EX-99.3 3 ex-99d3.htm EX-99.3 ospn_Ex99_3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information is based upon the audited and unaudited historical financial information of OneSpan, Inc., formerly known as VASCO Data Security International, Inc. (“OneSpan” or the “Company”) and Dealflo Limited (“Dealflo”) as adjusted to give effect to the following acquisition (the “Acquisition”):

As previously disclosed, on May 30, 2018 (“Acquisition date”),  the Company, through its wholly-owned subsidiary VASCO Digital Automation Limited, a privately held company incorporated under English law (“Purchaser”), entered into an all cash stock purchase agreement (“Agreement”). The Agreement provided for the acquisition of all of the outstanding stock of Dealflo Limited and its subsidiaries (“Dealflo”) for an aggregate purchase price, net of cash acquired, of GBP 41 million,  or USD $53.9 million (the “Purchase Price”) and is governed by English Law. The Purchase Price was subject to a locked box completion mechanism and was delivered cash free and debt free upon closing with a portion of the Purchase Price reserved for an escrow account deposited with an agent at closing. The Agreement contains customary representations, warranties and covenants of the parties to the Agreement with limited warranties provided by the investors and general warranties provided by certain shareholders who are Dealflo employees with a Buyer’s Warranty and Indemnity Insurance policy for supplemental claims coverage procured by the Purchaser.

Prior to the acquisition date, OneSpan held a minority ownership in Dealflo with a value of $0.8 million. The acquisition increased the Company’s ownership percentage to 100% from 1%.

The following unaudited pro forma condensed combined financial information combine the historical financial information of the Company and Dealflo. The unaudited pro forma condensed combined balance sheet at March 31, 2018 gives effect to the acquisition as if the acquisition had been consummated at that date. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2017 and the quarter ended March 31, 2018 are presented as if the acquisition had occurred on January 1, 2017.

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

Dealflo

 

 

 

Dealflo

 

 

 

Pro Forma

 

 

 

 

 

UK GAAP

 

US GAAP

 

US GAAP

 

Pro Forma

 

Condensed

 

 

OneSpan

    

(in GBP)

 

Adjustments

 

(in USD)

 

Adjustments

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

126,484

 

£

5,023

 

£

 —

 

$

7,048

 

$

(58,729)

A

$

74,803

Short term investments

 

 

39,953

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

39,953

Accounts receivable, net of allowances

 

 

34,445

 

 

1,272

 

 

 —

 

 

1,785

 

 

(364)

B

 

35,866

Inventories, net

 

 

11,504

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

11,504

Prepaid expenses

 

 

6,478

 

 

46

 

 

 —

 

 

65

 

 

364

B

 

 6,543

Contract assets

 

 

4,874

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 5,238

Other current assets

 

 

4,547

 

 

420

 

 

 —

 

 

589

 

 

 —

 

 

5,136

Total current assets

 

 

228,285

 

 

6,761

 

 

 —

 

 

9,487

 

 

(58,729)

 

 

179,043

Property and equipment, net

 

 

6,300

 

 

595

 

 

 —

 

 

835

 

 

 —

 

 

7,135

Goodwill

 

 

57,025

 

 

 —

 

 

 —

 

 

 —

 

 

37,717

C

 

94,742

Intangible assets, net of accumulated amortization

 

 

35,733

 

 

 —

 

 

 —

 

 

 —

 

 

16,100

D

 

51,833

Deferred income taxes

 

 

4,975

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,975

Contract assets - non-current

 

 

7,488

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

7,488

Other assets

 

 

7,062

 

 

 —

 

 

 —

 

 

 —

 

 

(789)

E

 

6,273

Total assets

 

$

346,868

 

£

7,356

 

£

 —

 

$

10,322

 

$

(6,065)

 

$

351,488

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Current liabilities

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Accounts payable

 

$

4,822

 

£

464

 

£

 —

 

$

651

 

$

 —

 

$

5,473

Deferred revenue

 

 

30,433

 

 

1,781

 

 

97

 

 

2,635

 

 

(791)

F

 

32,277

Accrued wages and payroll taxes

 

 

10,669

 

 

55

 

 

 —

 

 

77

 

 

 —

 

 

10,746

Short-term income taxes payable

 

 

1,435

 

 

 -

 

 

 —

 

 

 -

 

 

 —

 

 

1,435

Other accrued expenses

 

 

9,598

 

 

697

 

 

 —

 

 

978

 

 

1,100

G

 

11,676

Deferred compensation

 

 

395

 

 

 -

 

 

 —

 

 

 -

 

 

 —

 

 

395

Total current liabilities

 

 

57,352

 

 

2,997

 

 

97

 

 

4,341

 

 

309

 

 

62,002

Long-term deferred revenue

 

 

6,773

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

6,773

Other long-term liabilities

 

 

7,500

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

7,500

Long-term income taxes payable

 

 

12,848

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

12,848

Deferred income taxes

 

 

8,169

 

 

 -

 

 

 —

 

 

 —

 

 

1,070

H

 

9,239

Long term debt

 

 

 -

 

 

1,174

 

 

 —

 

 

1,647

 

 

(1,647)

I

 

 —

Total liabilities

 

 

92,642

 

 

4,171

 

 

97

 

 

5,988

 

 

(268)

 

 

98,362

Stockholders' equity

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Common stock

 

 

40

 

 

 -

 

 

 —

 

 

 —

 

 

 —

 

 

40

Additional paid-in capital

 

 

91,106

 

 

13,352

 

 

 —

 

 

18,735

 

 

(18,735)

J

 

91,106

Accumulated income

 

 

170,319

 

 

(10,398)

 

 

(97)

 

 

(14,726)

 

 

13,626

G,J

 

169,219

Accumulated other comprehensive loss

 

 

(7,239)

 

 

231

 

 

 —

 

 

324

 

 

(324)

J

 

(7,239)

Total stockholders' equity

 

 

254,226

 

 

3,185

 

 

(97)

 

 

4,333

 

 

(5,433)

 

 

253,126

Total liabilities and stockholders' equity

 

$

346,868

 

£

7,356

 

£

 —

 

$

10,321

 

$

(5,701)

 

$

351,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

Dealflo

 

 

 

Dealflo

 

 

 

Pro Forma

 

 

 

 

 

UK GAAP

 

US GAAP

 

US GAAP

 

Pro Forma

 

Condensed

 

 

OneSpan

    

(in GBP)

 

Adjustments

 

(in USD)

 

Adjustments

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Product and license

 

$

147,257

 

£

 —

 

£

 —

 

$

 —

 

$

 —

 

$

147,257

Services and other

 

 

46,034

 

 

5,059

 

 

79

 

 

6,885

 

 

(1,093)

F,K

 

51,826

Total revenue

 

 

193,291

 

 

5,059

 

 

79

 

 

6,885

 

 

(1,093)

 

 

199,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Product and license

 

 

48,333

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

48,333

Services and other

 

 

10,444

 

 

1,142

 

 

 —

 

 

1,530

 

 

(500)

K

 

11,474

Total cost of goods sold

 

 

58,777

 

 

1,142

 

 

 —

 

 

1,530

 

 

(500)

 

 

59,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

134,514

 

 

3,917

 

 

79

 

 

5,355

 

 

(593)

 

 

139,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Sales and marketing

 

 

58,994

 

 

 —

 

 

 —

 

 

 —

 

 

2,437

B

 

61,431

Research and development

 

 

23,119

 

 

 —

 

 

 —

 

 

 —

 

 

3,393

B

 

26,512

General and administrative

 

 

37,400

 

 

8,375

 

 

(147)

 

 

11,025

 

 

(4,730)

B,G

 

43,695

Amortization / impairment of intangible assets

 

 

8,809

 

 

 —

 

 

 —

 

 

 —

 

 

2,970

L

 

11,779

Total operating costs

 

 

128,322

 

 

8,375

 

 

(147)

 

 

11,025

 

 

4,070

 

 

143,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

6,192

 

 

(4,458)

 

 

226

 

 

(5,670)

 

 

(4,663)

 

 

(4,141)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

1,431

 

 

(191)

 

 

 —

 

 

(256)

 

 

256

I

 

1,431

Other income, net

 

 

758

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

8,381

 

 

(4,649)

 

 

226

 

 

(5,926)

 

 

(4,407)

 

 

(1,952)

Provision (benefit) for income taxes

 

 

30,780

 

 

(319)

 

 

 —

 

 

(427)

 

 

 (1,570)

M

 

    28,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(22,399)

 

£

(4,330)

 

£

226

 

$

(5,499)

 

$

 (2,837)

 

$

 (30,736)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

$

(0.56)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(0.77)

Diluted

 

$

(0.56)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(0.77)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Basic

 

 

39,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39,802

Diluted

 

 

39,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39,802

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations for the Quarter ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

Dealflo

 

 

 

Dealflo

 

 

 

Pro Forma

 

 

 

 

 

UK GAAP

 

US GAAP

 

US GAAP

 

Pro Forma

 

Condensed

 

 

OneSpan

    

(in GBP)

 

Adjustments

 

(in USD)

 

Adjustments

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Product and license

 

$

33,494

 

£

 —

 

£

 —

 

$

 —

 

$

 —

 

$

33,494

Services and other

 

 

11,938

 

 

1,524

 

 

20

 

 

2,152

 

 

(125)

K

 

13,965

Total revenue

 

 

45,432

 

 

1,524

 

 

20

 

 

2,152

 

 

(125)

 

 

47,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Product and license

 

 

8,185

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

8,185

Services and other

 

 

2,550

 

 

304

 

 

 —

 

 

424

 

 

(125)

K

 

2,849

Total cost of goods sold

 

 

10,735

 

 

304

 

 

 —

 

 

424

 

 

(125)

 

 

11,034

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

34,697

 

 

1,220

 

 

20

 

 

1,728

 

 

 —

 

 

36,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Sales and marketing

 

 

14,277

 

 

 —

 

 

 —

 

 

 —

 

 

771

B

 

15,048

Research and development

 

 

5,797

 

 

 —

 

 

 —

 

 

 —

 

 

1,451

B

 

7,248

General and administrative

 

 

10,774

 

 

2,176

 

 

(37)

 

 

2,982

 

 

(2,222)

B

 

11,534

Amortization / impairment of intangible assets

 

 

2,201

 

 

 —

 

 

 —

 

 

 —

 

 

743

L

 

2,944

Total operating costs

 

 

33,049

 

 

2,176

 

 

(37)

 

 

2,982

 

 

743

 

 

36,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

1,648

 

 

(956)

 

 

57

 

 

(1,254)

 

 

(743)

 

 

(349)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

393

 

 

   (256)

 

 

 —

 

 

(357)

 

 

 —

 

 

36

Other income (expense), net

 

 

380

 

 

 —

 

 

 —

 

 

 

 

 —

 

 

380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

2,421

 

 

(1,212)

 

 

57

 

 

(1,611)

 

 

(743)

 

 

67

Provision (benefit) for income taxes

 

 

629

 

 

26

 

 

 —

 

 

36

 

 

(556)

M

 

 109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,792

 

£

(1,238)

 

£

57

 

$

(1,647)

 

$

(187)

 

$

 (42)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(0.00)

Diluted

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Basic

 

 

39,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39,910

Diluted

 

 

40,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Notes to Unaudited Pro Forma Condensed Combined Financial Information

(in thousands, except per share data)

1. Basis of Presentation

The unaudited pro forma condensed combined financial information presented here has been prepared using OneSpan’s and Dealflo’s historical consolidated financial information and presents the pro forma effects of the acquisition and certain adjustments described herein in accordance with Article 11 of Regulation S-X.

The historical statements of operations and balance sheet of Dealflo were prepared in accordance with United Kingdom Generally Accepted Accounting Practices (“UK GAAP”). The audited historical statement of operations and balance sheet of Dealflo include a reconciliation to US GAAP as a footnote disclosure, as set forth in Exhibit 99.2 to this Form 8-K/A. The Company has included the US GAAP adjustments noted in the Dealflo audited financial statements in the unaudited pro forma condensed combined financial information. The adjustments relate to undelivered elements of a multiple deliverable software arrangement in accordance with US GAAP ASC 985 Software, and recognition of stock based compensation expense in accordance with US GAAP ASC 718 Compensation-Stock Compensation.  

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations, (ASC 805). The unaudited pro forma condensed combined financial information will differ from the final purchase accounting for a number of reasons, including the fact that the estimates of fair values of assets and liabilities acquired are preliminary and subject to change when the formal valuation and other analyses are finalized. Upon completion of the valuation analysis, there may be additional increases or decreases to the recorded book values of Dealflo’s assets and liabilities, including, but not limited to assumed deferred revenue, technology, non-compete agreements, customer relationships, trademarks, and related deferred tax liabilities. The differences between the preliminary estimates and the final purchase accounting could have a material impact on the accompanying unaudited pro forma condensed combined financial information.

The historical financial information has been adjusted to give effect to matters that are (i) directly attributable to the Acquisition, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the operating results of the combined company.

The unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of what the combined company’s condensed consolidated financial position or results of operations actually would have been had the Acquisition been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial positions or operating results of the combined company.

This unaudited pro forma condensed combined financial information should be read in conjunction with the financial statements of OneSpan and Dealflo as noted below:

·

OneSpan’s historical audited consolidated financial statements, and related notes thereto, for the year ended December 31, 2017, included in OneSpan’s Annual Report on Form 10-K for the year ended December 31, 2017;

·

OneSpan’s historical unaudited condensed consolidated financial statements, and related notes thereto, for the quarters ended March 31, 2018 and 2017, included in OneSpan’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018;  

·

The historical audited financial statements, and related notes thereto, of Dealflo for the year ended December 31, 2017 included as Exhibit 99.2 to this Form 8-K; and

This unaudited pro forma condensed combined financial information should also be read in conjunction with the Purchase Agreement filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2018.

2.  Purchase Price Allocation

The Acquisition is accounted for as a business acquisition using the acquisition method accounting in accordance with ASC 805, whereby the net assets acquired are recognized based on their estimated fair values on the acquisition date. The table below


 

shows the calculation of the purchase consideration and allocation of purchase price to the estimated fair value of net assets acquired and liabilities assumed:

 

 

 

 

 

Purchase Consideration:

    

    

 

Cash

 

$

59,518 

 

Less: Cash acquired

 

 

(7,048)

 

Less: Previous investment

 

 

(789)

 

Net purchase price

 

$

51,681 

 

 

 

 

 

 

Net Assets Acquired and Liabilities Assumed

 

 

 

 

Acquired tangible assets

 

$

3,585 

 

Acquired intangible assets

 

 

16,100 

 

Liabilities assumed

 

 

(5,721)

 

Goodwill

 

 

37,717 

 

Total purchase price consideration

 

$

51,681 

 

 

The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value assigned to Dealflo, including expected benefits from synergies resulting from the acquisition, as well as the knowledge and experience of the workforce in place. In accordance with applicable accounting standards, goodwill is not amortized and will be tested for impairment at least annually, or more frequently, if certain indicators are present.

Based on the preliminary results of the valuation analysis, OneSpan has allocated approximately $16.1 million of the purchase price to identifiable intangible assets. The following table summarizes the major classes of intangible assets, the respective weighted-average amortization periods, and pro forma amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma Amortization

 

 

 

 

 

Weighted Average

 

Year ended

 

Quarter ended

 

 

 

Estimated Fair Value

 

Amortization Period

 

December 31, 2017

 

March 31, 2018

 

 

 

(in thousands)

 

(Years)

 

(in thousands)

 

(in thousands)

 

Identifiable Intangible Assets

 

 

 

 

 

 

 

 

 

Customer relationships

    

$

10,000 

    

    

$

1,429 

    

$

357 

 

Technology

 

 

5,900