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EX-99.2 - EXHIBIT 99.2 - Meet Group, Inc.ex99-2.htm
8-K/A - FORM 8-K/A - Meet Group, Inc.meet20170119_8ka.htm

Exhibit 99.3

 

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial information has been prepared to illustrate the effects of the acquisition of Skout, Inc. (“Skout”) which closed on October 3, 2016. The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are directly attributable to the acquisition, factually supportable and, with respect to the statements of operations, expected to have a continuing impact on the results of operations.

 

        The unaudited pro forma condensed combined balance sheet is based on the individual historical balance sheet of MeetMe, Inc. (“MeetMe”) and Skout, as of September 30, 2016, and has been prepared to reflect the effects of the Skout acquisition as if it occurred on September 30, 2016. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 combine the historical results and operations of MeetMe and Skout giving effect to the acquisition as if it had occurred on January 1, 2015.

 

        The unaudited pro forma condensed combined statements of operations do not reflect future events that may occur after the completion of the acquisition, including, but not limited to, the anticipated realization of ongoing savings from operating synergies and certain one-time charges MeetMe expects to incur in connection with the acquisition, including, but not limited to, costs in connection with integrating the operations of Skout.

 

        These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the results that would actually have been obtained had the acquisition been completed on the assumed date or for the periods presented, or which may be realized in the future.

 

        To produce the pro forma financial information, Skout’s assets and liabilities were adjusted to their estimated fair values. As of the date of this filing, MeetMe has not completed the detailed valuation work necessary to arrive at the required estimate of the fair value of Skout’s assets acquired and liabilities assumed. Accordingly, the accompanying unaudited pro forma accounting for the business combination is preliminary and is subject to further adjustments as additional analyses are performed. The preliminary unaudited pro forma accounting for the business combination has been made solely for the purpose of preparing the accompanying unaudited pro forma condensed combined financial statements.

 

        There can be no assurance that such finalization will not result in material changes from the preliminary accounting for the Skout acquisition included in the accompanying unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements have been derived from and should be read in conjunction with:

 

the accompanying notes to the unaudited pro forma condensed combined financial statements;

 

MeetMe’s audited financial statements and related notes contained within MeetMe’s Annual Report on Form 10-K for the year ended December 31, 2015;

 

MeetMe’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 and

 

Skout’s consolidated financial statements filed within this Current report on Form 8-K/A.

 

 
1

 

 

MeetMe, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2016

(Unaudited)

 

   

Historical

MeetMe

   

Historical

Skout

   

Accounting Policies

and Reclassifications

   

Pro Forma Adjustments

(Note 4)

     

Pro Forma MeetMe Combined

 

Assets

                                         

Current assets:

                                         

Cash and cash equivalents

  $ 45,971,169     $ 2,857,438     $ -     $ (33,155,532 )

4a

  $ 15,673,075  

Accounts receivable, net

    13,526,976       4,031,219       -       -         17,558,195  

Prepaid expenses and other current assets

    809,824       404,557       -       -         1,214,381  

Total current assets

    60,307,969       7,293,214       -       (33,155,532 )       34,445,651  

Restricted cash

    -       393,261       -       -         393,261  

Goodwill

    70,646,036       -       -       41,906,345  

4b

    112,552,381  

Property and equipment, net

    2,112,352       398,954       -       -         2,511,306  

Intangible assets, net

    145,415       -       -       21,755,000  

4c

    21,900,415  

Deferred tax asset

    27,269,800       18,757               (18,757 )

4d

  $ 27,269,800  

Other assets

    122,441       -       -       -         122,441  

Total assets

  $ 160,604,013     $ 8,104,186     $ -     $ 30,487,056       $ 199,195,255  
                                           

LIABILITIES AND STOCKHOLDERS' EQUITY

                                         

Current liabilities:

                                         

Accounts payable

  $ 1,756,662     $ 1,077,037     $ -     $ -       $ 2,833,699  

Accrued liabilities

    3,518,135       66,320       -       3,787,567  

4e

    7,372,022  

Current portion of capital lease obligations

    271,389       -       -       -         271,389  

Deferred tax liability

    -       -       -       1,094,747  

4f

    1,094,747  

Deferred rent

    -       55,740       -       (55,740 )

4g

    -  

Deferred revenue

    296,080       96,310       -       92,756  

4h

    485,146  

Total current liabilities

    5,842,266       1,295,407       -       4,919,330         12,057,003  

Long-term capital lease obligations, less current portion, net

    18,901       -       -       -         18,901  

Total liabilities

    5,861,167       1,295,407       -       4,919,330         12,075,904  

Stockholders' Equity:

                                         

Preferred Stock

    -       25,391,824               (25,391,824 )

4i

  $ -  

Common stock

    54,225       1,608,098       (1,608,098 )     5,222  

4i

    59,447  

Stockholders' loans receivable

    -       (2,924,997 )     -       2,924,997  

4i

    -  

Additional paid-in capital

    318,465,808       2,119,682       1,608,098       28,643,503  

4i

    350,837,091  

Accumulated deficit

    (163,777,187 )     (19,386,159 )     -       19,386,159  

4i

    (163,777,187 )

Accumulated other comprehensive income

    -       331       -       (331 )

4i

    -  

Total stockholders' equity

    154,742,846       6,808,779       -       25,567,726         187,119,351  

Total liabilities and stockholders' equity

  $ 160,604,013     $ 8,104,186     $ -     $ 30,487,056       $ 199,195,255  

 

See accompanying notes to the unaudited pro forma condensed combined financial statement

 

 
2

 

 

MeetMe, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations 

For the nine months ended September 30, 2016

(Unaudited)

 

 

 

   

Historical

MeetMe

   

Historical

Skout

   

Pro Forma Adjustments

(Note 4)

     

Pro Forma

MeetMe Combined

 
                                   

Revenues

  $ 46,901,923     $ 19,519,838     $ -       $ 66,421,761  

Operating Costs and Expenses:

                                 

Sales and marketing

    8,776,029       6,237,156       -         15,013,185  

Product development and content

    17,730,610       5,791,350       -         23,521,960  

General and administrative

    6,431,486       3,378,191       -         9,809,677  

Depreciation and amortization

    2,266,642       386,249       1,859,062  

4j

    4,511,953  

Acquisition and restructuring costs

    1,628,126       4,746,932       (6,375,058 )

4k

    -  

Total Operating Costs and Expenses

    36,832,893       20,539,878       (4,515,996 )       52,856,775  

Income (Loss) from Operations

    10,069,030       (1,020,040 )     4,515,996         13,564,986  

Other Income (Expense):

                                 

Interest income

    18,697       25,663       -         44,360  

Interest expense

    (16,228 )     -       -         (16,228 )

Change in warrant liability

    (864,596 )     -       -         (864,596 )

Gain on cumulative foreign currency translation adjustment

    33,347       -       -         33,347  

Foreign exchange loss

    -       8,117       -         8,117  

Other, net

    -       83,141       -         83,141  

Total Other (Expense) Income

    (828,780 )     116,921       -         (711,859 )

Income (Loss) before Benefit (Provision) for Income Taxes

    9,240,250       (903,119 )     4,515,996         12,853,127  

Benefit (provision) for income taxes

    27,125,446       (33,187 )     (1,535,439 )

4l

    25,556,820  

Net Income (Loss)

  $ 36,365,696     $ (936,306 )   $ 2,980,557       $ 38,409,947  
                                   
                                   

Basic net income per share

  $ 0.73                       $ 0.71  

Shares used in computing basic net income per share

    49,649,221               4,685,340  

4m

    54,334,561  

Diluted net income per share

  $ 0.65                       $ 0.64  

Shares used in computing diluted net income per share

    55,604,866               4,685,340  

4m

    60,290,206  

 

See the accompanying notes to the unaudited pro forma condensed combined financial information

 

 
3

 

 

MeetMe, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations 

For the year ended December 31, 2015 

(Unaudtied)

 

   

Historical

MeetMe

   

Historical

Skout

   

Pro Forma Adjustments

(Note 4)

     

Pro Forma

MeetMe Combined

 
                                   

Revenues

  $ 56,903,773     $ 23,785,739     $ -       $ 80,689,512  

Operating Costs and Expenses:

                                 

Sales and marketing

    6,618,837       11,734,479       -         18,353,316  

Product development and content

    24,615,304       7,346,121       -         31,961,425  

General and administrative

    14,534,861       6,728,634       -         21,263,495  

Depreciation and amortization

    3,140,205       502,997       3,685,942  

4j

    7,329,144  

Total Operating Costs and Expenses

    48,909,207       26,312,231       3,685,942         78,907,380  

Income (Loss) from Operations

    7,994,566       (2,526,492 )     (3,685,942 )       1,782,132  

Other Income (Expense):

                                 

Interest income

    21,037       31,989       -         53,026  

Interest expense

    (459,962 )     -       -         (459,962 )

Change in warrant liability

    (616,607 )     -       -         (616,607 )

Loss on cumulative foreign currency translation adjustment

    (856,438 )     -       -         (856,438 )

Foreign exchange loss

    -       (16,492 )     -         (16,492 )

Gain on sale of asset

    163,333       -       -         163,333  

Other, net

    -       21,045       -         21,045  

Total Other (Expense) Income

    (1,748,637 )     36,542       -         (1,712,095 )

Income (Loss) before Provision for Income Taxes

    6,245,929       (2,489,950 )     (3,685,942 )       70,037  

Provision for income taxes

    (276,301 )     (4,648 )     1,253,220  

4l

    972,271  

Net Income (Loss)

  $ 5,969,628     $ (2,494,598 )   $ (2,432,722 )     $ 1,042,308  
                                   
                                   

Basic net income per share

  $ 0.13                       $ 0.02  

Shares used in computing basic net income per share

    45,419,175               4,685,340  

4m

    50,104,515  

Diluted net income per share

  $ 0.12                       $ 0.02  

Shares used in computing diluted net income per share

    49,535,826               4,685,340  

4m

    54,221,166  

 

See the accompanying notes to the unaudited pro forma condensed combined financial information

 

 
4

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1. BACKGROUND

 

On June 27, 2016, MeetMe, Inc., and its wholly-owned subsidiaries, MeetMe Sub I, Inc., a Delaware corporation, and MeetMe Sub II, LLC, a Delaware limited Liability Corporation, (together, “MeetMe”) entered into a Merger agreement with Skout, Inc. (“Skout”), a California corporation, pursuant to which MeetMe agreed to acquire 100% of the issued and outstanding shares of common stock of Skout for total consideration of $33.2 million in cash and 5,222,017 shares of MeetMe common stock. The transaction closed October 3, 2016.

 

On October 3, 2016, in connection with the closing of the Skout acquisition, the Company’s Board of Directors adopted the 2016 Inducement Omnibus Incentive Plan in accordance with NASDAQ Listing Rule 5635(c)(4). At the closing of the Skout acquisition, the Company granted stock options to purchase an aggregate of up to 340,000 shares of its common stock to 24 former Skout employees as an inducement material to becoming non-executive employees of the Company.

 

2. BASIS OF PRESENTATION

 

        The unaudited pro forma condensed combined financial statements were prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") and pursuant to U.S. Securities and Exchange Commission Regulation S-X Article 11, and present the pro forma financial position and results of operations of the combined companies based upon the historical information after giving effect to the acquisition and adjustments described in these footnotes. The unaudited pro forma condensed combined balance sheet is presented as if the acquisition had occurred on September 30, 2016, and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 are presented as if the acquisition had occurred on January 1, 2015.

 

        The historical results of MeetMe and Skout have been derived from their respective audited financial statements for the year ended December 31, 2015. The historical results of MeetMe and Skout as of and for the nine months ended September 30, 2016 have been derived from unaudited financial information.

 

        The unaudited pro forma condensed combined financial information does not reflect pro forma adjustments for ongoing cost savings that MeetMe expects to and/or have achieved as a result of the acquisition or the costs necessary to achieve these costs savings or synergies.

 

 

3. PRELIMINARY CONSIDERATION TRANSFERRED AND PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

        

        The acquisition has been reflected in the unaudited pro forma condensed combined financial statements as being accounted for under the acquisition method in accordance with ASC 805, Business Combinations (“ASC 805”) with MeetMe treated as the accounting acquirer. In accordance with ASC 805, the assets acquired and the liabilities assumed have been measured at fair value based on various preliminary estimates. Due to the fact that the unaudited pro forma condensed combined financial information has been prepared based on preliminary estimates, the final amounts recorded for the acquisition may differ materially from the information presented herein. These estimates are subject to change pending further review of the fair value of assets acquired and liabilities assumed. In addition, ASC 805 establishes that the common stock issued to effect the acquisition be measured at the close of the transaction at the then-current market price.

 

        For purposes of measuring the estimated fair value, where applicable, of the assets acquired and the liabilities assumed as reflected in the unaudited pro forma condensed combined financial information, the guidance in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) has been applied, which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Under ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.

 

 
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The following is a summary of the preliminary estimate of consideration transferred:

 

Cash consideration

  $ 33,155,532  

Fair value of MeetMe Stock issued

    32,376,505  

Total consideration

  $ 65,532,037  

 

 

        Management has made preliminary allocation estimates based on currently available information. The final determination of the accounting for the business combination is anticipated to be completed as soon as practicable. Management anticipates that the valuations of the acquired assets and liabilities will be determined using discounted cash flow analyses and other appropriate valuation techniques to determine the fair value of the assets acquired and liabilities assumed. In addition, management is still completing its analysis of deferred income taxes to be recorded in the transaction. The amounts allocated to the assets acquired and liabilities assumed could differ materially from the preliminary amounts presented in these unaudited pro forma condensed combined financial statements.

 

The following is a preliminary purchase price allocation as of the October 3, 2016 acquisition date:

 

Total estimated consideration transferred

  $ 65,532,037  

Working capital

    2,755,551  

Property and equipment

    398,954  

Intangible assets

    21,755,000  

Deferred tax liability

    (1,094,747 )

Deferred revenue

    (189,066 )

Net assets acquired

  $ 23,625,692  

Goodwill

  $ 41,906,345  

 

4. PRO FORMA ADJUSTMENTS

 

        The preliminary pro forma adjustments included in the unaudited pro forma condensed combined financial statements related to the acquisition are as follows:

 

(a)Cash and cash equivalents—Adjustment reflects the preliminary net adjustment to cash in connection with the acquisition.

 

(b)Goodwill—Adjustment reflects the preliminary estimated adjustment to goodwill as a result of the acquisition. Goodwill represents the excess of the consideration transferred over the preliminary fair value of the assets acquired and liabilities assumed described in Note 3. The goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment exists. In the event management determines that the value of goodwill has become impaired, MeetMe will incur an accounting charge for the amount of the impairment during the period in which the determination is made. The goodwill is attributable primarily to strategic and synergistic opportunities and is not deductible for tax purposes.

 

The preliminary pro forma adjustment to goodwill is calculated as follows:

 

Consideration transferred

  $ 65,532,037  

Less: Fair value of net assets to be acquired

    23,625,692  

Pro forma adjustment - goodwill

  $ 41,906,345  

 

 
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(c)Intangible assets, net—Adjustment reflects the preliminary fair value related to the identifiable intangible assets acquired in the acquisition. The preliminary fair value of the Skout trademark was determined using an income approach, the preliminary fair value of software acquired, which represents the primary platform on which the Skout Apps operate, was determined using a cost approach and the preliminary fair value of customer relationships was determined using an excess earnings approach. The preliminary amounts assigned to the identifiable intangible assets are as follows:

 

Intangible assets

 

Preliminary fair

value

 

         

Skout Trademark

  $ 10,870,000  

Software

  $ 2,500,000  

Customer Relationships

  $ 8,385,000  

Pro forma adjustment - intangibles

  $ 21,755,000  

 

(d)Deferred tax asset—Adjustment reflects the write-off of Skout’s deferred tax asset for its foreign operation. Adjustments related to deferred tax assets and/or liabilities to be recorded in purchase accounting, tax uncertainties, valuation allowances and other matters are not included in these pro forma financial statements, as management is still completing its analysis of such amounts. These adjustments will be reflected as necessary in the Company’s purchase price allocation, to be completed in connection with the preparation of the Company’s December 31, 2016 financial statements.

 

(e)Accrued liabilities – Adjustment reflects the accrual of consulting agreement payments and related bonuses payable to the Sellers. These adjustments will be reflected as necessary in the Company’s purchase price allocation, to be completed in connection with the preparation of the Company’s December 31, 2016 financial statements.

 

(f)Deferred tax liability — Adjustment reflects the potential tax liability related to the fair value of intangible assets acquired. Adjustments related to deferred tax assets and/or liabilities to be recorded in purchase accounting, tax uncertainties, valuation allowances and other matters are not included in these pro forma financial statements, as management is still completing its analysis of such amounts. These adjustments will be reflected as necessary in the Company’s purchase price allocation, to be completed in connection with the preparation of the Company’s December 31, 2016 financial statements.

 

(g)Deferred rent—Adjustment reflects the write-off of Skout’s deferred rent balance.

 

(h)Deferred revenue—Adjustment reflects the fair value adjustment related to deferred revenue.

 

(i) The adjustments to equity consist of the following components:

 

Additional paid-in capital and common stock related to the issuance of common stock of MeetMe to Skout stockholders as merger consideration

  $ 32,376,505  

Less: Skout historical equity amounts

    (6,808,779 )

Pro forma adjustment - equity

  $ 25,567,726  

 

(j)Depreciation and amortization—Reflects the preliminary adjustment to the amortization expense associated with the fair value of the identifiable intangible asset acquired in the acquisition. The preliminary pro forma adjustment for amortization expense for the intangible assets acquired is as follows:

 

Intangible assets

Estimated useful life

(months)

 

Preliminary fair

value

   

Amortization expense

for the year

ended

December 31, 2015

   

Amortization expense

for the nine months

ended

September 30, 2016

 
                           

Skout Trademark

N/A - indefinite lived

  $ 10,870,000     $ -     $ -  

Software

12 months

    2,500,000       2,500,000       -  

Customer Relationships

120 months

    8,385,000       1,185,942       1,859,062  

Pro forma adjustment - amortization expense

  $ 21,755,000     $ 3,685,942     $ 1,859,062  

 

 

The estimated fair value of the software amortizable intangible asset is expected to be amortized on a straight-line basis over the estimated useful life of the intangible asset, which is one year, and the estimated fair value of the customer relationship intangible asset is expected to be amortized using an accelerated method over the estimated period of material economic benefit of the customer relationship intangible asset. The indefinite-lived Skout trademark will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment exists.

 

 
7

 

 

(k) Acquisition and restructuring costs—An adjustment of $6.4 million for the nine months ended September 30, 2016 reflects the removal of transaction costs incurred by MeetMe and Skout related to the acquisition. Of this amount, MeetMe incurred $1.6 million and Skout incurred $4.7 million related to the acquisition. These expenses are directly attributable to the acquisition and not expected to have a continuing impact on the Company, and therefore have been removed for the purposes of the pro forma statements of operations. No adjustment for transaction costs was made for the year ended December 31, 2015.

 

(l)Income tax expense (benefit)—Adjustment reflects the income tax impacts of the pro forma adjustments made to the pro forma statement of operations using the U.S. statutory rate of 34%.

 

(m)Basic and diluted net income per share—The unaudited pro forma adjustment to shares outstanding used in the calculation of basic and diluted net income per share has been adjusted to include those shares issued in the transaction, less shares held in escrow.

 

 

8