cxdo_ex993.htm

EX-99.3 6 cxdo_ex993.htm EX-99.3 cxdo_ex993.htm

EXHIBIT 99.3

CREXENDO, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma combined condensed consolidated financial statements and accompanying notes reflect the pro forma effects of the following transaction (“Transaction”). On October 17, 2022, the Company entered into an Acquisition Agreement with Allegiant Networks, LLC, a Kansas limited liability company (the “Allegiant Networks”). The Company acquired from Seller one hundred percent (100%) of the membership interests of Allegiant Networks in exchange for (i) a cash payment at closing in the amount of $2.0 million, (ii) a three-year promissory note by the Company in favor of Seller in the amount of $1.1 million, which shall be subject to offsets for breach of representations or other offsets as detailed in the Acquisition Agreement, and (iii) 2,461,538 shares of the Company’s common stock, par value $0.001 per share. The Company Shares shall be issued pursuant to a valid exemption from registration under the Securities Act of 1933, as amended. Shares issued in the transaction shall be fully restricted for a period of 6 months from the date of issuance and subject to lock-up thereafter. Pursuant to the lock-up agreement, after 6 months, 25% of the shares will be permitted to be sold, with an additional 25% permitted to be sold every 6-month period thereafter. On November 1, 2022, the Company closed the transaction, and the Company issued the seller cash consideration of $2.0 million, a three-year promissory note for $1.1 million, and 2,461,538 shares of the Company’s common stock, par value $0.001 per share valued at $2.57 per share, for an aggregate purchase price of approximately $9.4 million.

The unaudited pro forma combined condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that would have actually been reported had the acquisition described above occurred on January 1, 2021 for statements of operation purposes and as of June 30, 2022 for balance sheet purposes, nor is it necessarily indicative of the future financial position or results of operations. The unaudited pro forma combined condensed consolidated financial statements include adjustments, which are based upon preliminary estimates, to reflect the allocation of the purchase price to the acquired assets and assumed liabilities of Allegiant Networks. The final allocation of the purchase price will be based upon actual net tangible and intangible assets acquired as well as liabilities assumed. The preliminary purchase price allocation for Allegiant is subject to revision as more detailed analysis is completed and additional information on the fair values of Allegiant Networks’ assets and liabilities becomes available. Any change in the fair value of the net assets of Allegiant Networks will change the amount of the purchase price allocable to goodwill. Additionally, changes in Allegiant Networks’ working capital, including the results of operations from June 30, 2022 through the transaction close date of November 1, 2022, will change the amount of goodwill recorded. Final purchase accounting adjustments may differ materially from the pro forma adjustments presented here.

The unaudited pro forma combined condensed balance sheet assumes that the Transaction was completed on June 30, 2022. The unaudited pro forma combined condensed consolidated statements of operations for the fiscal year ended December 31, 2021 and for the six months ended June 30, 2022 assume the Transaction was completed on January 1, 2021 and reflect the pro forma operating results of Allegiant Networks for its fiscal year 2021, derived from the Company’s audited financial statements for such period, and for the six months ended June 30, 2022, derived from the Company’s unaudited financial statements for such period.

The Company prepares its financial statements in accordance with U.S. Generally Accepted Accounting Principles. The unaudited pro forma combined condensed consolidated financial statements were prepared in accordance with the rules and regulations of the SEC and should not be considered indicative of the financial position or results of operations that would have occurred if the Transaction had been completed on the dates indicated, nor are they indicative of the future financial position or results of operations of Crexendo and Allegiant Networks following completion of the Transaction. The historical financial information of Allegiant Networks has been adjusted in the unaudited pro forma combined condensed consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results.

The unaudited pro forma combined condensed consolidated financial information should be read in conjunction with the accompanying notes thereto. In addition, the unaudited pro forma financial information was based on, and should be read in conjunction with:

	·	The separate historical consolidated financial statements of Crexendo, Inc. and Subsidiaries (Crexendo”) as of and for the fiscal year ended December 31, 2021 and the related notes included in Crexendo’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 21, 2022, and the historical condensed consolidated financial statements for the quarter ended June 30, 2022, including related notes, included in Crexendo’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, filed with the SEC on August 9, 2022; and

	·	The separate historical financial statements of Allegiant Networks as of and for the year ended December 31, 2021 and the related notes, and the historical unaudited condensed consolidated financial statements for the six months ended June 30, 2022 and 2021, including related notes, which are attached as Exhibit 99.1 and Exhibit 99.2, respectively, to this Form 8-K/A.

CREXENDO, INC. AND SUBSIDIARIES

Pro Forma Combined Condensed Consolidated Balance Sheet

As of June 30, 2022

(Unaudited, in thousands)

	Historical				Pro Forma
	Crexendo		Allegiant		Adjustments (i)				Combined
Assets			(Note 2)		(Note 4)
Current assets:
Cash and cash equivalents	$	4,876	$	1,720	$	(3,411	)	(a) (c)	$	3,185
Trade receivables, net		3,524		673		-				4,197
Contract assets		266		-		-				266
Inventories		258		410		-				668
Equipment financing receivables		477		-		-				477
Contract costs		859		-		-				859
Prepaid expenses		678		11		-				689
Other current assets		22		128		(128	)	(b)		22
Total current assets		10,960		2,942		(3,539	)			10,363

Long-term equipment financing receivables, net		1,025		-		-				1,025
Property and equipment, net		2,889		195		(47	)			3,037
Deferred income tax assets, net		986		-		-				986
Operating lease right-of-use assets		499		-		-				499
Intangible assets, net		21,062		127		6,245		(f)		27,434
Goodwill		36,972		-		3,825		(e)		40,797
Contract costs, net of current portion		850		-		-				850
Income tax receivable		355		-		-				355
Other long-term assets		270		688		(688	)	(b)		270
Total Assets	$	75,868	$	3,952	$	5,796			$	85,616

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	388	$	405	$	-			$	793
Accrued expenses		4,605		553		-				5,158
Finance leases		107		-		-				107
Notes payable		1,836		227		293		(c) (d)		2,356
Operating lease liabilities		352		-		-				352
Contract liabilities		2,175		1,192		-				3,367
Total current liabilities		9,463		2,377		293				12,133

Contract liabilities, net of current portion		196		-		-				196
Finance leases, net of current portion		139		-		-				139
Notes payable, net of current portion		-		140		612		(c) (d)		752
Operating lease liabilities, net of current portion		186		-		-				186
Total liabilities		9,984		2,517		905				13,406

Stockholders' equity:
Total stockholders' equity		65,884		1,435		4,891		(a) (b) (e) (f) (i)		72,210

Total Liabilities and Stockholders' Equity	$	75,868	$	3,952	$	5,796			$	85,616

The accompanying notes are an integral part of these unaudited pro forma combined consolidated financial statements.

CREXENDO, INC. AND SUBSIDIARIES

Pro Forma Combined Condensed Consolidated Statement of Operations

For the Six Months Ended June 30, 2022

(Unaudited, in thousands, except per share data)

	Historical						Pro Forma
	Crexendo			Allegiant			Adjustments			Combined
				(Note 3)			(Note 4)
Service revenue	$	8,954		$	4,702			-		$	13,656
Software solutions revenue		6,866			-			-			6,866
Product revenue		1,184			679			-			1,863
Total revenue		17,004			5,381			-			22,385

Operating expenses:
Cost of service revenue		2,874			2,627			-			5,501
Cost of software solutions revenue		2,817			-			-			2,817
Cost of product revenue		689			356			-			1,045
Selling and marketing		5,355			835			212	(j)		6,402
General and administrative		6,006			1,180			-			7,186
Research and development		1,508			-			-			1,508
Total operating expenses		19,249			4,998			212			24,459

Income/(loss) from operations		(2,245	)		383			(212	)		(2,074	)

Other income/(expense):
Interest income		-			12			-			12
Interest expense		(38	)		(10	)		-			(48	)
Other income/(expense), net		(116	)		1			-			(115	)
Total other income/(expense), net		(154	)		3			-			(151	)

Income/(loss) before income tax		(2,399	)		386			(212	)		(2,225	)

Income tax benefit		283			-			-			283

Net income/(loss)	$	(2,116	)	$	386		$	(212	)	$	(1,942	)

Earnings per common share:
Basic	$	(0.09	)							$	(0.08	)
Diluted	$	(0.09	)							$	(0.08	)

Weighted-average common shares outstanding:
Basic		22,347,510						2,461,538	(k)		24,809,048
Diluted		22,347,510						2,461,538	(l)		24,809,048

The accompanying notes are an integral part of these unaudited pro forma combined consolidated financial statements.

CREXENDO, INC. AND SUBSIDIARIES

Pro Forma Combined Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2021

(Unaudited, in thousands, except per share data)

	Historical						Pro Forma
	Crexendo			Alegiant			Adjustments			Combined
				(Note 3)			(Note 4)
Service revenue	$	17,102		$	8,458		$	-		$	25,560
Software solutions revenue		8,666			-			-			8,666
Product revenue		2,324			1,584			-			3,908
Total revenue		28,092			10,042			-			38,134

Operating expenses:
Cost of service revenue		5,104			4,411			-			9,515
Cost of software solutions revenue		4,031			-			-			4,031
Cost of product revenue		1,525			1,463			-			2,988
Selling and marketing		8,260			1,844			425	(j)		10,529
General and administrative		10,586			2,007			-			12,593
Research and development		1,396			-			-			1,396
Total operating expenses		30,902			9,725			425			41,052

Income/(loss) from operations		(2,810	)		317			(425	)		(2,918	)

Other income/(expense):
Interest income		1			25			-			26
Interest expense		(84	)		(25	)		-			(109	)
Forgiveness of PPP loans		-			1,391			-			1,391
Loss on sale of property and equipment		-			(83	)		-			(83	)
Other income/(expense), net		(17	)		41			-			24
Total other income/(expense), net		(100	)		1,349			-			1,249
								-
Income/(loss) before income tax		(2,910	)		1,666			(425	)		(1,669	)
								-
Income tax benefit		465			-			-			465

Net income/(loss)	$	(2,445	)	$	1,666		$	(425	)	$	(1,204	)

Earnings per common share:
Basic	$	(0.12	)							$	(0.05	)
Diluted	$	(0.12	)							$	(0.05	)

Weighted-average common shares outstanding:
Basic		20,275,691						2,461,538	(k)		22,737,229
Diluted		20,275,691						2,461,538	(l)		22,737,229

The accompanying notes are an integral part of these unaudited pro forma combined consolidated financial statements.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma combined condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the SEC.

1. Basis of Pro Forma Presentation

On October 17, 2022, the Company entered into an Acquisition Agreement with Allegiant Networks, LLC, a Kansas limited liability company (the “Allegiant Networks”). The Company shall acquire from Seller one hundred percent (100%) of the membership interests of Allegiant Networks in exchange for (i) a cash payment at closing in the amount of $2.0 million, (ii) a three-year promissory note by the Company in favor of Seller in the amount of $1.1 million, which shall be subject to offsets for breach of representations or other offsets as detailed in the Acquisition Agreement, and (iii) 2,461,538 shares of the Company’s common stock, par value $0.001 per share. The Company Shares shall be issued pursuant to a valid exemption from registration under the Securities Act of 1933, as amended. Shares issued in the transaction shall be fully restricted for a period of 6 months from the date of issuance and subject to lock-up thereafter. Pursuant to the lock-up agreement, after 6 months, 25% of the shares will be permitted to be sold, with an additional 25% permitted to be sold every 6-month period thereafter. On November 1, 2022, the Company closed the transaction, and the Company issued the seller cash consideration of $2.0 million, a three-year promissory note for $1.1 million, and 2,461,538 shares of the Company’s common stock, par value $0.001 per share valued at $2.57 per share, for an aggregate purchase price of approximately $9.4 million.

The unaudited pro forma combined condensed consolidated balance sheet as of June 30, 2022 was prepared by combining the historical unaudited consolidated balance sheet data as of June 30, 2022 for Crexendo and Allegiant Networks as if the Transactions had been consummated on that date. Certain unaudited balance sheet reclassifications have been reflected to conform Allegiants’ balance sheet to Crexendo’s balance sheet presentation. Refer to Note 2 for a discussion of these reclassification adjustments.

The unaudited pro forma combined condensed consolidated statement of operations for the six months ended June 30, 2022 and the year ended December 31, 2021 combines the audited consolidated statements of operations of Crexendo and Allegiant Networks for the year ended December 31, 2021 and the unaudited condensed consolidated financial statements for the six months ended June 30, 2022, as if the transactions had been consummated on January 1, 2021. Certain unaudited statement of operations reclassifications have been reflected in order to conform to Crexendo’s statement of operations presentation. Refer to Note 3 for a discussion of these reclassification adjustments.

2. Allegiant Balance Sheet

Allegiant Networks classified certain amounts differently than Crexendo in its balance sheet. The following schedule summarizes the necessary adjustments to conform the Allegiant balance sheet as of June 30, 2022 to Crexendo’s basis of presentation (Unaudited, in thousands):

	As Reported					As Revised
	Allegiant		Adjustments (i)			Allegiant
Assets
Current assets:
Cash and cash equivalents	$	1,720	$	-		$	1,720
Trade receivables, net		673		-			673
Prepaid expenses		11					11
Inventories		410					410
Member notes receivable, current		128		(128	)		-
Other current assets		-		128			128
Total current assets		2,942		-			2,942

Member notes receivable, net of current portion		688		(688	)		-
Property and equipment, net		195		-			195
Intangibles, net		127		-			127
Other long-term assets		-		688			688
Total Assets	$	3,952	$	-		$	3,952

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	405	$	-		$	405
Accrued compensation		197		(197	)		-
Accrued expenses		191		362			553
Other current liabilities		16		(16	)		-
Contract liabilities		1,192		-			1,192
Accrued taxes and fees		149		(149	)		-
Current portion of long-term debt		227		-			227
Total current liabilities		2,377		-			2,377

Long-term debt, net of current portion		140		-			140
Total liabilities		2,517		-			2,517

Members' equity:
Total members' equity		1,435		(1,435	)		-
Stockholders' equity:
Total stockholders' equity		-		1,435			1,435

Total liabilities and stockholders' equity	$	3,952	$	-		$	3,952

	The adjustments presented above to Allegiants’ balance sheet are as follows:

	(i)	Reflects a reclassification of current and long-term member notes receivable balances to other current and other long-term assets to be consistent with Crexendo’s classifications. Also reflects a reclassification of accrued compensation, accrued taxes and fees, and other current liabilities to accrued expenses to be consistent with Crexendo’s classifications. Additionally, reflects a reclassification of members’ equity to stockholders’ equity to be consistent with Crexendo’s equity classifications.

3. Allegiant Statement of Operations

Allegiant classified certain amounts differently than Crexendo in its consolidated statement of operations. The following schedule summarizes the necessary adjustments to conform the Allegiant consolidated statement of operations for the six months ended June 30, 2022 and the year ended December 31, 2021 to Crexendo’s basis of presentation (in thousands):

Condensed Statement of Operations for the Six Months Ended June 30, 2022 (Unaudited, in thousands)

	As Reported						As Revised
	Allegiant			Adjustments (i)			Allegiant

Service revenue	$	4,880		$	(178	)	$	4,702
Product revenue		501			178			679
Total revenue		5,381			-			5,381

Operating expenses:
Cost of service revenue		-			2,627			2,627
Cost of product revenue		-			356			356
Cost of sales		2,867			(2,867	)		-
Operating		710			(710	)		-
Selling, general and administrative expenses		1,309			(1,309	)		-
Depreciation and amortization		62			(62	)		-
Selling and marketing		-			835			835
General and administrative		-			1,180			1,180
Research and development		-			-			-
Total operating expenses		4,948			50			4,998

Income from operations		433			-			383

Other income/(expense):
Interest income		12			-			12
Interest expense		(10	)		-			(10	)
Other income/(expense)		(49	)		50			1
Total other income/(expense)		(47	)		50			3

Net income	$	386		$	-		$	386

Condensed Statement of Operations for the Year Ended December 31, 2021 (in thousands)

	As Reported						As Revised
	Allegiant			Adjustments (i)			Allegiant

Service revenue	$	8,817		$	(359	)	$	8,458
Producet revenue		1,225			359			1,584
Total revenue		10,042			-			10,042

Operating expenses:
Cost of sales		5,616			(5,616	)		-
Cost of service revenue		-			4,411			4,411
Cost of product revenue		-			1,463			1,463
Operating		1,611			(1,611	)		-
Selling, general and administrative expenses		2,367			(2,367	)		-
Depreciation and amortization		131			(131	)		-
Selling and marketing		-			1,844			1,844
General and administrative		-			2,007			2,007
Research and development		-			-			-
Total operating expenses		9,725			-			9,725

Income from operations		317			-			317

Other income/(expense):
Interest income		25			-			25
Interest expense		(25	)		-			(25	)
Forgivness of PPP loans		1,391			-			1,391
Loss of disposal of property and equipment		(83	)		-			(83	)
Other income		41			-			41
Total other income		1,349			-			1,349

Net income	$	1,666		$	-		$	1,666

The adjustments presented above to Allegiants’ statement of operations are as follows:

(i)

Reflects a reclassification of revenue to be consistent with Crexendo classifications. Reflects a reclassification of cost of sales into separate financial statement line items for cost of service revenue and cost of product revenue. Reflects a reclassification of operating expenses into cost of service revenue. Reflects a reclassification of selling, general and administrative expenses into separate financial statement line items for selling and marketing and general and administrative expenses to be consistent with Crexendo classifications. Reflects a reclassification of depreciation and amortization expense to general and administrative expenses to be consistent with Crexendo classifications. Additionally, reflects a reclassification of other income/(expense) to general and administrative expenses to be consistent with Crexendo classifications.

4. Pro Forma Adjustments

The accompanying unaudited pro forma combined condensed consolidated financial statements have been prepared as if the transactions described above were completed on June 30, 2022 for balance sheet purposes and as of January 1, 2021 for statement of operations purposes.

The unaudited pro forma combined condensed consolidated balance sheet gives effect to the following pro forma adjustments (in thousands):

(a)

Represents the following adjustments to cash and cash equivalents:

Cash portion for Allegiant member	$	(2,000	)
Allegiant cash balance to member		(1,216	)
Repayment of Allegiant's outstanding debt (c)		(195	)
	$	(3,411	)

(b)

The settlement of member note receivable.

(c)

The repayment of $195 of Allegiant’s outstanding debt.

(d)

The recording of $1,100 seller note payable consideration.

(e)

The disposal of $47 of property and equipment.

(f)

The write off of $127 of an intangible asset.

(g)

Goodwill of $3,825 created in the acquisition. Allegiant did not have any goodwill recorded on its historical balance sheet.

(h)

The following adjustments to intangible assets, net:

Value attributed to new intangible asset - customer relationships		$	6,372
		$	6,372

(i)

The following adjustments to stockholders’ equity:

Elimination of Allegiant's historical stockholders’ equity	$	771
Fair value of Crexendo common stock issued in connection with the Allegiant purchase price		6,326
	$	7,097

The unaudited pro forma combined condensed consolidated statements of operation give effect to the following pro forma adjustments (in thousands, except per share data):

(j)

Amortization expense in connection with identifiable intangible assets recorded in connection with the acquisition as noted below:

	Six Months Ended June 30, 2022		Year ended December 31, 2021
Customer relationships		212		425
	$	212	$	425

(k)

The shares of Crexendo common stock issued in connection with the acquisition as if they were outstanding as of January 1, 2021.

(l)

Combined pro forma diluted net income per common share for the six months ended June 30, 2022 and the year ended December 31, 2021 is the same as basic net loss per common share as the common share equivalents were anti-dilutive due to the net loss.

	(b)	The settlement of member note receivable.

	(c)	The repayment of $195 of Allegiant’s outstanding debt.

	(d)	The recording of $1,100 seller note payable consideration.

	(e)	The disposal of $47 of property and equipment.

	(f)	The write off of $127 of an intangible asset.