CONVERSANT, INC. - FORM 8-K/A - EX-99.3 - EXHIBIT 99.3

Attached files

file	filename
8-K/A - FORM 8-K/A - CONVERSANT, INC.	a2011q408ka.htm
EX-23.1 - EXHIBIT 23.1 - CONVERSANT, INC.	a2011q408kadotomifs_ex231.htm
EX-99.2 - EXHIBIT 99.2 - CONVERSANT, INC.	a2011q408kadotomifs_ex992.htm
EX-23.2 - EXHIBIT 23.2 - CONVERSANT, INC.	a2011q408kadotomifs_ex232.htm
EX-99.1 - EXHIBIT 99.1 - CONVERSANT, INC.	a2011q408kadotomifs_ex991.htm
EX-99.4 - EXHIBIT 99.4 - CONVERSANT, INC.	a2011q408kadotomifs_ex994.htm

Exhibit 99.3

DOTOMI, INC. AND SUBSIDIARY

Consolidated Financial Statements

As of and for the Six-Month Periods Ended June 30, 2011 and 2010

DOTOMI, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2011

TABLE OF CONTENTS



		Page

CONSOLIDATED BALANCE SHEETS
As of June 30, 2011 (unaudited) and December 31, 2010		1 - 2

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Six-Month Periods Ended June 30, 2011 and 2010		3

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six-Month Periods Ended June 30, 2011 and 2010		4

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		5 - 7



DOTOMI, INC. AND SUBSIDIARY
Consolidated Balance Sheets

Assets

		June 30, 2011 (Unaudited)		December 31, 2010
Current assets:
	Cash	$	20,785,103	$	15,456,128
	Restricted cash	40,134		40,055
	Accounts receivable, (net of allowance for doubtful accounts of $283,841 and $371,647, respectively)	12,385,976		14,993,536
	Prepaid expenses and other current assets	348,065		223,458
	Deferred income taxes	442,303		111,387
	Total current assets	34,001,581		30,824,564

Noncurrent assets:
	Restricted cash	120,000		120,000
	Property and equipment, net	4,597,225		3,687,518
	Deferred income taxes	1,284,051		1,766,486
	Note receivable – related party	161,928		161,928
	Total noncurrent assets	6,163,204		5,735,932
	Total assets	$	40,164,785	$	36,560,496

See accompanying notes to consolidated financial statements (unaudited).

(Continued)



DOTOMI, INC. AND SUBSIDIARY
Consolidated Balance Sheets

Liabilities

		June 30, 2011 (Unaudited)		December 31, 2010
Current liabilities:
	Accounts payable	$	2,010,582	$	2,480,717
	Accrued expenses	4,329,861		6,278,008
	Accrued income taxes	827,596		2,240,643
	Total current liabilities	7,168,039		10,999,368

Non-current liabilities:
	Deferred rent	256,418		305,870
	Total non-current liabilities	256,418		305,870
	Total liabilities	7,424,457		11,305,238

Stockholders' equity
	Series D Convertible Preferred Stock - $.001 par value; Authorized - 9,750,000 shares; Issued and outstanding - 9,708,000 (Liquidation preference of $9,708,000)	9,708		9,708
	Series C Convertible Preferred Stock; $.001 par value; Authorized - 5,072,752 shares; Issued and outstanding - 5,072,750 (Liquidation preference of $10,652,772)	5,073		5,073
	Series B Convertible Preferred Stock - $.001 par value; Authorized - 2,857,952 shares; Issued and outstanding - 2,857,952; (Liquidation preference of $5,050,000)	2,858		2,858
	Series A-2 Convertible Preferred Stock - $.001 par value; Authorized - 789,960 shares; Issued - 789,960; Outstanding - 474,358 (Liquidation preference of $360,000)	789		789
	Series A-1 Convertible Preferred Stock - $.001 par value; Authorized - 313,055 shares; Issued - 313,055; Outstanding - 81,833 (Liquidation preference of $150,000)	313		313
	Common stock - $.001 par value; Authorized - 40,000,000 shares; Issued and Outstanding as of June 30, 2011 and December 31, 2010 - 11,477,140	11,477		11,477
	Additional paid-in capital	27,998,984		27,800,447
	Accumulated earnings (deficit)	5,424,013		(1,868,145		)
		33,453,215		25,962,520
	Less: Treasury stock, at cost	712,887		707,262
	Total stockholders' equity	32,740,328		25,255,258
	Total liabilities and stockholders' equity	$	40,164,785	$	36,560,496

See accompanying notes to consolidated financial statements (unaudited).



DOTOMI, INC. AND SUBSIDIARY
Consolidated Statements of Income
As of and for the Six-Month Periods Ended June 30, 2011 and 2010
(Unaudited)

		2011		2010
Revenues		$	34,935,092	$	17,906,884
Cost of revenues		8,839,633		4,691,560
	Gross profit	26,095,459		13,215,324

Operating expenses:
	General and administrative	4,452,809		2,734,388
	Selling and marketing	4,655,551		3,631,259
	Operations	3,072,134		1,947,365
	Research and development	2,577,120		1,468,064
		14,757,614		9,781,076
	Income from operations	11,337,845		3,434,248

	Other income (expense)	285		(128		)
	Income before income tax expense	11,338,130		3,434,120
Income tax expense		4,045,973		2,214,968
	Net income	$	7,292,157	$	1,219,152


See accompanying notes to consolidated financial statements (unaudited).



DOTOMI, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
As of and for the Six-Month Periods Ended June 30, 2011 and 2010
(Unaudited)

				2011			2010
Cash flows from operating activities:
	Net income			$	7,292,157		$	1,219,152
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation		767,874			479,759
		Allowance for doubtful accounts		(87,806		)	(100,005		)
		Stock-based compensation		186,251			89,411
		Deferred income taxes		151,518			1,418,709
		Changes in operating assets and liabilities:
			Accounts receivable	2,695,366			1,425,579
			Other current assets	(124,605		)	70,522
			Accounts payable	(470,135		)	(542,783		)
			Accrued expenses	(1,607,586		)	106,689
			Accrued income taxes	(1,413,047		)	609,644
			Employee and payroll accruals	(340,561		)	(256,884		)
			Other long term liabilities	(49,452		)	(47,238		)
			Net cash provided by operating activities	6,999,974			4,472,555

Cash flows from investing activities:
	Increase in restricted cash			(79		)	(102		)
	Purchases of property and equipment			(1,677,581		)	(499,010		)
			Net cash used in investing activities	(1,677,660		)	(499,112		)

Cash flows from financing activities:
	Proceeds from exercise of common stock options			12,286			11,637
	Purchase of treasury stock			(5,625		)	(4,890		)
			Net cash provided by financing activities	6,661			6,747
			Net change in cash	5,328,975			3,980,190
Cash – beginning of year				15,456,128			7,946,782
Cash – end of year				$	20,785,103		$	11,926,972

See accompanying notes to the consolidated financial statements (unaudited).


(1)	Description of Business and Summary of Significant Accounting Policies


(a)	Description of Business

Dotomi, Inc. (the Parent) was incorporated in June 2000 as a Delaware Corporation. The Company provides a platform for marketing relationships between their customers and consumers through the web.

Dotomi, Inc. offers personalized media programs to multi-channel retailers, travel aggregators and financial services firms. The Company provides site-based remarketing, database acquisition and retention programs, campaign management, creative design, and performance analysis services. The turnkey approach allows decisions such as the banner creative and media placement to be determined in real time at the user and impression level. By making every online impression unique, the end consumers enjoy more meaningful advertisements and advertisers benefit from higher returns.

Dotomi Ltd. (the Subsidiary) is a wholly owned Israeli subsidiary of Dotomi, Inc. Dotomi Ltd. commenced operations in 2000 and is primarily engaged in research and development activities.


(b)	Principles of Consolidation

The consolidated financial statements include the accounts of the Parent and the Subsidiary (collectively referred to as the Company). All significant intercompany balances and transactions have been eliminated in the consolidation.


(c)	Management Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates include, but are not limited to, the allowance for doubtful accounts, and deferred tax valuation allowance. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. Accounting estimates used in the preparation of these consolidated financial statements change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes.


(2)	Recently Issued Accounting Standards

In May 2011, the Financial Accounting Standards Board ("FASB") issued new accounting guidance that amends some fair value measurement principles and disclosure requirements. The new guidance states that the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets and prohibits the grouping of financial instruments for purposes of determining their fair values when the unit of account is specified in other guidance. The Company will adopt this accounting standard upon its effective date for periods ending on or after December 15, 2011, and does not anticipate that this adoption will have a significant impact on its financial position or results of operations.


(3)	Property and Equipment

Property and equipment consists of the following as of June 30, 2011 and December 31, 2010:



	June 30, 2011		December 31, 2010
Computers, equipment and software	$	6,954,656	$	5,348,575
Furniture and fixtures	89,474		75,837
Leasehold improvements	538,344		480,481
	7,582,474		5,904,893
Less accumulated depreciation	2,985,249		2,217,375
	$	4,597,225	$	3,687,518

Depreciation expense for the six-month periods ended June 30, 2011 and 2010 was $767,874 and $479,759, respectively.


(4)	Related Party Transactions

The Company loaned an employee $38,668 in December 2009. The note is due at the earlier of the employee's termination for any reason from the Company, the occurrence of a change of control transaction as defined in the employee's related restricted stock agreement, or December 17, 2019. The note bears interest, compounded annually at 4.14%. The note is secured by 650,000 shares of common stock.

The Company loaned an employee $120,000 in September 2010. The note is due at the earlier of the employee's termination for any reason from the Company, the occurrence of change of control transaction as defined in the employee's related restricted stock agreement, or August 25, 2020. The note bears interest, compounded annually at 3.79%. The note is secured by 1,050,000 shares of common stock.

The notes are reported as “Note receivable - related party” on the consolidated balance sheets.

Total interest income accrued for the six-month periods ended June 30, 2011 and 2010 was $6,468 and $870, respectively.


(5)	Stockholders' Equity

Treasury Stock

During the first half of 2010, the Company purchased 61,468 shares of its common stock for cash consideration in the amount of $4,890. During the first half of 2011, the Company purchased 62,500 shares of its common stock for cash consideration in the amount of $5,625.


(6)	Share-Based Compensation

In the six-month periods ended June 30, 2011 and 2010, the Company recognized stock-based compensation of $186,253 and $89,411, respectively, and is reflected in general and administrative expense on the accompanying consolidated statements of income.


(7)	Contingencies and Other Commitments

Litigation

In the normal course of business, the Company is a party to various matters involving disputes and/or litigation. While it is not possible at this time to determine the ultimate outcome of these matters, management believes that the ultimate liability, if any, will not be material to the consolidated financial statements.


(8)	Income Taxes

The Company recorded income tax expense of $4.0 million, which represents a 36% effective income tax rate at June 30, 2011, compared to income tax expense of $2.2 million, a 64% effective income tax rate at June 30, 2010. In 2010, the Company recorded additional expense due to a correction in state rate changes and prior year corrections to the return.

As of December 31, 2010, the Company had recorded a liability of $0.2 million for unrecognized tax benefits. During the six-month periods ended June 30, 2011, the Company's liability for unrecognized tax benefits did not change materially as a result of income tax positions taken during the period, resulting in a total liability for unrecognized tax benefits at June 30, 2011 of $0.2 million. If recognized in future periods, this liability for unrecognized tax benefits would be recorded as a reduction to income tax expense. Facts and circumstances could arise in the twelve-month period following June 30, 2011 that could cause the Company to reduce the liability for unrecognized tax benefits, including, but not limited to, settlement of income tax positions or

expiration of the statutes of limitations. Because the ultimate resolution of uncertain tax positions depends on many factors and assumptions, the Company is not able to estimate the range of potential changes in the liability for unrecognized tax benefits or the timing of such changes.

The Company's policy is to recognize interest and penalties expense, if any, related to unrecognized tax benefits as a component of income tax expense.

The subsidiary is currently engaged in discussions with the Israeli Tax Authorities for a potential tax assessment attributable to intercompany transactions that occurred during the years 2000 through 2004. The Company is contesting the proposed income allocations and is in the process of a competent authority proceeding under the United States/Israel Income Tax treaty. At this time, the Company is not able to assess the likely outcome of the competent authority proceeding and whether the ultimate outcome could have a material effect on the consolidated financial statements.


(9)	Concentrations

During the six months ended June 30, 2011 and 2010, the Company provided a substantial portion of its services to three customers. Services provided to these customers, in the aggregate, represented approximately 39% and 33%, respectively, of the Company's total revenues for the six months ended June 30, 2011 and 2010. Amounts included in accounts receivable relating to these customers totaled approximately $4,608,951 and $1,637,085, respectively, as of June 30, 2011 and 2010.


(10)	Subsequent Events

The Company's management has evaluated all known subsequent events from the date of the balance sheet through November 9, 2011, the date the consolidated financial statements were available to be issued.

On August 31, 2011, ValueClick, Inc. ("ValueClick") acquired all outstanding equity interests in Dotomi. Under the terms of the merger agreement, ValueClick acquired all outstanding equity interests in Dotomi for an aggregate purchase price of approximately $264 million, consisting of cash, net of cash acquired, of approximately $148 million, and approximately 7.6 million shares of ValueClick common stock (including approximately 0.5 million fully vested stock options assumed) with an aggregate value on August 31, 2011 of approximately $116 million. In addition, ValueClick assumed approximately 0.4 million unvested shares of restricted stock and 0.5 million unvested options to purchase shares of ValueClick common stock.

CONVERSANT, INC. - FORM 8-K/A - EX-99.3 - EXHIBIT 99.3 - November 9, 2011

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