Attached files
Exhibit 99.3
Unaudited Pro Forma Combined Financial Information
The following unaudited pro forma combined financial statements give effect to the acquisition by ISC8 Inc. (the “Company”) of certain assets used by the Bivio Software Business (the carved-out operations of certain assets of Bivio Networks, Inc.), which includes substantially all of the assets of the NetFalcon and Network Content Control System (the "Bivio Transaction"). These assets include all of Bivio Software's operations located in Italy, Qatar, the United Kingdom, Dubai, and Singapore. The following unaudited pro forma combined financial statements are based on the historical financial statements of the Company and the historical “carve-out” financial statements of the Bivio Software Business.
The unaudited pro forma combined financial information of the Company gives effect to the Transaction as if it had occurred (i) on September 30, 2012 with respect to the unaudited pro forma combined balance sheet and (ii) on October 3, 2011 with respect to the unaudited pro forma combined statements of operations for the fiscal year ended September 30, 2012. The Company’s combined statement of operations is derived from our audited financial statements as of and for the year ended September 30, 2012 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on December 28, 2012. The Bivio Software Business’ statement of operations is derived from the combined carve-out financial statements included elsewhere in this Form 8-K/A. Certain amounts from the historical “carve-out” financial statements of the Bivio Software Business have been reclassified to conform to the Company’s presentation.
The unaudited pro forma combined financial data is provided for comparative purposes only and does not purport to represent what the Company’s financial position or results of operations would actually have been had the events noted above in fact occurred on the assumed dates or to project the Company’s financial position or results of operations as of any future date or for any future period. This data should be read in conjunction with, and is qualified in its entirety by reference to:
|
·
|
the Company’s audited consolidated financial statements and related notes and the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012; and
|
|
·
|
the audited “carve-out” financial statements and related notes for the Bivio Software Business for the years ended January 31, 2011 and 2012 included in Exhibit 99.1 to this Current Report on Form 8-K/A.
|
F-1
ISC8 INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 2012
|
As
Reported (1)
|
Bivio
Software
|
Pro Forma
Adjustments
|
Pro Forma
|
|||||||||||||
|
Assets
|
||||||||||||||||
|
Current assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
$ | 1,738,400 | $ | 30,600 | $ | (600,000 | )(a) | $ | 1,169,000 | |||||||
|
Accounts receivable, net
|
445,300 | 445,300 | ||||||||||||||
|
Due from Vectronix Inc
|
1,200,100 | 1,200,100 | ||||||||||||||
|
Unbilled revenues on uncompleted contracts
|
549,200 | 549,200 | ||||||||||||||
|
Prepaid expenses and other current assets
|
111,900 | 83,900 | 195,800 | |||||||||||||
|
Total current assets
|
4,044,900 | 114,500 | (600,000 | ) | 3,559,400 | |||||||||||
|
Property and equipment, net
|
952,400 | 48,000 | 1,000,400 | |||||||||||||
|
Intangible assets, net
|
126,700 | 773,300 | (b) | 900,000 | ||||||||||||
|
Goodwill
|
207,000 | 445,600 | (c) | 652,600 | ||||||||||||
|
Deferred financing costs
|
963,200 | 963,200 | ||||||||||||||
|
Other assets
|
180,200 | 36,700 | 216,900 | |||||||||||||
|
Total assets
|
$ | 6,140,700 | $ | 532,900 | $ | 618,900 | $ | 7,292,500 | ||||||||
|
Liabilities and Stockholders’ Deficit
|
||||||||||||||||
|
Current liabilities:
|
||||||||||||||||
|
Accounts payable
|
$ | 814,600 | $ | 216,900 | $ | 77,100 | (d) | $ | 1,108,600 | |||||||
|
Accrued expenses
|
2,513,900 | 459,000 | 2,972,900 | |||||||||||||
|
Advance billings on uncompleted contracts
|
296,700 | 296,700 | ||||||||||||||
|
Deferred revenue
|
- | 390,900 | 390,900 | |||||||||||||
|
Senior secured revolving credit facility loan, net of discounts
|
4,566,800 | 4,566,800 | ||||||||||||||
|
Senior subordinated secured convertible promissory notes
|
1,119,000 | 1,119,000 | ||||||||||||||
|
Senior subordinated secured promissory notes
|
4,790,400 | 4,790,400 | ||||||||||||||
|
Settlement agreements obligations, current portion
|
17,200 | 17,200 | ||||||||||||||
|
Capital lease obligations, current portion
|
17,100 | 17,100 | ||||||||||||||
|
Total current liabilities
|
14,135,700 | 1,066,800 | 77,100 | 15,279,600 | ||||||||||||
|
Subordinated secured convertible promissory notes, net of discounts
|
6,470,300 | 6,470,300 | ||||||||||||||
|
Settlement agreement obligations, less current portion
|
1,400 | 1,400 | ||||||||||||||
|
Derivative liability
|
19,925,400 | 19,925,400 | ||||||||||||||
|
Executive Salary Continuation Plan liability
|
975,000 | 975,000 | ||||||||||||||
|
Capital lease obligations, less current portion
|
62,700 | 62,700 | ||||||||||||||
|
Total liabilities
|
41,570,500 | 1,066,800 | 77,100 | 42,714,400 | ||||||||||||
|
Stockholders’ deficit:
|
||||||||||||||||
|
Convertible preferred stock, $0.01 par value, 1,000,000 shares authorized;
|
— | — | — | — | ||||||||||||
|
Series B — 1,800 shares issued and outstanding(1); liquidation preference of $926,300
|
||||||||||||||||
|
Common stock, $0.01 par value, 800,000,000 shares authorized; 131,558,800 shares issued and outstanding(1)
|
1,315,600 | 1,315,600 | ||||||||||||||
|
Common stock held by Rabbi Trust
|
(1,020,700 | ) | (1,020,700 | ) | ||||||||||||
|
Deferred compensation liability
|
1,020,700 | 1,020,700 | ||||||||||||||
|
Paid-in capital
|
174,156,800 | 85,000 | (e) | 174,241,800 | ||||||||||||
|
Retained earnings (accumulated deficit)
|
(211,226,600 | ) | (533,900 | ) | 533,900 | (f) | (211,303,700 | ) | ||||||||
| (77,100 | )(d) | |||||||||||||||
|
ISC8 Inc. stockholders’ equity (deficit)
|
(35,754,200 | ) | (533,900 | ) | 541,800 | (35,746,300 | ) | |||||||||
|
Noncontrolling interest
|
324,400 | 324,400 | ||||||||||||||
|
Total stockholders’ equity (deficit)
|
(35,429,800 | ) | (533,900 | ) | 541,800 | (35,421,900 | ) | |||||||||
|
Total liabilities and stockholders’ equity (deficit)
|
$ | 6,140,700 | $ | 532,900 | $ | 618,900 | $ | 7,292,500 | ||||||||
|
(1)
|
The number of shares of preferred stock and common stock issued and outstanding have been rounded to the nearest one hundred (100).
|
See Accompanying Notes
F-2
ISC8 INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
52-WEEK PERIOD ENDED SEPTEMBER 30, 2012
|
As Reported
|
Bivio
Software
|
Pro Forma
Adjustments
|
Pro Forma
|
|||||||||||||
|
Total revenues
|
$ | 4,196,400 | $ | 1,772,100 | — | $ | 5,968,500 | |||||||||
|
Costs and expenses
|
||||||||||||||||
|
Cost of revenues
|
3,149,000 | 315,600 | 3,464,600 | |||||||||||||
|
General and administrative expense
|
8,708,800 | 3,517,600 | 121,000 | (h) | 12,215,400 | |||||||||||
| (132,000 | )(g) | |||||||||||||||
|
Research and development expense
|
7,875,600 | 2,440,200 | 10,315,800 | |||||||||||||
|
Total costs and expenses
|
19,733,400 | 6,273,400 | (11,000 | ) | 25,995,800 | |||||||||||
|
Income (loss) from operations
|
(15,537,000 | ) | (4,501,300 | ) | 11,000 | (20,027,300 | ) | |||||||||
|
Interest expense
|
(6,581,100 | ) | (6,581,100 | ) | ||||||||||||
|
Change in fair value of derivative instruments
|
(4,822,100 | ) | (4,822,100 | |||||||||||||
|
Other expense
|
15,200 | 15,200 | ||||||||||||||
|
Income (loss) from operations before benefit for income taxes
|
(26,925,000 | ) | (4,501,300 | ) | 11,000 | (31,415,300 | ) | |||||||||
|
(Provision) benefit for income taxes
|
(3,200 | ) | (3,200 | ) | ||||||||||||
|
Net income (loss)
|
(26,928,200 | ) | (4,501,300 | ) | 11,000 | (31,418,500 | ) | |||||||||
|
Income (Loss) from Discontinued Operations
|
7,259,800 | — | — | 7,259,800 | ||||||||||||
|
Net income (loss) attributable to Irvine Sensors Corporation
|
$ | (19,668,400 | ) | $ | (4,501,300 | ) | $ | 11,000 | $ | (24,158,700 | ) | |||||
|
Basic and diluted net loss attributable to Irvine Sensors Corporation per common share
|
$ | (0.16 | ) | $ | (0.20 | ) | ||||||||||
|
Basic and diluted weighted average number of common shares outstanding
|
123,624,400 | 123,624,400 | ||||||||||||||
See Accompanying Notes.
F-3
ISC8 INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying Statements are:
|
|
•
|
based on the ISC 8, Inc. (“ISC8” or the “Company”) audited consolidated balance sheets as of September 30, 2012 and October 2, 2011 and the Company’s audited consolidated statements of operations for the 52-week period ended September 30, 2012;
|
|
|
•
|
adjusted to give effect to the Bivio Transaction, described in Note 2 below;
|
|
|
•
|
using the pro forma adjustments identified in Note 3 below.
|
The unaudited pro forma combined balance sheet assumes that the Bivio Transaction had occurred as of September 30, 2012, and the unaudited pro forma combined statements of operations assume the Bivio Transaction had occurred on October 3, 2011. These unaudited pro forma combined results of continuing operations are not necessarily indicative of results that would have occurred had the acquisition actually occurred on October 3, 2011 or the results that may be attained in the future.
Certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The information contained in these unaudited pro forma combined financial statements and notes should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012.
2. Bivio Transaction
On October 12, 2012, pursuant to the terms of the Foreclosure Sale Agreement between the Company and GF AcquisitionCo. 2012, LLC (“GFAC”) dated October 4, 2012 (the “Foreclosure Sale Agreement”), the Company acquired substantially all of the assets of the NetFalcon and Network Content Control System Business of Bivio Networks, Inc. and certain of its subsidiaries (collectively, “Bivio”) (the transaction being described hereinafter in the aggregate as the “Bivio Transaction”). The purchase price of those assets was $600,000 payable in cash to GFAC, and the issuance to GFAC of a warrant to purchase 1,000,000 shares of common stock of the Company. The transfer of assets from GFAC to the Company occurred on October 12, 2012.
3. Preliminary Estimate of Consideration Expected to be Transferred
The Bivio Transaction will be accounted for under the acquisition method of accounting. While the Company intends to have a third-party appraisal of the assets acquired and liabilities assumed, this appraisal process has not been finalized. Accordingly, the Company has estimated the purchase price allocation based on a preliminary valuation of the major assets acquired as estimated by a third-party’s analysis. This valuation is very preliminary in nature, and is provided solely for the purposes of preparing the unaudited pro forma combined income statement and balance sheet.
The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may significantly differ from these estimates.
The following table presents the calculation of the preliminary purchase price:
|
Cash
|
$
|
600,000
|
||
|
Fair value of warrants issued
|
85,000
|
|||
|
Total purchase price
|
$
|
685,000
|
||
F-4
The following outlines the significant assumptions the Company used to estimate the fair value of the warrants using the Black-Scholes-Merton option pricing model at the date of issuance on October 12, 2012:
|
Risk free interest rate
|
1.69%
|
|
Expected volatility
|
92.20%
|
|
Expected dividends
|
None
|
Under the acquisition method of accounting, the total estimated purchase price is allocated to Bivio Software Business’s net tangible and intangible assets and assumed liabilities based on their estimated fair values at October 12, 2012. Based on the Company’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the preliminary purchase price is allocated as follows:
|
Cash
|
$
|
30,600
|
||
|
Prepaid expenses and other current assets
|
83,900
|
|||
|
Property and equipment
|
48,000
|
|||
|
Other assets
|
36,700
|
|||
|
Amortizable intangible assets
|
900,000
|
|||
|
Goodwill
|
652,600
|
|||
|
Liabilities assumed
|
(1,066,800
|
)
|
||
|
Total fair value of net assets acquired
|
$
|
685,000
|
||
The following table presents amortizable intangible assets acquired and their weighted average amortization periods:
|
Estimated
fair value |
Weighted average
amortization period |
||||
| Customer relationships | $ | 100,000 | 5.0 years | ||
| Trade name | 300,000 | 10.0 years | |||
| Software | 500,000 | 7.0 years | |||
| Total | $ | 900,000 | |||
As stated above, the purchase price allocation is preliminary. The Company is in the process of finalizing the full appraisal of all assets acquired and liabilities assumed. Adjustments to the allocation of fair value to the assets acquired and liabilities assumed likely will occur until such time as a final valuation report has been received. Such adjustments could be significant.
4. Pro Forma Adjustments
In the accompanying Statements the following unaudited pro forma adjustments have been made to the historical financial statements:
Balance Sheet
(a) To adjust for the cash purchase price.
F-5
(b) To allocate the fair value of identifiable intangibles in excess of Bivio Software Business book value. The following table presents the calculation of the intangible adjustment:
|
Valuation of intangible assets on 10/12/12
|
$
|
900,000
|
||
|
Less intangible asset value at 9/30/12
|
(126,700)
|
|||
|
Adjustment to intangible assets
|
$
|
773,300
|
||
(c) To reflect the excess of purchase price and fair value of liabilities assumed over fair value of assets purchased (goodwill). The following table presents the calculation of the goodwill adjustment:
|
Valuation of goodwill on 10/12/12
|
$
|
652,600
|
||
|
Less goodwill value at 9/30/12
|
(207,000)
|
|||
|
Adjustment to goodwill
|
$
|
445,600
|
||
(d) To capture the costs of the acquisition not incurred as of September 30, 2012.
(e) To fair value the warrants issued as part of the purchase price.
(f) To eliminate retained deficit of Bivio Software Business.
Statements of Operations
(g) Costs of the acquisition incurred as of September 30, 2012 removed due to the one-time nature of the expenses.
(h) Amortization of identifiable intangibles.
F-6