EX-99.3 6 f38577exv99w3.htm EXHIBIT 99.3 exv99w3
 

Exhibit 99.3
Volcano Corporation and CardioSpectra, Inc.
Unaudited Pro Forma Condensed
Combined Financial Statements
The following unaudited pro forma condensed combined financial statements are based on Volcano Corporation’s (Volcano) historical consolidated financial statements and CardioSpectra, Inc’s. (CardioSpectra) historical financial statements and have been adjusted to give effect of Volcano’s acquisition of CardioSpectra which was consummated on December 18, 2007. The unaudited pro forma combined statements of operation for the nine months ended September 30, 2007 and the year ended December 31, 2006 give effect as if the acquisition had occurred on January 1, 2006. The unaudited pro forma combined balance sheet as of September 30, 2007 gives effect as if the acquisition had occurred on September 30, 2007. This unaudited condensed combined pro forma financial information reflects the purchase of CardioSpectra as an acquisition of assets and represents a current estimate of the financial information based on available information from Volcano and CardioSpectra.
The pro forma information includes adjustments to record the assets and liabilities of CardioSpectra at their estimated fair market values and is subject to adjustment as additional information becomes available and as additional analyses are performed. To the extent there are significant changes to CardioSpectra’s business, the assumptions and estimates herein could change significantly. The pro forma financial information is presented for illustrative purposes only under one set of assumptions and does not reflect the financial results of the combined companies had consideration been given to other assumptions or to the impact of possible operating efficiencies, asset dispositions, and other factors. Further, the pro forma financial information does not necessarily reflect the historical results of the combined company that actually would have occurred had the acquisition been in effect during the periods indicated or that may be obtained in the future. The unaudited pro forma condensed combined financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements, including the related notes, of Volcano covering these periods included in Volcano’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and in Volcano’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2007 as well as the historical financial statements of CardioSpectra included elsewhere in this current report.
The unaudited pro forma condensed combined financial information is based on the cash payment by Volcano of $25,144,000 to or on behalf of CardioSpectra at closing of the acquisition. The unaudited pro forma condensed combined financial information does not give effect to the payment of up to $38,000,000 in cash, shares of Volcano common stock, or a combination of both that may be issued and paid contingent upon the achievement of certain post-closing milestones.

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2007 (in thousands)
                                 
                            Condensed  
                    Pro Forma     Combined Pro  
    Volcano     CardioSpectra     Adjustments     Forma  
Assets
                                
Current assets:
                                
Cash and cash equivalents
   $ 49,579     $ 516     $ (25,120 )A   $ 24,975  
Short-term available-for-sale investments
     42,781                       42,781  
Accounts receivable, net
     22,801                       22,801  
Inventories
     20,687                       20,687  
Prepaid expenses and other current assets
     3,646       28               3,674  
 
                        
Total current assets
     139,494       544       (25,120 )     114,918  
Restricted cash
     361                       361  
Property and equipment, net
     12,552       212       (80 )A     12,684  
Intangible assets, net
     9,831               274 A     10,105  
Other non-current assets
     720                       720  
 
                        
 
   $ 162,958     $ 756     $ (24,926 )   $ 138,788  
 
                        
 
                                
Liabilities and Stockholders’ Equity (Deficit)
                                
Current liabilities:
                                
Accounts payable
   $ 11,832     $ 76     $       $ 11,908  
Accrued compensation
     7,223       65               7,288  
Accrued expenses and other current liabilities
     5,839       395       1,233 A     7,467  
Preferred stock warrant liability
             724       (724 )E        
Deferred revenues
     4,241                     4,241  
Current maturities of long-term debt
     322                       322  
 
                        
Total current liabilities
     29,457       1,260       509       31,226  
Long-term debt
     90                       90  
Deferred license fee
     1,188                       1,188  
Other
     219       7               226  
 
                        
Total liabilities
     30,954       1,267       509       32,730  
 
                                
Commitments and contingencies
                                
 
                                
Stockholders’ equity:
                                
Series A convertible preferred stock
             3       (3 )F        
Series B convertible preferred stock
             3       (3 )F        
Common stock
     39       1       (1 )F     39  
Additional paid-in capital
     199,820       4,742       (4,742 )F     199,820  
Accumulated other comprehensive loss
     (1,000 )                     (1,000 )
Accumulated deficit
     (66,855 )     (5,260 )     5,260 F     (92,801 )
 
                     (25,946 )G        
 
                        
Total stockholders’ equity (deficit)
     132,004       (511 )     (25,435 )     106,058  
 
                        
 
   $ 162,958     $ 756     $ (24,926 )   $ 138,788  
 
                        

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006 (in thousands)
                                 
                            Condensed  
                    Pro Forma     Combined  
    Volcano     CardioSpectra     Adjustments     Pro Forma  
Revenues
   $ 103,048     $ —     $ —     $ 103,048  
Cost of revenues
     41,715       —       —       41,715  
 
                        
Gross profit
     61,333       —       —       61,333  
 
                                
Grant income
     —       867       (867 )C     —  
 
                                
Operating expenses:
                                
Selling, general and administrative
     47,614       872       —       48,486  
Research and development
     16,923       1,226       (867 )C     17,282  
Amortization of intangibles
     3,117       —       69 D     3,186  
 
                        
Total operating expenses
     67,654       2,098       (798 )     68,954  
 
                        
Operating loss
     (6,321 )     (1,231 )     (69 )     (7,621 )
Interest expense
     (4,013 )     —       —       (4,013 )
Interest and other income, net
     2,029       34       (1,256 )B     807  
Change in value of preferred stock warrants
     —       (5 )     5 E     —  
 
                        
Loss before provision for income taxes
     (8,305 )     (1,202 )     (1,320 )     (10,827 )
Provision for income taxes
     298       —       —       298  
 
                        
Net loss
   $ (8,603 )   $ (1,202 )   $ (1,320 )   $ (11,125 )
 
                        
 
                                
Net loss per share — basic and diluted
   $ (0.41 )     n/a *   $ —     $ (0.53 )
 
                        
 
Weighted-average shares outstanding basic and diluted
     21,113       n/a *     —       21,113  
 
                        
 
*   As a private Company, CardioSpectra’s historical financial statements do not provide earnings per share calculations.
The accompanying notes are an integral part of these unaudited, condensed, and combined financial statements.

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2007 (in thousands)
                                   
                              Condensed
                              Combined
    Volcano     CardioSpectra     Pro Forma       Pro Forma
Revenues
   $ 90,605     $ —     $ —       $ 90,605
Cost of revenues
     35,466       —       —         35,466  
 
                          
Gross profit
     55,139       —       —         55,139  
 
                                  
Grant income
     —       —       —         —  
 
                                  
Operating expenses:
                                  
Selling, general and administrative
     44,271       885       —         45,156  
Research and development
     15,241       2,012       —         17,253  
Amortization of intangibles
     2,313       —       51   D     2,364  
 
                          
Total operating expenses
     61,825       2,897       51         64,773  
 
                          
Operating loss
     (6,686 )     (2,897 )     (51 )       (9,634 )
Interest expense
     (193 )     —       —         (193 )
Interest and other income, net
     4,672       36       (942 ) B     3,766  
Change in value of preferred stock warrants
     —       (336 )     336   E     —  
 
                          
Loss before provision for income taxes
     (2,207 )     (3,197 )     (657 )       (6,061 )
Provision for income taxes
     626       —       —         626  
 
                          
Net loss
   $ (2,833 )   $ (3,197 )   $ (657 )     $ (6,687 )
 
                          
 
                                  
Net loss per share — basic and diluted
   $ (0.07 )     n/a *   $ —       $ (0.17 )
 
                          
 
                                  
Weighted-average shares outstanding basic and diluted
     38,368       n/a *     —         38,368  
 
                          
 
*   As a private Company, CardioSpectra’s historical financial statements do not provide earnings per share calculations.
The accompanying notes are an integral part of these unaudited, condensed, and combined financial statements.

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
1. Description of Transaction and Basis of Presentation
On December 18, 2007, Volcano Corporation (Volcano) and CardioSpectra, Inc. (CardioSpectra) completed a merger under which CardioSpectra merged with and into a wholly-owned subsidiary of Volcano in a transaction to be accounted for as an acquisition of assets by Volcano. The assets and liabilities of CardioSpectra will be recorded as of the acquisition date at their estimated fair values. The reported consolidated financial condition and results of operations of Volcano after the completion of the merger will reflect thee values, but will not be restated retroactively to reflect the historical consolidated financial position or results of operations of CardioSpectra. Under the terms of the Merger Agreement, Volcano paid $25,144,000 in cash at closing to CardioSpectra’s stockholders and warrant holders, $2,500,000 of which was contributed to and remains subject to an escrow fund which will be available for 12 months following the later of the closing of the Merger and the date of completion of any audit of CardioSpectra’s financial statements, to indemnify Volcano and related indemnitees for certain matters, including breaches of representations and warranties and covenants made by Cardiospectra in the merger agreement. Volcano also agreed to payments of up to an additional $38,000,000 payable upon the achievement of certain milestones. Such payments, if any, would be paid in either cash or shares of Volcano common stock, as determined by Volcano in its sole discretion. Additionally, Volcano assumed approximately $359,000 of CardioSpectra’s indebtedness.
2. Purchase Price
An estimate of the purchase price is as follows (in thousands):
         
Cash paid, net of cash acquired
   $ 25,120  
Estimated transaction costs incurred by Volcano
     1,233  
 
      
Estimated purchase price
   $ 26,353  
 
      
For pro forma purposes, the estimated purchase price has been allocated based on a preliminary valuation of CardioSpectra’s tangible and intangible assets and liabilities based on their estimated fair values as of September 30, 2007 (in thousands):
         
Total current assets, net of cash acquired
   $ 544  
Property and equipment and other assets
     132  
Intangible assets
     274  
In-process research and development
     25,946  
Liabilities assumed
     (543 )
 
      
Total
   $ 26,353  
 
      
The allocation of the purchase price is preliminary. The final determination of the purchase price allocation will be based on the fair values of assets acquired, including the fair values of in-process research and development, other identifiable intangibles and the fair values of liabilities assumed as of the date that the merger is consummated.
The purchase price allocation will remain preliminary until Volcano completes a valuation of any significant identifiable intangible assets acquired, including in-process research and development, and determines the fair values of other assets and liabilities acquired. The final determination of the purchase price allocation is expected to be completed as soon as practicable after completion of the merger. The final amounts allocated to assets and liabilities acquired could differ significantly from the amounts presented in the unaudited pro forma condensed combined financial statements.
The estimated fair value attributed to in-process research and development represents an estimate of the fair value of purchased in-process technology for research projects that, as of the expected closing date of the merger, will not have reached technological feasibility and may not have an alternative future use. Only those research projects that had advanced to a stage of development where management believed reasonable net future cash flow forecasts could be prepared and a reasonable likelihood of technical success existed would be included in the estimated fair value. Accordingly, it is not expected that there will be any significant identifiable intangibles, other than in-process research and development. The estimated fair value of the in-process research and development was determined based on a discounted forecast of the estimated net future cash flows for each project, adjusted for the estimated probability of technical success and Food and Drug Administration or European Agency for the Evaluation of Medicinal Product approval for each research project. To the extent that the acquired products are not technologically feasible at the date of acquisition, acquisition costs assigned to those products will be expensed as in-process research and development immediately following the completion of the merger.

 

 

3. Pro Forma Adjustments
     
A
  To record the distribution of cash of $25,144,000 to or on behalf of CardioSpectra, the accrual of estimated transaction costs and the acquisition of assets upon closing of the acquisition.
 
    
B
  To record a reduction in interest income as a result of the $25,144,000 cash payment to CardioSpectra
 
    
C
  To reclassify CardioSpectra’s grant income to a reduction in research & development expense to conform to Volcano’s accounting policies.
 
    
D
  Amortization of intangible assets acquired
 
    
E
  To reverse liability for preferred stock warrant and to reverse preferred stock warrant expense
 
    
F
  To eliminate CardioSpectra’s historical stockholders’ equity accounts.
 
    
G
  To record the estimated fair value of in-process research and development acquired in the acquisition. Because this expense is directly attributed to the acquisition and will not have a continuing impact, it is not reflected in the pro forma condensed statements of operations. However, this item will be recorded as an expense immediately following the acquisition.