EXHIBIT 99.3
MARCHEX, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pike Street Industries Acquisition
On April 26, 2005, Marchex, Inc. (“Company”) acquired certain assets of Pike Street Industries, Inc. (“Pike Street”),an online Yellow Pages and lead generation provider for local merchants.
The purchase price consideration consisted of:
• | $12.7 million in cash and estimated acquisition costs; plus |
• | 242,748 shares of Class B common stock; plus |
• | 212,404 shares of restricted Class B common stock which will vest over a three-year period in installments of 16.67% after each 6 month period during that term. |
The shares of Class B common stock excluding the shares of restricted Class B common stock were valued at $17.18 per share (for accounting purposes, in accordance with Emerging Issues Task Force Issue No. 99-12,Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Business Combination), for an aggregate amount of approximately $4.2 million.
The shares of restricted Class B common stock were valued at $16.85 per share (the last reported sales price on the closing date) for an aggregate amount of approximately $3.6 million.The shares of restricted Class B common stock were issued to the former stockholders of Pike Street who became employees of the Company
The asset purchase agreement contained customary representations and warranties and required Pike Street’s stockholders to indemnify the Company for various liabilities arising under the agreement, subject to various limitations and conditions. At the closing, the Company deposited into escrow for the benefit of the stockholders for a period of twelve months from the closing an amount of cash equal to $1.3 million, 24,275 shares of the 242,748 shares of Class B common stock, and 81,927 shares of the 212,404 restricted Class B common stock to secure the stockholders’ indemnification and other obligations under the asset purchase agreement, which is included in the above total purchase price consideration.
The estimated fair values of assets acquired are based upon preliminary estimates and may not be indicative of the final allocation of the purchase price consideration.
Pro Forma Financial Information
Unaudited Pro Forma Condensed Consolidated Statements of Operations
The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2004 and the three months ended March 31, 2005 give effect to previously reported acquisitions, which include goClick.com, Inc. (goClick) and Name Development Ltd. (Name Development) (collectively, the “previously reported acquisitions”) and the Company’s acquisition of certain assets of Pike Street as if they had occurred on January 1, 2004.
The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2004 combine: (1) the Company and its subsidiaries’ historical results of operations for the year ended December 31, 2004; (2) goClick’s historical results of operations for the pre-acquisition period from January 1, 2004 to July 26, 2004; (3) Name Development’s historical results of operations for the year ended December 31, 2004; (4) an offering of only that number of shares of Class B common stock and preferred stock as necessary to consummate
MARCHEX, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
the Name Development asset acquisition for the year ended December 31, 2004; and (5) Pike Street’s historical results of operations for the year ended December 31, 2004.
The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2005 combine: (1) the Company and its subsidiaries’ historical results of operations for the three months ended March 31, 2005; (2) Name Development’s historical results of operations for the pre-acquisition period from January 1, 2005 to February 13, 2005; (3) an offering of only that number of shares of Class B common stock and preferred stock as necessary to consummate the Name Development asset acquisition for the period of January 1, 2005 through February 13, 2005; and (4) Pike Street’s historical results of operations for the three months ended March 31, 2005.
The components of revenues, operating expenses and net income reflected as historical operating results included in the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2004 of the previously reported acquisitions from January 1, 2004 through December 31, 2004 or their respective dates of acquisition are as follows:
Date Acquired | Revenue | Operating Expense | Net Income | |||||
goClick | July 27, 2004 | 3,769,347 | 2,497,691 | 1,277,152 | ||||
Name Development | February 14, 2005 | 20,667,254 | 3,039,418 | 17,386,150 |
The components of revenues, operating expenses and net income reflected as historical operating results included in the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2005 of the previously reported acquisition from January 1, 2005 through its respective date of acquisition is as follows:
Date Acquired | Revenue | Operating Expense | Net Income | |||||
Name Development | February 14, 2005 | 2,544,459 | 350,343 | 2,019,785 |
Unaudited Pro Forma Condensed Consolidated Balance Sheet
The unaudited pro forma condensed consolidated balance sheet combine the historical balance sheets of the Company and its subsidiaries and Pike Street as of March 31, 2005 and gives effect to the acquisition as if had occurred on March 31, 2005.
Unaudited Pro Forma Condensed Consolidated Financial Information
The unaudited pro forma condensed consolidated financial information is intended for illustrative purposes only and is not necessarily indicative of the combined results that would have occurred had the acquisition taken place on January 1, 2004, nor is it necessarily indicative of results that may occur in the future. The pro forma adjustments are based upon information and assumptions available at the time of the filing of this Form 8-K/A and result in a preliminary allocation of the purchase price based on preliminary estimates of the fair value of the assets acquired and liabilities assumed, and may not be indicative of the final allocation of the purchase price consideration.
The unaudited pro forma condensed consolidated financial statements and the accompanying notes should be read in conjunction with the historical financial statements and pro forma condensed financial statements of the Company, Pike Street, goClick and Name Development and related notes contained thereto and in the reports and information the Company has on file with the SEC, including the Company’s Form 8-K filed on May 31, 2005.
2
MARCHEX, INC.
Unaudited Pro Forma Condensed Balance Sheet
As of March 31, 2005
Marchex, Inc. (Historical) | Pike Street (Historical) | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||
Assets | |||||||||||||||||
Current assets: | |||||||||||||||||
Cash and cash equivalents | $ | 86,465,826 | $ | 281,364 | $ | (12,500,000 | ) | a | $ | 73,965,826 | |||||||
(281,364 | ) | b | |||||||||||||||
Trade accounts receivable, net | 6,005,845 | 664,322 | (664,322 | ) | b | 6,005,845 | |||||||||||
Prepaid expenses and other current assets | 1,046,059 | 44,821 | (44,821 | ) | b | 1,046,059 | |||||||||||
Refundable income taxes | 1,509,531 | — | 1,509,531 | ||||||||||||||
Deferred tax assets | 415,469 | — | 415,469 | ||||||||||||||
Total current assets | 95,442,730 | 990,507 | (13,490,507 | ) | 82,942,730 | ||||||||||||
Property and equipment, net | 1,542,106 | 24,701 | (17,827 | ) | b | 1,548,980 | |||||||||||
Deferred tax assets | 402,484 | — | 402,484 | ||||||||||||||
Intangibles and other assets, net | 9,159,167 | 257,340 | (257,340 | ) | b | 9,159,167 | |||||||||||
Goodwill | 142,482,696 | — | 11,800,287 | a | 154,282,983 | ||||||||||||
Intangible assets from acquisitions, net | 55,756,253 | — | 5,025,000 | a | 60,781,253 | ||||||||||||
209,342,706 | 282,041 | 16,550,120 | 226,174,867 | ||||||||||||||
Total assets | $ | 304,785,436 | $ | 1,272,548 | $ | 3,059,613 | $ | 309,117,597 | |||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||
Current Liabilities: | |||||||||||||||||
Accounts payable | $ | 6,180,961 | $ | 97,331 | $ | (97,331 | ) | b | $ | 6,180,961 | |||||||
Accrued expenses and other current liabilities | 1,979,509 | 15,228 | 161,750 | a | 2,141,259 | ||||||||||||
(15,228 | ) | b | |||||||||||||||
Deferred revenue | 1,908,869 | 1,856 | (1,856 | ) | b | 1,908,869 | |||||||||||
Earn-out liability payable | — | — | |||||||||||||||
Total current liabilities | 10,069,339 | 114,415 | 47,335 | 10,231,089 | |||||||||||||
Other non-current liabilities | 76,564 | — | — | 76,564 | |||||||||||||
Total liabilities | 10,145,903 | 114,415 | 47,335 | 10,307,653 | |||||||||||||
Stockholders’ equity: | |||||||||||||||||
Convertible preferred stock | 55,205,369 | 55,205,369 | |||||||||||||||
Common stock | 2,000 | (2,000 | ) | b | — | ||||||||||||
Class A common stock | 122,500 | 122,500 | |||||||||||||||
Class B common stock | 231,618 | 4,552 | a | 236,170 | |||||||||||||
Additional paid-in capital | 243,708,679 | 98,000 | 7,744,866 | a | 251,453,545 | ||||||||||||
(98,000 | ) | b | |||||||||||||||
Deferred stock-based compensation | (375,282 | ) | (3,579,007 | ) | a | (3,954,289 | ) | ||||||||||
Accumulated deficit | (4,253,351 | ) | 1,058,133 | (1,058,133 | ) | b | (4,253,351 | ) | |||||||||
Total stockholders’ equity | 294,639,533 | 1,158,133 | 3,012,278 | 298,809,944 | |||||||||||||
Total liabilities and stockholders’ equity | $ | 304,785,436 | $ | 1,272,548 | $ | 3,059,613 | $ | 309,117,597 | |||||||||
See notes to unaudited pro forma condensed consolidated statements.
3
MARCHEX, INC.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the year ended December 31, 2004
Marchex, Inc. Historical | Previously Reported Acquisitions (5) | Pro Forma Adjustments for Previously Reported Acquisitions | Subtotal | Pike Street (Historical) | Pike Street Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||||||||||
Revenue | $ | 43,804,272 | $ | 24,436,601 | $ | (17,818 | ) | 68,223,055 | $ | 2,987,261 | $ | — | $ | 71,210,316 | ||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||
Service costs (1) | 27,449,938 | 4,023,410 | (775,775 | ) | 30,697,573 | 149,484 | (62,875 | ) | (c | ) | 30,784,182 | |||||||||||||||||||
Sales and marketing (1) | 4,414,043 | 20,453 | — | 4,434,496 | 393,261 | 4,827,757 | ||||||||||||||||||||||||
Product development (1) | 2,291,430 | 96,742 | — | 2,388,172 | 165,940 | 2,554,112 | ||||||||||||||||||||||||
General and administrative (1) | 4,111,544 | 1,396,504 | — | 5,508,048 | 203,711 | 5,711,759 | ||||||||||||||||||||||||
Acquisition-related retention consideration (2) | 499,080 | — | — | 499,080 | — | 499,080 | ||||||||||||||||||||||||
Facility relocation | 199,960 | — | — | 199,960 | — | 199,960 | ||||||||||||||||||||||||
Stock-based compensation (3) | 890,520 | — | — | 890,520 | — | 2,326,355 | (d | ) | 3,216,875 | |||||||||||||||||||||
Amortization of intangible assets from acquisitions (4) | 4,965,503 | — | 14,843,473 | 19,808,976 | — | 1,549,405 | (c | ) | 21,358,381 | |||||||||||||||||||||
Total operating expenses | 44,822,018 | 5,537,109 | 14,067,698 | 64,426,825 | 912,396 | 3,812,885 | 69,152,106 | |||||||||||||||||||||||
Gain on sale of intangible assets, net | — | 1,532,664 | — | 1,532,664 | — | 1,532,664 | ||||||||||||||||||||||||
Income from operations | (1,017,746 | ) | 20,432,156 | (14,085,516 | ) | 5,328,894 | 2,074,865 | (3,812,885 | ) | 3,590,874 | ||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||
Interest income | 265,354 | 26,228 | — | 291,582 | 2,424 | 294,006 | ||||||||||||||||||||||||
Interest expense | (5,654 | ) | — | — | (5,654 | ) | — | (5,654 | ) | |||||||||||||||||||||
Adjustment to fair value of redemption obligation | 55,250 | — | — | 55,250 | — | 55,250 | ||||||||||||||||||||||||
Other, net | 3,644 | (989 | ) | — | 2,655 | 1,171 | 3,826 | |||||||||||||||||||||||
Total other income | 318,594 | 25,239 | — | 343,833 | 3,595 | — | 347,428 | |||||||||||||||||||||||
Income before provision for income taxes | (699,152 | ) | 20,457,395 | (14,085,516 | ) | 5,672,727 | 2,078,460 | (3,812,885 | ) | 3,938,302 | ||||||||||||||||||||
Income tax expense (benefit) | 33,941 | 1,794,093 | 628,275 | 2,456,309 | — | (659,082 | ) | (e | ) | 1,797,227 | ||||||||||||||||||||
Net income | (733,093 | ) | 18,663,302 | (14,713,791 | ) | 3,216,418 | 2,078,460 | (3,153,803 | ) | 2,141,075 | ||||||||||||||||||||
Accrual of convertible preferred stock dividends | — | — | 2,375,000 | (g) | 2,375,000 | — | 2,375,000 | |||||||||||||||||||||||
Accretion of redemption value of redeemable | ||||||||||||||||||||||||||||||
convertible preferred stock | 420,430 | — | — | 420,430 | — | 420,430 | ||||||||||||||||||||||||
Net income (loss) applicable to common stockholders | $ | (1,153,523 | ) | $ | 18,663,302 | $ | (17,088,791 | ) | $ | 420,988 | $ | 2,078,460 | $ | (3,153,803 | ) | $ | (654,355 | ) | ||||||||||||
Basic net income (loss) per share applicable to common stockholders | $ | (0.05 | ) | $ | 0.01 | $ | (0.02 | ) | ||||||||||||||||||||||
Shares used to calculate basic net income (loss) per share | 22,087,503 | 6,339,887 | (f) | 28,427,390 | 260,449 | (f | ) | 28,687,839 | ||||||||||||||||||||||
Diluted net income (loss) per share applicable to common stockholders | $ | (0.05 | ) | $ | 0.01 | $ | (0.02 | ) | ||||||||||||||||||||||
Shares used to calculate diluted net income (loss) per share | 22,087,503 | 8,126,614 | (f) | 30,214,117 | 260,449 | (f | ) | 28,687,839 | ||||||||||||||||||||||
(1,786,727 | ) | (f | ) | |||||||||||||||||||||||||||
(1) Excludes acquisition-related retention consideration, stock-based compensation and amortization of intangible assets. |
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(2) Components of acquisition-related consideration |
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Service costs | 116,585 | 116,585 | 116,585 | |||||||||||||||||||||||||||
Sales and marketing | 204,528 | 204,528 | 204,528 | |||||||||||||||||||||||||||
Product development | 135,947 | 135,947 | 135,947 | |||||||||||||||||||||||||||
General and administrative | 42,020 | 42,020 | 42,020 | |||||||||||||||||||||||||||
(3) Components of stock-based compensation |
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Service costs | 10,800 | 10,800 | 383,849 | 394,649 | ||||||||||||||||||||||||||
Sales and marketing | 155,734 | 155,734 | 581,589 | 737,323 | ||||||||||||||||||||||||||
Product development | 59,883 | 59,883 | 779,328 | 839,211 | ||||||||||||||||||||||||||
General and administrative | 664,103 | 664,103 | 581,589 | 1,245,692 | ||||||||||||||||||||||||||
(4) Components of amortization of intangible assets |
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Service costs | 3,520,878 | 11,594,548 | 15,115,426 | 582,738 | 15,698,164 | |||||||||||||||||||||||||
Sales and marketing | 701,077 | 142,473 | 843,550 | 800,000 | 1,643,550 | |||||||||||||||||||||||||
General and administrative | 743,548 | 3,106,452 | 3,850,000 | 166,667 | 4,016,667 | |||||||||||||||||||||||||
(5) Represents the historical operating results of the previously reported acquisitions prior to their dates of acquisition by the Company and the pro forma effect of only that number of shares of Class B common stock and preferred stock as necessary to consummate the Name Development asset acquisition. See the unaudited pro forma condensed consolidated financial information for certain operating data for each acquisition. |
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See notes to unaudited pro forma condensed consolidated statements.
4
MARCHEX, INC.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the three months ended March 31, 2005
Marchex, Inc. Historical | Previously Reported Acquisitions (5) | Pro Forma Adjustments for Previously Reported Acquisitions | Subtotal | Pike Street (Historical) | Pike Street Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||||||||
Revenue | $ | 18,395,983 | $ | 2,544,459 | $ | — | $ | 20,940,442 | $ | 963,198 | $ | — | $ | 21,903,640 | |||||||||||||||
Expenses: | |||||||||||||||||||||||||||||
Service costs (1) | 10,668,907 | 216,185 | $ | (191,540 | ) | 10,693,552 | 51,929 | (17,650 | ) | (c) | 10,727,831 | ||||||||||||||||||
Sales and marketing (1) | 1,324,986 | — | $ | — | 1,324,986 | 133,824 | 1,458,810 | ||||||||||||||||||||||
Product development (1) | 774,549 | — | $ | — | 774,549 | 59,400 | 833,949 | ||||||||||||||||||||||
General and administrative (1) | 1,452,034 | 134,158 | $ | — | 1,586,192 | 107,516 | 1,693,708 | ||||||||||||||||||||||
Acquisition-related retention consideration (2) | — | — | $ | — | — | — | — | ||||||||||||||||||||||
Facility relocation | — | — | $ | — | — | — | — | ||||||||||||||||||||||
Stock-based compensation (3) | 146,538 | — | $ | — | 146,538 | — | 283,338 | (d) | 429,876 | ||||||||||||||||||||
Amortization of intangible assets from acquisitions (4) | 3,083,157 | — | $ | 1,406,876 | 4,490,033 | — | 387,352 | (c) | 4,877,385 | ||||||||||||||||||||
Total operating expenses | 17,450,171 | 350,343 | 1,215,336 | 19,015,850 | 352,669 | 653,040 | 20,021,559 | ||||||||||||||||||||||
Gain on sale of intangible assets, net | — | 29,486 | $ | — | 29,486 | — | 29,486 | ||||||||||||||||||||||
Income (loss) from operations | 945,812 | 2,223,602 | (1,215,336 | ) | 1,954,078 | 610,529 | (653,040 | ) | 1,911,567 | ||||||||||||||||||||
Other income (expense) | |||||||||||||||||||||||||||||
Interest income | 268,383 | 7,957 | $ | — | 276,340 | 173 | 276,513 | ||||||||||||||||||||||
Interest expense | (1,861 | ) | — | $ | — | (1,861 | ) | — | (1,861 | ) | |||||||||||||||||||
Other, net | 4,000 | (295 | ) | $ | — | 3,705 | 191 | 3,896 | |||||||||||||||||||||
Total other income | 270,523 | 7,662 | — | 278,185 | 364 | — | 278,549 | ||||||||||||||||||||||
Income (loss) before provision for income taxes | 1,216,335 | 2,231,264 | (1,215,336 | ) | 2,232,263 | 610,893 | (653,040 | ) | 2,190,116 | ||||||||||||||||||||
Income tax expense (benefit) | 478,933 | 211,479 | $ | 177,186 | 867,598 | — | (16,016 | ) | (e) | 851,582 | |||||||||||||||||||
Net income (loss) | 737,402 | 2,019,785 | (1,392,522 | ) | 1,364,665 | 610,893 | (637,024 | ) | 1,338,534 | ||||||||||||||||||||
Convertible preferred stock dividends | 348,993 | (g) | — | $ | 282,361 | 631,354 | — | 631,354 | |||||||||||||||||||||
Net Income (loss) applicable to common stockholders | $ | 388,409 | $ | 2,019,785 | $ | (1,674,883 | ) | $ | 733,311 | $ | 610,893 | $ | (637,024 | ) | $ | 707,180 | |||||||||||||
Basic net income per share applicable to common stockholders | $ | 0.01 | $ | 0.02 | $ | 0.02 | |||||||||||||||||||||||
Shares used to calculate basic net income per share | 30,245,678 | (f) | 3,046,414 | 33,292,092 | 313,550 | (f) | 33,605,642 | ||||||||||||||||||||||
Diluted net income per share applicable to common stockholders | $ | 0.01 | $ | 0.02 | $ | 0.02 | |||||||||||||||||||||||
Shares used to calculate diluted net income per share | 32,920,472 | (f) | 3,046,414 | 35,966,886 | 420,187 | (f) | 36,387,073 | ||||||||||||||||||||||
(1) Excludes acquisition-related retention consideration, stock-based compensation, and amortization of intangible assets. |
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(2) Components of acquisition-related consideration |
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Service costs | — | — | — | ||||||||||||||||||||||||||
Sales and marketing | — | — | — | ||||||||||||||||||||||||||
Product development | — | — | — | ||||||||||||||||||||||||||
General and administrative | — | — | — | ||||||||||||||||||||||||||
(3) Components of stock-based compensation |
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Service costs | 1,800 | 1,800 | 46,751 | 48,551 | |||||||||||||||||||||||||
Sales and marketing | 29,507 | 29,507 | 70,835 | 100,342 | |||||||||||||||||||||||||
Product development | 10,665 | 10,665 | 94,917 | 105,582 | |||||||||||||||||||||||||
General and administrative | 104,566 | 104,566 | 70,835 | 175,401 | |||||||||||||||||||||||||
(4) Components of amortization of intangible assets |
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Service costs | 2,393,425 | 1,059,108 | 3,452,533 | 145,685 | 3,598,218 | ||||||||||||||||||||||||
Sales and marketing | 120,833 | — | 120,833 | 200,000 | 320,833 | ||||||||||||||||||||||||
General and administrative | 568,899 | 347,768 | 916,667 | 41,667 | 958,334 | ||||||||||||||||||||||||
(5) Represents the historical operating results of the previously reported acquisitions prior to their dates of acquisition by the Company and the pro forma effect of only that number of shares of Class B common stock and preferred stock as necessary to consummate the Name Development asset acquisition. See the unaudited pro forma condensed consolidated financial information for certain operating data for each acquisition. |
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See notes to unaudited pro forma condensed consolidated statements.
5
MARCHEX, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Adjustments
Pro Forma Adjustments for Pike Street
(a) The purchase price adjustments reflect cash and direct acquisition costs of approximately $12.7 million to acquire certain assets of Pike Street. Additionally, the Company issued 242,748 shares of Class B common stock valued at $17.18 per share (for accounting purposes) for an aggregate amount of $4.2 million and 212,404 shares of restricted Class B common stock valued at $16.85 per share (the last reported sales price on the closing date) for an aggregate amount of $3.6 million. The $3.6 million of restricted Class B common stock was recorded as deferred stock compensation and the Company expects to recognize stock-based compensation expense over the associated three-year employment periods over which those shares vest, using the accelerated methodology described in FASB Interpretation No. 28,Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.
For purposes of the pro forma financial information, a summary of the purchase price consideration for the acquisition is as follows:
Cash | $ | 12,500,000 | |
Stock issued | 4,170,411 | ||
Direct acquisition costs | 161,750 | ||
Total | $ | 16,832,161 | |
The following represents the allocation of the acquired assets of Pike Street. The allocation is based upon Pike Street’s assets as of March 31, 2005.
Equipment | $ | 6,874 | |
Goodwill | 11,800,287 | ||
Identifiable intangible assets | 5,025,000 | ||
Total | $ | 16,832,161 | |
Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets. The unaudited pro forma condensed consolidated statements of operations do not reflect the amortization of goodwill acquired which is consistent with the guidance in the Financial Accounting Standards Board (FASB), Statement No. 142,Goodwill and Other Intangible Assets. The amortization expense of the identifiable intangible assets is deductible for tax purposes over 15 years.
(b) Represents the elimination of the historical stockholders’ equity and assets, liabilities not acquired or assumed as part of the Pike Street asset acquisition.
(c) Represents the amortization of identifiable intangible assets associated with the acquisition of certain assets of Pike Street, which are amortized over their useful lives ranging from 36 to 84 months. Amortization totals $1.5 million in the first twelve months and $1.9 million in the first fifteen months following the acquisition. Pike Street for the year ended December 31, 2004 and for the three months ended March 31, 2005, recorded approximately $63,000 and $18,000, respectively, of amortization included in service costs related to the above-noted intangible assets.
(d) Represents stock-based compensation expense associated with shares of restricted Class B common stock issued to the former stockholders of Pike Street who became employees of the Company. The shares of
6
MARCHEX, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
restricted Class B common stock were value at approximately $3.6 million at the acquisition date. The Company is recognizing stock-based compensation expense for the value of these shares over the associated employment period in which these shares vest, which results in $2.3 million in amortization in the first twelve months and $2.6 million in the first fifteen months following the acquisition.
(e) Represents pro forma income tax benefit as though Pike Street, a Washington corporation, was taxed as a C corporation for the periods presented using the Company’s combined pro forma effective federal and state rate of 38% for 2004 and its estimated combined effective federal and state rate of 38% for 2005. Prior to the Company’s acquisition, Pike Street was an S-Corporation, whereby shareholders were taxed on their portion of Pike Street’s taxable income.
Pro Forma Adjustments for Earnings per Share
(f) The following is a reconciliation of shares used to compute the historical basic and diluted net income (loss) per share to pro forma basic and diluted net income (loss) per share for the year ended December 31, 2004 and the three months ended March 31, 2005. Potentially dilutive securities were not included in the computations when their effects would be anti-dilutive.
For the year ended December 31, 2004 | |||||
Pro Forma basic | Pro Forma diluted | ||||
Shares used to calculate Marchex Pro Forma net income per share (as previously reported in Marchex’s Form 8-K filed on May 31, 2005) | 28,427,390 | 30,214,117 | |||
Exclude pro forma weighted average stock options and warrants and common shares subject to repurchase or cancellation which were included in Marchex’s pro forma shares reported on Form 8-K filed on May 31, 2005 | — | (1,786,727 | ) | ||
Pike Street: | |||||
Pro forma effect of shares issued in Pike Street asset acquisition | 242,748 | 242,748 | |||
Weighted average restricted shares issued in Pike Street asset acquisition for services expected to vest during the period | 17,701 | 17,701 | |||
Shares used to calculate pro forma and adjusted pro forma basic and diluted net loss per share | 28,687,839 | 28,687,839 | |||
For the three months ended March 31, 2005 | |||||
Pro Forma basic | Pro Forma diluted | ||||
Shares used to calculate Marchex Pro Forma net income per share (as previously reported in Marchex’s Form 8-K filed on May 31, 2005) | 33,292,092 | 35,966,886 | |||
Pike Street: | |||||
Pro forma effect of shares issued in Pike Street asset acquisition | 242,748 | 242,748 | |||
Weighted average restricted shares issued in Pike Street asset acquisition for services expected to vest during the period | 70,802 | 177,439 | |||
Shares used to calculated pro forma and adjusted pro forma basic and diluted net income per share | 33,605,642 | 36,387,073 | |||
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MARCHEX, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For purposes of calculating the shares used for pro forma basic and diluted net income (loss) per share for the year ended December 31, 2004 and the three months ended March 31, 2005, we have adjusted for the following:
• | included 242,748 shares of Class B common stock issued in the Pike Street asset acquisition. |
• | included the weighted average impact of the 212,404 Class B restricted common shares issued in connection with the Pike Street asset acquisition. These shares are for future services that vest over 3 years. Unvested shares were excluded from the computation of pro forma basic net income (loss) per share in both periods. |
• | excluded the weighted average impact of 1,786,727 of stock options, warrants and common shares subject to repurchase or cancellation from the computation of pro forma diluted net loss per share for the year ended December 31, 2004 due to a pro forma net loss to common stockholders. These shares were included in the Company’s pro forma shares for the year ended December 31, 2004 reported on Form 8-K filed on May 31, 2005. |
Other information
The estimated amortization relating to estimated intangible assets recorded as of March 31, 2005 for the period of April to December 2005 and the next 3 years and thereafter is as follows:
Period of April 1 to December 31, 2005 | 2006 | 2007 | 2008 | 2009 and thereafter | Total | |||||||||||||
Enhance Interactive | $ | 1,148,000 | $ | 83,000 | $ | — | $ | — | $ | — | $ | 1,231,000 | ||||||
TrafficLeader | 265,000 | 227,000 | — | — | — | 492,000 | ||||||||||||
goClick | 1,067,000 | 652,000 | 144,000 | — | — | 1,863,000 | ||||||||||||
Name Development | 10,255,000 | 13,501,000 | 10,974,000 | 9,763,000 | 8,000,000 | 52,493,000 | ||||||||||||
Pike Street | 1,050,000 | 1,549,000 | 1,549,000 | 646,000 | 231,000 | 5,025,000 | ||||||||||||
$ | 13,785,000 | $ | 16,012,000 | $ | 12,667,000 | $ | 10,409,000 | $ | 8,231,000 | $ | 61,104,000 | |||||||
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