EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined consolidated
statements of income for the nine months ended June 30, 2004 and the year ended
September 30, 2003 and the unaudited pro forma condensed combined consolidated
balance sheet at June 30, 2004 have been prepared based on the historical
financial statements of Argon under the assumptions set forth in the
accompanying footnotes, because for accounting purposes, the merger is treated
as a reverse acquisition business combination.
On June 7, 2004 Argon and Sensytech entered into a definitive agreement
pursuant to which Argon will merge with Sensytech. Under the terms of the
agreement, Argon stockholders will receive two shares of Sensytech common stock
for each share of Argon common stock they own. Because Argon's stockholders will
receive approximately 66% of the shares of Sensytech after the merger, Argon's
designees to the combined company's board of directors will represent a majority
of the combined company's board of directors, Argon's senior management will
represent a majority of the senior management of the combined company and
Argon's business will represent the largest portion of the combined company in
terms of revenue and market capitalization, Argon is deemed to be the acquiring
company for accounting purposes, and the merger will be accounted for as a
reverse acquisition under the purchase method of accounting for business
combinations in accordance with accounting principles generally accepted in the
United States.
Argon will allocate the purchase price to the fair value of tangible and
intangible assets acquired and liabilities assumed from Sensytech at the
effective time of the merger, with the excess purchase price being recorded as
goodwill. The effect of this transaction is reflected in the Pro Forma
Adjustments in the unaudited pro forma consolidated financial statements.
The unaudited pro forma condensed combined consolidated statements of
income for the nine months ended June 30, 2004 and the year ended September 30,
2003 assume the merger transaction occurred on October 1, 2002. The unaudited
pro forma condensed combined consolidated balance sheet at June 30, 2004 assumes
the merger transaction occurred on that date. We believe the assumptions used
provide a reasonable basis for presenting the significant effects directly
attributable to the merger transaction. The unaudited pro forma condensed
combined consolidated financial statements do not purport to represent what our
results of operations would have been if such transaction had occurred on such
dates.
In accordance with Statement of Financial Accounting Standards No. 141
"Business Combinations" (SFAS 141), Sensytech's tangible and intangible net
assets will be adjusted to their fair values and the excess of the purchase
price over the fair value of Sensytech's net assets will be recorded as
goodwill. The pro forma adjustments to tangible and intangible net assets
including goodwill that are shown in these unaudited pro forma consolidated
financial statements are based on various preliminary estimates by management. A
final determination of these fair values, which cannot be made prior to the
completion of the merger, will include management's consideration of certain
valuation studies to be conducted based on the actual net tangible and
intangible assets of Sensytech that exist as of the completion date of the
merger.
<Table>
<Caption>
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED BALANCE SHEET
HISTORICAL
------------------------------------
JUNE 27, 2004 JUNE 30, 2004 PRO FORMA PRO FORMA
ARGON SENSYTECH ADJUSTMENTS COMBINED
----------------- --------------- ----------------- ----------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 5,627,865 11,130,000 $ (1,650,000) (3) 6,302,865
$ (8,000,000) (2)
$ (805,000) (14)
Accounts Receivable, Net 38,624,018 27,338,000 65,962,018
Inventories -- 1,253,000 -- 1,253,000
Income Taxes Receivable -- 358,000 -- 358,000
Deferred Income Tax Asset -- 602,000 (243,448) (10) 358,552
Other Current Assets 1,331,445 807,000 -- 2,138,445
------------- ------------- ------------- -------------
Total Current Assets 45,583,328 41,488,000 (10,698,448) 76,372,880
Property, Equipment and Software, Net 3,412,662 5,934,000 1,676,000 (4) 11,022,662
Deferred Income Taxes -- 196,000 (196,000) (10) --
Goodwill -- 2,163,000 110,511,000 (6) 110,511,000
2,163,000 (15)
Acquired Intangible Assets, Net -- 58,000 960,000 (5) 1,018,000
Other Assets 226,760 199,000 -- 425,760
------------- ------------- ------------- -------------
Total Assets $ 49,222,750 $ 50,038,000 $ 100,089,552 $ 199,350,302
============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $ 12,943,585 $ 5,292,000 -- $ 18,235,585
Accrued Salaries and Related Expenses 5,465,409 2,605,000 820,000 (12) 8,890,409
Deferred Revenue 10,840,670 749,000 -- 11,589,670
Notes Payable - Current Portion 225,637 -- -- 225,637
Income Taxes Payable 987,408 -- -- 987,408
Deferred Rent 995,084 -- -- 995,804
Deferred Income Tax Liability, Current 243,448 -- (243,448) (10) --
------------- ------------- ------------- -------------
Total Current Liabilities 31,701,241 8,646,000 576,552 40,923,793
Deferred Income Tax Liability, Long Term 174,187 -- 970,000 (9) 948,187
(196,000) (10)
Notes payable, Net of Current Portion
112,817 -- -- 112,817
Stockholders' Equity
Common Stock 61,238 68,000 (68,000) (1) 188,811
127,573 (8)
Additional Paid In Capital 211,617 27,215,000 (27,215,000) (1) 148,215,044
148,003,427 (8)
Treasury Stock, at Cost (534,000) 534,000 (1) --
Retained Earnings 16,961,650 14,643,000 (11,675,000) (1) 8,961,650
(8,000,000) (2)
(805,000) (14)
(2,163,000) (15)
------------- ------------- ------------- -------------
Total Stockholders' Equity 17,234,505 41,392,000 98,739,000 157,365,505
------------- ------------- ------------- -------------
$ 49,222,750 $ 50,038,000 $ 100,089,552 $ 199,350,302
============= ============= ============= =============
See accompanying notes to unaudited pro forma condensed combined
consolidated financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
HISTORICAL
----------------------------------
PRO FORMA PRO FORMA
ARGON SENSYTECH ADJUSTMENTS COMBINED
-------------- -------------- ------------- ----------------
CONTRACT REVENUE $ 79,349,052 $ 53,183,000 -- $ 132,532,052
DIRECT AND ALLOCABLE CONTRACT
COSTS
Cost of Revenues 65,271,039 40,614,000 191,200 (7) 106,269,239
193,000 (8)
General and Administrative Expenses 5,844,251 5,876,000 353,600 (8) 12,121,651
47,800 (7)
------------- ------------- ------------- -------------
71,115,290 46,490,000 785,600 118,390,890
------------- ------------- ------------- -------------
INCOME FROM OPERATIONS 8,233,762 6,693,000 (785,600) 14,141,162
OTHER INCOME (EXPENSE), Net 30,804 94,000 -- 124,804
------------- ------------- ------------- -------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 8,264,566 6,787,000 (785,600) 14,265,966
PROVISION FOR INCOME TAXES
2,695,847 2,735,000 (298,500) (11) 5,132,347
------------- ------------- ------------- -------------
NET INCOME $ 5,568,719 $ 4,052,000 $ (487,100) $ 9,133,619
============= ============= ============= =============
EARNINGS PER SHARE
Basic $ 0.95 $ 0.66 $ 0.51
============= ============= =============
Diluted $ 0.88 $ 0.65 $ 0.48
============= ============= =============
WEIGHTED-AVERAGE SHARES
OUTSTANDING
Basic 5,884,894 6,104,000 5,884,894 (13) 17,873,788
============= ============= ============= =============
Diluted 6,310,154 6,262,000 6,310,154 (13) 18,882,308
============= ============= ============= =============
</Table>
See accompanying notes to unaudited pro forma condensed combined
consolidated financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED
<Table>
<Caption>
HISTORICAL NINE MONTHS ENDED
-----------------------------------
JUNE 27, 2004 JUNE 30, 2004 PRO FORMA PRO FORMA
ARGON SENSYTECH ADJUSTMENTS COMBINED
------------------------------------------------------ --------------------
CONTRACT REVENUE $ 89,025,689 $ 43,964,000 -- $ 132,989,689
DIRECT AND ALLOCABLE CONTRACT
COSTS
Cost of Revenues 73,527,614 31,984,000 95,600 (7) 105,751,964
144,750 (8)
General and Administrative Expenses 4,749,004 6,439,000 286,500 (8) 11,498,404
23,900 (7)
------------- ------------- ------------- -------------
78,276,618 38,423,000 550,750 117,250,368
------------- ------------- ------------- -------------
INCOME FROM OPERATIONS
10,749,071 5,541,000 (550,750) 15,739,321
OTHER INCOME (EXPENSE), Net
79,760 66,000 -- 145,760
------------- ------------- ------------- -------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 10,828,831 5,607,000 (550,750) 15,885,081
PROVISION FOR INCOME TAXES
3,996,000 2,193,000 (209,300)(11) 5,979,700
------------- ------------- ------------- -------------
NET INCOME $ 6,823,831 $ 3,414,000 $ (341,450) $ 9,905,381
============= ============= ============= =============
EARNINGS PER SHARE
Basic $ 1.12 $ 0.52 $ 0.53
============= ============= =============
Diluted $ 1.03 $ 0.51 0.49
============= ============= =============
WEIGHTED-AVERAGE SHARES
OUTSTANDING
Basic 6,117,754 6,549,201 6,117,754 (13) 18,784,709
============= ============= ============= =============
Diluted 6,653,870 6,722,154 6,653,870 (13) 20,029,894
============= ============= ============= =============
</Table>
See accompanying notes to unaudited pro forma condensed combined
consolidated financial statements.
NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The unaudited pro forma condensed combined consolidated financial
statements present the pro forma financial position and results of operations of
the combined company based upon historical financial information after giving
effect to the transaction and adjustments described in these footnotes. Under
purchase accounting, the merger of Argon and Sensytech is accounted for such
that Argon is treated as the acquirer and Sensytech as the acquired company.
These unaudited pro forma condensed combined consolidated financial statements
are not necessarily indicative of the results of operations that would have been
achieved had the transaction actually taken place at the dates indicated and do
not purport to be indicative of the effects that may be expected to occur in the
future.
The financial statements of Argon and Sensytech are prepared in accordance
with accounting principles generally accepted in the United States of America.
On April 14, 2004, Sensytech acquired all of the outstanding stock of
Imaging Sensors and Systems, Inc. (ISS) for $2,000,000, 67,077 shares of
Sensytech stock and a contingent payment of up to $3,000,000. The unaudited pro
forma condensed combined consolidated statements of earnings for the year ended
September 30, 2003 and the nine months ended June 30, 2004 do not include the
effects of the acquisition of ISS by Sensytech because it was not deemed a
significant acquisition under Rule 3-05(b) and 11-01(b)(1) of Regulation S-X.
NOTE 2 -- PRO FORMA TRANSACTION
On June 7, 2004 Argon and Sensytech entered into a definitive agreement
pursuant to which Argon will merge with and into a subsidiary of Sensytech.
Thus, Argon will become a wholly-owned subsidiary of Sensytech. Under the terms
of the agreement, Argon stockholders will receive two shares of Sensytech common
stock for each share of Argon common stock they own. Because Argon's
stockholders will receive approximately 66% of the shares of Sensytech after the
merger, Argon's designees to the combined company's board of directors will
represent a majority of the combined company's board of directors, Argon's
senior management will represent a majority of the senior management of the
combined company and Argon's business will represent the largest portion of the
combined company in terms of revenue and market capitalization, Argon is deemed
to be the acquiring company for accounting purposes, and the merger will be
accounted for as a reverse acquisition under the purchase method of accounting
for business combinations in accordance with accounting principles generally
accepted in the United States.
As of June 7, 2004, Sensytech had 6,631,989 outstanding shares of common
stock. Based on the average market value of Sensytech common stock for the
period of two business days before and after the announcement date ($20.72 per
share), Sensytech's purchase price is calculated as approximately $137,414,000.
There are outstanding options to purchase a total of approximately 700,000
shares of Sensytech stock. The fair value of these shares was determined using
the Black-Scholes option pricing model with the following assumptions:
<Table>
Expected volatility 48%
Risk free interest rate 4.39%
Expected life of options (years) 7.97
Expected dividend yield 0.0%
</Table>
NOTE 3 -- PRO FORMA ADJUSTMENTS
(1) Adjustment to eliminate Sensytech's historical stockholders' equity,
net of pro forma adjustment charged to retained earnings. See Notes 14 and 15.
(2) To reflect dividends declared by the Argon board payable to Argon
stockholders subject to the approval of the merger by Sensytech and Argon
stockholders.
(3) To record payment of costs incurred for the merger by Argon, including
financial advisor fees, legal and accounting fees and printing costs.
(4) To record property and equipment at fair market value. The adjustment
is an estimate, and will be finalized with the assistance of an independent
appraiser for the actual adjustment to the books and records following closing.
(5) Values and amortization periods for intangible assets were determined
as follows:
<Table>
<Caption>
Intangible Asset Estimated Fair Value Amortization Period
------------------------------- ------------------------------ -------------------------------------------
Customer contracts $ 361,000 15 Months - Expected Profit
Market base 406,000 10 Years - Straight Line
Technology 93,000 1 Year
---------
$ 960,000
=========
</Table>
(6) Calculation of purchase price and goodwill:
<Table>
Purchase price value of 100% of the 6,631,989 shares of Sensytech common $137,414,000
stock outstanding at June 30, 2004, valued at $20.72 per share 10,717,000
------------------
Fair Value of 700,000 Sensytech options at $15.31 per share 148,131,000
------------------
Plus:
Transaction costs incurred by Argon (Note 3) 1,650,000
Retention liability assumed by Argon (Note 12) 820,000
Deferred tax liabilities (Note 9) 970,000
Less:
Sensytech net assets at June 30, 2004 (38,424,000)
Amount allocated to property plant and equipment (Note 4) (1,676,000)
Amount allocated to other intangible assets (Note 5) (960,000)
------------------
Excess purchase price over the fair value of Sensytech's net assets acquired
(goodwill), which is non-deductible for tax purposes, based upon
preliminary purchase price allocations $110,511,000
==================
</Table>
This adjustment also reflects the deemed issuance by Argon of approximately
12,757,000 shares of common stock at the time of the merger.
(7) To record additional depreciation of property and equipment, assuming
average useful lives of 7 years. The expense was allocated 80% to cost of
revenues and 20% to general and administrative expenses.
(8) To record additional amortization of intangible assets, based on useful
lives of Customer contracts -- 15 months (expected profits), Market Base -- 10
years and Technology -- 1 year. Amortization of Customer Contracts and Market
Base are reflected as general and administrative expense. Amortization of
Technology is reflected as cost of revenue.
(9) To record deferred tax assets and liabilities relating to adjustments
to property and equipment and other intangible assets.
(10) To reclassify accounts to present net short-term and net long-term
deferred income tax assets/liabilities.
(11) To record deferred tax provision at the statutory rate of 38%.
(12) To record retention liability assumed by Argon resulting from the
change of control of Sensytech.
(13) To record adjustment of additional shares to be owned by Argon
stockholders. Under the terms of the merger agreement, Argon stockholders will
receive two shares of Sensytech common stock for each share of Argon common
stock they own. In addition, Argon will grant an additional 150,000 incentive
(statutory) options prior to the closing of the merger at fair market value.
(14) To record payment of merger costs incurred by Sensytech, including
financial adviser fees, legal and accounting fees, which are recorded to
retained earnings.
(15) To eliminate existing balance of Sensytech's goodwill.