EX-99.1 2 a06-20808_1ex99d1.htm EX-99

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
June 30, 2006

 

Pro-forma
Adjustments

 

Footnote

 

Pro-forma
June 30, 2006

 

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
Year Ended
December 31, 2005

 

Pro-forma
Adjustments

 

Footnote

 

Pro forma
Year Ended
December 31,
2005

 

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
6 Months Ended
June 30, 2006

 

Pro-forma
Adjustments

 

Footnote

 

Pro-forma
6 Months Ended
June 30, 2006

 

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
June 30, 2006

 

Year Ended
December 31, 2005

 

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