EXHIBIT 99.1
Unaudited Pro Forma Condensed Consolidated Financial Statements of SRS Labs, Inc.
The following unaudited pro forma balance sheet as of June 30, 2006 presents the financial position of SRS Labs, Inc. (the “Company”) assuming the sale on September 29, 2006 of Valence Technology Limited (the “Transaction”) had been completed on June 30,2006.
The following unaudited pro forma condensed statements of operations for the six months ended June 30, 2006 and for the fiscal year ended December 31, 2005 present the Company’s results of operations assuming that the Transaction had been completed on January 1, 2005, the first day of the fiscal year ended December 31, 2005. In the opinion of management, these statements include all material adjustments necessary to reflect, on a pro forma basis, the impact of the Transaction on the historical financial information of the Company. The adjustments set forth in the “Pro Forma Adjustments” column are described in the Notes to Unaudited Pro Forma Financial Statements.
The transaction provided $4.3 million in cash from Noblehigh and $11.4 million in cash from Valence. The cash provided by Valence was already included in SRS’s balance sheet. The Company expects to recognize a gain on the sale in the Company’s third quarter 2006 financial statements. Proceeds from the sale will be invested in cash equivalents.
The unaudited pro forma financial statements for the periods presented do not purport to represent what the Company’s results of operations or financial position actually would have been had the Transaction occurred on the dates noted above, or to project the Company’s results of operations for any future periods. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable under the circumstances. Actual amounts could differ materially from these estimates. The pro forma results should be read in conjunction with the financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and Quarterly Report on Form 10-Q for the six months ended June 30, 2006.
SRS LABS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
|
| As Reported |
| Pro-forma |
| Footnote |
| Pro-forma |
| |||
ASSETS |
|
|
|
|
|
|
|
|
| |||
Current Assets |
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 12,071,951 |
| $ | 2,470,783 |
| A, B |
| $ | 14,542,734 |
|
Accounts receivable, net |
| 1,453,597 |
| 711,841 |
| A |
| 2,165,438 |
| |||
Inventories, net |
| 59,518 |
| — |
|
|
| 59,518 |
| |||
Prepaid expenses and other current assets |
| 452,158 |
| (146,151 | ) | A |
| 306,007 |
| |||
Investments available for sale |
| 11,968,615 |
| — |
|
|
| 11,968,615 |
| |||
Assets held for sale |
| 2,264,847 |
| (2,264,847 | ) | A |
| — |
| |||
Total Current Assets |
| 28,270,686 |
| 771,626 |
|
|
| 29,042,312 |
| |||
Investments available for sale |
| 5,099,589 |
| — |
|
|
| 5,099,589 |
| |||
Furniture, fixtures and equipment, net |
| 486,460 |
| — |
|
|
| 486,460 |
| |||
Intangible assets, net |
| 2,108,121 |
| — |
|
|
| 2,108,121 |
| |||
Deferred income taxes |
| 386,412 |
| — |
|
|
| 386,412 |
| |||
Long term assets held for sale |
| 2,113,613 |
| (2,113,613 | ) | A |
| — |
| |||
Total Assets |
| $ | 38,464,881 |
| $ | (1,341,987 | ) |
|
| $ | 37,122,894 |
|
|
|
|
|
|
|
|
|
|
| |||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| |||
Current Liabilities |
|
|
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 898,905 |
| $ | — |
|
|
| $ | 898,905 |
|
Accrued liabilities |
| 852,956 |
| — |
|
|
| 852,956 |
| |||
Deferred revenue |
| 110,254 |
| — |
|
|
| 110,254 |
| |||
Liabilities related to assets held for sale |
| 1,700,706 |
| (1,700,706 | ) | A |
| — |
| |||
Total Current Liabilities |
| 3,562,821 |
| (1,700,706 | ) |
|
| 1,862,115 |
| |||
Commitments and contingencies |
|
|
|
|
|
|
|
|
| |||
Stockholders’ Equity |
|
|
|
|
|
|
|
|
| |||
Preferred stock |
| — |
| — |
|
|
| — |
| |||
Common stock |
| 15,586 |
| — |
| B |
| 15,586 |
| |||
Additional paid-in capital |
| 66,581,360 |
| (963,051 | ) | B |
| 65,618,309 |
| |||
Accumulated other comprehensive loss |
| (506,046 | ) | — |
|
|
| (506,046 | ) | |||
Accumulated deficit |
| (28,185,395 | ) | 1,321,770 |
| A |
| (26,863,625 | ) | |||
Treasury stock at cost |
| (3,003,445 | ) | — |
| B |
| (3,003,445 | ) | |||
Total Stockholders’ Equity |
| 34,902,060 |
| 358,719 |
|
|
| 35,260,779 |
| |||
Total Liabilities and Stockholders’ Equity |
| $ | 38,464,881 |
| $ | (1,341,987 | ) |
|
| $ | 37,122,894 |
|
SRS LABS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
|
| As Reported |
| Pro-forma |
| Footnote |
| Pro forma |
| |||
Revenue: |
|
|
|
|
|
|
|
|
| |||
Licensing |
| $ | 14,795,810 |
| $ | — |
|
|
| $ | 14,795,810 |
|
Semiconductor |
| 8,432,449 |
| (8,432,449 | ) | C |
| — |
| |||
Total Revenues |
| 23,228,259 |
| (8,432,449 | ) |
|
| 14,795,810 |
| |||
Cost of Sales: |
|
|
|
|
|
|
|
|
| |||
Licensing |
| 446,849 |
| — |
|
|
| 446,849 |
| |||
Write-off of capitalized production costs |
| 2,757,172 |
| — |
|
|
| 2,757,172 |
| |||
Semiconductor |
| 3,411,649 |
| (3,411,649 | ) | C |
| — |
| |||
Total Cost of Sales |
| 6,615,670 |
| (3,411,649 | ) |
|
| 3,204,021 |
| |||
Gross Margin |
| 16,612,589 |
| (5,020,800 | ) |
|
| 11,591,789 |
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Sales and marketing |
| 6,890,666 |
| (1,698,577 | ) | C |
| 5,192,089 |
| |||
Research and development |
| 4,700,016 |
| (2,475,779 | ) | C |
| 2,224,237 |
| |||
General and administrative |
| 6,401,021 |
| (1,088,135 | ) | C |
| 5,312,886 |
| |||
Total operating expenses |
| 17,991,703 |
| (5,262,491 | ) |
|
| 12,729,212 |
| |||
Loss from operations |
| (1,379,114 | ) | 241,691 |
|
|
| (1,137,423 | ) | |||
Write-off of investment |
| (185,304 | ) | — |
|
|
| (185,304 | ) | |||
Equity in income of investee |
| 91,096 |
| — |
|
|
| 91,096 |
| |||
Other income, net |
| 669,830 |
| 1,579 |
| C |
| 671,409 |
| |||
Loss from operations before income tax expense |
| (803,492 | ) | 243,270 |
|
|
| (560,222 | ) | |||
Income tax expense |
| 620,893 |
| 175,025 |
| C |
| 795,918 |
| |||
Net Loss |
| $ | (1,424,385 | ) | $ | 68,245 |
|
|
| $ | (1,356,140 | ) |
|
|
|
|
|
|
|
|
|
| |||
Net income per common share: |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | (0.10 | ) |
|
|
|
| $ | (0.10 | ) | |
Diluted |
| $ | (0.10 | ) |
|
|
|
| $ | (0.10 | ) | |
Weighted average shares used in the calculation of net income per common share: |
|
|
|
|
|
|
|
|
| |||
Basic |
| 14,117,795 |
|
|
|
|
| 14,117,795 |
| |||
Diluted |
| 14,117,795 |
|
|
|
|
| 14,117,795 |
|
SRS LABS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
|
| As Reported |
| Pro-forma |
| Footnote |
| Pro-forma |
| |||
Revenues |
| $ | 8,595,507 |
| $ | — |
|
|
| $ | 8,595,507 |
|
Cost of Sales |
| 83,105 |
| — |
|
|
| 83,105 |
| |||
Gross Margin |
| 8,512,402 |
| — |
|
|
| 8,512,402 |
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Sales and marketing |
| 3,750,785 |
| — |
|
|
| 3,750,785 |
| |||
Research and development |
| 1,286,028 |
| — |
|
|
| 1,286,028 |
| |||
General and administrative |
| 2,994,997 |
| — |
|
|
| 2,994,997 |
| |||
Total operating expenses |
| 8,031,810 |
| — |
|
|
| 8,031,810 |
| |||
Income from continuing operations |
| 480,592 |
| — |
|
|
| 480,592 |
| |||
Other income, net |
| 403,718 |
| — |
|
|
| 403,718 |
| |||
Income from continuing operations before income tax expense |
| 884,310 |
| — |
|
|
| 884,310 |
| |||
Income tax expense |
| 327,168 |
| — |
|
|
| 327,168 |
| |||
Income from continuing operations |
| 557,142 |
| — |
|
|
| 557,142 |
| |||
Discontinued operations : |
|
|
|
|
|
|
|
|
| |||
Income from discontinued operations before income tax expense |
| 194,252 |
| (98,488 | ) | C |
| 95,764 |
| |||
Gain on Disposal |
| 371,295 |
| — |
|
|
| 371,295 |
| |||
Income tax expense |
| 30,696 |
| (30,696 | ) | C |
| — |
| |||
Income from discontinued operations |
| 534,851 |
| (67,792 | ) |
|
| 467,059 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 1,091,993 |
| $ | (67,792 | ) |
|
| $ | 1,024,201 |
|
|
|
|
|
|
|
|
|
|
| |||
Income from continuing operations per common share: |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 0.04 |
|
|
|
|
| $ | 0.04 |
| |
Diluted |
| $ | 0.03 |
|
|
|
|
| $ | 0.03 |
| |
Income from discontinued operations per common share: |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 0.04 |
|
|
|
|
| $ | 0.03 |
| |
Diluted |
| $ | 0.03 |
|
|
|
|
| $ | 0.03 |
| |
Net income per common share: |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 0.08 |
|
|
|
|
| $ | 0.07 |
| |
Diluted |
| $ | 0.07 |
|
|
|
|
| $ | 0.06 |
| |
Weighted average shares used in the calculation of net income per common share: |
|
|
|
|
|
|
|
|
| |||
Basic |
| 14,523,459 |
|
|
|
|
| 14,523,459 |
| |||
Diluted |
| 16,206,277 |
|
|
|
|
| 16,206,277 |
|
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements of SRS Labs, Inc.
A. The asset allocation of the sale of Valence Technology Limited
Purchase price paid by Valence - Cash |
| $ | 11,447,000 |
|
Purchase price paid by Noblehigh - Cash |
| 4,300,000 |
| |
|
| 15,747,000 |
| |
Less Net Assets Sold: |
|
|
| |
Cash included in SRS’s balance sheet |
| (11,597,604 | ) | |
Short term assets |
| (2,264,847 | ) | |
Long term assets: |
|
|
| |
Goodwill |
| (533,031 | ) | |
Intangibles |
| (437,143 | ) | |
Furniture, Fixtures & Equipment |
| (1,143,439 | ) | |
Subtotal |
| (2,113,613 | ) | |
Short term liabilities |
| 1,700,706 |
| |
Inter-company payable |
| 711,841 |
| |
Total Net Assets Sold |
| (13,563,517 | ) | |
Less Estimated Transaction Expenses |
| (861,713 | ) | |
|
|
|
| |
Gain on Sale of Valence |
| $ | 1,321,770 |
|
B. To record Management Buyers exercise of 357,625 vested stock options, the Company’s repurchase of the issued shares to Management Buyers, and the cancellation of the repurchased shares. The repurchase price paid for such shares was $5.91 per share or $2,114,586 in the aggregate. The repurchase price was equal to the average closing price of SRS common stock for the seven trading days ending three days prior to the closing date of the sale of Valence.
Cash |
| $ | 1,151,535 |
|
Common stock |
| (358 | ) | |
APIC |
| (1,151,177 | ) | |
To record the stock option exercises by Management Buyers |
|
|
| |
|
|
|
| |
Treasury Stock |
| $ | 2,114,586 |
|
Cash |
| (2,114,586 | ) | |
To repurchase the issued shares to Management Buyers |
|
|
| |
|
|
|
| |
Common stock |
| $ | 358 |
|
APIC |
| 2,114,228 |
| |
Treasury Stock |
| (2,114,586 | ) | |
To cancel the treasury shares |
|
|
|
C. To eliminate Valence’s revenue, costs and expenses assuming the sale was consummated on January 1, 2005. Reflects the elimination of historical amortization expense of Valence intangibles with definite lives.
| 6 Months Ended |
| Year Ended |
| |||
Semiconductor Revenue |
| $ | — |
| $ | (8,432,449 | ) |
Semiconductor Cost of Sales |
| — |
| (3,411,649 | ) | ||
Gross Margin |
| — |
| (5,020,800 | ) | ||
Operating expenses: |
|
|
|
|
| ||
Sales and marketing |
| — |
| (1,698,577 | ) | ||
Research and development |
| — |
| (2,475,779 | ) | ||
General and administrative |
| — |
| (1,088,135 | ) | ||
Total operating expenses |
| — |
| (5,262,491 | ) | ||
Loss from continuing operations |
| — |
| 241,691 |
| ||
Other income, net |
| — |
| 1,579 |
| ||
Loss from continuing operations before income tax expense |
| — |
| 243,270 |
| ||
Income tax expense |
| — |
| 175,025 |
| ||
Loss from continuing operations |
| — |
| 68,245 |
| ||
|
|
|
|
|
| ||
Discontinued operations : |
|
|
|
|
| ||
|
|
|
|
|
| ||
Income from discontinued operations before income tax expense |
| (98,488 | ) | — |
| ||
Income tax expense |
| (30,696 | ) | — |
| ||
Income from discontinued operations |
| (67,792 | ) | — |
| ||
|
|
|
|
|
| ||
Net income |
| $ | (67,792 | ) | $ | 68,245 |
|