Exhibit 99.3

SHOTSPOTTER, INC.

 

Index to Unaudited Pro Forma Combined Financial Statements

 

 

 

 

Unaudited Pro Forma Combined Balance Sheet as of September 30, 2020

 

1

 

 

 

Unaudited Pro Forma Combined Statement of Operations for the Nine Months Ended September 30, 2020

 

2

 

 

 

Unaudited Pro Forma Combined Statement of Operations for the Year Ended December 31, 2019

 

3

 

 

 

Notes to Unaudited Pro Forma Combined Financial Statements

 

4

 

 

 

 

 


 

SHOTSPOTTER, INC.

Unaudited Pro Forma Combined Balance Sheet

September 30, 2020

(In thousands)

 

 

Historical

 

 

 

 

 

 

 

 

ShotSpotter, Inc.

 

 

LEEDS, LLC

 

 

Pro Forma Adjustments

 

ShotSpotter, Inc.
Pro Forma Combined

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

28,666

 

$

5,671

 

$

(14,628)

(a)

$

19,709

Accounts receivable and contract asset

 

6,866

 

 

1,922

 

 

292

(f)

 

9,080

Prepaid expenses and other current assets

 

2,286

 

 

23

 

 

 

 

2,309

Total current assets

 

37,818

 

 

7,616

 

 

(14,336)

 

 

31,098

Property and equipment, net

 

15,359

 

 

177

 

 

 

 

15,536

Operating lease right-of-use assets

 

761

 

 

247

 

 

 

 

1,008

Goodwill

 

1,379

 

 

 

 

1,410

(a)

 

2,789

Intangible assets, net

 

226

 

 

 

 

14,410

(a)

 

14,636

Other assets

 

1,343

 

 

45

 

 

 

 

1,388

Total assets

$

56,886

 

$

8,085

 

$

(4,187)

 

$

66,455

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

$

818

 

$

 

$

 

$

818

Deferred revenue, short-term

 

20,388

 

 

 

 

 

 

20,388

Accrued expenses and other current liabilities

 

4,241

 

 

731

 

 

(686)

(a)

 

 

 

 

 

 

 

 

 

 

1,091

(b)

 

5,377

Total current liabilities

 

25,447

 

 

731

 

 

405

 

 

26,583

Deferred revenue, long-term

 

255

 

 

 

 

 

 

255

Other liabilities

 

456

 

 

166

 

 

170

(a)

 

792

Total liabilities

 

26,158

 

 

897

 

 

575

 

 

27,630

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

Common stock

 

57

 

 

 

 

 

 

57

Additional paid-in capital

 

125,113

 

 

 

 

2,000

(a)

 

127,113

Retained earnings / (accumulated deficit)

 

(94,134)

 

 

7,188

 

 

     (1,091)

(b)

 

(88,037)

Accumulated other comprehensive loss

 

(308)

 

 

 

 

 

 

(308)

Total stockholders' equity

 

30,728

 

 

7,188

 

 

909

 

 

38,825

Total liabilities and stockholders' equity

$

56,886

 

$

8,085

 

$

1,484

 

$

66,455

 

See accompanying notes to the unaudited pro forma combined financial statements.

1

 


SHOTSPOTTER, INC.

Unaudited Pro Forma Combined Statement of Operations

For the Nine Months Ended September 30, 2020

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ShotSpotter, Inc.

 

 

LEEDS, LLC

 

 

Pro Forma Adjustments

 

 

ShotSpotter, Inc.

Pro Forma

 

Revenues

$

 

33,085

 

 

$

 

11,134

 

 

$

 

 

 

$

 

44,219

 

Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

13,440

 

 

 

 

3,032

 

 

 

 

584

 

(c)

 

 

17,056

 

Impairment of property and equipment

 

 

161

 

 

 

 

 

 

 

 

 

 

 

 

161

 

Total costs

 

 

13,601

 

 

 

 

3,032

 

 

 

 

584

 

 

 

 

17,217

 

     Gross profit

 

 

19,484

 

 

 

 

8,102

 

 

 

 

(584)

 

 

 

 

27,002

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

7,237

 

 

 

 

2,840

 

 

 

 

721

 

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

59

 

(c)

 

 

10,857

 

Research and development

 

 

4,104

 

 

 

 

744

 

 

 

 

77

 

(c)

 

 

4,925

 

General and administrative

 

 

6,627

 

 

 

 

222

 

 

 

 

98

 

(c)

 

 

6,947

 

Total operating expenses

 

 

17,968

 

 

 

 

3,806

 

 

 

 

955

 

 

 

 

22,729

 

Operating income

 

 

1,516

 

 

 

 

4,296

 

 

 

 

(1,539)

 

 

 

 

4,274

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

101

 

 

 

 

(5)

 

 

 

 

 

 

 

 

96

 

Other expense, net

 

 

(173)

 

 

 

 

 

 

 

 

 

 

 

 

(173)

 

Total other income (expense), net

 

 

(72)

 

 

 

 

(5)

 

 

 

 

 

 

 

 

(77)

 

Income before income taxes

 

 

1,444

 

 

 

 

4,291

 

 

 

 

(1,539)

 

 

 

 

4,197

 

Provision (benefit) for income taxes

 

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

Net income

$

 

1,445

 

 

$

 

4,291

 

 

$

 

(1,539)

 

 

$

 

4,198

 

Net income per share, basic

$

 

0.13

 

 

 

 

 

 

 

 

 

 

 

 

$

 

0.37

 

Net income per share, diluted

$

 

0.12

 

 

 

 

 

 

 

 

 

 

 

 

$

 

0.36

 

Weighted average shares used in computing net income per share, basic

 

 

11,383,860

 

 

 

 

 

 

 

 

 

63,901

 

(e)

 

 

11,447,761

 

Weighted average shares used in computing net income per share, diluted

 

 

11,718,770

 

 

 

 

 

 

 

 

 

63,901

 

(e)

 

 

11,782,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited pro forma combined financial statements.

2

 


SHOTSPOTTER, INC.

Unaudited Pro Forma Combined Statement of Operations

For the Year Ended December 31, 2019

(In thousands, except per share amounts)

 

 

 

 

ShotSpotter, Inc.

 

LEEDS, LLC

 

Pro Forma Adjustments

 

ShotSpotter, Inc.
Pro Forma

Revenues

$

40,752

 

$

10,504

 

$

(626)

(f) 

$

50,630

Cost of revenues

 

16,409

 

 

4,554

 

 

714

(c)

 

21,677

Gross profit

 

24,343

 

 

5,950

 

 

(1,340)

 

 

28,953

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

9,989

 

 

2,952

 

 

961

(d)

 

 

 

 

 

 

 

 

 

 

68

(c)

 

 

 

 

 

 

 

 

 

 

(144)

(f)

 

13,826

Research and development

 

5,344

 

 

1,115

 

 

103

(c)

 

6,562

General and administrative

 

7,415

 

 

291

 

 

113

(c)

 

 

 

 

 

 

 

 

 

 

1,091

(b)

 

8,910

Total operating expenses

 

22,748

 

 

4,358

 

 

2,192

 

 

29,298

Operating income

 

1,595

 

 

1,592

 

 

(3,531)

 

 

(344)

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

440

 

 

(4)

 

 

 

 

436

Other expense, net

 

(278)

 

 

 

 

 

 

(278)

Total other income (expense), net

 

162

 

 

(4)

 

 

 

 

158

Income before income taxes

 

1,757

 

 

1,588

 

 

(3,531)

 

 

(186)

Provision (benefit) for income taxes

 

(41)

 

 

 

 

 

 

(41)

Net income

$

1,798

 

$

1,588

 

$

(3,531)

 

$

(145)

Net income per share, basic

$

0.16

 

 

 

 

 

 

 

$

(0.01)

Net income per share, diluted

$

0.15

 

 

 

 

 

 

 

$

(0.01)

Weighted average shares used in computing net income per share, basic

 

11,302,780

 

 

 

 

 

63,901

(e)

 

11,366,681

Weighted average shares used in computing net income per share, diluted

 

11,846,348

 

 

 

 

 

63,901

(e)

 

11,910,249

 

 

 

 

 

See accompanying notes to the unaudited pro forma combined financial statements.


3

 


SHOTSPOTTER, INC.

Notes to Unaudited Pro Forma Combined Financial Statements

 

Note 1. Basis of Presentation

The unaudited pro forma combined financial statements of ShotSpotter, Inc. (“we,” “us,” “our,” or the “Company”) consist of a combined balance sheet as of September 30, 2020 and combined statements of operations for the nine months ended September 30, 2020 and the year ended December 31, 2019, which reflect the Company’s acquisition on November 24, 2020 of all of the membership interests in LEEDS, LLC, a New Jersey limited liability company, (“LEEDS”). We refer to this acquisition as the “Acquisition”.

The unaudited pro forma combined financial statements have been derived from and should be read in conjunction with:

our historical consolidated financial statements and accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the nine months ended September 30, 2020; and

LEEDS historical audited financial statements and accompanying notes for the year ended December 31, 2019 and interim unaudited financial statements and accompanying notes as of and for the nine months ended September 30, 2020 which are included as Exhibit 99.1 and Exhibit 99.2 respectively, to our Current Report on Form 8-K/A to which this pro forma information is attached as Exhibit 99.3.

The unaudited pro forma combined balance sheet has been prepared as if the Acquisition had occurred on September 30, 2020. The unaudited combined statements of operations for the nine months ended September 30, 2020 and for the year ended December 31, 2019 have been prepared as if the Acquisition had occurred on January 1, 2019. The transaction accounting adjustments for the acquisition consist of those necessary to account for the acquisition. The LEEDS Acquisition has been accounted for as a business combination in accordance with Accounting Standards Codification 805, Business Combinations. The assets acquired and liabilities assumed were recognized at fair value on the acquisition date of November 24, 2020, and the difference between the consideration transferred, excluding acquisition-related costs, and the fair values of the assets and liabilities was recognized as goodwill. The unaudited pro forma combined financial statements reflect the effects of applying certain preliminary purchase accounting adjustments to the historical consolidated results of the assets acquired and liabilities assumed based on their estimated fair values as of November 24, 2020. The final purchase price allocation is subject to the final determination of the fair values of assets acquired and liabilities assumed and, therefore, the final purchase price allocation and the resulting effect on income from operations may differ from the unaudited pro forma combined statements.

In April 2020, the Company applied for and received a forgivable Payroll Protection Plan loan (“PPP Loan”) through the Small Business Administration of the United States of America (“SBA”). The Company has elected to account for the loan as a grant and records the income associated with the grant as the expenses are incurred. The Company recorded the full amount of the $0.6 million proceeds as an offset to the related payroll expenses in the statement of operations for the nine months ended September 30, 2020. In December 2020, the Company received notification from the SBA that the PPP Loan has been forgiven in full.

Note 2. Estimated consideration and preliminary purchase price allocation

On November 24, 2020, the Company completed the Acquisition for a purchase consideration of $21.6 million in cash, subject to working capital adjustments, and $2.0 million in 63,901 shares of ShotSpotter common stock. The purchase consideration also included a contingent earnout payable for up to $5.0 million based on LEEDS’ revenues generated over a two-year period following the acquisition date. The preliminary fair value of the contingent earnout is $0.2 million, resulting in a total estimated purchase consideration of $23.8 million. The contingent earnout fair value was determined using the contractual amount payable based on expected future revenues.


4

 


 

The Company has performed a preliminary valuation analysis of the fair market value of LEEDS’ assets acquired and liabilities assumed. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date, November 24, 2020 (in thousands):

 

Cash and cash equivalents

                           7,044

Accounts receivable and contract asset

  

                           1,585

Prepaid expenses and other current assets

  

                                23

Property and equipment, net 

  

                              161

Operating lease right-of-use asset 

  

225

Goodwill

  

1,410

Customer relationship

 

14,410

Other asset

 

45

Deferred revenue

  

(525)

Accrued expenses and other current liabilities

  

(457)                          

Other liabilities

 

(98)

Total estimated consideration

23,823                          

 

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and income statement. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations, which is expected to be completed within the annual financial statements of ShotSpotter for the year ended December 31, 2020. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair value of deferred revenue, (2) changes in allocations to customer relationship as well as goodwill and (3) other changes to assets and liabilities.

Note 3. Pro Forma Adjustments and Assumptions

The pro forma adjustments are based upon currently available information and certain estimates and assumptions. The actual effect of the transactions ultimately may differ from the pro forma adjustments included herein. However, management believes that the assumptions used to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions as currently contemplated and that the pro forma adjustments are factually supportable, give appropriate effect to the expected impact of events that are directly attributable to the transactions, and reflect those items expected to have a continuing impact on the Company. The unaudited pro forma combined financial statements may not be indicative of the results that actually would have occurred if the Company had completed the transactions on the dates indicated or that could be achieved in the future.

Adjustments to the Unaudited Pro Forma Combined Financial Statements:

(a)

Reflects the removal of the historical carrying amount of the LEEDS assets acquired and liabilities assumed as of September 30, 2020 and the recognition of the preliminary purchase price and the preliminary fair value of the assets acquired and liabilities assumed as of November 24, 2020. The pro forma adjustment for cash reflects cash paid at closing, net of cash acquired from LEEDS.

(b)

Reflects estimated transaction costs incurred or to be incurred related to the Acquisition that are not already reflected in the historical financial statements. These costs will not affect the Company’s income statement beyond 12 months after the acquisition date.

(c)

Reflects the change in employee compensation arrangements including the addition of employee bonus plans and stock-based compensation as a result of the Acquisition. A total of 10,000 restricted stock units and 77,250 stock options vesting over four years were granted to LEEDS employees. These grants do not have a material impact on weighted average shares outstanding or earnings per share calculations.

5

 


(d)

Reflects the estimated amortization expense of the long-lived intangible asset acquired assumed as acquired on January 1, 2019 based on its fair value over a preliminary estimated useful life of 15 years.

(e)

Represents the increase in the weighted average shares in connection with the issuance of 63,901 common shares as part of the purchase consideration.

(f)

The fair value of deferred revenue was determined based on the estimated costs to fulfill the remaining performance obligations plus a normal profit margin. An adjustment was recorded to reduce deferred revenue to approximately $0.5 million, a reduction of $0.3 million from the carrying value. After the acquisition, this adjustment will reduce revenue related to the assumed performance obligations as the services are provided in the subsequent period. We used the ratio of the fair value of deferred revenue to the book value of deferred revenue as of acquisition date to estimate the fair value step-down in deferred revenue as of September 30, 2020 for our pro forma combined balance sheet as of December 31, 2018 and to estimate the decrease in revenues for our pro forma combined statement of operations for the year ended December 31, 2019 and the nine months ended September 30, 2020. This resulted in a $0.3 million reduction in deferred revenues as of September 30, 2020 and a $0.5 million reduction in deferred revenues as of December 31, 2018, which resulted in a $0.6 million reduction in revenues and a corresponding $0.1 million reduction in commissions in the Company’s pro forma combined statement of operations for the year ended December 31, 2019. These adjustments will not affect the Company’s income statement beyond 12 months after the acquisition date.

 

6