Exhibit 99.2
RELATIONSERVE MEDIA, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial information is
based on, and should be read in conjunction with, the historical financial
statements and notes thereto of RelationServe Media, Inc. (the "Company") and
SendTec included elsewhere in this registration statement on from SB-2. The
unaudited pro forma information is presented for illustration purposes only in
accordance with the assumptions set forth below and described in the notes to
the pro forma condensed combined financial statements.
The unaudited pro forma condensed combined balance sheet combines the balance
sheet of the Company with the balance sheet of SendTec and gives pro forma
effect to the Company's (a) sale of $10,000,000 of Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and subsequent conversion of
such shares into Company common stock, (b) the issuance (through an acquisition
subsidiary) of $34,950,000 of senior secured convertible debentures (the
"Convertible Debentures"), (c) issuance of common stock to members of SendTec's
management, and (d) the Company's completion of its acquisition of SendTec (the
"SendTec Acquisition") as if these transaction were consummated on December 31,
2005.
The unaudited pro forma condensed combined statement of operations combines the
statement of operations of the Company with the statement of operations of
SendTec and gives pro forma effect to (a) the Company's issuance of Convertible
Debentures, (b) the SendTec Acquisition and (c) compensation arrangements
entered into with members of SendTec management as if these transaction were
completed on January 1, 2005.
The pro forma adjustments reflected in these unaudited condensed combined pro
forma financial statements are described in the notes hereto and are based on
the Company's estimates, available information and assumptions that management
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believes are reasonable. The following unaudited pro forma condensed combined
financial statements also do not include any adjustments to conform accounting
practices of the combining entities or to reflect any cost savings or synergies
anticipated as a result of having completed these transactions. This information
is also not necessarily indicative of the operating results or the financial
position that would have occurred or could occur in future periods had taken
transactions been completed as of the dates or for the periods indicated.
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RELATIONSERVE MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT DECEMBER 31, 2005
RelationServe Pro Forma Combined
Media, Inc. (a) SendTec (b) Adjustments Pro Forma
---------------- --------------- ----------------- --------------
ASSETS
Current Assets
Cash $ 156,472 $ 3,350,545 $ 45,481,700 (d) $ 6,494,545
(2,064,172) (e)
(40,430,000) (f)
Accounts receivable 1,624,577 9,910,804 11,535,381
Prepaid expenses and other current
assets 154,673 251,918 406,591
------------ ------------ ------------ ------------
Total Current Assets 1,935,722 13,513,267 2,987,528 18,436,517
Property and Equipment, net of
accumulated depreciation 782,386 828,446 1,610,832
Goodwill -- 12,605,874 (12,605,874) (f) 34,958,673
34,958,673 (f)
Deferred financing costs 2,064,172 (e) 2,064,172
Investment In SendTec Acquisition
Corporation 9,274,981 -- (9,274,981) (c) --
Intangible Assets, net of accumulated
amortization 2,561,298 1,320,000 (1,320,000) (f) 2,561,298
Covenant Not To Compete 1,866,000 (f) 1,866,000
Other Assets 32,690 15,330 48,020
------------ ------------ ------------ ------------
TOTAL ASSETS $ 14,587,077 $ 28,282,917 $ 18,675,518 $ 61,545,512
============ ============ ============ ============
RelationServe Pro Forma Combined
Media, Inc. (a) SendTec (b) Adjustments Pro Forma
---------------- --------------- ----------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,208,693 $ 9,993,415 $ 11,202,108
Accrued expenses 789,225 566,705 1,355,930
Other Current Liabilities 391,890 191,596 583,486
------------ ------------ ------------ ------------
Total Current Liabilities 2,389,808 10,751,716 -- 13,141,524
Other Liabilities 166,535 145,125 (145,125) (f) 166,535
------------ ------------ ------------ ------------
Total Liabilities 2,556,343 10,896,841 (145,125) 13,308,059
Stockholders' Equity
Preferred 10,289,690 (10,289,690) (c) --
Common 1,741,044 17,386,076 1,014,709 (c) 48,237,453
45,481,700 (d)
(17,386,076) (f)
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 14,587,077 $ 28,282,917 $ 18,675,518 $ 61,545,512
============ ============ ============ ============
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NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA
BALANCE SHEET
(a) Derived from the audited balance sheet of RelationServe Media, Inc. as
December 31, 2005.
(b) Derived from the audited balance sheet of SendTec as December 31, 2005.
(c) Reflects the Company's elimination of its investment in SendTec
Acquisition Corp. ("STAC"), a subsidiary formed solely to acquire the
assets of SendTec, and the proportionate share of STAC's losses for the
period of October 31, 2005 through December 31, 2005.
The Company completed a $10,000,000 private placement of its Series A
Preferred Stock on October 31, 2005 and used the proceeds from this
transaction to acquire 23% of the voting interests in STAC. STAC used
these funds to purchase the net assets of SendTec from theglobe.com, Inc.
(the "Globe") on October 31, 2005 as described in Notes (d), (e) and (f).
The Company accounted for its investment in STAC, from the date of its
formation to the date in which it completed the SendTec Acquisition
(through its consolidation with STAC) on February 3, 2006 (the
"Consolidation Date") using the equity method of accounting.
(d) Reflects the receipt of funds obtained upon the closing of the financing
transactions described herein and the sale of 506,380 shares of STAC
common stock to members of SendTec management, who became members of STAC
management ("STAC Management") as reflected in the following table:
Convertible Debentures $ 34,950,000
RelationServe Series A Convertible Preferred 10,000,000
STAC common stock 531,700
-------------
Total $ 45,481,700
=============
The Convertible Debentures, due October 30, 2009, were assumed by the
Company on the Consolidation Date. At such time, the Convertible
Debentures became convertible into Company common stock at the option of
the debenture holders at a conversion price of $1.50 per share. The
Convertible Debentures provide for quarterly payments of principal plus
contractual interest at 6% per annum. The Company also issued 10,081,607
common stock purchase warrants (the "Warrants") to the debenture holders,
exercisable at $0.01 per share on the Consolidation Date. In accordance
with APB 14 and ETIF 00-27, the pro-forma adjustments assume that
$34,500,000 of the proceeds received upon the issuance of the Convertible
Debentures are allocable, to the common stock purchase warrant, based on
the relative fair value of the Convertible Debentures and the Warrants
and the beneficial conversion feature embedded in the Convertible
Debentures.
The Series A Preferred Stock was mandatorily convertible into shares of
the Company's common stock on the Consolidation Date. The conversion
price in effect at the Consolidation Date was $1.35 per share, which
resulted in a 10 to 1 conversion ratio. Accordingly, the adjustment for
the financing transactions gives effect to the conversion of the Series A
Preferred by presenting it as an increase in common equity.
STAC Management purchased 506,380 shares of STAC common stock at $1.05
per share. These shares, in addition to other STAC common stock shares
granted to SendTec management on October 31, 2005 as stock compensation
were converted into approximately 9,506,380 shares of Company common
stock at the time of the consolidation with STAC.
(e) Reflects the deferral of transaction expenses incurred in connection with
issuing the Convertible Debentures described in Note (d).
(f) Reflects the (i) issuance of purchase consideration to the Globe, (ii)
elimination of SendTec's historical equity, previously recognized
intangible assets (including goodwill), and deferred income tax liability
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and (iii) preliminary allocation of the purchase price to the fair values
of assets acquired and liabilities assumed in the SendTec Acquisition.
The following table provides an analysis of the purchase price of the
SendTec Acquisition and the preliminary allocation of the purchase price
to the assets acquired and liabilities assumed:
Consideration Paid $ 39,850,000
Transaction expenses 580,000
-------------
Total purchase cost $ 40,430,000
=============
Assets acquired:
Cash $ 3,350,545
Accounts receivable 9,910,804
Prepaid expenses & other assets 267,248
Property and equipment 828,446
-------------
14,357,043
=============
Liabilities assumed:
Accounts payable and accrued liabilities 10,560,120
Other Liabilities 191,596
-------------
10,751,716
=============
Net assets acquired 3,605,327
-------------
Purchase price in excess of net assets acquired 36,824,673
Allocated to:
Covenant not to compete 1,866,000
-------------
Goodwill $ 34,958,673
=============
The Company's allocation of its purchase price is preliminary and is based on
significantly limited information. The actual allocation of the purchase price
will be based on valuation studies that have not yet been performed. The actual
allocation of the purchase price and resulting amount of goodwill could
significantly differ from amounts included in the pro forma presentation.
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RELATIONSERVE MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 2005
RelationServe Pro Forma Combined
Media, Inc. (a) SendTec (b) Adjustments Pro Forma
---------------- --------------- ----------------- --------------
Revenue $ 11,302,780 $ 37,769,742 $ 49,072,522
Cost of Revenue 2,542,614 25,530,243 28,072,857
------------ ------------ ------------ ------------
Gross Profit 8,760,166 12,239,499 -- 20,999,665
Operating Expenses
Selling, general, and administrative 10,212,922 8,303,304 1,400,833 (d) 18,857,892
(1,059,167) (d)
Depreciation and amortization 215,307 718,477 471,996 (d) 1,045,780
(360,000) (d)
------------ ------------ ------------ ------------
10,428,229 9,021,781 453,662 19,903,672
------------ ------------ ------------ ------------
(Loss)/Income From Operation (1,668,063) 3,217,718 (453,662) 1,095,993
Other Income (Expense)
Interest expense (14,268) -- (8,737,500) (e) (11,364,811)
(2,097,000) (f)
(516,043) (d)
Stock Bonus Compensation (4,774,323) (j) (4,774,323)
Loss on Equity Method Investment (1,034,102) 1,034,102 (g) --
Other Income (Expense) (71,856) 46,347 (25,509)
------------ ------------ ------------ ------------
(1,120,226) (4,727,976) (10,316,441) (16,164,643)
Net (Loss)/Income Before Income
Taxes (2,788,289) (1,510,258) (10,770,103) (15,068,650)
Income Tax Benefit/(Expense) -- 523,898 (523,898) (h) --
------------ ------------ ------------ ------------
NET (LOSS)/INCOME (2,788,289) (986,360) (11,294,001) (15,068,650)
============ ============ ============ ============
NET (LOSS)/INCOME PER COMMON SHARE:
BASIC AND DILUTED $ (0.19) $ (0.35)
============ ============
Weighted Average Number of Common
Shares Outstanding:
Basic and diluted 14,500,271 27,208,978 (j) 41,709,249
============ ============ ============
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NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA
STATEMENT OF OPERATIONS
(a) Derived from the audited statement of operations of RelationServe Media,
Inc. as December 31, 2005.
(b) Derived from the audited statement of operations of SendTec as December
31, 2005.
(c) Reflects the elimination of STAC Management compensation included in the
historical SendTec statement of operations and the effect of new
compensation arrangements entered into with the Company which became
effective on the Consolidation Date.
(d) Reflects (i) the elimination of $360,000 of SendTec's historical
amortization expense for non-compete agreements no longer in effect as a
result of the SendTec Acquisition; (ii) the pro-forma effect of
amortization expense of $471,996 under non-compete agreements to be
recorded in purchase accounting; and (iii) the recognition of $516,043
for the amortization of deferred financing costs incurred in connection
with the issuance of the Convertible Debentures. On a pro forma basis,
the non-compete agreements are being amortized over their term of four
years and the deferred financing costs are being amortized over the term
of the underlying debt, which is also four years.
(e) Reflects the accretion of the discount recorded in connection with the
Convertible Debentures described in Note (d) to the condensed combined
balance sheet over a term of four years.
(f) Reflects contractual interest expense on the Convertible Debentures at an
interest rate of 6% per annum.
(g) Reflects the elimination of RelationServe's proportionate share of STAC's
losses for the period of October 31, 2005 through December 31, 2005 as
recorded under the equity method of accounting.
(h) Reflects the elimination of SendTec's historical tax benefit, due to
doubt as to the realizability of any income tax benefits and the
potential limitation thereof under Section 382 of the Internal Revenue
Code.
(i) Reflects the issuance, by the Company on the Consolidation Date (i)
10,081,607 common stock purchase warrants to the Debenture investors,
(ii) 9,506,380 shares of common stock to STAC Management in exchange for
their shares in STAC, and (iii) 7,621,991 shares of common stock issued
in connection with the mandatory conversion of the Series A Preferred
Stock on the Consolidation Date.
The warrants issued to the Debenture holders were included in the
determination of pro forma loss per share due the fact they are
exercisable at $.01 per share. Accordingly, they are deemed to be
equivalent to outstanding common for purposes of the pro forma
illustration.
(j) The stock based compensation charge included in the historical financial
statements represents a grant of STAC common stock to STAC Management
concurrent with the purchase of SendTec's net assets from the Globe. The
charge was not eliminated based on the assumption that similar
compensation arrangements are likely to exist and could result in
comparable charges in future periods.
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