Exhibit 99.3
e-Dialog, Inc. | ||||||||
Consolidated Balance Sheets (Unaudited) | ||||||||
September 30, 2007 and 2006 | ||||||||
2007 | 2006 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 1,384,497 | $ | 840,234 | ||||
Accounts receivable, net allowance for doubtful accounts of 88,928 and 39,699, as of September 30, 2007 and 2006, respectively | 8,266,682 | 4,261,335 | ||||||
Prepaids and other current assets | 859,805 | 799,278 | ||||||
Total Current Assets | 10,510,984 | 5,900,847 | ||||||
Fixed Assets: | ||||||||
Computer software and hardware | 5,645,415 | 3,899,714 | ||||||
Furniture and fixtures | 332,690 | 243,102 | ||||||
Leasehold improvements | 151,824 | 151,824 | ||||||
6,129,929 | 4,294,640 | |||||||
Less accumulated depreciation | (3,607,289 | ) | (2,356,217 | ) | ||||
2,522,640 | 1,938,423 | |||||||
Other assets | 470,488 | 275,942 | ||||||
Restricted cash | - | 151,371 | ||||||
$ | 13,504,112 | $ | 8,266,583 | |||||
Liabilities & Shareholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Capital lease obligations | $ | 447,587 | $ | 764,397 | ||||
Line of credit | - | 350,000 | ||||||
Accounts payable | 1,025,296 | 730,988 | ||||||
Accrued expenses and other current liabilities | 2,271,850 | 1,145,791 | ||||||
Deferred revenue | - | 10,558 | ||||||
Total Current Liabilities | 3,744,733 | 3,001,734 | ||||||
Long-Term Liabilities: | ||||||||
Capital lease obligations | 152,264 | 588,732 | ||||||
Series C redeemable preferred stock warrants | 16,907 | 16,907 | ||||||
Other long-term liabilities | 94,570 | 256,690 | ||||||
Total Long-term Liabilities | 263,741 | 862,329 | ||||||
Shareholders' Equity | ||||||||
Preferred stock | 19,525,000 | 19,525,000 | ||||||
Common stock | 91,546 | 106,042 | ||||||
Additional paid-in capital | 122,190 | 36,686 | ||||||
Accumulated deficit | (10,243,098 | ) | (15,265,208 | ) | ||||
Total Shareholders' Equity | 9,495,638 | 4,402,520 | ||||||
$ | 13,504,112 | $ | 8,266,583 |
See notes to consolidated unaudited financial statements
e-Dialog, Inc. | ||||
Consolidated Statements of Operations (Unaudited) | ||||
Nine Months Ended September 30, 2007 and 2006 | ||||
2007 | 2006 | |||
Revenue | $ | 26,483,854 | $ 16,580,357 | |
Cost of revenues | 10,992,081 | 7,011,577 | ||
Gross profit | 15,491,773 | 9,568,780 | ||
Operating Expenses: | ||||
Sales & marketing | 3,068,593 | 2,207,001 | ||
Research & development | 3,747,929 | 2,618,576 | ||
General and administrative | 4,760,445 | 3,308,907 | ||
Stock-based compensation | 51,298 | 13,108 | ||
Total operating expenses | 11,628,265 | 8,147,592 | ||
Income from operations | 3,863,508 | 1,421,188 | ||
Other income/(expenses): | ||||
Other expenses | (2,756) | (96,378) | ||
Foreign exchange gain/(loss) | 34,716 | (37,374) | ||
Total other income (expenses) | 31,960 | (133,752) | ||
Income before income taxes and cumulative effect of a change in accounting principle | 3,895,468 | 1,287,436 | ||
Provision for income taxes | - | - | ||
Income before cumulative effect of a change in accounting principle | 3,895,468 | 1,287,436 | ||
Cumulative effect of a change in accounting principle | - | 16,907 | ||
Net Income | $ | 3,895,468 | $ 1,270,529 |
See notes to consolidated unaudited financial statements
e-Dialog, Inc. | ||||||||
Consolidated Statements of Cash Flows (Unaudited) | ||||||||
Nine months ended September 30, 2007 and 2006 | ||||||||
2007 | 2006 | |||||||
Operating activities: | ||||||||
Net income | $ | 3,895,468 | $ | 1,270,529 | ||||
Adjustments to reconcile net income to net cash provided by Operating activities: | ||||||||
Depreciation and amortization | 934,161 | 766,539 | ||||||
Cumulative effect of change in accounting principle | - | 16,907 | ||||||
Amortization of lease concession | (138,497 | ) | (138,497 | ) | ||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (2,761,775 | ) | (509,119 | ) | ||||
Prepaid expenses and other assets | (399,500 | ) | (273,439 | ) | ||||
Accounts payable | 647,317 | 20,558 | ||||||
Accrued expenses and other current liabilities | 694,254 | (97,207 | ) | |||||
Deferred revenue | (19,607 | ) | (356,032 | ) | ||||
Net cash provided by operating activities | 2,851,821 | 700,239 | ||||||
Investing activities: | ||||||||
Purchases of property and equipment | (1,591,785 | ) | (480,075 | ) | ||||
Decrease in restricted cash | - | 173,362 | ||||||
Increase in other assets | (213,067 | ) | (192,148 | ) | ||||
Net cash used in investing activities | (1,804,852 | ) | (498,861 | ) | ||||
Financing activities: | ||||||||
Proceeds from exercise of common stock options | 55,873 | (39,589 | ) | |||||
Proceeds from line of credit | - | 50,000 | ||||||
Repayments of capital leases | (570,860 | ) | (556,853 | ) | ||||
Net cash used in financing activities | (514,987 | ) | (546,442 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | 531,982 | (345,064 | ) | |||||
Cash and cash equivalents at beginning of year | 852,515 | 1,185,298 | ||||||
Cash and cash equivalents at end of year | $ | 1,384,497 | $ | 840,234 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 96,859 | $ | 41,409 | ||||
Non-cash investing and financing activities: | ||||||||
Common stock issued for acquisition of Adinfonitum, Inc. | - | $ | 66,000 |
See notes to consolidated unaudited financial statements
Notes to consolidated unaudited financial statements
1. Nature of Business and Basis of Presentation
e-Dialog, Inc. (the Company) provides precision marketing services. Services provided include strategic planning, implementation, and analysis of e-mail marketing programs. The Company is subject to a number of risks common to rapidly growing technology-based companies, including rapid technological changes, competition from substitute products and larger companies, and the need to successfully develop and market its commercial products and services.
The balance sheets as of September 30, 2007 and 2006 and the statements of operations and cash flows as of and for the nine months ended September 30, 2007 and 2006 have been presented without audit. In the opinion of the Company’s management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows as of and of the nine months ended September 30, 2007 and 2006 have been made.
2. Summary of Significant Accounting Policies
The accompanying financial statements reflect the application of certain significant accounting policies described in this note and elsewhere in the accompanying notes to financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, E-Dialog UK, Ltd. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments purchased with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Investments with maturity dates in excess of three months at the time of purchase, but within one year of the balance sheet date, are considered short-term investments.
Property and Equipment
Property and equipment are stated at cost, and are depreciated by the straight-line method with a half-year convention at rates that are intended to depreciate the cost of these assets over their estimated useful lives as follows:
Asset Classification | Useful Life | |
Computer software and hardware | 3-4 years | |
Furniture and fixtures | 5 years | |
Leasehold improvements | Life of lease |
Financial Instruments
The estimated fair value of the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, line of credit, and capital leases, approximates their carrying value due to the short-term nature of these instruments.
Foreign Currency Translation
The accounts of e-Dialog UK, Ltd. are translated in accordance with Statements of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation. The functional currency of e-Dialog UK, Ltd. is the U.S. dollar and, accordingly, translation gains and losses are reflected in the consolidated statements of operations. Revenue and expense accounts were translated using the weighted-average exchange rate in effect during the period. Balance sheet accounts were translated using current and historical exchange rates, as appropriate. Foreign currency transaction gains or losses are also reflected in the consolidated statements of operations in other income/expenses.
Revenue Recognition
The Company applies Staff Accounting Bulletin (SAB) 104, Revenue Recognition, and recognizes revenue when persuasive evidence of an arrangement exists, the service has been delivered, the fee is fixed and determinable, and collection of the resulting receivable is reasonably assured.
The Company generates revenue from the sale of services, such as design and execution of Internet direct marketing or e-marketing campaigns. Revenue is recognized under these arrangements upon completion of the campaign. For any multi-element arrangement, revenue is recognized once all elements of the arrangement have been delivered, as the Company does not have fair value for each separate element per Emerging Issues Task Force (EITF) 00-21. The Company also enters into contractual arrangements to provide a number of e-mail campaigns for a related fee. Revenue is recognized based on completion of campaigns.
In addition, the Company generates revenue through the rental of lists of e-mail addresses and digital printing. The Company records revenue on the rental of lists and digital printing on a net basis which represents the difference between the purchase price paid for the service and sales price of the service in accordance with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent.
Cost of Revenue
Cost of revenue includes payroll of the personnel involved in design and execution of Internet direct marketing or e-marketing campaigns.
Research and Development Costs
Research and development costs have been charged to operations as incurred.
Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123(R). SFAS No. 123(R) addresses the accounting for transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123(R) supersedes Accounting Principles Board (APB) Opinion No. 25 and requires that such transactions be accounted for using a fair value-based method. SFAS No. 123(R) requires companies to recognize an expense for compensation cost related to share-based payment arrangements, including stock options and employee stock purchase plans.
Until December 31, 2005, as permitted by SFAS No. 123, the Company accounted for share-based payments to employees using APB Opinion No. 25’s minimum value method and, as such, generally recognized no compensation cost for employee stock options. On January 1, 2006, the Company adopted SFAS No. 123(R) on a prospective transition basis as permissible under the standard.
Concentration of Credit Risk
Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company’s cash and cash equivalents are held at accredited financial institutions. For the Company’s accounts receivable, the Company performs ongoing credit evaluations of its customers’ financial condition, but does not require collateral. The Company continuously monitors collections from customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collections issues that the Company has identified. Historically, the Company has not experienced significant losses related to its accounts receivable. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
3. Acquisition
On April 7, 2006, the Company acquired all assets and certain liabilities of Adinfonitum, Inc, a full-service interactive marketing agency with headquarters in Bellevue, Washington. The acquisition extends the Company’s strategic marketing service capabilities while broadening the Company’s client base to include several west coast based clients including a large airline based in the Northwest. As part of the purchase agreement, the Company issued 440,000 shares of the Company’s common stock, the total consideration being $290,862.
The following represents the allocation of the purchase price:
Cash | $ | 24,818 | |||
Accounts receivable | 40,725 | ||||
Identified intangibles – customer lists | 186,898 | ||||
Fixed assets | 26,539 | ||||
Prepaid/deposits | 11,882 | ||||
Purchase price | $ | 290,862 |
The identifiable intangible asset is being amortized over the estimated useful life of four years, as it relates to customer relationships.
4. Subsequent Event
On February 13, 2008, GSI Commerce, Inc. (“GSI”) completed the acquisition of the Company. Pursuant to an Agreement and Plan of Merger dated as of January 23, 2008 among GSI, Dolphin Acquisition Corporation (“Newco”), a wholly-owned subsidiary of GSI, the Company, and the stockholders’ representative, Newco merged with the Company and the Company survived the merger as a wholly-owned subsidiary of GSI.