Adex Media, Inc. and Subsidiaries Unaudited Pro Forma Combined Consolidated Financial Statements Basis Of Pro Forma Presentation
Exhibit
99.4 – Pro Forma Financial Information
Adex
Media, Inc. and Subsidiaries
Unaudited
Pro Forma Combined Consolidated Financial Statements
Basis
Of Pro Forma Presentation
On August
12, 2008 (the “Closing Date”), Adex Media, Inc., a Delaware corporation, (the
“Company”) entered into a Membership Interest Purchase Agreement (“MIPA”) with
the ten members (the “Members”) of Digital Instructor, LLC, a Colorado limited
liability company (“Digital Instructor”) to purchase all outstanding membership
interests (“Membership Interests”) of Digital Instructor.
Digital
Instructor is engaged in the business of developing, manufacturing, selling and
marketing consumer learning products through proprietary
technologies. It distributes its products to customers nationwide on
both physical media and via digital delivery for use with personal computers and
other devices. Digital Instructor is based in Boulder,
Colorado.
The
purchase price for the Membership Interests consisted of the
following:
|
(i)
|
One
Million Dollars ($1,000,000) in cash at closing;
|
|
(ii)
|
A
Senior Secured Promissory Note (the “Note”) in the principal amount of
Five Hundred Thousand Dollars ($500,000) payable on February 12,
2009;
|
|
(iii)
|
One
Million Two Hundred Thousand (1,200,000) restricted shares of
the Company’s common stock (the “Shares”). The Shares are
subject to a lockup and share release agreement which restricts the
Members from selling the Shares until certain prescribed intervals;
and
|
|
(iv)
|
An
additional amount up to Five Hundred Thousand Dollars ($500,000) payable
within a certain period of time following August 12, 2009, subject to
Digital Instructor achieving certain gross revenue performance milestones
(the “Earn Out”).
|
The
Company issued the Note to Digital Equity Partners, LLC (“Digital Equity
Partners”), a Colorado limited liability company wholly owned by the selling
members of Digital Instructor and formed for the purpose of holding the Note.
The Note’s principal amount of Five Hundred Thousand Dollars ($500,000) bears no
interest. The Note has a maturity date that is six months from the Closing Date
and contains customary events of default that entitle the holder thereof to
accelerate the maturity date of the unpaid principal amount.
As part
of the transaction, the Company entered into a security agreement with Digital
Equity Partners for purposes of collateralizing the Note (the “Security
Agreement”). Under the Security Agreement, the Members were given a first
priority security interest in the Membership Interests purchased by the
Company.
The
Shares are subject to two reset provisions over twelve months. The first reset
provision shall occur six months after the Closing date (the “Six Month Reset”)
and shall adjust the first six hundred thousand (600,000) Shares pursuant to a
formula that compares the volume-weighted average price (the “VWAP”) of the
Company’s common stock for the twenty days preceding the Six Month Reset to a
contractually guaranteed minimum price per Share. In the event the
VWAP is less than $2.50 per share, the Company shall issue an additional number
of shares of common stock as necessary to provide the Members with the benefit
of the guaranteed minimum price. The Six Month Reset is subject to a maximum
floor value for the VWAP of $0.75 per share. The second reset provision shall
occur twelve months after the Closing date (the “Twelve Month Reset”) and shall
adjust the second six hundred thousand (600,000) Shares pursuant to a formula
that compares the VWAP of the Company’s stock for the twenty days preceding the
Twelve Month Reset to a contractually guaranteed minimum price per
Share. In the event the VWAP is less than $2.50 per share, the
Company shall issue an additional number of shares of common stock as necessary
to provide the Members with the benefit of the guaranteed minimum price. The
Twelve Month Reset is subject to a maximum floor value for the VWAP of $0.75 per
share.
1
As part
of the transaction, the Company entered into a lockup and share release
agreement (the “Lockup”) which restricts the Members from selling the Shares
until certain prescribed intervals. The Lockup begins to lapse twelve months
after the Closing Date with all restrictions under the Lockup lapsing eighteen
months after the Closing Date.
Concurrent
with the closing, Xx. Xxxxxx X. Xxxxxx, Managing Member of Digital Instructor,
entered into an employment agreement with the Company (the “Employment
Agreement”). Under the Employment Agreement, Xx. Xxxxxx has been
appointed a Division Manager of the Company, for which he will be paid a base
salary of $280,000. Xx. Xxxxxx was also granted options to purchase
400,000 shares of the Company’s common stock at the closing price of the
Company’s common stock on the Closing Date (the “Options”). The Options shall
vest one fourth after twelve months of Xx. Xxxxxx’x active service and the
remainder ratably over the next thirty-six months of active service. Pursuant to
the Employment Agreement, the Company agreed to indemnify Xx. Xxxxxx (subject to
customary limitations) in connection with any claims or liabilities to which Xx.
Xxxxxx may be subject in the course of his employment. Xx. Xxxxxx will remain
the sole manager of Digital Instructor during the term of his employment with
the Company, subject to the Company’s discretion.
The
purchase price for Digital Instructor was determined based on arm’s length
negotiations. Prior to the acquisition, there were no material relationships
between the Company and Digital Instructor nor with any of either company’s
affiliates, directors, officers, or any associate of such directors or
officers.
2
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ADEX MEDIA, INC. and Subsidiaries
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|||||||||||||||||||||
|
Pro
Forma Combined Consolidated Balance Sheet
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|||||||||||||||||||||
|
6/30/08
|
|||||||||||||||||||||
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Adex
Media, Inc. and subsidiaries
|
Digital
Instructor, LLC and subsidiaries
|
Combined
|
Pro
forma Adjustments
|
Pro
forma Consolidated
|
|||||||||||||||||
|
ASSETS
|
|||||||||||||||||||||
|
Current
assets:
|
|||||||||||||||||||||
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Cash
and cash equivalents
|
$ | 710,843 | $ | 94,683 | $ | 805,526 | $ | 805,526 | |||||||||||||
|
Short-term
investments
|
4,361,513 | - | 4,361,513 | (1,139,615 | ) |
(a)
|
3,221,898 | ||||||||||||||
|
Total
cash, cash equivalents, and short-term investments
|
5,072,356 | 94,683 | 5,167,039 | (1,139,615 | ) | 4,027,424 | |||||||||||||||
|
Accounts
receivable, net of allowance for doubtful accounts of $410 and
$410
|
158,122 | 52,646 | 210,768 | - | 210,768 | ||||||||||||||||
|
Credit
card holdbacks
|
- | 350,349 | 350,349 | - | 350,349 | ||||||||||||||||
|
Member
note receivable
|
- | 27,988 | 27,988 | - | 27,988 | ||||||||||||||||
|
Other
receivables
|
209,186 | - | 209,186 | - | 209,186 | ||||||||||||||||
|
Prepaid
expenses and other current assets
|
89,065 | 47,539 | 136,604 | - | 136,604 | ||||||||||||||||
|
Inventory
|
- | 62,064 | 62,064 | - | 62,064 | ||||||||||||||||
|
Total
current assets
|
5,528,729 | 635,269 | 6,163,998 | (1,139,615 | ) | 5,024,383 | |||||||||||||||
|
Property
and equipment, net
|
25,670 | 34,384 | 60,054 | - | 60,054 | ||||||||||||||||
|
Prepaid
expenses and other long term assets
|
- | 26,702 | 26,702 | - | 26,702 | ||||||||||||||||
|
Intangible
assets, net
|
9,445 | - | 9,445 | 789,000 |
(a)
|
798,445 | |||||||||||||||
|
Goodwill
|
- | - | - | 6,308,019 |
(a)
|
6,308,019 | |||||||||||||||
|
Total
assets
|
$ | 5,563,844 | $ | 696,355 | $ | 6,260,199 | $ | 5,957,404 | $ | 12,217,603 | |||||||||||
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LIABILITIES
AND STOCKHOLDERS EQUITY
|
|||||||||||||||||||||
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Current
liabilities:
|
|||||||||||||||||||||
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Accounts
payable
|
$ | 345,878 | $ | 262,978 | $ | 608,856 | - | $ | 608,856 | ||||||||||||
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Accrued
liabilities
|
289,430 | 149,925 | 439,355 | 27,856 |
(a),(c)
|
467,211 | |||||||||||||||
|
Promissory
Note
|
- | - | - | 482,372 |
(a)
|
482,372 | |||||||||||||||
|
Total
current liabilities
|
635,308 | 412,903 | 1,048,211 | 510,228 | 1,558,439 | ||||||||||||||||
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Deferred
tax liability
|
- | - | - | 442,000 |
(a)
|
442,000 | |||||||||||||||
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Total
Liabilities
|
635,308 | 412,903 | 1,048,211 | 952,228 | 2,000,439 | ||||||||||||||||
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Stockholders
Equity:
|
|||||||||||||||||||||
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Common
Stock, $.0001 par value; 150,000,000
|
|||||||||||||||||||||
|
shares
authorized, 29,524,653 and 250,000
|
|||||||||||||||||||||
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shares
issued and outstanding at June 30, 2008 and December 31, 2007 2008 and
December 31, 2007
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2,952 | - | 2,952 | 120 |
(a)
|
3,072 | |||||||||||||||
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Additional
paid in capital
|
5,402,398 | - | 5,402,398 | 5,642,884 |
(a)
|
11,045,282 | |||||||||||||||
|
Members'
equity (deficit)
|
- | 283,452 | 283,452 | -637,828 |
(a),(b),(c)
|
(354,376 | ) | ||||||||||||||
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Retained
earnings (accumulated deficit)
|
(476,814 | ) | - | (476,814 | ) | - | (476,814 | ) | |||||||||||||
|
Total
stockholders equity
|
4,928,536 | 283,452 | 5,211,988 | 5,005,176 | 10,217,164 | ||||||||||||||||
|
Total
liabilities and stockholders equity
|
$ | 5,563,844 | $ | 696,355 | $ | 6,260,199 | $ | 5,957,404 | $ | 12,217,603 | |||||||||||
3
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ADEX
MEDIA, INC. and Subsidiaries
|
|||||||||||||||||||||
|
Pro
Forma Combined Consolidated Statements of Operations
|
|||||||||||||||||||||
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For
the six months ended June 30, 2008
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|||||||||||||||||||||
|
Adex
Media, Inc. and subsidiaries
|
Digital
Instructor, LLC and subsidiaries
|
Combined
|
Pro
forma Adjustments
|
Pro
forma Consolidated
|
|||||||||||||||||
|
Revenues,
net
|
$ | 1,409,329 | $ | 1,870,877 | $ | 3,280,206 | $ | - | $ | 3,280,206 | |||||||||||
|
Cost
of sales
|
1,079,904 | 361,309 | 1,441,213 | 100,000 |
(c)
|
1,541,213 | |||||||||||||||
|
Gross
profit
|
329,425 | 1,509,568 | 1,838,993 | (100,000 | ) | 1,738,993 | |||||||||||||||
|
Operating
expenses:
|
|||||||||||||||||||||
|
Product
development
|
35,250 | - | 35,250 | - | 35,250 | ||||||||||||||||
|
Sales
and marketing
|
328,473 | 1,424,985 | 1,753,458 | - | 1,753,458 | ||||||||||||||||
|
General
administrative
|
551,208 | 101,141 | 652,349 | - | 652,349 | ||||||||||||||||
|
Total
operating expenses
|
914,931 | 1,526,126 | 2,441,057 | 0 | 2,441,057 | ||||||||||||||||
|
Income
(loss) before amortization of intangible assets, interest and provision
for income taxes
|
(585,506 | ) | (16,558 | ) | (602,064 | ) | (100,000 | ) | (702,064 | ) | |||||||||||
|
Amortization
of intangible assets
|
- | - | - | 20,333 |
(c)
|
20,333 | |||||||||||||||
|
Interest
income/(expense)
|
32,093 | (1 | ) | 32,092 | - | 32,092 | |||||||||||||||
|
Income
(loss) before provision for income taxes
|
(553,413 | ) | (16,559 | ) | (569,972 | ) | (120,333 | ) | (690,305 | ) | |||||||||||
|
Provision
for income taxes
|
800 | - | 800 | (6,624 | ) |
(d)
|
(5,824 | ) | |||||||||||||
|
Net
income (loss)
|
$ | (554,213 | ) | $ | (16,559 | ) | $ | (570,772 | ) | $ | (113,709 | ) | $ | (684,481 | ) | ||||||
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Net
income (loss) per common share, basic and diluted
|
$ | (0.07 | ) | $ | (0.07 | ) | $ | (0.09 | ) | $ | (0.08 | ) | |||||||||
|
Weighted
average common shares used in
|
|||||||||||||||||||||
|
computing,
basic and diluted loss per share
|
7,689,967 | 7,689,967 | 1,205,770 |
(e)
|
8,895,737 | ||||||||||||||||
4
|
ADEX
MEDIA, INC. and Subsidiaries
|
|||||||||||||||||||||
|
Pro
Forma Combined Consolidated Statements of Operations
|
|||||||||||||||||||||
|
For
the year ended December 31, 2007
|
|||||||||||||||||||||
|
Adex
Media, Inc. and subsidiaries
|
Digital
Instructor, LLC and subsidiaries
|
Combined
|
Pro
forma Adjustments
|
Pro
forma Consolidated
|
|||||||||||||||||
|
Revenues
|
$ | 1,771,478 | $ | 4,786,810 | $ | 6,558,288 | $ | - | $ | 6,558,288 | |||||||||||
|
Cost
of revenues
|
1,328,322 | 355,952 | 1,684,274 | 200,000 |
(c)
|
1,884,274 | |||||||||||||||
|
Gross
profit
|
443,156 | 4,430,858 | 4,874,014 | (200,000 | ) | 4,674,014 | |||||||||||||||
|
Operating
expenses–general, administrative, and marketing costs
|
251,147 | 4,023,830 | 4,274,977 | - | 4,274,977 | ||||||||||||||||
|
Total
operating expenses
|
251,147 | 4,023,830 | 4,274,977 | - | 4,274,977 | ||||||||||||||||
|
Income
from operations
|
192,009 | 407,028 | 599,037 | (200,000 | ) | 399,037 | |||||||||||||||
|
Amortization
of intangible assets
|
- | - | - | 40,667 |
(c)
|
40,667 | |||||||||||||||
|
Interest
income, net
|
2,320 | 349 | 2,669 | - | 2,669 | ||||||||||||||||
|
Net
income/(loss) before provision for income taxes
|
$ | 194,329 | $ | 407,377 | $ | 601,706 | $ | (240,667 | ) | $ | 361,039 | ||||||||||
|
Provision
for income taxes
|
71,017 | - | - | 162,951 |
(d)
|
162,951 | |||||||||||||||
|
Net
income/(loss)
|
123,312 | 407,377 | 601,706 | (403,618 | ) | 198,088 | |||||||||||||||
|
Members'
equity, beginning of year
|
1,396 | (4,056 | ) | (2,660 | ) | - | (2,660 | ) | |||||||||||||
|
Distributions
to equity members
|
122,572 | 103,310 | 225,882 | - | 225,882 | ||||||||||||||||
|
Members'
equity, end of year
|
2,136 | 300,011 | 373,164 | (403,618 | ) | (30,454 | ) | ||||||||||||||
5
NOTES
TO THE PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The combined condensed balance sheet
and combined consolidated statements of operations include the accounts of
Pieces Media, LLC., Abundantad, Inc., Adex Media, Inc., Digital Instructor, LLC,
Digital Instructor EU Ltd., Overnight Genius Ltd., and Pagoda Marketing,
Inc.
|
(a)
|
To
record the assets and liabilities underlying the membership interests that
were purchased on August 12, 2008. The purchase price consisted of the
following:
|
|
i.
|
Cash |
$
1,000,000
|
|
ii.
|
Promissory Notes (present value) |
482,372
|
|
iii.
|
Fair Value of shares |
5,616,000
|
|
iv.
|
Closing costs |
201,098
|
|
v.
|
Deferred Tax Liability Assumption |
442,000
|
| $ 7,741,470 |
|
|
The
purchase price has initially been allocated as
follows:
|
|
|
Intangible
assets
|
$
1,150,000
|
|
|
Goodwill
|
6,308,019
|
|
|
Net
assets assumed
|
283,451
|
| $ 7,741,470 |
As of
June 30, 2008, $361,000 of amortization expense and related accumulated
amortization is recorded in relation to the intangible assets.
The
company has retained an independent valuation of the intangible assets although
it has not finalized the allocation of the purchase price.
The
intangible assets resulting from this transaction is primarily attributable to
the product license agreements, product trade names, customer databases, and
internal use software that was acquired.
|
(b)
|
To
eliminate the balance in total equity of the acquired company as of the
acquisition date. This amount was $283,451.
|
|
(c)
|
The intangible assets have the following useful lives: |
| Product license agreements | 5 years | |
| Product trade names | 5 years | |
| Customer database | 3 years | |
| Internal use software | 5 years |
|
|
Amortization
of product license agreements and product trade names are included in cost
of sales on the Pro Forma Statement of Operations. Amortization of
customer database and internal use software are included in amortization
of intangible assets on the Pro Forma Statement of Operations.
Amortization charges are calculated as if the acquisition occurred on
January 1, 2007.
|
|
(d)
|
Digital
Instructor, LLC is a limited liability corporation and as such did not pay
income taxes. This adjustment reflects the federal and state income taxes
that would have been paid.
|
|
(e)
|
Consists
of the weighted average effects of the 1,200,000 restricted shares issued
to the selling members plus 5,770 shares issued as a finder’s fee related
to this acquisition.
|
6
