,717) (292,007) Proceeds from sale of fixed assets - 83,000 Net cash used for investing activities (115,717) (209,007) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under notes payable from shareholders 2,032,935 2,025,429 Issuances of common stock - 7,830 Repurchases of common stock (3,650) - Net cash provided by financing activities 2,029,285 2,033,259 NET DECREASE IN CASH AND CASH EQUIVALENTS (94,328) (256,204) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 113,148 369,352 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 18,820 $ 113,148 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Income taxes $ 800 $ 800 Noncash financing activity: Conversion of note payable to shareholder for common stock $ 8,731,542 $ - The accompanying notes to financial statements are an integral part of these financial statements. AMAZING! SMART CARD TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 1. ORGANIZATION AND OPERATIONS OF THE COMPANY: Amazing! Smart Card Technologies, Inc. (the "Company"), formerly known as Amazing! Controls, Inc., was incorporated in California on December 20, 1996. Previously, the Company operated as WOW Technologies, Inc. The Company develops and manufactures smart cards for use in satellite television, telecommunications, identification and transportation. In September 1997, the Company acquired all of the outstanding stock of Amazing! Controls, B.V. ("ACBV"), which is based in the Netherlands, in exchange for the assumption of liabilities and the forgiveness of certain amounts due to the Company. The total purchase price was $546,000, and the acquisition was accounted for as a purchase. Intangibles arising from the acquisition were being amortized on a straight-line basis over three years. In connection with the acquisition, the purchase price was allocated to the following items: Property, plant and equipment, net $ 70,000 Other 257,000 Goodwill 219,000 $546,000 The results of operations of ACBV and the estimated fair value of the assets acquired and liabilities assumed are included in the Company's financial statements from the date of acquisition through the date of divestiture of the operation in 1998. In April 1998, the Company divested the operations of ACBV to certain shareholders of the Company. The divestiture of ACBV resulted in a loss on disposal of the net assets of the operations $674,000, primarily from the writedown of intangibles acquired in the acquisition of ACBV and other assets which no longer benefited the Company. The operating results of the discontinued operation have been reported as discontinued operations in the statements of operations for all years presented. The prior year balance sheet as of December 31, 1997, has also been adjusted to reflect the net current assets of ACBV of $77,000 as a single line item in other current assets and to reflect the net noncurrent assets of $275,000 as a single line item in other noncurrent assets. There were no remaining assets on the Company's balance sheet as of December 31, 1998, related to ACBV. Revenue of the discontinued operation was $170,000 and $154,000 for the years ended December 31, 1998 and 1997, respectively. On February 11, 1999 (the "Closing Date"), PubliCARD, Inc. ("PubliCARD") completed the acquisition of the Company, pursuant to an Agreement and Plan of Merger dated as of February 11, 1999 (the "Merger Agreement"), whereby a wholly-owned subsidiary of PubliCARD merged with and into the Company. As a result of this merger, the Company became a wholly-owned subsidiary of PubliCARD. As consideration in the merger, the holders of the Company's common stock received a total of 350,000 shares of common stock of PubliCARD in exchange for their shares of common stock of the Company. In addition, pursuant to the Merger Agreement, options to purchase 200,000 shares of PubliCARD common stock with an exercise price of $9.75 were granted to the shareholders of the Company. The Company is subject to a number of risks, including but not limited to, the dependence upon PubliCARD for its continuing financial support; competition from larger, more established companies in the industry; the successful development and marketing of its products; rapid technological changes in the industry; and the dependence on key individuals. PubliCARD has committed to continue to support the Company's working capital needs for the foreseeable future. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of short-term highly liquid investments purchased with original maturities of three months or less. Concentration of Credit Risk and Significant Customers Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high credit quality financial institutions. The Company's accounts receivable are derived from revenue earned from customers located in the U.S., Europe and the Far East. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its credit customers. The Company maintains an allowance for doubtful accounts based upon the expected collectibility of all accounts receivable. At December 31, 1998 and 1997, the top five customers accounted for approximately 70% and 88% of total accounts receivable, respectively. Ten customers accounted for 65% and 62% of the Company's revenues for the years ended December 31, 1998 and 1997, respectively. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and includes materials, labor and manufacturing overhead costs. Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years, or the lease term of the respective assets, if applicable. Revenue Recognition Revenues from product sales are recognized at the time the product is shipped to the customer, with provisions established for estimated product returns and allowances. Returns and allowances have been insignificant to date. Research and Development Research and development costs are expensed as incurred and consist primarily of payroll costs, other direct expenses and overhead. Software Development Costs In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," the Company capitalizes eligible computer software development costs upon the establishment of technological feasibility, which it has defined as completion of a working model. To date, the amount of costs eligible for capitalization, after consideration of factors such as realizable value, were not material and, accordingly, all software development costs have been charged to research and development in the accompanying statements of operations. Warranty Costs Anticipated costs related to product warranties are charged to expense as sales are recognized. The Company has not experienced significant warranty claims to date. Stock-Based Compensation The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No. 25, compensation cost is recognized based on the difference, if any, on the date of grant between the fair value of the Company's stock and the amount an employee must pay to acquire the stock. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting of comprehensive income and its components in a full set of general-purpose financial statements for periods ending after December 15, 1997. As the Company has no material items of other comprehensive income, this statement has no impact on the Company's financial statements. During 1998, the Company adopted SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 requires a new basis of determining reportable business segments, i.e. the management approach. This approach requires that business segment information used by management to assess performance and manage company resources be the source for information disclosure. On this basis, the Company is organized and operates in one business segment, the development and manufacturing of smart cards for use in satellite television, telecommunications, identification and transportation. As a result, the adoption of SFAS No. 131 had no impact on the Company's disclosures or financial statements. 3. BALANCE SHEET COMPONENTS: December 31, 1998 1997 Inventories, net: Raw materials and work-in-progress $ 303,930 $ 320,131 Finished goods 85,653 52,384 $ 389,583 $ 372,515 Property and equipment: Computer equipment $ 451,307 $446,484 Furniture and fixtures 107,313 88,461 Shop equipment 1,452,614 1,566,023 Leasehold equipment 90,222 139,818 2,101,456 2,240,786 Less: Accumulated depreciation and amortization (1,419,045) (1,307,443) $ 682,411 $ 933,343 4. CONVERTIBLE NOTES PAYABLE TO SHAREHOLDER: The Company's operations to date have been funded by one of its major shareholders through the issuance of convertible notes payable. In fiscal 1998, the shareholder converted $8,731,542 of convertible notes payable into 29,600,000 shares of common stock of the Company based on an agreed-upon weighted-average conversion price of $0.295 per share. As of December 31, 1998, no amounts were outstanding under the notes payable. 5. NOTES PAYABLE TO SHAREHOLDERS: As of December 31, 1998, the Company has outstanding notes payable of $608,631 to two shareholders. The notes bear interest at the prime rate plus 1% per annum (8.75% at December 31, 1998) and will mature on June 30, 2000. Under the terms of the notes, the holder of the notes has the option to convert the note, wholly or partially, into preferred stock of the Company at the fair value of the Company's common stock at the time of conversion. Accrued interest at December 31, 1998, was $14,616. 6. COMMITMENTS: Leases The Company leases equipment and office space under various capital and operating leases with various expiration dates through 2003. Rent expense for the year ended December 31, 1998 and 1997, was $178,444 and $111,264, respectively. At December 31, 1998, future minimum lease payments under capital and operating leases are as follows: Year Ending December 31, Capital Operating Leases Leases 1999 $ 60,932 $ 113,973 2000 40,619 4,533 2001 5,828 4,533 2002 5,828 3,400 2003 5,828 - Total 119,035 $ 126,439 Less: Amounts representing interest (17,109) Present value of minimum lease payments (Average interest rate of 8%) 101,926 Less: Current portion (82,688) Long-term portion $ 19,238 7. COMMON STOCK: The Company's Articles of Incorporation, as amended, authorize the Company to issue 50,000,000 shares of no par value common stock. Stock Option Plan In 1997, the Company adopted the 1997 Stock Option Plan (the "Plan"). The Plan provides for the granting of stock options to employees and consultants of the Company. Options granted under the Plan may be either incentive stock options or nonqualified stock options. Incentive stock options ("ISO") may be granted only to Company employees (including officers and directors who are also employees). Nonqualified stock options ("NSO") may be granted only to Company employees and consultants. The Company has reserved 4,000,000 shares of common stock for issuance under the Plan. Options under the Plan may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO and NSO shall not be less than 100% and 85% of the estimated fair value of the shares on the date of grant, respectively, and (ii) the exercise price of an ISO and NSO granted to a 0% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. To date, options granted generally vest over four years. Activity under the Plan was as follows: Shares Weighted Available Options Average for Grant Outstanding Option Price Inception of Plan 2,000,000 - - Authorized 500,000 - - Granted (1,587,200) 1,587,200 $0.01 Canceled 10,100 (10,100) $0.01 Balances, December 31, 1997 922,900 1,577,100 $0.01 Authorized 1,500,000 - - Granted (280,300) 280,300 - Canceled 1,030,600 (1,030,600) $0.01 Balances, December 31, 1998 3,173,200 826,800 $0.01 The weighted-average remaining contractual life of the options outstanding at December 31, 1998 was 8.8 years. No options have been exercised as of December 31, 1998. Fair Value Disclosures The Company accounts for the Plan under APB Opinion No. 25 under which no compensation expense has been recognized, as all stock options are exercisable at a price equal to the fair market value of the underlying shares on the date of grant. There was no material difference between the Company's net loss as reported and the pro forma net loss had compensation expense for the plan been determined consistent with SFAS No. 123. To determine compensation expense under SFAS No. 123, the Company used the following assumptions to estimate that fair value of each option grant on the date of grant using the Black-Scholes option valuation model: risk-free interest rate of 6.0% for 1998 and 1997, average expected life of 4 years, expected dividend yields of zero and expected volatility of 0.01%. The weighted-average fair value of options granted during 1998 and 1997 was approximately $0.01. 8. INCOME TAXES: At December 31, 1998, the Company had approximately $9,410,000 of Federal and state net operating loss carryforwards available to offset future taxable income. These carryforwards expire in varying amounts through 2018, if not utilized. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three-year period. As of December 31, 1998 and 1997, the Company had gross deferred tax assets of approximately $3,858,000 and $2,376,000, respectively. Management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance has been recorded. Deferred tax assets relate primarily to net operating loss carryforwards and certain expenses and reserves that are not currently deductible for income tax purposes. 9. EMPLOYEE BENEFIT PLANS: The Company sponsors a 401(k) defined contribution plan covering all employees. Contributions made by the Company are determined annually by the Board of Directors. Employer contributions were $15,100 and $10,300 under this plan for the years ended December 31, 1998 and 1997, respectively. PUBLICARD, INC. AND SUBSIDIARY COMPANIES UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION The following unaudited pro forma condensed combined financial statements give effect to the acquisition by PubliCARD, Inc. ("PubliCARD" or the "Company") of all of the issued and outstanding common stock of Amazing! Smart Card Technologies, Inc., previously known as Amazing! Controls, Inc. ("Amazing"), in a business combination accounted for by the purchase method of accounting. The unaudited pro forma condensed combined financial statements are derived from the historical financial statements of PubliCARD and Amazing. The unaudited pro forma condensed combined balance sheet gives effect to the acquisition as if it had occurred on December 31, 1998. The unaudited pro forma condensed combined statement of income for the year ended December 31, 1998 gives effect to the acquisition as if it had occurred on January 1, 1998. The pro forma adjustments are based on certain assumptions that management believes are reasonable under the circumstance. The pro forma information is not necessarily indicative of the results that would have been reported had such event actually occurred on the dates specified, nor is it intended to project PubliCARD's results of operations or financial position for any future period or date. The information set forth should be read in conjunction with PubliCARD's audited consolidated financial statements for the year ended December 31, 1998 included in the Company's Form 10-K for the year ended December 31, 1998, and the audited financial statements of Amazing included elsewhere in this Form 8-K/A. PUBLICARD, INC. AND SUBSIDIARY COMPANIES UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1998 (in thousands of dollars) PubliCARD Amazing Pro forma Pro forma HistoricalHistoricalAdjustments Balances ASSETS Cash, including short- term investments $18,482 $ 19 $ (623)(b) $17,478 (400)(c) Trade receivables 1,988 319 - 2,307 Inventories 2,810 390 - 3,200 Other 1,999 23 - 2,022 Total current assets 25,279 751 (1,023) 25,007 Property, plant & equipment, net 3,606 682 - 4,288 Goodwill 9,781 - 5,379 (a) 15,160 Other assets 1,262 4 - 1,266 $39,928 $1,437 $4,356 $45,721 LIABILITIES AND SHAREHOLDERS' EQUITY Current maturities of long-term debt $ 147 $ - $ - $ 147 Trade accounts payable 1,331 1,038 - 2,369 Accrued liabilities 4,384 509 - 4,893 Total current liabilities 5,862 1,547 - 7,409 Long-term debt 991 623 (623)(b) 991 Other non-current liabilities 7,780 19 - 7,799 Total liabilities 14,633 2,189 (623) 16,199 Redeemable shares 3,378 - - 3,378 Shareholders' equity Common shares 2,030 9,843 (9,843)(d) 2,065 35 (e) Additional paid-in capital 67,091 - 5,292 (e) 72,383 Accumulated deficit (38,891) (10,595) 10,595 (d) (39,991) (1,100)(a) Common shares held in treasury (8,207) - - (8,207) Unearned compensation (106) - - (106) Total shareholders' equity 21,917 (752) 4,979 26,144 $39,928 $ 1,437 $ 4,356 $45,721 PUBLICARD, INC. AND SUBSIDIARY COMPANIES UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 (in thousands of dollars except share and per share amounts) PubliCARD Amazing Pro forma Pro forma Historical Historical Adjustments Balances Net sales $16,519 $ 2,483 $ - $19,002 Cost of sales 10,906 2,383 - 13,289 Gross Margin 5,613 100 - 5,713 Operating expenses: General and administrative 5,488 1,405 - 6,893 Sales and marketing 792 738 - 1,530 Product development 740 318 - 1,058 In-process research and development 2,800 - - 2,800 Goodwill amortization 225 - 633 (f) 858 10,045 2,461 633 13,139 Income (loss) from operations (4,432) (2,361) (633) (7,426) Other income (expenses): Interest income 551 1 (18)(h) 534 Interest expense (339) (207) 207 (g) (339) Cost of pensions-non operating (846) - - (846) Other expense (1,021) (103) - (1,124) (1,655) (309) 189 (1,775) Net income (loss) from continuing operation $ (6,087) $ (2,670) $ (444) $ (9,201) Earnings (loss) per common share $ (.44) $ (0.65) Weighted average number of shares outstanding 13,716,243 350,000 (i) 14,066,243 PUBLICARD, INC. AND SUBSIDIARY COMPANIES NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION On February 11, 1999 (the "Closing Date"), PubliCARD completed the acquisition of Amazing, pursuant to an Agreement and Plan of Merger dated as of February 11, 1999 (the "Merger Agreement") whereby a wholly-owned subsidiary of the Company merged with and into Amazing. As a result of this merger, Amazing became a wholly-owned subsidiary of the Company. As consideration in the merger, Mr. B.K. Marya (and related family trusts) and Mr. Donald Witmer, the holders of Amazing's common stock, received a total of 350,000 shares of common stock of the Company in exchange for their shares of common stock of Amazing. In addition, pursuant to the Merger Agreement, options to purchase 200,000 shares of PubliCARD common stock with an exercise price of $9.75 per share were granted to the shareholders of Amazing. These PubliCARD options are exercisable from the Closing Date until the fifth anniversary of the Closing Date. Also, options to purchase 842,300 shares of Amazing common stock outstanding immediately prior to the closing of the merger were converted into options to purchase 7,503 shares of PubliCARD common stock with exercise prices ranging from $1.12 to $10.10 per share. These PubliCARD options vest over three or four years and are exercisable for a period of five or ten years. Furthermore, pursuant to the Merger Agreement, the Company issued on the Closing Date options to purchase 250,000 shares of PubliCARD common stock to several employees of Amazing. These options have an exercise price of $9.75 per share, vest over a three year period and will be exercisable until the fifth anniversary of the Closing Date. The merger consideration was determined as a result of arms length negotiations between the Company and Amazing. The merger will be accounted for under the purchase method of accounting. Pursuant to the Merger Agreement, the Company is required to register the shares of PubliCARD common stock issued in connection with the merger under a shelf registration statement under the Securities Act of 1933. Pursuant to the Merger Agreement, the Company satisfied certain indebtedness of Amazing, including accrued interest, to a bank in the amount of approximately $75,000 and to former shareholders of Amazing in the amount of approximately $717,000. The repayment of certain indebtedness of Amazing by the Company was financed with available cash on hand. The pro forma adjustments included in the unaudited pro forma condensed combinedfinancial statements were as follows: (a) Under the purchase method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Allocations are subject to valuations as of the date of the purchase transaction. The amount and components of the estimated purchase price along with the preliminary allocation of the estimated purchase price are as follows (in thousands): Purchase price: Estimated value of common stock and stock options $ 5,327 Estimated acquisition expenses 400 $ 5,727 Allocation of purchase price: Negative book value of net assets of Amazing $ (752) In-process research and development 1,100 Goodwill 5,379 $ 5,727 For purposes of the accompanying unaudited pro forma condensed combined financial statements, the aggregate purchase price has been allocated to the net assets acquired, with the remainder recorded as goodwill on the basis of preliminary estimates of fair values. These preliminary estimates of fair value were determined by management based on information currently available. The Company has retained independent valuation professionals to assist in the determination of the value to be assigned to the individual assets acquired, including intangible assets and in-process research and development. While the pro forma information has been presented based on the best information currently available to management, the final allocation of the purchase price will be based on a complete evaluation of the assets and liabilities of Amazing. The final valuation may result in values that are different from management's estimates as included in the unaudited pro forma condensed combined financial statements. As stated above, the purchase price has been allocated on the basis of preliminary estimates of fair value. Management currently estimates that the allocation to in-process research and development will be approximately $1.1 million. The unaudited pro forma condensed combined statement of income excludes the write off of the estimated value of the acquired in- process research and development due to its non-recurring nature. The unaudited pro forma condensed combined balance sheet reflects an allocation of $1.1 million to in-process research and development. (b) Represents the repayment of Amazing's indebtedness, including accrued interest, to a bank and to former shareholders of Amazing. (c) Represents payment of acquisition related expenses. (d) Represents the elimination of Amazing's equity accounts. (e) Represents the estimated value of common stock and stock options issued by the Company as consideration in the merger transaction. (f) Represents the amortization of goodwill over an estimated life of five years. (g) Represents the elimination of interest expense on Amazing's indebtedness which is assumed to be repaid as of the beginning of the period presented. (h) Represents the reduction of interest income due to the repayment of Amazing's indebtedness and payment of acquisition expenses as of the beginning of the period presented. (i) Represents the issuance of shares of the Company's common stock to the former shareholders of Amazing. Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated April 16, 1999, relating to the financial statements of Amazing! Smart Card Technologies, Inc. as of and the for years ended December 31, 1998 and 1997 included in this Form 8-K/A Amendment No. 1 into PubliCARD, Inc.'s previously filed Registration Statement on Form S-1 File No. 33-9344, Registration Statement on Form S-3 File No. 33-9344 and Registration Statements on Form S-8 File Nos. 33-56838, 33-88876, 333-72411, 333-73037, 333-73307 and 333-74169. /s/Arthur Andersen LLP San Jose, California April 26, 1999 -----END PRIVACY-ENHANCED MESSAGE-----