Exhibit 99.3
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following pro forma condensed consolidated financial information is based on the historical financial statements of BIO-key International, Inc. and its subsidiary (the “Company”), including certain pro forma adjustments, and has been prepared to illustrate the pro forma effect of the disposition of the Fire Safety Business segment (the “Fire Business”).
The unaudited pro forma condensed consolidated statements of earnings for the three months ended March 31, 2007 and for the fiscal years ended December 31, 2006 and 2005 assume that the disposition of the Fire Business was effective for the periods indicated. The statements of earnings do not include the gain on the sale or costs associated with the sale. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2007 is presented as if the disposition of the Fire Business had occurred as of that date.
The unaudited pro forma condensed consolidated financial information has been prepared based upon available information and management estimates; actual amounts may differ from these estimated amounts. The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of the financial position or results of operations that might have occurred had the disposition occurred as of the dates stated above. The pro forma adjustments are described in the notes.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the audited financial statements and notes and related Management’s Discussion and Analysis or Plan of Operation (“MD&A”) included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 and unaudited interim financial statements and the related MD&A included in the March 31, 2007 Form 10-QSB for the quarterly period ended March 31, 2007.
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2007
| | Unaudited
Historical | | Unaudited
Pro Forma
Adjustments | | Unaudited
Pro Forma
Balance Sheet | |
ASSETS: | | | | | | | |
Cash and cash equivalents | | $ | 825,791 | | $ | 2,261,975 | (a) | $ | 3,087,766 | |
Receivables, net | | 2,055,863 | | (579,815 | )(b) | 1,470,812 | |
Costs and earnings in excess of billings on uncompleted contracts | | 1,215,045 | | — | | 1,215,045 | |
Inventory | | 30,262 | | (11,716 | )(b) | 18,546 | |
Prepaid expenses | | 121,496 | | (11,041 | )(b) | 110,455 | |
Total current assets | | 4,248,457 | | 1,659,403 | | 5,970,860 | |
Equipment and leasehold improvements, net | | 373,773 | | (41,837 | )(b) | 331,936 | |
Deposits | | 757,017 | | 399,450 | (a),(b) | 1,156,467 | |
Intangible assets—less accumulated amortization | | 2,304,863 | | (436,903 | )(b) | 1,867,960 | |
Deferred financing costs, net | | 114,935 | | (114,935 | )(d) | — | |
Goodwill | | 11,389,654 | | (3,552,668 | )(b) | 7,836,986 | |
Total non-current assets | | 14,940,242 | | (3,746,893 | ) | 11,193,349 | |
TOTAL ASSETS | | $ | 19,188,699 | | $ | (2,087,490 | ) | $ | 17,101,209 | |
LIABILITIES: | | | | | | | |
Current maturities of long-term obligations, net | | $ | 2,975,361 | | $ | (2,975,361 | )(d) | $ | — | |
Accounts payable | | 1,673,863 | | (22,425 | )(b) | 1,651,438 | |
Billings in excess of costs and earnings on uncompleted contracts | | 78,343 | | — | | 78,343 | |
Accrued liabilities | | 4,534,657 | | (511,589 | )(a),(c),(e) | 4,023,068 | |
Deferred rent | | 515,009 | | — | | 515,009 | |
Deferred revenue | | 4,995,990 | | (1,794,312 | )(b) | 3,201,678 | |
Total current liabilities | | 14,773,223 | | (5,303,687 | ) | 9,469,536 | |
Warrants and long-term obligations | | 1,091,098 | | (869,632 | )(d) | 221,466 | |
Redeemable preferred stock derivatives | | 80,574 | | — | | 80,574 | |
Deferred rent | | 233,412 | | — | | 233,412 | |
Deferred revenue | | 82,755 | | — | | 82,755 | |
Total non-current liabilities | | 1,487,839 | | (869,632 | ) | 618,207 | |
TOTAL LIABILITIES | | 16,261,062 | | (6,173,319 | ) | 10,087,743 | |
| | | | | | | |
Series B redeemable convertible preferred stock, net | | 816,161 | | — | | 816,161 | |
Series C redeemable convertible preferred stock, net | | 5,129,332 | | — | | 5,129,332 | |
| | 5,945,493 | | — | | 5,945,493 | |
STOCKHOLDERS’ EQUITY/(DEFICIT): | | | | | | | |
Preferred stock | | 3 | | — | | 3 | |
Common stock | | 5,734 | | 85 | (e) | 5,819 | |
Additional paid-in capital | | 51,731,578 | | 622,679 | (e) | 52,354,257 | |
Accumulated deficit | | (54,755,171 | ) | 3,463,065 | (f) | (51,280,390 | ) |
TOTAL STOCKHOLDERS’ EQUITY/(DEFICIT) | | (3,017,856 | ) | 4,085,829 | | 1,067,973 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | $ | 19,188,699 | | $ | (2,087,490 | ) | $ | 17,101,209 | |
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 2007
| | Unaudited
Historical | | Unaudited
Proforma
Adjustments | | Unaudited
Proforma
Income
Statement | |
| | | | | | | |
Revenues | | | | | | | |
Services | | $ | 2,595,433 | | $ | (720,257 | )(g) | $ | 1,875,176 | |
License fees and other | | 1,277,063 | | (436,999 | )(g) | 840,064 | |
| | 3,872,496 | | (1,157,256 | ) | 2,715,240 | |
Costs and other expenses | | | | | | | |
Cost of services | | 624,306 | | (162,107 | )(g) | 462,199 | |
Cost of license fees and other | | 71,794 | | (40,565 | )(g) | 31,229 | |
| | 696,100 | | (202,672 | ) | 493,428 | |
Gross Profit | | 3,176,396 | | (954,584 | ) | 2,221,812 | |
| | | | | | | |
Operating Expenses | | | | | | | |
Selling, general and administrative | | 2,686,013 | | (123,546 | )(g) | 2,562,467 | |
Research, development and engineering | | 1,687,706 | | (305,801 | )(g) | 1,381,905 | |
| | 4,373,719 | | (429,347 | ) | 3,944,372 | |
Operating loss | | (1,197,323 | ) | (525,237 | ) | (1,722,560 | ) |
Other income (deductions) | | | | | | | |
Derivative and warrant fair value adjustments | | 829,369 | | (512,912 | )(j) | 316,457 | |
Interest expense | | (538,517 | ) | 458,875 | (h) | (79,642 | ) |
Other | | (5,902 | ) | — | | (5,902 | ) |
| | 284,950 | | (54,037 | ) | 230,913 | |
NET LOSS | | $ | (912,373 | ) | $ | (579,274 | ) | $ | (1,491,647 | ) |
| | | | | | | |
Basic and Diluted Loss to Common Shareholders: | | | | | | | |
Net loss | | $ | (912,373 | ) | $ | (579,274 | ) | $ | (1,491,647 | ) |
Convertible preferred stock dividends and accretion | | (471,390 | ) | — | ) | (471,390 | ) |
Net loss attributable to common shareholders | | $ | (1,383,763 | ) | $ | (579,274 | ) | $ | (1,963,037 | ) |
| | | | | | | |
Net Loss Per Share: | | | | | | | |
Basic | | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) |
Diluted | | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) |
| | | | | | | |
Weighted Average Shares Outstanding: | | | | | | | |
Basic | | 56,634,523 | | 57,484,523 | (k) | 57,484,523 | |
Diluted | | 56,634,523 | | 57,484,523 | (k) | 57,484,523 | |
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
| | Historical | | Unaudited
Proforma
Adjustments | | Unaudited
Proforma
Income
Statement | |
| | | | | | | |
Revenues | | | | | | | |
Services | | $ | 10,949,895 | | $ | (2,801,513 | )(g) | $ | 8,148,382 | |
License fees and other | | 4,243,730 | | (1,104,941 | )(g) | 3,138,789 | |
| | 15,193,625 | | (3,906,454 | ) | 11,287,171 | |
Costs and other expenses | | | | | | | |
Cost of services | | 2,673,823 | | (456,635 | )(g) | 2,217,188 | |
Cost of license fees and other | | 722,883 | | (70,032 | )(g) | 652,851 | |
| | 3,396,706 | | (526,667 | ) | 2,870,039 | |
Gross Profit | | 11,796,919 | | (3,379,787 | ) | 8,417,132 | |
| | | | | | | |
Operating Expenses | | | | | | | |
Selling, general and administrative | | 10,311,017 | | (384,705 | )(g) | 9,926,312 | |
Research, development and engineering | | 6,514,353 | | (1,001,609 | )(g) | 5,512,744 | |
| | 16,825,370 | | (1,386,314 | ) | 15,439,056 | |
Operating loss | | (5,028,451 | ) | (1,993,473 | ) | (7,021,924 | ) |
Other income (deductions) | | | | | | | |
Derivative and warrant fair value adjustments | | 7,542,666 | | (2,253,195 | )(j) | 5,289,471 | |
Interest expense | | (5,730,712 | ) | 1,871,331 | (h) | (3,859,381 | ) |
Loss on extinguishment of debt | | (7,815,717 | ) | 2,979,627 | (i) | (4,836,090 | ) |
Other | | (48,637 | ) | — | | (48,637 | ) |
| | (6,052,400 | ) | 2,597,763 | | (3,454,637 | ) |
NET LOSS | | $ | (11,080,851 | ) | $ | 604,290 | | $ | (10,476,561 | ) |
| | | | | | | |
Basic and Diluted Loss to Common Shareholders: | | | | | | | |
Net loss | | $ | (11,808,851 | ) | $ | 604,290 | | $ | (10,476,561 | ) |
Convertible preferred stock dividends and accretion | | (1,042,069 | ) | — | | (1,042,069 | ) |
Net loss attributable to common shareholders | | $ | (12,122,920 | ) | $ | 604,290 | | $ | (11,518,630 | ) |
| | | | | | | |
Net Loss Per Share: | | | | | | | |
Basic | | $ | (0.24 | ) | $ | 0.01 | | $ | (0.23 | ) |
Diluted | | $ | (0.24 | ) | $ | 0.01 | | $ | (0.23 | ) |
| | | | | | | |
Weighted Average Shares Outstanding: | | | | | | | |
Basic | | 50,232,961 | | 51,082,961 | (k) | 51,082,961 | |
Diluted | | 50,232,961 | | 51,082,961 | (k) | 51,082,961 | |
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
| | Historical | | Unaudited
Proforma
Adjustments | | Unaudited
Proforma
Income
Statement | |
| | | | | | | |
Revenues | | | | | | | |
Services | | $ | 10,861,649 | | $ | (2,814,616 | )(g) | $ | 8,047,033 | |
License fees and other | | 3,364,446 | | (406,470 | )(g) | 2,957,976 | |
| | 14,226,095 | | (3,221,086 | ) | 11,005,009 | |
Costs and other expenses | | | | | | | |
Cost of services | | 2,906,142 | | (381,048 | )(g) | 2,525,094 | �� |
Cost of license fees and other | | 937,491 | | (81,286 | )(g) | 856,205 | |
| | 3,843,633 | | (462,334 | ) | 3,381,299 | |
Gross Profit | | 10,382,462 | | (2,758,752 | ) | 7,623,710 | |
| | | | | | | |
Operating Expenses | | | | | | | |
Selling, general and administrative | | 11,824,609 | | (373,330 | )(g) | 11,451,279 | |
Research, development and engineering | | 6,846,035 | | (577,979 | )(g) | 6,268,056 | |
| | 18,670,644 | | (951,309 | ) | 17,719,335 | |
Operating loss | | (8,288,182 | ) | | | (10,095,625 | ) |
Other income (deductions) | | | | | | | |
Derivative and warrant fair value adjustments | | 9,154,951 | | (2,829,604 | )(j) | 6,325,347 | |
Interest income | | 35,958 | | — | | 35,958 | |
Interest expense | | (4,521,344 | ) | 1,645,062 | (h) | (2,876,282 | ) |
Loss on sale of marketable securities | | (20,000 | ) | — | | (20,000 | ) |
Other | | (34,767 | ) | — | | (34,767 | ) |
| | 4,614,798 | | (1,184,542 | ) | 3,430,256 | |
NET LOSS | | $ | (3,673,384 | ) | $ | (2,991,985 | ) | $ | (6,665,369 | ) |
| | | | | | | |
Basic and Diluted Loss to Common Shareholders: | | | | | | | |
Net loss | | $ | (3,673,384 | ) | $ | (2,991,985 | ) | $ | (6,665,369 | ) |
Convertible preferred stock dividends and accretion | | (313,517 | ) | — | | (313,517 | ) |
Net loss attributable to common shareholders | | $ | (3,986,901 | ) | $ | (2,991,985 | ) | $ | (6,978,886 | ) |
| | | | | | | |
Net Loss Per Share: | | | | | | | |
Basic | | $ | (0.09 | ) | $ | (0.07 | ) | $ | (0.16 | ) |
Diluted | | $ | (0.12 | ) | $ | (0.06 | ) | $ | (0.18 | ) |
| | | | | | | |
Weighted Average Shares Outstanding: | | | | | | | |
Basic | | 44,787,807 | | 45,637,807 | (k) | 45,637,807 | |
Diluted | | 52,046,303 | | 49,711,711 | (k) | 49,711,711 | |
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial statements give effect to the pro forma adjustments necessary to reflect the disposition of the Fire Business as if the disposition was effective for the periods presented in the pro forma statements of earnings and as of March 31, 2007 in the pro forma balance sheet.
The Company’s historical amounts represent our condensed balance sheet and statements of operations derived from our Annual report on Form 10-KSB for the year ended December 31, 2006 and Quarterly report on Form 10-QSB for the period ended March 31, 2007.
Pro forma statements of earnings disclose earnings from continuing operations before nonrecurring charges and therefore exclude historical earnings and losses from discontinued operations for the fiscal years ended December 31, 2006 and 2005, and the quarterly period ended March 31, 2007.
2. PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed consolidated statements of earnings and balance sheet reflect the effect of the following pro forma adjustments:
a) Assumes the receipt of approximately $7.0 million in cash from Zoll on sale of the Fire Business, reduced by repayment of all convertible debt, accrued interest, and escrow holdback.
b) The elimination of assets and liabilities associated with the Fire Business included in the Company’s historical condensed consolidated financial statements. The Company allocated a percentage of the net book value of amortizable intangible assets and goodwill to the Fire business in a manner consistent with the method used during the Company’s annual FAS 142 and FAS 144 analysis.
c) Amount includes the accrual for estimated costs incurred in connection with the sale of the Fire Business.
d) Convertible debt was repaid as part of the transaction, therefore the associated balance of unamortized convertible debt discounts, embedded derivatives, and deferred finance charges were written off. The remaining balance listed in pro forma statement represents freestanding warrants.
e) The Company’s common stock and additional paid in capital balances increased due to the issuance of 850,000 shares of restricted stock in exchange for the balance of accrued default interest, as part of the transaction.
f) The Company’s accumulated deficit was reduced as a result of an estimated after-tax gain of approximately $4.0 million on the disposal of the Fire Business, and increased by writing off the balance of deferred finance charges, unamortized debt discounts on convertible debt and embedded derivatives on convertible debt.
g) Reduction of revenue and expenses are the result of the disposition of the Fire Business. These amounts do not consider an allocation of general corporate overhead costs not specifically related to the Fire Business and therefore, selling, general and administrative expenses do not reflect any potential reductions in corporate costs in response to this change in the Company.
h) Amounts represent reduced interest and associated expenses on convertible debt for all periods presented, from the use of $4.3 million of cash proceeds to retire a portion of the Company’s outstanding debt. Historical interest and associated expenses on convertible debt were reduced by the percentage of debt retired for
each pro forma period presented.
i) Reduction of loss on extinguishment of debt for the 2006 fiscal year, by the percentage of convertible debt retired.
j) Reduction of the fair value adjustment for embedded derivatives on convertible debt for all periods presented by the percentage of convertible debt retired.
k) Weighted average shares outstanding was reduced through the elimination of convertible debt (2005 diluted shares only) and increased through the issuance of 850,000 shares of restricted common stock (all periods).
