SEC Company Response from WHERIFY WIRELESS INC (CIK 0001051902) — Jun 29, 2005
WHERIFY WIRELESS INC (CIK 0001051902)
Date: June 29, 2005 · CIK: 0001051902 · Accession: 0001144204-05-020261
AI Filing Summary & Sentiment
File numbers found in text: 333-124027
Letter
June 29, 2005 Via Email Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Attention: Stephen Krikorian, Branch Chief - Accounting Melissa Rocha
Re: IQ Biometrix, Inc. Registration Statement on Form S-4 File No. 333-124027
Dear Mr. Krikorian:
This letter responds to oral requests from you yesterday regarding the value of intangible assets and the pro forma presentation of these assets.
We have updated the pro forma's and the associated footnotes to disclose the allocation of the purchase price, now including intangibles and goodwill and how the company will be addressing the values in the future. Attached as exhibit A to this letter are the pro formas as we propose to present them in the filing of the S-4
The purchase price calculation, for the Form S-4/A discussion, uses the price of the IQB stock as of June 15, 2005. The purchase price actually recorded will be the price as of the closing date of the merger, which has yet to be determined. At that time, any identifiable intangible assets will be separately valued, with the remainder allocated to goodwill. We are proposing that the full calculated value ($47 million at June 15, 2005) be recorded as goodwill and other intangible assets in the Form S-4/A pro forma schedules.
After closing the merger, we will use a third party to determine the allocation of the final purchase price to these intangible items and goodwill. Impairment is probable since the company does not expect to focus on the FACES technology. We have added this disclosure to the pro forma footnotes.
We trust that you will find the foregoing responsive to the comments of the Staff Comments or questions regarding this letter or the Registration Statement may be directed to the undersigned or Don Reinke at 510.466.6899.
Sincerely,
/s/ William Scigliano
----------------------------------------
William Scigliano,
Chief Executive Officer
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<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
June 29, 2005
Via Email
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Stephen Krikorian, Branch Chief - Accounting
Melissa Rocha
Re: IQ Biometrix, Inc.
Registration Statement on Form S-4
File No. 333-124027
Dear Mr. Krikorian:
This letter responds to oral requests from you yesterday regarding the
value of intangible assets and the pro forma presentation of these assets.
We have updated the pro forma's and the associated footnotes to disclose
the allocation of the purchase price, now including intangibles and goodwill and
how the company will be addressing the values in the future. Attached as exhibit
A to this letter are the pro formas as we propose to present them in the filing
of the S-4
The purchase price calculation, for the Form S-4/A discussion, uses the
price of the IQB stock as of June 15, 2005. The purchase price actually recorded
will be the price as of the closing date of the merger, which has yet to be
determined. At that time, any identifiable intangible assets will be separately
valued, with the remainder allocated to goodwill. We are proposing that the full
calculated value ($47 million at June 15, 2005) be recorded as goodwill and
other intangible assets in the Form S-4/A pro forma schedules.
After closing the merger, we will use a third party to determine the
allocation of the final purchase price to these intangible items and goodwill.
Impairment is probable since the company does not expect to focus on the FACES
technology. We have added this disclosure to the pro forma footnotes.
We trust that you will find the foregoing responsive to the comments of
the Staff Comments or questions regarding this letter or the Registration
Statement may be directed to the undersigned or Don Reinke at 510.466.6899.
Sincerely,
/s/ William Scigliano
----------------------------------------
William Scigliano,
Chief Executive Officer
cc: Don Reinke
Reed Smith, LLP
<PAGE>
Exhibit A
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma financial statements of IQ Biometrix, Inc. and
Wherify Wireless, Inc, set forth a post merger snapshot of the combined balance
sheet at March 31, 2005 and statement of operations for the twelve months ended
June 30, 2004 and the nine months ended March 31, 2005. The Pro Forma
transactions presented are required by the merger agreement or by accounting
principles to be completed upon the completion of the reverse acquisition. The
transactions cover (i) the conversion of IQB convertible debentures outstanding
at the time of the merger and required to be converted by the merger agreement,
(ii) the effect of the rescission offer completed by Wherify on April 11, 2005
and (iii) the accounting treatment of the goodwill generated by the reverse
acquisition issuance of common stock.
<TABLE>
<CAPTION>
Consolidated Pro Forma
Statement of Operations
Twelve Months Ended June 30, 2004
(in thousands)
I W Adj. Pro Forma
-------- -------- -------- --------
<S> <C> <C> <C>
Revenue 270 81 -- 351
Cost of sales 111 440 -- 551
-------- -------- -------- --------
Gross margin 159 (359) -- (200)
-------- -------- -------- --------
Operating expenses
Selling expense 374 -- 374
General and administrative 6,651 7,876 14,527
Research and development 172 -- 172
Depreciation/amortization 4 249 2,667 2,920
-------- -------- -------- --------
Total operating expenses 7,201 8,125 2,667 17,993
-------- -------- -------- --------
Loss from operations (7,042) (8,484) (2,667) (18,193)
Interest expense 1,349 132 183(1) 1,664
Interest and other income -- (19) -- (19)
-------- -------- -------- --------
Net Loss (8,391) (8,597) (2,850) (19,838)
Deemed dividend on preferred stock 13,004 13,004
-------- --------
Net loss available to common shareholders $ (8,391) $(21,601) $ (2,850) $(32,842)
======== ======== ======== ========
Basic and diluted net loss available to common shareholder per share $ (153) $ (7.32) $ (0.83)
Fully diluted shares outstanding 5,495 2,949 39,705
</TABLE>
(1) All investors who hold convertible debentures issued by IQB prior to July
1, 2004 will convert 100% of the outstanding principal and interest due
under those debentures into IQB common stock immediately prior to the
merger, which the investors have agreed to do. This will accelerate
approximately $183,000 in debt discount and warrant expense.
(2) The purchase price is based on approximately 12,275,000 shares with a
closing price of $3.71 on June 15, 2005 for a total of $47,168,000. The
purchase price is allocated as follows based on the March 31, 2005 balance
sheet: Cash $1.9 million, Accounts Receivable $39,000, Inventory $12,000,
Prepaids $65,000, Fixed Assets (net) $2,000, Intangibles (net) $55,000,
less Convertible notes payable $3.2 million, accounts payable $450,000 and
a note payable of $100,000. Identifiable intangibles are made up of :
software $1 million, branding $1 million and intellectual property of $6
million for total intangibles of $8 million. The remainder of the
unallocated purchase price of $39.168 million is allocated to goodwill.
This purchase price allocation is preliminary and subject to change based
on the fair value of the assets and liabilities at the actual close of the
merger. Based on a useful life of 3 years, there would be amortization
expense on intangibles of $2.0 million in the pro forma statement of
operations for the 12-month period ended June 30, 2004.
<PAGE>
Goodwill represents the excess of the purchase price over identifiable
tangible and intangible assets. Identified intangible assets include
software valued at $1 million, branding valued at $1 million, and
intellectual property at $6 million. These allocations are based on
management's preliminary estimate and are subject to change post merger
based on final values to be assigned based on a 3rd party appraiser's
calculation of the present value of discounted future cash flows each
asset will be associated with. This valuation will occur after closing.
Each of these is assigned an estimated useful life of 3 years. Management
has not yet decided whether to continue efforts to sell and improve the
FACES software. The intangibles including the goodwill will be subject to
review for possible impairment at each quarterly audit review.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Pro Forma
Balance Sheet
March 31, 2005
(in thousands)
Adjustments
Pro Forma
IQB Wherify Debit Credit Combined*
--- ------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash & cash equivalents....................................... $1,904 $9,072 (2) 2,215 8,761
Accounts receivable........................................... 39 -- 39
Loan receivable.............................................. -- 102 102
Inventory..................................................... 12 -- 12
Prepaid expenses.............................................. 65 40 105
------------------------ ---------
Total current assets.......................................... 2,020 9,214 9,019
PP&E, net....................................................... 2 537 539
Other assets.................................................... -- 226 226
Intangibles, net................................................ 55 -- 8,000(3) 2,000 6,055
Goodwill -- -- 39,168(3) 39,168
------------------------ ---------
Total assets................................................... $2,077 $9,977 $55.007
======================== =========
Liabilities and Stockholders' Deficit
Current liabilities
Convertible notes payable to investors........................ $3,155 $ -- 3,155(1) $ --
Accounts payable.............................................. 159 5,305 5,464
Accrued liabilities to related party.......................... -- 3,886 3,886
Note payable.................................................. 100 -- 100(1) --
Committed/stock payable....................................... -- 2,215 2,215(2) --
Accrued expenses.............................................. 291 221 231(1) 281
------------------------ ---------
Total current liabilities..................................... 3,705 11,627 9,631
------------------------ ---------
Stockholders' deficit
Common stock and paid in capital................................ 16,874 778 (1) 4,953
(3) 47,168
18,502(4)
(5) 48,454 99,725
Preferred Stock Series A........................................ -- 8,553 8,553(5) --
Preferred Stock Series B........................................ -- 5,137 5,137(5) --
Preferred Stock Series C........................................ -- 34,764 34,764(5) --
Accumulated equity(deficit) (18,502) (50,882) (4) 18,502
1,467(1)
2,000(3) (54,349)
------------------------------------------------------------
Stockholders' equity(deficit)................................. (1,628) (1,650) 45,376
------------------------------------------------------------
Total liabilities and stockholders' equity (deficit).......... $2,077 $9,977 $123,292 $123,292 $55,007
============================================================
</TABLE>
(1) The merger agreement calls for the conversion of all IQB convertible
debentures and interest just prior to closing of the merger. The
debentures IQB issued on January 11, 2005 whose carrying value is net of
unamortized warrant expense or purchase discount totaling approximately
$1.5 million at March 31, 2005. The remaining unamortized discount and
warrant expense was expensed on April 11, 2005 by IQB upon the conversion
of the convertible debentures.
<PAGE>
(2) Wherify rescission offer was completed on April 11, 2005. Eight investors
requested a return of their investment plus accumulated interest totaling
approximately $2.2 million, which includes interest of approximately
$32,000 through March 31, 2005. Further information on this transaction
can be found on page F-43 in the first paragraph under subsequent events.
(3) The purchase price is based on approximately 12,275,000 shares with a
closing price of $3.71 on June 15, 2005 for a total of $47,168,000. The
purchase price is allocated as follows based on the March 31, 2005 balance
sheet: Cash $1.9 million, Accounts Receivable $39,000, Inventory $12,000,
Prepaids $65,000, Fixed Assets