Unaudited pro forma condensed combined financial information

On December 19, 2019, PAR Technology Corporation (the “Company”) filed a Current Report on Form 8-K (the “Original 8-K”) disclosing that ParTech, Inc. (“ParTech”), a wholly owned subsidiary of the Company, had completed the acquisition of AccSys, LLC (f/k/a AccSys, Inc., and otherwise known as Restaurant Magic (“Restaurant Magic”))  on December 18, 2019 (“the Acquisition”) pursuant to the terms of an interest purchase agreement dated November 7, 2019. The unaudited pro forma condensed combined financial information included in this Current Report on Form 8-K/A amends and supplements the Original 8-K to include the financial statements of Restaurant Magic and the pro forma financial information required in connection with the Acquisition.

 

The following unaudited pro forma condensed combined financial statements and related notes have been prepared by combining the historical condensed consolidated financial statements of the Company and Restaurant Magic and adjusted to give effect to the Acquisition. The unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2019 gives effect to the Acquisition as if it occurred on that date. The unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018 give effect to the Acquisition as if it occurred on January 1, 2018.

The Company accounted for the Acquisition as a business combination using the acquisition method of accounting as prescribed in Accounting Standards Codification 805, Business Combinations (“ASC 805”) and ASC 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, the Company used its best estimates and assumptions to accurately assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed as of the closing date of the Acquisition. Goodwill as of the closing date is measured as the excess of the aggregate of the fair value of consideration transferred and the fair value of noncontrolling interest in the target over the fair values of tangible and identifiable intangible assets acquired and liabilities assumed.

The fair values assigned to Restaurant Magic’ tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of these assets acquired, and liabilities assumed are considered preliminary and are based on the information that was available as of the closing date of the Acquisition. The preliminary estimated fair values of tangible and identifiable intangible assets acquired and liabilities assumed may be subject to change as additional information is received. Thus, the provisional measurements of fair value are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the closing date.

The unaudited pro forma condensed combined consolidated financial information is based upon, and should be read in conjunction with:

• The accompanying notes to the unaudited pro forma condensed combined consolidated financial statements;

• The Company’s audited consolidated financial statements and accompanying notes as of and for the fiscal years ended December 31, 2018 and 2017 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 18, 2019;

• The Company’s unaudited consolidated financial statements and accompanying notes as of and for the three and nine-month period ended September 30, 2019 and 2018 included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2019;

• Restaurant Magic’s audited consolidated financial statements for the year ended December 31, 2018 included elsewhere in the Current Report on Form 8-K/A; and

• Restaurant Magic’s unaudited financial statements for the nine months ended September 30, 2019 and 2018 included elsewhere in the Current Report on Form 8-K/A.

		Twelve Months Ended December 31, 2018 (unaudited) (in thousands)
		PAR Technology Corp				AccSys, Inc (Restaurant Magic)				Pro Forma Adjustment				Note Ref		Pro Forma Combined
Net revenues:
Product		$	78,787			$	—			$	—					$	78,787
Service			55,282				6,118				—						61,400
Contract			67,177				—				—						67,177
			201,246				6,118				—						207,364
Costs of sales:
Product			60,694				—				—						60,694
Service			42,107				3,349				(1,796	)		A, E			43,660
Contract			59,982				—				—						59,982
			162,783				3,349				(1,796	)					164,336
Gross margin			38,463				2,769				1,796						43,028
Operating expenses:
Selling, general and administrative			34,983				3,158				667			H			38,808
Research and development			12,412				—				1,616			A			14,028
Amortization of identifiable intangible assets			966				—				2,514			D			3,480
			48,361				3,158				4,797						56,316
Operating loss			(9,898	)			(389	)			(3,001	)					(13,288	)
Other (expense) income, net			306				(27	)			—			—			279
Interest expense, net			(387	)			(199	)			138			B, C			(448	)
Loss before provision for income taxes			(9,979	)			(615	)			(2,863	)					(13,457	)
Provision for income taxes			(14,143	)			—				—			F			(14,143	)
Net loss			(24,122	)			(615	)			(2,863	)					(27,600	)
Discontinued operations
Income from discontinued operations (net of tax)			—				—				—						—
Net loss		$	(24,122	)		$	(615	)		$	(2,863	)				$	(27,600	)
Basic Earnings per Share:
Net loss			(1.50	)													(1.63	)
Diluted Earnings per Share:
Net loss			(1.50	)													(1.63	)
Weighted average shares outstanding
Basic			16,041								908			G			16,949
Diluted			16,041								908			G			16,949

2. Preliminary Purchase Price

 

The preliminary purchase price for the Acquisition was $45.97 million (the “Purchase Price”) as follows (in thousands):

 

The Purchase Price excludes $2.0 million of restricted stock units issued in connection with the Company’s assumption of Restaurant Magic’s long term incentive plan (the “RM Incentive Plan”) established prior to the closing of the Acquisition.  The restricted stock units will vest in equal annual installments over three (3) years, subject to continued service requirements. The Company will record this as compensation over the vesting period.

 

3. Preliminary Allocation of Purchase Price

 

Under the purchase acquisition method of accounting, the Purchase Price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the closing of the Acquisition. The residual amount of the Purchase Price after preliminary allocation to identifiable tangible and intangible assets acquired and liabilities assumed has been allocated to goodwill.

 

The Company has performed a preliminary valuation analysis of the fair market value of Restaurant Magic’s assets acquired and liabilities assumed. Using the total consideration for the Acquisition, the Company has estimated the allocations to such assets and liabilities, with the assistance based on the report of an independent valuation specialist. The Company has not completed the detailed valuation studies necessary to arrive at the required fair values of Restaurant Magic’s assets acquired and liabilities assumed. Therefore, the following allocation of the Purchase Price to acquired assets and assumed liabilities is based on preliminary fair value estimates and subject to final management analysis, with the assistance of third party valuation advisors.

 

The following table summarizes the allocation of the preliminary Purchase Price as of the closing date (in thousands):

 

 

The unaudited pro forma financial information is not necessarily indicative of what the financial position actually would have been had the Acquisition been completed at the date indicated. Such information includes adjustments that are preliminary and may be revised. Such revisions may result in material changes. The financial position shown herein is not necessarily indicative of what the past financial position of the companies would have been on a consolidated basis.

 

The following describes the pro forma adjustments related to the Acquisition that have been made in the accompanying unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018, which have been prepared to reflect the Acquisition for the net purchase price of $45.97 million and assumed the RM Incentive Plan of $2.0 million, if the Acquisition was completed on January 1, 2018, for statements of operations purposes and reflect the following pro forma adjustments:

 

 

A - The adjustment reflects the cash consideration of the Purchase Price.

 

B - The adjustment reflects an accrual for transaction costs for the Acquisition that were incurred after September 30, 2019.

 

C- The adjustment relates to the elimination of Restaurant Magic’s $7.3 million retained earnings.

 

D- The adjustment relates to the elimination of Restaurant Magic’s $0.5 million additional paid in capital.

 

E - The adjustment reflects the $27 million increase in shares of Company common stock outstanding due to the 908,192 shares issued to Restaurant Magic’s stockholders as part of the Purchase Price.

 

F - The adjustment relates to the $2 million note payable to Restaurant Magic’s stockholders as part of the Purchase Price. $0.7 million is current and $1.3 million is reflected as long-term.

 

G- The adjustment relates to the current valuation of the contingent liability for potential earnout.

 

H - The adjustment reflects the elimination of Restaurant Magic's historical shareholder payable of $4.5 million as part of the transaction consideration.

 

I- The adjustment reflects the elimination of Restaurant Magic's historical related party (deferred payable - shareholders) payable as part of the transaction consideration.

 

J - The adjustment reflects the elimination of Restaurant Magic's historical line of credit as part of the transaction consideration.

 

K - The adjustment reflects the elimination of Restaurant Magic's historical common stock as part of the transaction consideration.

 

L - The adjustment represents the estimated adjustment to record Restaurant Magic's lease obligations consistently with the Company's lease obligations in accordance with ASC 842 Leases.

 

M - Reflects the recognition of goodwill related to the Acquisition. Goodwill is calculated as the difference between the fair value of the consideration transferred and the values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed. The estimated goodwill calculation is preliminary and is subject to change based upon final determination of the fair value of assets acquired and liabilities assumed. Goodwill is not amortized, but is assessed at least annually or more frequently if events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable based on management's assessment.

 

N - The identifiable intangible assets consist of trade name ($ 0.9 million), customer relationships ($1.2 million) and developed technology ($16.4 million). The trade names valuation utilized the “relief from royalty” approach, a form of the income approach, whereby the fair value of an asset is developed by attributing the savings incurred from not having to pay a royalty for the use of the asset. The customer relationship valuation utilized the “multi-period excess earnings method,” which is predicated upon the calculation of the net present value of the after-tax net cash flows attributable to the customers over the expected remaining life of the relationships. The developed technology valuation also utilized the “multi-period excess earnings method”. The preliminary estimated useful life of these identifiable intangible assets is approximately (i) indefinite for the trade names, (ii) 7 years for the customer relationships and (iii) 7 years for the developed technology. The preliminary purchase price allocation assumed the historical carrying value of such assets received along with the liabilities assumed will approximate fair value due to their short-term nature.  The underlying assumptions used to prepare the discounted cash flow analysis used in these estimates may change. For these and other reasons, actual results may vary significantly from estimated results.

 

O - The adjustment relates to the elimination of Restaurant Magic’s $0.3 million treasury stock.

 

 

A. Adjustments have been included in the unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2019 ($1.5 million)and year ended December 31, 2018 ($1.6 million) to reflect reclass of R&D costs from Cost of Sales to Research & Development Operating Expenses to be consistent with the Company’s treatment of Research and Development costs.

 

B. Adjustments have been included in the unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2019 and year ended December 31, 2018 to remove interest expense related Restaurant Magic indebtedness that was eliminated as part of the transaction.

 

C. Adjustments have been included in the unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2019 ($0.1 million) and year ended December 31, 2018 ($0.1 million) to include interest expense (used 5.75%) related to the $2 million 3 year promissory note issued by the Company as part of the transaction consideration.

 

D. Adjustments have been included in the unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2019 ($1.9 million) and year ended December 31, 2018 ($2.5 million) to include amortization expense related to the identifiable intangible assets purchased as part of the transaction.

 

E. Adjustments have been included in the unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2019 ($0.1 million) and year ended December 31, 2018 ($0.2 million) to remove Research & Development costs dedicated to AfterWords, Inc (“AfterWords”) that was eliminated as part of the transaction consideration. AfterWords was a wholly-owned subsidiary of Restaurant Magic that was excluded from the Acquisition.

 

F. There are no tax provision adjustments as the Company has been in a full valuation allowance position since 2018.

 

G.  Adjustments have been included in the unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2019 and year ended December 31, 2018 to include the weighted shares outstanding of the pro forma adjustments to reflect the $27 million of equity consideration as part of the transaction.

 

H - Adjustments have been included in the unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2019 ($0.5 million) and year ended December 31, 2018 ($0.7 million) to reflect increase in equity compensation due to the granting of $2 million of 3 year time vested restricted stock units under the RM Incentive Plan.

 

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