SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 5, 2001
EMTEC, INC.
(Exact name of Registrant as specified in Charter)
Delaware 2-54020 87-0273300
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation) Identification Number)
817 East Gate Drive, Mount Laurel, New Jersey 08054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (856) 235-2121
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
The financial statements required by Item 7(a) of this
Report.
(b) Pro Forma Financial Information
The pro forma financial information required by Item 7(b)
of this Report.
(c) Exhibits previously filed on December 20, 2001.
10.1 Asset Acquisition Agreement dated December 5, 2001,
by and between Devise Associates, Inc. and Registrant.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Devise Associates, Inc.:
We have audited the accompanying balance sheets of DEVISE ASSOCIATES, INC. (a
subsidiary of McLeod USA Incorporated as of May 2001, a subsidiary of
Intelispan, Inc. as of June 2000, a stand-alone New York corporation prior to
June 2000) as of December 31, 2001 and 2000 and the related statements of
operations, stockholders' equity (deficit) and comprehensive income, and cash
flows for the years 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 respects, the financial position of Devise Associates, Inc. as of
December 31, 2001 and 2000 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 25, 2002
DEVISE ASSOCIATES, INC.
BALANCE SHEETS
December 31, 2001 and 2000
ASSETS
2001 2000
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 8,420 $ 15,172
Accounts receivable, net of allowance for doubtful accounts of $100,000
and $45,107 at December 31, 2001 and 2000, respectively 1,328,400 735,883
Investments in marketable securities 284,714 351,242
Prepaids and other current assets 115,796 169,852
---------- ----------
Total current assets 1,737,330 1,272,149
---------- ----------
PROPERTY AND EQUIPMENT:
Computers and computer equipment 656,294 577,182
Furniture and fixtures 157,845 191,452
Leasehold improvements 111,079 0
---------- ----------
925,218 768,634
Less accumulated depreciation (575,174) (457,641)
---------- ----------
Property and equipment, net 350,044 310,993
---------- ----------
Total assets $2,087,374 $1,583,142
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Lines of credit $ 0 $ 549,560
Accounts payable 258,513 386,556
Due to Parent 3,123,947 767,893
Accrued expenses 110,068 82,665
Deferred revenue 205,922 169,652
Current portion of capital lease obligations 0 16,712
--------- ---------
Total current liabilities 3,698,450 1,973,038
NONCURRENT LIABILITIES:
Notes payable--related party 0 75,000
--------- ---------
Total liabilities 3,698,450 2,048,038
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 100 shares authorized, issued, and outstanding
in 2001 and 2000 131,200 131,200
Unrealized (losses) gains on marketable securities (13,587) 8,308
Accumulated deficit (1,728,689) (604,404)
---------- ----------
Total stockholders' deficit (1,611,076) (464,896)
---------- ----------
Total liabilities and stockholders' equity $2,087,374 $1,583,142
========== ==========
The accompanying notes are an integral part of these balance sheets.
DEVISE ASSOCIATES, Inc.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
REVENUES $5,132,032 $5,119,522
---------- ----------
OPERATING EXPENSES:
Cost of revenues 2,002,653 1,840,868
General and administrative 3,767,358 3,355,856
Sales and marketing 333,660 342,909
Depreciation and amortization 117,531 92,026
----------- -----------
Total operating expenses 6,221,202 5,631,659
----------- -----------
OPERATING LOSS (1,089,170) (512,137)
INTEREST EXPENSE, net 46,394 96,447
OTHER INCOME 11,279 157,577
----------- -----------
NET LOSS $(1,124,285) $ (451,007)
----------- -----------
The accompanying notes are an integral part of these statements.
DEVISE ASSOCIATES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Total
Common Stock Unrealized Stockholders'
------------------- Gains Accumulated Equity
Shares Amount (Losses) Deficit (Deficit)
------- ------- ----------- ------------ -------------
BALANCE, December 31, 1999 100 $ 1,200 $ 86,519 $ (123,375) $ (35,656)
------------
Comprehensive loss:
Net loss 0 0 0 (451,007) (451,007)
Net change in unrealized gains on marketable
securities 0 0 (78,211) 0 (78,211)
------------
Total comprehensive loss (529,218)
------------
Distribution to stockholder 0 0 0 (30,022) (30,022)
------------
Converted promissory notes to common stock 0 130,000 0 0 130,000
----- -------- -------- ----------- -----------
BALANCE, December 31, 2000 100 131,200 8,308 (604,404) (464,896)
------------
Comprehensive loss:
Net loss 0 0 0 (1,124,285) (1,124,285)
Net change in unrealized gains (losses) on marketable
securities 0 0 (21,895) 0 (21,895)
-----------
Total comprehensive loss (1,146,180)
----- -------- -------- ----------- -----------
BALANCE, December 31, 2001 100 $131,200 $(13,587) $(1,728,689) $(1,611,076)
===== ======== ======== =========== ===========
The accompanying notes are an integral part of these statements.
DEVISE ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,124,285) $(451,007)
----------- ---------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 117,531 92,026
Changes in operating assets and liabilities:
Accounts receivable (592,517) 153,022
Prepaids and other current assets 54,056 (105,110)
Accounts payable (128,043) 26,524
Accrued expenses 27,403 (44,044)
Deferred revenue 36,270 (167,525)
----------- ---------
Total adjustments (485,300) (45,107)
----------- ---------
Net cash used in operating activities (1,609,585) (496,114)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (156,582) (176,095)
Proceeds from (purchase of) marketable securities 44,633 (31,430)
----------- ---------
Net cash used in investing activities (111,949) (207,525)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) Proceeds from lines of credit, net (549,560) 55,176
Payments on notes payable (75,000) (50,000)
Net borrowings from Parent 2,356,054 767,893
Distributions to stockholder 0 (30,022)
Payments on capital lease obligations (16,712) (26,049)
----------- ---------
Net cash provided by financing activities 1,714,782 716,998
----------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,752) 13,359
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,172 1,813
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,420 $ 15,172
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 53,453 $ 57,963
=========== =========
Conversion of stockholder loan to common stock $ 0 $ 130,000
=========== =========
The accompanying notes are an integral part of these statements.
DEVISE ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
1. ORGANIZATION AND NATURE OF BUSINESS
Devise Associates, Inc. (the "Company") is a computer systems network
integrator with headquarters in New York City, New York. The Company
provides managed services and consults, designs, builds, and services
computer networks. The Company is a Microsoft Certified Solutions Provider,
Novell Platinum Partner, and authorized reseller of Computer Associates
Unicenter TNG, ARCserve, and Enterprise Edition Software Solutions. Other
partners include Nortel Networks, Cisco Systems, Symantec, Checkpoint,
Citrix, 3-Com, and AT&T.
The Company was originally incorporated in New York in 1985. The Company
supports hundreds of clients in the New York metropolitan areas as well as
national and international accounts. In June 2000, the Company sold
substantially all of the assets and the business related to those assets to
Intelispan, Inc. ("Intelispan"). In May 2001, Intelispan, Inc. merged with
McLeod USA, Inc. ("McLeod USA") (collectively, the "Parent").
Financial Condition
The Company is subject to various risks in connection with the operation of
its business including, among other things, (i) changes in external
competitive market factors, (ii) inability to satisfy anticipated working
capital or other cash requirements, (iii) changes in the Company's business
strategy or an inability to execute its strategy due to unanticipated
changes in the market, (iv) various competitive factors that may prevent
the Company from competing successfully in the marketplace, and (v) the
Company's lack of liquidity. The Company has an accumulated deficit of
approximately $1.7 million as of December 31, 2001 as well as a working
capital deficit of approximately $2 million and expects to continue to
incur operating losses in the near future. Funding of the Company's working
capital deficit, current and future operating losses, and expansion of the
Company will require substantial continuing capital investment.
The Company's strategy has been to fund these cash requirements through
contributions by the Parent.
There can be no assurance that sufficient financing will continue to be
available in the future or that it will be available on terms acceptable to
the Company. Failure to obtain sufficient capital could materially affect
the Company's operations and expansion strategies. As a result of the
aforementioned factors and related uncertainties, there is substantial
doubt about the Company's ability to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been carved out of
consolidated financial statements of McLeod USA and Intelispan based on
their respective ownership period and have been prepared to present the
financial position, results of operations, and cash flows of the Company on
a stand-alone basis. Accordingly, the accompanying financial statements
include certain administrative costs and expenses, which have been
allocated to the Company by the Parent. These costs have been allocated on
a pro rata basis based primarily on employee headcount and represent
management's best estimates of what such expenses would have been had the
Company been operated as a separate entity.
Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
these estimates.
Revenue Recognition
The Company generates revenue primarily from service and support,
maintenance, implementation, and other services. Service and support,
maintenance, and other revenues are recognized as work is performed.
Implementation services include delivery of hardware and project
implementation. Revenues from hardware sales are recognized upon delivery
and revenues for implementation are recognized upon system turnover.
Deferred Revenue
Deferred revenue represents the liability for advance billings to customers
related to projects in progress at year-end. Such amounts are recognized as
revenues when the project is completed.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments with an
original maturity date of three months or less to be cash equivalents. Cash
and cash equivalents are stated at cost, which approximates fair value.
Investments in Marketable Securities
The Company follows Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 mandates that a
determination be made of the appropriate classification for debt and equity
securities with a readily determinable fair value at the time of purchase
and a reevaluation of such designation as of each balance sheet date. At
December 31, 2001 and 2000, investments consisted of equity instruments.
All investments are deemed by management to be available-for-sale and are
reported at fair value with net unrealized gains or losses reported within
stockholders' equity. Realized gains and losses are recorded based on the
specific identification method. For the years ended December 31, 2001 and
2000, realized (losses) gains were $(42,787) and $29,284, respectively, and
has been recorded in other income in the accompanying statements of
operations. The carrying amount of the Company's investments at December
31, 2001 and 2000 is shown in the table below:
2001 2000
----------------------- ---------------------
Market Market
Cost Value Cost Value
--------- -------- -------- --------
Investments:
Mutual funds $298,301 $284,714 $342,934 $351,242
========= ======== ======== ========
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective
assets for financial reporting purposes. Major additions and improvements
are charged to the property accounts while maintenance and repairs, which
do not improve or extend the lives of the respective assets, are expensed
in the current period. Estimated useful lives for the Company's assets are
as follows:
Computers and computer equipment Five years
Furniture and fixtures Seven years
At December 31, 2001 and 2000, the Company had $0 and $61,093 ,
respectively, equipment under capital leases included in property and
equipment. Assets recorded under capital leases and leasehold improvements
are depreciated over the shorter of their useful lives or the term of the
related lease. Depreciation expense was $100,656 and $78,024 for the years
ended December 31, 2001 and 2000, respectively.
Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets,
such as property and equipment, to determine whether any impairments are
other than temporary. An impairment will be recognized when the future net
cash flows estimated to be generated by the asset are insufficient to
recover the current carrying value of the asset. Estimates of future cash
flows are based on many factors, including current operating results,
expected market trends, and competitive influences. Management believes
that the long-lived assets in the accompanying balance sheets are
appropriately valued.
Advertising Costs
Advertising costs related primarily to print advertising are expensed as
incurred. Advertising expenses included in sales and marketing expenses
were $69,356 and $42,848 for the years ended December 31, 2001 and 2000,
respectively.
Income Taxes
Prior to June 2000, income taxes were payable personally by the
stockholders pursuant to an election under Subchapter S of the Internal
Revenue Code and similar statutes in applicable states. Accordingly, no
provision has been made for deferred or current federal and state income
taxes prior to June 2000.
Following the acquisition by Intelispan in June 2000 (Note 1), the Company
utilizes the liability method of accounting for income taxes. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Web Site Development Costs
Web site development costs include personnel costs associated with the
development, testing, and upgrades to the Company's Web site and systems.
In March 2000, the Emerging Issues Task Force ("EITF") concluded on Issue
00-2, "Accounting for Web site Development Costs." EITF Issue 00-2
developed a model that would account for specific Web site development
costs based on the nature of each cost. The model has four stages:
planning, Web application and infrastructure, graphics development, and
operations. Costs during the planning and operation stages are expensed as
incurred, and costs during the Web application and infrastructure and
graphics development stages are capitalized. As allowed by EITF Issue 00-2,
the Company elected to apply the new rules effective January 1, 1999. At
December 31, 2001 and 2000, the Company had capitalized $53,622 of Web site
development costs, which are reported net of accumulated amortization of
$27,599 and $10,724, respectively, and included in computers and computer
equipment. Such costs are amortized over a three-year period.
Comprehensive Income (Loss)
The Company follows SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. The Company has chosen to disclose comprehensive income, which
consists of net income (loss) and unrealized gains on investments, in the
statements of stockholders' equity (deficit) and comprehensive income.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company's cash investment policies limit investments to short-term,
low-risk instruments. Concentrations of credit risk with respect to trade
receivables are limited due to the number of customers comprising the
customer base.
New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This
statement requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The adoption of this statement will not have a
significant impact on the Company's financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement requires that goodwill and certain intangible
assets, including those recorded in past business combinations, no longer
be amortized to earnings but instead be tested for impairment at least
annually. SFAS No. 142 will become effective for fiscal years beginning
after December 15, 2001. The Company is required to adopt SFAS No. 142 on
January 1, 2002. The adoption of this statement will not have a significant
impact on the Company's financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses accounting and reporting
for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is
effective for fiscal years beginning after June 15, 2002. The adoption of
this statement will not have a significant impact on the Company's
financial statements.
In August 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after
December 15, 2001. The provisions of this statement provide a single
accounting model for impairment of long-lived assets. The Company does not
believe the adoption of this statement will have a significant impact on
the Company's financial statements.
3. LINE OF CREDIT
At December 31, 2000, the Company had a $750,000 working capital
line-of-credit agreement (the "Credit Agreement") with a bank. The Credit
Agreement expired May 2001 and carried an interest rate of 9.51% at
December 31, 2000. The Company had $504,560 outstanding at December 31,
2000.
At December 31, 2001 and 2000, the Company had a $100,000 line of credit
("Credit Agreement No. 2") with a bank. Credit Agreement No. 2 expires
August 2002 and carried an interest rate of 14.25% at December 31, 2001.
The Company had $0 and $45,000 outstanding at December 31, 2001 and 2000,
respectively.
4. COMMITMENTS AND CONTINGENCIES
The Company has entered into noncancelable operating lease agreements for
office space which expire at various dates through June 2008. Future
minimum lease payments are due as follows:
2002 $ 266,076
2003 266,076
2004 266,076
2005 266,076
2006 and thereafter 1,478,717
----------
$2,543,021
==========
Rental expenses were approximately $243,000 and $242,000 for the years
ended December 31, 2001 and 2000, respectively, and have been included in
general and administrative expenses in the accompanying statements of
operations.
Reseller Agreement
During the year ended December 31, 2000, the Company entered into a
reseller agreement with a software company. Under the terms of the
agreement, the Company will resell purchased software over a period of
three years. At December 31, 2001, the Company had prepaid $62,851 under
the agreement, and that amount has been included in prepaids and other
current assets in the accompanying balance sheets.
Legal Proceedings
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. Management is not aware of any asserted or
pending litigation or claims against the Company that would have a material
adverse effect on the Company's financial condition, results of operations,
or liquidity.
5. RELATED-PARTY TRANSACTIONS
At December 31, 2001 and 2000, the Company had outstanding notes of $0 and
$75,000, respectively, payable to relatives of an officer/principal
shareholder of the Company. These notes bear interest at a rate of 10% per
annum, mature on the fifteenth anniversary, or convert to common stock upon
change of control based on the estimated fair market value on the date of
promissory note issuance. The notes were paid by the Parent during the year
ended December 31, 2001.
Interest expense recognized was approximately $46,000 and $79,000 for the
years ended December 31, 2001 and 2000, respectively.
6. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and income tax purposes. As discussed in Note 2, the
Company is included in the consolidated return of Intelispan and McLeod USA
during their respective ownership period.
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of December 31, 2001 and 2000 are as
follows:
2001 2000
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $ 584,815 $ 180,780
Allowance for doubtful accounts 44,000 19,847
Deferred revenues 90,606 74,647
--------- ---------
Total deferred tax assets 719,421 275,274
Deferred tax liabilities:
Accelerated depreciation 8,800 2,444
--------- ---------
Net deferred asset 710,621 272,830
Valuation allowance (710,621) (272,830)
--------- ---------
Net deferred taxes $ 0 $ 0
========= =========
The Company's federal, state, and local net operating loss carryforwards of
approximately $1,300,000 and $400,000 as of December 31, 2001 and 2000,
respectively, will expire beginning in 2019. As the Company is unable to
conclude that it is more likely than not that its deferred tax assets will
be recognized, the Company has provided a 100% valuation allowance against
its net deferred tax assets.
A reconciliation of the income tax provision computed at statutory tax
rates to the income tax provision recorded for the years ended December 31,
2001 and 2000 is as follows:
2001 2000
---------- ---------
Income tax benefit at statutory rate (34.0)% (34.0)%
State and local income taxes, net of federal benefit (10.0) (10.0)
Change in valuation allowance 44.0 44.0
-------- -------
Income tax provision 0.0% 0.0%
======== =======
7. SUBSEQUENT EVENT (UNAUDITED)
In December 2001, the Company entered into an Asset Acquisition Agreement
with Emtec, Inc. ("Emtec") under which the Company will sell to Emtec its
information technology consulting and managed services business for an
aggregate purchase price of approximately $365,000 in cash, subject to
postclosing adjustments. The transaction closed on January 9, 2002.
EMTEC, INC.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The Company's pro forma financial statements give effect to the January 9, 2002
acquisition by Emtec, Inc. of Devise Associates, Inc. as set forth in Note (1),
as if such transaction had occurred at December 31, 2001 for pro forma balance
sheet purposes and as if such transaction had occurred at the beginning of the
periods presented for the purposes of the pro forma statements of operations.
Emtec, Inc. has a March 31 fiscal year, whereas Devise Associates, Inc. had a
December 31 fiscal year. Therefore, the pro forma statements of operations
combine the years ended March 31, 2001 for Emtec, Inc. and December 31, 2000 for
Devise Associates, Inc. and the nine months ended December 31, 2001 for Emtec,
Inc. and September 30, 2001 for Devise Associates, Inc..
The pro forma financial statements and accompanying Notes should be read in
conjunction with a reading of the financial statements of Emtec, Inc. and Devise
Associates, Inc.
EMTEC, INC.
PRO FORMA BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2001
Historical
Devise Pro Forma Pro Forma
Emtec, Inc. Associates, Inc. Adjustments (1) Totals
----------- ---------------- ----------- ----------
Assets
Current Assets
Cash and cash equivalents $ 143,300 $ 8,420 $ (144,744) $ 6,976
Marketable securities 4,090 284,714 (284,714) 4,090
Receivables:
Trade, less allowance
for doubtful accounts 10,055,478 1,328,400 (1,328,400) 10,055,478
Others 323,339 - - 323,339
Inventories 773,928 - - 773,928
Prepaid expenses 213,716 115,796 (112,965) 216,547
----------- ---------- ----------- -----------
Total Current Assets 11,513,851 1,737,330 (1,870,823) 11,380,358
Investments in Geothermal Power Unit 531,508 - - 531,508
Net Property and Equipment 661,458 350,044 (197,824) 813,678
Deferred tax asset 16,796 - - 16,796
Goodwill & Other Assets 182,249 - 200,000 382,249
----------- ---------- ----------- -----------
Total Assets $12,905,862 $2,087,374 $(1,868,647) $13,124,589
=========== ========== =========== ===========
Liabilities and Shareholders'
Equity
Current Liabilities
Line of credit $ - $ - $ - $ -
Accounts payable 7,423,262 258,513 (258,513) 7,423,262
Due to Parent - 3,123,947 (3,123,947) -
Other current liabilities 2,378,798 315,990 (97,263) 2,597,525
----------- ---------- ----------- -----------
Total Current Liabilities 9,802,060 3,698,450 (3,479,723) 10,020,787
Deferred revenue 810,085 - - 810,085
----------- ---------- ----------- -----------
Total Liabilities 10,612,145 3,698,450 (3,479,723) 10,830,872
----------- ---------- ----------- -----------
Shareholders' Equity
Common stock 70,805 131,200 (131,200) 70,805
Additional paid-in capital 2,210,805 - - 2,210,805
Accumulated other comprehensive
income 3,010 (13,587) 13,587 3,010
Retained Earnings 9,097 (1,728,689) 1,728,689 9,097
----------- ---------- ----------- -----------
Total Shareholders' Equity 2,293,717 (1,611,076) 1,611,076 2,293,717
----------- ---------- ----------- -----------
Total Liabilities and
Shareholders' Equity $12,905,862 $2,087,374 (1,868,647) $13,124,589
=========== ========== =========== ===========
EMTEC, INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
Historical
Devise Pro Forma Pro Forma
Emtec, Inc. Associates, Inc. Adjustments (2) Totals
----------- ---------------- --------------- -------
Year Ended: March 31, 2001 December 31, 2000
---------- -------------- -----------------
Total Revenues $92,602,735 $5,119,522 $ - $97,722,257
Total Cost of Revenues 81,631,164 3,500,749 - 85,131,913
---------- --------- ----------- ----------
Total Gross Profit 10,971,571 1,618,773 - 12,590,344
---------- --------- ----------- ----------
Operating Expenses
Sales, general & administrative
expenses 10,240,596 2,130,911 (704,474)(a) 11,667,033
Termination costs 90,000 - - 90,000
Interest expense 692,227 96,447 - 788,674
Startup costs; E-Business 1,303,740 - - 1,303,740
---------- --------- ----------- ----------
Total Operating Expenses 12,326,563 2,227,358 (704,474) 13,849,447
---------- --------- ----------- ----------
(Loss) Income From Continuing
Operations Before Other Income
And Income Tax Benefit(Expense) (1,354,992) (608,585) 704,474 (1,259,103)
Other Income - litigation settlement 24,108 157,577 (54,334)(b) 127,351
Income tax benefit (expense) 73,059 - - 73,059
---------- --------- ----------- ----------
(Loss) Income From Continuing
Operations, Net of Income Taxes (1,257,825) (451,007) 650,140 (1,058,693)
---------- --------- ----------- ----------
Loss per share
from continuing operations $(0.22) $(0.19)
(basic and diluted)
Weighted average number
of shares outstanding
(basic and diluted) 5,679,700 5,679,700
EMTEC, INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
Historical
Devise Pro Forma Pro Forma
Emtec, Inc. Associates, Inc. Adjustments (2) Totals
----------- ---------------- ----------- ----------
Nine Months Ended: December 31, 2001 September 30, 2001
----------------- ----------------- ------------------
Total Revenues $ 57,509,200 $4,245,470 $ - $ 61,754,670
Total Cost of Revenues 49,556,897 3,443,261 (87,940)(c) 52,912,218
------------- ---------- -------- ------------
Total Gross Profit 7,952,303 802,209 87,940 8,842,452
------------- ---------- -------- ------------
Operating Expenses
Sales, general & administrative
expenses 6,781,684 1,509,794 (750,100)(d) 7,541,378
Termination costs - - - -
Interest expense 204,093 40,818 - 244,911
Startup costs; E-Business 502,605 - - 502,605
------------- ---------- -------- ------------
Total Operating Expenses 7,488,382 1,550,613 (750,100) 8,288,894
------------- ---------- -------- ------------
Income (Loss) From Continuing
Operations Before Other Income
And Income Tax Benefit(Expense) 463,921 (748,403) 838,040 553,558
Other Income - litigation settlement - 15,669 28,498 (e) 44,167
Income tax expense (6,200) - - (6,200)
------------- ---------- -------- ------------
Income (Loss) From Continuing
Operations, Net of Income Taxes 457,721 (732,734) 866,538 591,525
------------- ---------- -------- ------------
Income per share
from continuing operations
(basic and diluted) $0.06 $0.08
Weighted average number
of shares outstanding
(basic and diluted) 7,080,498 7,080,498
EMTEC, INC.
(FORMERLY AMERICAN GEOLOGICAL ENTERPRISES, INC.)
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. Acquisition of Devise Associates, Inc. by Emtec, Inc.
On January 9, 2002, Emtec, Inc. (the Company) acquired certain assets of
Devise Associates, Inc., an information technology consulting and managed
services organization located in New York City. The Company shall account
for this acquisition as a purchase under Statement of Financial
Accounting Standards No. 141 (SFAS 141) "Business Combinations" SFAS 141
states that the cost of an acquired business should be allocated to the
assets acquired and liabilities assumed based on their estimated fair
values at date of acquisition, by allocating the total purchase price.
The Company paid a net price of $136,324 in cash for the entire business,
to be allocated as follows:
$200,000 Goodwill
152,220 Equipment
2,831 Prepaid Expenses
--------
$355,051 Aggregate purchase price
Less 218,727 Deferred Revenues assumed in the transaction
--------
$136,324 Net purchase price
========
2. Pro Forma Adjustments to Statement of Operations.
Years ended March 31, 2001 and December 31, 2000
a) Pro Forma adjustment of $(704,474) to Sales, general, and
administrative expense is mainly due to elimination of
compensation paid to executive, accounting, administration and
certain sales personnel of Devise Associates, Inc. who were not
retained by the Company. This amounts to $(668,046) which
includes total compensation paid to these positions. The
remaining $(36,428) includes the elimination of,or adjustments to
bank service charges, accounting fees, legal fees, depreciation
and amortization expense, and life insurance premiums paid for
executives.
b) Pro Forma adjustment of $(54,334) to other income is due to
elimination of investment income.
Nine months ended December 31, 2001 and September 30, 2001
c) Pro Forma adjustment of $(87,940) to cost of sales is mainly due
to utilizing our vendor relationship and obtaining volume
discounts for products.
d) Pro Forma adjustment of $(750,100) to Sales, general, and
administrative expense is mainly due to elimination of
compensation paid to executive, accounting, administration and
certain sales personnel of Devise Associates, Inc. who were not
retained by the Company. This amounts to $(724,050), which
includes total compensation paid to these positions. The
remaining $(26,050) includes the elimination of or adjustments to
bank service charges, accounting fees, legal fees, depreciation
and amortization expense, and life insurance premium paid for
executives.
e) Pro Forma adjustment of $28,498 to other income is due to
elimination of investment loss.
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 thereunto duly authorized.
Dated: March 15, 2002
EMTEC, INC.
(Registrant)
By: /s/John Howlett
------------------
John Howlett
Chairman and Chief
Executive Officer