THE SPENDSMART PAYMENTS COMPANY
THE SPENDSMART PAYMENTS COMPANY
PRO FORMA UNAUDITED COMBINED FINANCIAL STATEMENTS
INTRODUCTORY NOTE
On February 11, 2014, The SpendSmart Payments Company, a Colorado corporation (“we,” “us,” “our,” “SSPC” or the “Company”), entered into subscription agreements (“Subscription Agreement”) with accredited investors pursuant to which we issued 1,131,099 shares of our newly designated Series C Convertible Preferred Stock (the “Series C Preferred Stock”) and warrants to purchase 4,524,396 shares of our common stock (the “Common Stock”) exercisable during the five-year period commencing on the date of issuance at $1.10 per share (the “Warrants”).
This offering resulted in net proceeds to us of approximately $2,732,002. The placement agent, a FINRA registered broker-dealer, in connection with the financing received warrants to purchase up to 452,440 shares of common stock at an exercise price of $1.27 per share as compensation. The Series C Preferred Stock and the Warrants were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on the exemptions provided by Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
On February 11, 2014, immediately following the closing described above, the Company, through its wholly-owned subsidiary, The SpendSmart Payments Company, a California corporation (the “Subsidiary”), acquired substantially all of the assets of Intellectual Capital Management, Inc., d/b/a SMS Masterminds (“SMS”) a Nevada corporation, including but not limited to certain intellectual property and accounts receivable, pursuant to the terms of an Asset Purchase Agreement (the “Asset Purchase Agreement”). In conjunction with the purchase of substantially all of the assets of SMS, the Company, through the Subsidiary acquired all of the intangible assets owned by ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the Chief Executive Officer of SMS, relating to SMS, pursuant to the terms of a Purchase Agreement (the “Purchase Agreement”) (the closing of the Asset Purchase Agreement and Purchase Agreement collectively referred to as the “SMS Acquisition”).
Pursuant to the Asset Purchase Agreement, the Company acquired substantially all of the assets of SMS. In consideration of the purchased assets, the Company agreed to issue to SMS five million two hundred and fifty thousand shares of the Company’s common stock. Pursuant to the Purchase Agreement, the Company agreed to pay ▇▇. ▇▇▇▇▇▇▇▇▇: (i) cash in the amount of four hundred and fifty thousand dollars in the aggregate upon the closing of a minimum of three million dollars in gross proceeds raised in a financing transaction; (ii) cash in the amount of four hundred and fifty thousand dollars in the aggregate upon the closing of a minimum of seven million dollars in gross proceeds raised in a financing transaction; (iii) an earn-out payment relating to fifteen percent of the earnings generated by the SMS after the acquisition; and (iv) an additional earn-out payment tied to the EBITDA of the Company after the acquisition of SMS.
SSPC is providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the SMS Acquisition.
The following unaudited pro forma condensed combined balance sheet combines the unaudited condensed historical balance sheets of SSPC as of December 31, 2013 with the unaudited condensed historical balance sheet of SMS as of December 31, 2013, giving effect to the SMS Acquisition as if it had been consummated as of that date.
The following unaudited pro forma condensed combined statement of operations combines the unaudited historical statements of operations of SSPC for the year ended September 30, 2013 with the unaudited historical statement of operations of SMS for the year ended December 31, 2013, giving effect to the SMS Acquisition as if it had occurred on October 1, 2012.
The following unaudited pro forma condensed combined statement of operations combines the unaudited historical statements of operations of SSPC for the year ended September 30, 2012 with the unaudited historical statement of operations of SMS for the year ended December 31, 2012, giving effect to the SMS Acquisition as if it had occurred on October 1, 2011.
The historical financial information has been adjusted to give effect to pro forma events that are related and/or directly attributable to the SMS Acquisition, are factually supportable and are expected to have a continuing impact on the combined results. The adjustments presented on the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the merger.
The Spendsmart Payments Company
Pro Forma Combined Balance Sheet
As of December 31, 2013
(Unaudited)
| A | B | |||||||||||||||||||||||
| SSPC as of December 31, 2013 | SMS as of December 31, 2013 | Elimination of SMS | Pro Forma Adjustments | Notes | Pro Forma Combined | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Current Assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 497,313 | $ | 50,097 | $ | (50,097 | ) | $ | 2,733,133 | C | ||||||||||||||
| (1,000,000 | ) | D | $ | 2,230,446 | ||||||||||||||||||||
| Accounts receivable, net | - | 2,152 | (2,152 | ) | 318,708 | D | 318,708 | |||||||||||||||||
| Other current assets | 205,934 | 270,255 | (270,255 | ) | - | 205,934 | ||||||||||||||||||
| Total current assets | 703,247 | 322,504 | (322,504 | ) | 2,051,841 | 2,755,088 | ||||||||||||||||||
| Property and equipment, net | 251 | - | - | - | 251 | |||||||||||||||||||
| Deposits and other assets | 5,700 | - | - | - | 5,700 | |||||||||||||||||||
| Intangible assets | - | - | - | 4,484,800 | D | 4,484,800 | ||||||||||||||||||
| Goodwill | - | - | - | 1,458,476 | D | 1,458,476 | ||||||||||||||||||
| Total assets | $ | 709,198 | $ | 322,504 | $ | (322,504 | ) | 7,995,117 | 8,704,315 | |||||||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||||||
| Short term debt | $ | - | $ | 90,965 | $ | (90,965 | ) | - | - | |||||||||||||||
| Accounts payable and accrued expenses | 921,164 | 70,202 | (70,202 | ) | 225,182 | D | 1,146,346 | |||||||||||||||||
| Deferred Revenue | - | - | - | 249,797 | D | 249,797 | ||||||||||||||||||
| Other current liabilities | 400,262 | - | - | 1,246,885 | D | 1,647,147 | ||||||||||||||||||
| Total current liabilities | 1,321,426 | 161,167 | (161,167 | ) | $ | 1,721,865 | $ | 3,043,291 | ||||||||||||||||
| Long Term Liabilities | ||||||||||||||||||||||||
| Note payable | - | 179,992 | (179,992 | ) | $ | 226,522 | D | $ | 226,522 | |||||||||||||||
| Total liabilities | $ | 1,321,426 | $ | 341,159 | $ | (341,159 | ) | $ | 1,948,386 | $ | 3,269,812 | |||||||||||||
| Stockholders' equity | ||||||||||||||||||||||||
| Convertible preferred stock | - | 1,131 | C | 1,131 | ||||||||||||||||||||
| Common stock | 10,398 | 49 | (49 | ) | 5,250 | D | 15,648 | |||||||||||||||||
| Additional paid in capital | 67,905,486 | 24,951 | (24,951 | ) | 2,732,002 | C | ||||||||||||||||||
| 3,308,347 | D | 73,945,835 | ||||||||||||||||||||||
| Accumulated deficit | (68,528,112 | ) | (43,655 | ) | 43,655.00 | - | (68,528,112 | ) | ||||||||||||||||
| Total stockholders equity (deficit) | (612,228 | ) | $ | (18,655 | ) | $ | 18,655 | 6,046,730 | 5,434,502 | |||||||||||||||
| Total Liabilities and Stockholders' Equity | $ | 709,198 | $ | 322,504 | $ | (322,504 | ) | $ | 7,995,117 | $ | 8,704,315 | |||||||||||||
The Spendsmart Payments Company
Pro Forma Statement of Operations
For the Year Ended September 30, 2013
(Unaudited)
| E | F | |||||||||||||||||||
| SSPC for the Year Ended September 30, 2013 | SMS for the Year Ended December 31, 2013 | Pro forma Adjustments | Notes | Pro Forma Combined | ||||||||||||||||
| Revenue | 1,020,438 | 2,265,877 | - | 3,286,315 | ||||||||||||||||
| Cost of revenues | - | 463,903 | - | 463,903 | ||||||||||||||||
| Gross profit | $ | 1,020,438 | $ | 1,801,974 | $ | - | $ | 2,822,412 | ||||||||||||
| Operating expenses | ||||||||||||||||||||
| Selling and marketing | 5,617,974 | - | - | 5,617,974 | ||||||||||||||||
| Personnel related | 12,316,632 | 586,489 | - | 12,903,121 | ||||||||||||||||
| Processing | 1,792,179 | - | - | 1,792,179 | ||||||||||||||||
| Amortization of intangible assets | - | - | 714,037 | G | 714,037 | |||||||||||||||
| General and administrative | 2,548,890 | 1,094,365 | - | 3,643,255 | ||||||||||||||||
| Total operating expenses | $ | 22,275,675 | $ | 1,680,854 | 714,037 | $ | 24,670,566 | |||||||||||||
| Income (loss) from operations | $ | (21,255,237 | ) | $ | 121,120 | $ | (714,037 | ) | $ | (21,848,154 | ) | |||||||||
| $ | - | |||||||||||||||||||
| Other income (expense) | 0 | |||||||||||||||||||
| Interest expense | 1,001 | 28,173 | - | 29,174 | ||||||||||||||||
| Change in derivative liabilities | (8,668,688 | ) | - | - | (8,668,688 | ) | ||||||||||||||
| Other income | (4,334 | ) | (528 | ) | - | (4,862 | ) | |||||||||||||
| Total other expenses | $ | (8,672,021 | ) | $ | 27,645 | $ | - | $ | (8,644,376 | ) | ||||||||||
| Income (loss) from continuing operations before provision for income taxes | (12,583,216 | ) | 93,475 | (714,037 | ) | (13,203,778 | ) | |||||||||||||
| Provision for income taxes | - | (40,045 | ) | - | (40,045 | ) | ||||||||||||||
| Net income (loss) | $ | (12,583,216 | ) | $ | 53,430 | $ | (714,037 | ) | $ | (13,203,778 | ) | |||||||||
| Basic and diluted loss per share | $ | (1.55 | ) | $ | (0.99 | ) | ||||||||||||||
| Basic and diluted weighted average common shares outstanding | 8,141,737 | 13,391,737 | H | |||||||||||||||||
The Spendsmart Payments Company
Pro Forma Statement of Operations
For the Year Ended September 30, 2012
(Unaudited)
| I | J | |||||||||||||||||||
| SSPC for the Year Ended September 30, 2012 | SMS for the Year Ended December 31, 2012 | Pro forma Adjustments | Notes | Pro Forma Combined | ||||||||||||||||
| Revenue | 1,009,250 | 2,392,341 | - | 3,401,591 | ||||||||||||||||
| Cost of reveunes | - | 749,141 | - | 749,141 | ||||||||||||||||
| Gross profit | $ | 1,009,250 | $ | 1,643,200 | $ | - | $ | 2,652,450 | ||||||||||||
| Operating expenses | ||||||||||||||||||||
| Selling and marketing | 3,025,724 | - | - | 3,025,724 | ||||||||||||||||
| Personnel related | 8,983,667 | 470,209 | - | 9,453,876 | ||||||||||||||||
| Processing | 3,284,869 | - | - | 3,284,869 | ||||||||||||||||
| Amortization of intangible assets | - | - | 714,037 | K | 714,037 | |||||||||||||||
| General and administrative | 1,468,718 | 614,956 | - | 2,083,674 | ||||||||||||||||
| Total operating expenses | $ | 16,762,978 | $ | 1,085,165 | 714,037 | $ | 18,562,180 | |||||||||||||
| Income (loss) from operations | $ | (15,753,728 | ) | $ | 558,035 | $ | (714,037 | ) | $ | (15,909,730 | ) | |||||||||
| $ | - | |||||||||||||||||||
| Other income (expense) | 0 | |||||||||||||||||||
| Interest expense | - | (13,007 | ) | - | (13,007 | ) | ||||||||||||||
| Change in derivative liabilities | (5,346,358 | ) | - | - | (5,346,358 | ) | ||||||||||||||
| Other income | 5,103 | 5,963 | - | 11,066 | ||||||||||||||||
| Total other expenses | $ | (5,341,255 | ) | $ | (7,044 | ) | $ | - | $ | (5,348,299 | ) | |||||||||
| Deemed dividend on preferred stock | (4,481,126 | ) | - | (4,481,126 | ) | |||||||||||||||
| Income (loss) from continuing operations before provision for income taxes | (25,576,109 | ) | 550,991 | (714,037 | ) | (25,739,155 | ) | |||||||||||||
| Provision for income taxes | - | (236,045 | ) | - | (236,045 | ) | ||||||||||||||
| Net income (loss) | (25,576,109 | ) | 314,946 | $ | (714,037 | ) | (25,975,200 | ) | ||||||||||||
| Basic and diluted loss per share | $ | (3.97 | ) | $ | (2.22 | ) | ||||||||||||||
| Basic and diluted weighted average common shares outstanding | 6,448,079 | 11,698,079 | L | |||||||||||||||||
Notes to the Unaudited Combined Pro forma Financial Statements
| A) | Derived from the unaudited balance sheet of SSPC as of December 31, 2013. |
| B) | Derived from the audited balance sheet of SMS as of December 31, 2013. |
| Additional | |||||||||||||
| Convertible | Paid-in | ||||||||||||
| Cash | preferred stock | Capital | |||||||||||
| (2) | Issuance of Series C Convertible Preferred with detachable warrants on February 11, 2014 | ||||||||||||
| Issuance of 1,131,099 Series C Convertible Preferred with 4,524,396 warrants issued to investors to purchase 4,524,396 of SSPC common stock at an exercise price of $1.10 and 452,440 placement agent warrants at an exercise price of $1.27, net of fees (1) | 2,733,133 | 1,131 | 2,732,002 | ||||||||||
| 2,733,133 | 1,131 | 2,732,002 | |||||||||||
| D) | The preliminary allocation of the purchase price to the SMS balance sheet is shown below: |
| Accounts receivable, net | $ | 318,708 | |||
| Identifiable intangible assets | 4,484,800 | ||||
| Goodwill | 1,458,476 | ||||
| Total assets | 6,261,984 | ||||
| Accounts payable and accrued expenses | 225,182 | ||||
| Deferred Revenue | 249,797 | ||||
| Long-term liabilities (SBA loan) | 226,522 | ||||
| Total liabilities | 701,501 | ||||
| Net assets acquired | $ | 5,560,483 | (2) | ||
| (2) | Consideration Paid | ||||
| Cash Paid - to SMS | $ | 1,000,000 | |||
| 5,250,000 Common Stock issued to SMS | 3,313,597 | ||||
| Estimated earn-out payment | 1,246,885 | ||||
| Total Consideration Paid | $ | 5,560,483 |
| (1) | The Company accounts for the issuance of common stock purchase warrants issued in connection with equity offerings in accordance with the provisions of ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). |
| E) | Derived from the audited statement of operations of SSPC for the year ended September 30, 2013. |
| F) | Derived from the audited statement of operations of SMS for the year ended December 31, 2013. |
| G) | Intangible Assets Amortization | ||||||||||||
| Estimated Useful | Annual | ||||||||||||
| Intangible Assets Acquired | Fair Value | Life | Amortization | ||||||||||
| IP/Technology | $ | 1,146,000 | 10 | $ | 114,600 | ||||||||
| Customer Base | 2,002,000 | 10 | 200,200 | ||||||||||
| Trade-Name/Marks | 198,700 | 10 | 19,870 | ||||||||||
| Non-Compete | 1,138,100 | 3 | 379,367 | ||||||||||
| Total Intangible Assets Acquired | $ | 4,484,800 | $ | 714,037 |
| H) | Weighted Average Shares - Basic and Diluted | ||||
| Outstanding as of September 30, 2013 | 8,141,737 | ||||
| Add: Issuance of shares issued to SMS | 5,250,000 | ||||
| Total | 13,391,737 | ||||
| I) | Derived from the audited statement of operations of SSPC for the year ended September 30, 2012. |
| J) | Derived from the audited statement of operations of SMS for the year ended December 31, 2012. |
| K) | Intangible Assets Amortization | Estimated Useful | Annual | ||||||||||
| Intangible Assets Acquired | Fair Value | Life | Amortization | ||||||||||
| IP/Technology | $ | 1,146,000 | 10 | $ | 114,600 | ||||||||
| Customer Base | 2,002,000 | 10 | 200,200 | ||||||||||
| Trade-Name/Marks | 198,700 | 10 | 19,870 | ||||||||||
| Non-Compete | 1,138,100 | 3 | 379,367 | ||||||||||
| Total Intangible Assets Acquired | $ | 4,484,800 | $ | 714,037 |
| L) | Weighted Average Shares - Basic and Diluted | ||||
| Outstanding as of September 30, 2013 | 6,448,079 | ||||
| Add: Issuance of shares issued to SMS | 5,250,000 | ||||
| Total | 11,698,079 | ||||
These unaudited pro forma combined condensed financial statements are provided for illustrative purposes only, and do not purport to be indicative of the actual financial position or results of operations had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of the results of future operations. The unaudited pro forma combined condensed financial statements do not reflect any operating efficiencies and/or cost savings that the combined entity may achieve with respect to the combined companies.