EXHIBIT 99.3
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF OPERATIONS
As used in these Unaudited Pro Forma Combined Condensed Statements of
Operations, references to "we," "us," "our" or "ATS Medical" refer to ATS
Medical, Inc., together with its consolidated subsidiaries.
The following Unaudited Pro Forma Combined Condensed Statements of Operations
are presented for illustrative purposes only and are not necessarily indicative
of the combined results of operations for future periods or the results of
operations that actually would have been realized had ATS Medical and 3F
Therapeutics been a combined company during the specified periods. As the
acquisition was completed on September 29, 2006, a Balance Sheet for the
combined company has been presented in our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006. Accordingly, no Pro Forma Balance Sheet is
presented in this Report
The Unaudited Pro Forma Combined Condensed Statements of Operations, including
the related notes, are qualified in their entirety by reference to, and should
be read in conjunction with:
- Our historical financial statements and related notes included in our
Annual Report on Form 10-K for the year ended December 31, 2005, as
amended, and our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006; and
- The historical financial statements and related notes of 3F
Therapeutics included in ATS Medical's Registration Statement on Form
S-4 filed with the Securities and Exchange Commission on August 10,
2006, and its unaudited Balance Sheet and unaudited Statements of
Operations as of and for the three and nine months ended September 30,
2006, respectively, filed as Exhibit 99.2 to this Current Report on
Form 8-K/A.
The aggregate 3F purchase price was allocated to the assets acquired and
liabilities assumed based on their preliminarily estimated fair values at the
date of acquisition. The preliminary estimate of the excess of purchase price
over the fair value of net tangible assets acquired was allocated to
identifiable intangible assets and goodwill. The following table summarizes the
preliminary estimate of fair value of the identifiable tangible and intangible
assets and goodwill, net of liabilities assumed, that were acquired as part of
the 3F acquisition (in thousands):
Cash $ 2,599
Other current assets 2,846
Intangible assets subject to amortization 7,150
Goodwill 4,662
Other long-term assets 519
Acquired in-process research and development 14,400
Current liabilities (2,922)
-------
Total purchase price $29,254
=======
In connection with the acquisition of 3F, we recorded developed and core
technology and trade names and trademark intangible assets that have been
preliminarily estimated with useful lives of between seven and twenty years and
a weighted average life of 18 years.
At the time of closing the 3F acquisition, we recorded an in-process research
and development (IPR&D) charge preliminarily estimated at $14.4 million, with no
related income tax benefit. This non-recurring IPR&D charge has been excluded
from the unaudited Pro Forma Combined Condensed Statements of Operations for all
periods presented herein. The preliminary valuation of IPR&D was based upon an
analysis of technologies that have not yet achieved technological feasibility
and have no future alternative use. The preliminary valuation considered
expected future cash flows and was discounted for risks and uncertainties
related to the completion of products.
The tangible assets, net of liabilities of 3F assumed at the time of
acquisition, were recorded at their respective fair values, in accordance with
purchase accounting requirements. These tangible assets are initially estimated
to be $3.04 million. For purposes of the preliminary allocation, we have
estimated the fair value of 3F's property, plant and equipment based on an
internal appraisal, which included a review of 3F's historical costs and
management's
99intended future use, resulting in an adjustment to increase the historical
carrying value of the assets by approximately $0.2 million. The fair value of
the acquired property and equipment will be depreciated over estimated useful
lives of three to five years, depending on the asset. We have also estimated the
fair value of 3F's inventories, based on estimated net realizable value less
costs to complete and a normal distribution margin, resulting in an adjustment
to increase the historical carrying cost of inventories by $0.2 million. This
non-recurring inventory increase adjustment has been excluded from the Unaudited
Pro Forma Combined Condensed Statements of Operations for all periods presented
herein.
The goodwill recorded as a result of the 3F acquisition is not deductible for
income tax purposes. The goodwill recognized represents operating and market
synergies that will be realized as a result of the merger and future product
opportunities.
The following Unaudited Pro Forma Combined Condensed Statements of Operations
are accounted for in accordance with Statement of Financial Accounting Standard
No. 141, "Business Combinations." The pro forma adjustments are based upon
preliminary estimates and available information. Final purchase accounting
adjustments may differ from these pro forma amounts.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
OF ATS MEDICAL, INC. AND 3F THERAPEUTICS, INC.
YEAR ENDED DECEMBER 31, 2005
(IN THOUSANDS)
(Restated)
ATS Medical 3F Therapeutics Combined
Year Ended Year Ended Year Ended
December 31, December 31, Merger December 31,
2005 2005 Adjustments Notes 2005
------------ --------------- ----------- ------ ------------
Net product sales $ 34,636 $ 326 $ -- $ 34,962
License revenue -- 8,618 -- 8,618
-------- ------- -------- --------
Total revenue 34,636 8,944 -- 43,580
Cost of product sales and license revenue 22,828 1,649 -- 24,477
-------- ------- -------- --------
Gross profit 11,808 7,295 -- 19,103
Operating expenses:
Sales and marketing 18,948 1,035 -- 19,983
Research and development 1,733 6,614 -- 8,347
General and administrative 7,314 2,347 -- 9,661
Amortization of intangibles and additional
depreciation -- -- 499 (1, 2) 499
-------- ------- -------- --------
Total operating expenses 27,995 9,996 499 38,490
-------- ------- -------- --------
Operating loss (16,187) (499) (19,387)
Interest expense, net (338) (1,447) -- (1,785)
Change in value of convertible senior notes
derivative liability 2,131 -- -- 2,131
-------- ------- -------- --------
Net loss $(14,394) $(4,148) $ (499) $(19,041)
======== ======= ======== ========
Basic and diluted net loss per share $ (0.46) $ (0.48)
======== ========
Weighted average common shares outstanding 31,009 9,000 40,009
======== ======== ========
See Notes to Unaudited Pro Forma Combined Condensed Statements of Operations.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
OF ATS MEDICAL, INC. AND 3F THERAPEUTICS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2006
(IN THOUSANDS)
ATS Medical 3F Therapeutics Combined
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, Merger September 30,
2006 2006 Adjustments Notes 2006
------------- --------------- ----------- ------ -------------
Net product sales $29,709 $ 86 $ -- $29,795
License revenue -- 11,031 -- 11,031
------- ------- ------- -------
Total revenue 29,709 11,117 -- 40,826
Cost of product sales and license revenue 14,302 940 -- 15,242
------- ------- ------- -------
Gross profit 15,407 10,177 -- 25,584
Operating expenses:
Sales and marketing 15,233 544 (200) (3) 15,577
Research and development 1,370 5,286 -- 6,656
General and administrative 6,288 4,768 (2,200) (3) 8,856
Amortization of intangibles and additional
depreciation -- -- 375 (1, 2) 375
------- ------- ------- -------
Total operating expenses 22,891 10,598 (2,025) 31,464
------- ------- ------- -------
Operating loss (7,484) (421) 2,025 (5,880)
Interest income (expense), net (1,235) 248 -- (987)
Income tax expense -- (55) -- (55)
Change in value of convertible senior notes
derivative liability 1,525 -- -- 1,525
------- ------- ------- -------
Net loss $(7,194) $ (228) $ 2,025 $(5,397)
======= ======= ======= =======
Basic and diluted net loss per share $ (0.23) $ (0.13)
======= =======
Weighted average common shares outstanding 31,256 8,967 40,223
======= ======= =======
See Notes to Unaudited Pro Forma Combined Condensed Statements of Operations.