-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AAwn5kH7LCJ9a3VYip65slxGuEO8QNXmxr48OGYq560tDEXf8pvr1vbgSNBHxeVW Tkmnf8mG+mqoT54BTt/2Cw== 0001144204-06-045029.txt : 20061102 0001144204-06-045029.hdr.sgml : 20061102 20061102171138 ACCESSION NUMBER: 0001144204-06-045029 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060817 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20061102 DATE AS OF CHANGE: 20061102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APTIMUS INC CENTRAL INDEX KEY: 0001087277 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 911809146 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27065 FILM NUMBER: 061183691 BUSINESS ADDRESS: STREET 1: 100 SPEAR STREET STREET 2: STE 1115 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4158962123 MAIL ADDRESS: STREET 1: 100 SPEAR STREET STREET 2: STE 1115 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 FORMER COMPANY: FORMER CONFORMED NAME: FREESHOP COM INC DATE OF NAME CHANGE: 19990525 8-K/A 1 v056260_8ka.htm Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported)
 
August 17, 2006
 

APTIMUS, INC.
(Exact name of registrant as specified in its charter)
 
Washington
 
0-27065
 
91-1809146
(State or other jurisdiction of
 
(Commission File Number)
 
(IRS Employer
incorporation)
 
 
 
Identification No.)
 
100 Spear Street, Suite #1115
San Francisco, CA 94105
(Address of principal executive offices, including zip code)
 
(415) 896-2123
(Registrant’s telephone number, including area code)
 
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 

 
Item 2.01 - Completion of Acquisition or Disposition of Assets.
 
Pursuant to the Asset Purchase Agreement between Aptimus, Inc. (“Aptimus”), High Voltage Interactive, Inc. (High Voltage) and the sole shareholder of High Voltage, Paul Epstein, dated August 17, 2006, wherein, Aptimus, through its wholly-owned subsidiary High Voltage Interactive LLC, acquired substantially all of the assets and assumed certain enumerated liabilities of High Voltage. Aptimus evaluated and concluded the property acquisition described in this report requires the filing of financial statements of the acquired properties under Rule 3-05(b) of Regulation S-X.
 
This Current Report on Form 8-K/A amends and supplements the Current Report on Form 8-K filed by the Aptimus on August 22, 2006 and is being filed to provide the financial statements and pro forma financial information described in Item 9.01 below. The financial statements and information are filed as Exhibits 99.1 and 99.2 to this Form 8-K/A.
 
Item 9.01.  Financial Statements and Exhibits.
 
(a)
Financial Statements of Business Acquired
 
The audited financial statements as of December 31, 2005 and 2004 and for the years then ended, and the unaudited condensed financial statements as of June 30, 2006 and the six months ended June 30, 2006 and 2005 are attached as Exhibit 99.1 hereto and incorporated in their entirety herein by reference.
 
(b)
Unaudited Pro Forma Financial Information
 
The unaudited pro forma financial information as of June 30, 2006 and the six months then ended and the unaudited pro forma financial information for the year ended December 31, 2005 are attached as Exhibit 99.2 hereto and incorporated in their entirety herein by reference.
 
(c)
Shell Company Transactions
 
Not applicable.
 
(d)
Exhibits
 
Exhibit No.
 
Description
     
23.1
 
Consent of Independent Auditor, with respect to the financial statements of High Voltage Interactive, Inc.
 
 
 
99.1
 
Audited financial statements as of December 31, 2005 and 2004 and for the years then ended, and the unaudited condensed financial statements as of June 30, 2006 and the six months ended June 30, 2006 and 2005.
     
99.2
 
Unaudited pro forma financial information as of June 30, 2006 and the six months then ended and the unaudited pro forma financial information for the year ended December 31, 2005.


 
2

 

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
APTIMUS, INC.
 
 
 
 
 
 
 
 
By:
 /s/ JOHN A. WADE
 
 
 
 
John A. Wade
Chief Financial Officer
 
 
 
 
Date:  November 2, 2006
 
3

 
EXHIBIT INDEX
Exhibit No.
 
Description
     
23.1
 
Consent of Independent Auditor, with respect to the financial statements of High Voltage Interactive, Inc.
 
 
 
99.1
 
Audited financial statements as of December 31, 2005 and 2004 and for the years then ended, and the unaudited condensed financial statements as of June 30, 2006 and the six months ended June 30, 2006 and 2005.
     
99.2
 
Unaudited pro forma financial information as of June 30, 2006 and the six months then ended and the unaudited pro forma financial information for the year ended December 31, 2005.

 


 
EX-23.1 2 v056260_ex23-1.htm Unassociated Document


EXHIBIT 23.1
 
CONSENT OF INDEPENDENT AUDITOR
 


We consent to the incorporation by reference in the Registration Statements (Nos. 333-124403 and 333-114089) on Form S-3 and (Nos. 333-88074, 333-45854, and 333-92379) on Form S-8 of our report dated November 1, 2006, relating to the financial statements of High Voltage Interactive, Inc. as of and for the years ended December 31, 2005 and 2004 appearing in this Amendment No. 1 to Form 8-K of Aptimus, Inc..
 
 
/s/ Moss Adams LLP
 
San Francisco, California
November 1, 2006

EX-99.1 3 v056260_ex99-1.htm Unassociated Document
Exhibit 99.1


HIGH VOLTAGE INTERACTIVE, INC.
INDEPENDENT AUDITOR’S REPORT
AND
FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 2005 AND 2004
 
1

 
INDEX TO FINANCIAL STATEMENTS

High Voltage Interactive, Inc.
Financial Statements
 

 
Page
Independent Auditor’s Report
1
Balance Sheets as of June 30, 2006 (unaudited), December 31, 2005 and 2004
2
Statements of Operations for the six months ended June 30, 2006 and 2005 (unaudited) and the years ended December 31, 2005 and 2004
3
Statements of Shareholders' Equity for the six months ended June 30, 2006 (unaudited) and the years ended December 31, 2005 and 2004
4
Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (unaudited) and the years ended December 31, 2005 and 2004
5
Notes to Financial Statements
6

2

 
INDEPENDENT AUDITOR’S REPORT

To the Board of Directors of Aptimus, Inc. and the Shareholder of
High Voltage Interactive, Inc.
 
We have audited the accompanying balance sheets of High Voltage Interactive, Inc. (“the Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholder’s equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of High Voltage Interactive, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
As discussed in Note 12 to the financial statements, on August 17, 2006 substantially all of the Company’s assets were acquired by Aptimus, Inc.

/s/ Moss Adams LLP
San Francisco, California
November 1, 2006

1

 
HIGH VOLTAGE INTERACTIVE, INC.
 
BALANCE SHEETS
(in thousands)
 
   
June 30
 
December 31,
 
   
2006
 
2005
 
2004
 
   
(Unaudited)
 
 
     
ASSETS              
Cash and cash equivalents
 
$
347
 
$
132
 
$
46
 
Accounts receivable, net
   
2,483
   
1,521
   
1,052
 
Prepaid expenses and other assets
   
34
   
34
   
2
 
Marketable securities
   
   
612
   
 
Total current assets
   
2,864
   
2,299
   
1,100
 
Fixed assets, net
   
47
   
39
   
20
 
Deposits
   
3
   
3
   
2
 
Total assets
 
$
2,914
 
$
2,341
 
$
1,122
 
LIABILITIES AND SHAREHOLDER’S EQUITY
                   
Accounts payable
 
$
1,991
 
$
1,079
 
$
739
 
Accrued and other liabilities
   
268
   
249
   
77
 
Notes payable
   
145
   
145
   
45
 
Notes payable - shareholder
   
   
   
6
 
Total current liabilities
   
2,404
   
1,473
   
867
 
Commitments and contingencies (note 8)
                   
Shareholder’s equity:                    
Common stock, no par value; 10,000 shares authorized, 9,000 issued and outstanding at June 30, 2006 (unaudited), December 31, 2005 and 2004
   
23
   
23
   
23
 
Retained earnings
   
487
   
845
   
232
 
Total shareholder’s equity
   
510
   
868
   
255
 
Total liabilities and shareholder’s equity
 
$
2,914
 
$
2,341
 
$
1,122
 
 
The accompanying notes are an integral part of these financial statements.

2


HIGH VOLTAGE INTERACTIVE, INC.

STATEMENTS OF OPERATIONS
(in thousands)
 

   
Six-months
ended June 30,
 
Six-months
ended June 30,
 
Year ended December 31,
 
   
2006
 
2005
 
2005
 
2004
 
   
(Unaudited)
 
(Unaudited)
         
Revenues
 
$
5,818
  $ 3,843  
$
7,853
 
$
2,852
 
Operating expenses:
                         
Cost of revenues
   
4,005
    2,194    
4,824
   
1,847
 
Sales and marketing
   
693
    485    
1,266
   
459
 
Connectivity and network costs
   
123
    21    
71
   
125
 
Research and development
   
203
    163    
352
   
32
 
General and administrative
   
252
    229    
479
   
187
 
Depreciation and amortization
   
11
    12    
13
   
3
 
Total operating expenses
   
5,287
    3,104    
7,005
   
2,653
 
Operating income
   
531
    739    
848
   
199
 
Interest expense
   
(6
  (2 )   
(4
)  
(4
)
Interest income
   
5
    3    
12
   
 
Income before income taxes
   
530
    740    
856
   
195
 
Provision for income taxes
   
(8
)   (14 )  
(13
)  
(3
)
Net income
 
$
522
  $ 726  
$
843
 
$
192
 
 
The accompanying notes are an integral part of these financial statements.
 
3


HIGH VOLTAGE INTERACTIVE, INC.

STATEMENTS OF SHAREHOLDER’S EQUITY
(in thousands)

           
Total
 
   
Common Stock 
 
Retained
 
Shareholder’s
 
   
Shares 
 
Amount
 
Earnings
 
Equity
 
Balance on December 31, 2003
   
9,000
 
$
23
 
$
40
 
$
63
 
Net income
   
   
   
192
   
192
 
Balance on December 31, 2004
   
9,000
   
23
   
232
   
255
 
Net income
   
   
   
843
   
843
 
Distributions
   
   
   
(230
)
 
(230
)
Balance on December 31, 2005
   
9,000
   
23
   
845
   
868
 
Net income (unaudited)
   
   
   
522
   
522
 
Distributions (unaudited)
   
   
   
(880
)
 
(880
)
Balance on June 30, 2006 (unaudited)
   
9,000
 
$
23
 
$
487
 
$
510
 

The accompanying notes are an integral part of these financial statements.

4


HIGH VOLTAGE INTERACTIVE, INC.

STATEMENTS OF CASH FLOWS
(in thousands)

 
 
   
Six months
ended June 30, 
 
Six months
ended June 30,
 
Year ended December 31, 
 
   
2006 
 
 2005
 
2005 
 
2004 
 
   
(Unaudited)
 
(Unaudited)
         
                   
Cash flows from operating activities                     
Net income
 
$
 
 
 
522
  $ 726  
$
843
 
$
192
 
Adjustments to reconcile net income to net cash provided by operating activities:
                         
Depreciation and amortization
   
11
    12    
13
   
3
 
Bad debt expense
   
17
       
17
   
2
 
Changes in assets and liabilities:
                         
Accounts receivable
   
(979
)
  (432 )  
(486
)
 
(641
)
Prepaid expenses and other assets
   
    2    
(33
)
 
(4
)
Accounts payable
   
912
    516    
340
   
738
 
Accrued and other liabilities
   
19
    107    
172
   
(248
)
Net cash provided by operating activities
   
502
    931    
866
   
42
 
Cash flows from investing activities                          
Purchase of property and equipment
   
(19
)
  (15 )  
(32
)
 
(18
)
Purchase of marketable securities
   
(618
)
  (503 )  
(1,918
)
 
 
Sale of marketable securities
   
1,230
       
1,306
   
 
Net cash provided by (used in) investing activities
   
593
    (518 )  
(644
)
 
(18
)
Cash flows from financing activities                          
Payment of distributions
   
(880
)
  (69 )  
(230
)
 
 
Proceeds from notes payable
   
     —    
100
   
 
Payments on notes payable - shareholder
   
     —    
(6
)
 
(16
)
                           
Net cash used in financing activities
   
(880
)
  (69 )  
(136
)
 
(16
)
                           
Net increase in cash and cash equivalents
   
215
    344    
86
   
8
 
                           
Cash and cash equivalents at beginning of period
   
132
    46    
46
   
38
 
                           
Cash and cash equivalents at end of period
 
$
347
  $ 390  
$
132
 
$
46
 

The accompanying notes are an integral part of these financial statements.
 
5

 
HIGH VOLTAGE INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS

 
High Voltage Interactive, Inc. (“High Voltage” or the “Company”) operates an online direct marketing network. High Voltage is primarily an online marketing service that generates sales leads, creates product awareness, and initiates consumer purchases through promotional offers, primarily in the education market. High Voltage was incorporated as a California corporation in 2002.
 
 
Unaudited interim financial information
 
The interim financial information as of June 30, 2006 and for the six months ended June 30, 2006 and 2005 is unaudited. The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Article 10 of Regulation S-X. In the opinion of the Company's management, the unaudited interim financial information has been prepared on the same basis as the annual financial statements and includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the Company's financial position as of June 30, 2006 and results of operations and cash flows for the six months ended June 30, 2006 and 2005. The results for the six months ended June 30, 2006 are not necessarily indicative of the results of operations to be expected for any subsequent period or the entire year ending December 31, 2006.
 
Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 materially from those estimates. Significant accounting policies and estimates underlying the accompanying financial statements include:
 
·
the timing of revenue recognition;
·
the allowance for doubtful accounts;
·
the lives and recoverability of equipment;
·
pension liability.
 
It is reasonably possible that the estimates we make may change in the future.
 
Cash and cash equivalents
 
High Voltage generally considers any highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents.
 
High Voltage invests its cash in deposits at a major financial institution that may, at times, exceed federally insured limits. We believe that the risk of loss is minimal. To date, we have not experienced any losses related to temporary cash investments.
 
6

 
Marketable securities
 
High Voltage classifies, at the date of acquisition, its marketable securities into categories in accordance with the provisions of Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” At December 31, 2005, marketable securities consisted of certificates of deposit with maturities of less than one year. There were no marketable securities at December 31, 2004.
 
Accounts receivable
 
High Voltage grants credit to its customers for substantially all of its sales. Accounts receivable are stated at their estimated net realizable value. The estimate of allowance for doubtful accounts is based on identification of specific accounts that may not be collectible. Accounts receivable are considered past due when payment has not been received within the contractual terms, which are generally net 30 days from invoice date. Amounts are considered uncollectible and written off to the reserve for bad debts when all internal collection efforts have been exhausted.
 
Fixed assets
 
Property and equipment are stated at cost less accumulated depreciation and are depreciated using the straight-line method over their estimated useful lives. The estimated useful lives for financial reporting purposes are as follows:
 
Office furniture and equipment
Five years
Computer hardware and software
Three years

The cost of normal maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized. Gains or losses on the disposition of assets in the normal course of business are reflected in the results of operations at the time of disposal.

Impairment of long-lived assets
 
High Voltage evaluates its long-lived assets for impairment and continues to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. We evaluate the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with these assets. If at the time, such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. No impairment charges were recognized during the years ended December 31, 2005 or 2004.
 
Fair value of financial instruments
 
The carrying amounts of financial instruments, including cash, accounts receivable, marketable securities, accounts payable, and accrued liabilities approximate fair value because of their short maturities.
 
Revenue recognition

In the years ended December 31, 2005 and 2004, High Voltage derived revenue from providing response-based advertising programs through a network of web site publishers.
 
Revenue earned for response-based advertising through the High Voltage network is based on a fee per lead and is recognized when the lead information is delivered to the client.
 
7

 
Revenues generated through network publishers are recorded on a gross basis in accordance with Emerging Issues Task Force consensus 99-19 (EITF 99-19). Fees paid to network publishers related to these revenues are shown as cost of revenues on the Statement of Operations. High Voltage shares a portion of the amounts it bills its advertiser clients with the third-party web site owners or “publishers” on whose web properties High Voltage distributes the advertisements. While this “revenue share” approach is High Voltage’s primary payment model, it will, as an alternative, occasionally pay web site owners either a fixed fee for each completed user transaction or a fee for each impression of an advertisement served on the web site.
 
The Company has evaluated the guidance provided by EITF 99-19 as it relates to determining whether revenue should be recorded gross or net for the payments made to network publishers and opt-in email list owners and have determined the recording of revenues gross is appropriate based upon the following factors:
 
 
·
High Voltage acts as a principal in these transactions;
 
 
·
High Voltage and its customer are the only companies identified in the signed contracts;
 
 
·
High Voltage and its customer are the parties who determine pricing for the services;
 
 
·
High Voltage is solely responsible to the client for fulfillment of the contract;
 
 
·
High Voltage bears the risk of loss related to collections;
 
 
·
High Voltage determines how the offer will be presented across the network; and
 
 
·
Amounts earned are based on leads or emails delivered and are not based on amounts paid to publishers.
 
Defined benefit pension obligations
 
The Company accounts for its defined benefit pension plan by accruing for its obligation to the participants, as well as the corresponding net periodic cost. The Company determines its obligation to the participants and its net periodic cost principally using actuarial valuations provided by third-party actuaries.
 
Advertising costs
 
High Voltage expenses advertising costs as incurred. Total advertising expense for the years ended December 31, 2005 and 2004, were $6,000 and $7,000, respectively.
 
Research and development costs
 
Research and development costs are expensed as incurred.
 
Income taxes
 
High Voltage accounts for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recorded.
 
High Voltage has elected under the Internal Revenue Code to be an S Corporation. In lieu of corporate income taxes, the shareholders of an S Corporation are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision or liability for current or deferred federal income taxes is included in these financial statements. The California Revenue and Taxation Code requires a franchise tax equal to the greater of $800 or 1.5% of taxable income. Distributions are made to the shareholder periodically, to cover their portion of the income taxes on the Company's earnings.
 
8

 
Concentrations of credit risk
 
Concentrations of credit risk with respect to accounts receivable exist due to the large number of Internet based companies that we do business with. This risk is mitigated due to the wide variety of customers to which High Voltage provides services, as well as the customer’s dispersion across many different geographic areas.
 
During the six-months ended June 30, 2006, three customers accounted for 30.2%, 29.2% and 13.5% of total revenues (unaudited). No other customers accounted for 10% or more of total revenues. During the year ended December 31, 2005, three customers accounted for 27.1%, 18.8% and 16.9% of total revenues. No other customers accounted for 10% or more of total revenues. During the year ended December 31, 2004, two customers accounted for 29.3% and 20.2% of revenues. No other customers accounted for 10% or more of total revenues.
 
As of June 30, 2006, three customers accounted for 29.3%, 27.3% and 22.8% of outstanding accounts receivable (unaudited). No other customers accounted for 10% or more of outstanding accounts receivable. As of December 31, 2005, three customers accounted for 31.6%, 23.8% and 21.0% of outstanding accounts receivable. No other customers accounted for 10% or more of outstanding accounts receivable. As of December 31, 2004, three customers accounted for 24.9%, 17.1% and 16.3%, of outstanding accounts receivable. No other customers accounted for 10% or more of outstanding accounts receivable. The Company maintains an allowance for doubtful accounts receivable based upon its historical experience and the expected collectibility of all accounts receivable.
 
During the six-months ended June 30, 2006, two publishers accounted for 14.8% and 13.6% of total revenues (unaudited). No other publisher accounted for 10% or more of outstanding total revenues. During the year ended December 31, 2005, two publishers accounted for 15.6% and 10.0% of total revenues. No other publisher accounted for 10% or more of outstanding total revenues. During the year ended December 31, 2004, one publisher accounted for 26.2% of revenues. No other publisher accounted for 10% or more of outstanding total revenues.
 
High Voltage has no operations outside of the United States and no significant amount of revenue is derived from outside of the United States.
 
Comprehensive income
 
To date, High Voltage has not had any transactions required to be reported in comprehensive income other than its net income.
 
Recent accounting pronouncements
 
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, A Replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154 requires retrospective application to prior periods’ financial statements for changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. The Company does not anticipate a material impact on the financial statements from the adoption of this consensus.
 
9

 
In December 2004, the Financial Accounting Standards Board issued Statement No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”), which is a revision of SFAS No. 123, and supersedes APB No. 25. SFAS No. 123R requires all share-based payments to employees and directors, including grants of stock options, to be recognized in the statement of operations based on their fair values, beginning with the first annual period after December 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. The Company does not have any share-based payments in any period presented, so the adoption of SFAS No. 123R did not have an impact on the Company.

3. Accounts receivable
 
Accounts receivable consist of the following (in thousands):

   
June 30,
 
December 31,
 
   
2006
 
2005
 
2004
 
   
(unaudited)
         
Accounts receivable
 
$
2,517
 
$
1,538
 
$
1,052
 
Less: Allowance for doubtful accounts
   
(34
)
 
(17
)
 
 
   
$
2,483
 
$
1,521
 
$
1,052
 

4. Property and equipment

Property and equipment consists of the following (in thousands):

   
June 30,
 
December 31,
 
   
2006
 
2005
 
2004
 
   
(unaudited)
         
Computer hardware and software
 
$
44
 
$
29
 
$
10
 
Office furniture and equipment
   
30
   
26
   
14
 
     
74
 
 
55
   
24
 
Less: Accumulated depreciation
   
(27
)
 
(16
)
 
(4
)
   
$
47
 
$
39
 
$
20
 

5. Accrued and other liabilities
 
Accrued and other liabilities consist of the following (in thousands):

   
June 30,
 
December 31,
 
   
2006
 
2005
 
2004
 
   
(unaudited)
         
Accrued pension contribution
 
$
111
 
$
111
 
$
 
Deferred tax liability
   
2
   
6
   
3
 
Other accrued liabilities
   
155
   
132
   
74
 
   
$
268
 
$
249
 
$
77
 

10

 
6. Notes payable
 
High Voltage has a $200,000 line of credit with a bank which expired on June 1, 2006. Interest is payable monthly, at the lender’s base rate, 7.0% at December 31, 2005. The line is secured by substantially all of the Company’s assets and is personally guaranteed by Paul Epstein (the Company’s CEO). The amount owed and available for borrowing under the line-of-credit is $145,000 and $55,000, respectively, at December 31, 2005. At June 30, 2006, $145,000 remained outstanding under the expired line-of-credit. The balance outstanding under this line-of-credit was paid in August 2006.
 
At December 31, 2004, High Voltage had a $50,000 line-of-credit with a bank which expired on May 31, 2005. Interest was payable monthly, at the lender’s base rate plus 3.25%, 8% at December 31, 2004. The line was secured by substantially all of the Company’s assets and was guaranteed by the Small Business Administration. The amount owed and available for borrowing under the line-of-credit was $45,000 at December 31, 2004.
 
7. Related party transactions
 
Paul Epstein, the founder and Chief Executive Officer, loaned $5,000 and $2,500, respectively to the Company in 2004 and 2003 under non-interest bearing loans. In June 2004, $1,000 was repaid with the balance being repaid in January 2005.
 
8. Commitments and contingencies
 
The Company’s office facilities are leased under an operating lease that provides for minimum rentals and is subject to an annual increase based the consumer price index with a minimum increase of 3% and a maximum increase of 6%. The operating lease has a term that started in October 2004 and ends in September 2006. The lease can be extended for an additional two years. The initial rental rate for the extension period shall equal the prevailing market rate as defined in the lease. This lease was converted to a month-to-month lease in October 2006.
 
Future minimum lease payments under the non-cancelable lease is as follows (in thousands).

 
 
Year ending December 31,
 
 
Operating
leases
 
2006
   
23
 
Total minimum lease payments
 
$
23
 

Rent expense for the years ended December 31, 2005 and 2004, was $30,000 and $12,000, respectively.
 
Litigation
 
The Company may be subject to various claims and pending or threatened lawsuits in the normal course of business. Management believes that the outcome of any such lawsuits would not have a materially adverse effect on the Company’s financial position, results of operations or cash flows.
 
9. Shareholder’s equity
 
The Company is authorized to issue ten million shares in one class of stock with no par value.
 
11

 
10. Income taxes

There are no items that result in differences between income taxes computed at the California statutory rate and the provision recorded for income taxes.
 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. For tax purposes returns have been filed using a cash method of accounting. The only significant component of the deferred tax liability is the differences resulting from different methods of accounting. Deferred tax liabilities were $6,000 and 3,000 at December 31, 2005 and 2004, which is included in other liabilities in the respective balance sheets.

11. Defined Benefit Pension Plan
 
High Voltage provides regular, full-time and part-time employees with noncontributory defined benefit pension benefits via the High Voltage Interactive, Inc. Defined Benefit Pension Plan (the Pension Plan). The Pension Plan consists of a tax qualified plan that is funded by company contributions to an irrevocable trust fund, which is held for the sole benefit of participants and beneficiaries. The Pension Plan was adopted in December of 2005. There were no participants receiving benefits from the Pension Plan as of December 31, 2005.
 
Benefits provided to employees under this plan are calculated under the individual entry age normal costs method.
 
The amount recorded in the Balance Sheet is reflective of the total projected benefit obligation (PBO), the fair value of plan assets and any deferred gains or losses at the measurement date. A measurement date of December 31 is used for the Pension Plan. The PBO is the actuarial present value of benefits expected to be paid upon retirement based upon estimated future compensation levels. The fair value of plan assets represents the current market value of cumulative company contributions made to an irrevocable trust fund, held for the sole benefit of participants, which are invested by the trust. Deferred gains or losses arise as a result of events that impact the plan and affect current and future net periodic cost/income, as permitted by accounting standards. Examples of such “events” include plan amendments and changes in actuarial assumptions such as discount rate, rate of compensation increases and mortality.
 
The principle underlying recognition of expense is that employees render service over their service lives on a relatively smooth basis and therefore, the income statement effect of the pension plan should follow the same pattern. The amount of net periodic cost that is recorded in the Statement of Operations consists of several components including service cost, interest cost, expected return on plan assets, and amortization of previously unrecognized gains or losses. Service cost represents the value of the benefits earned in the current year by the participants. Interest cost represents the time value of money cost associated with the passage of time. In addition, the net periodic cost is impacted by the anticipated income/loss from the return on invested assets, as well as the expense resulting from the recognition of previously deferred items. Certain items such as changes in employee base, plan changes and changes in actuarial assumptions would result in deferral of the expense impact of such events. Accounting standards require the use of an attribution approach which generally spreads expense of the deferred items over the service lives of the employees in the plan, provided such amounts exceed thresholds which are based upon the obligation or the value of plan assets.
 
Underlying both the calculation of the PBO and net periodic cost are actuarial valuations, as discussed above. These valuations reflect the terms of the Pension Plan and use participant-specific information such as salary, age and years of service, as well as certain assumptions which include estimates of discount rates, expected return on plan assets, rate of compensation increases and mortality rates.
 
12

 
As noted above, the PBO is the actuarial present value of benefits expected to be paid upon retirement based upon future compensation levels. The accumulated benefit obligation (ABO) is the present value of the actuarially determined company obligation for pension payments, assuming no further salary increases for employees. For instances in which the fair value of plan assets are less than the ABO, as of the measurement date (defined as an unfunded ABO position), a minimum liability equal to this difference is recognized in the Balance Sheet. The offset to the minimum liability results in establishing an intangible asset not exceeding unrecognized prior service cost. Any remaining offsetting amount results in a net of tax charge to the Accumulated gains and (losses) not affecting retained earnings section of Shareholder’s Equity in the Balance Sheet.
 
Summary of financial information:
 
The total retirement-related benefit plan cost included in the Statement of Operations for the year ended December 31, 2005 is $111,000.
 
As of December 31, 2005 the total projected benefit obligation was $111,000, the fair value of plan assets was zero and the associated liability position included in the Balance Sheet was $111,000.
 
The following table presents the components of net periodic pension cost (in thousands):
 
   
Year ended
December 31, 2005
 
Service cost
 
$
97
 
Interest cost
   
5
 
Amortization of prior service cost
   
9
 
Total net periodic cost
 
$
111
 
 
The changes in the benefit obligations and plan assets as of December 31, 2005 were (in thousands):
 
   
Year ended December 31, 2005
 
Change in benefit obligation:
     
Benefit obligation at beginning of year
 
$
 
Service cost
   
97
 
Interest cost
   
5
 
Amortization of prior service cost
   
9
 
Benefit obligation at beginning of year
 
$
111
 
         
Fair value of plan assets at beginning of year
 
$
 
Actual return on plan assets
   
 
Employer contributions
   
 
Fair value of plan assets at end of year
 
$
 
Benefit obligation in excess of fair value of plan assets
 
$
111
 
Accumulated benefit obligation
 
$
111
 
 
13

 
Assumptions used to determine plan financial information:
 
Underlying both the calculation of the PBO and net periodic cost are actuarial valuations. These valuations use participant-specific information such as salary, age and years of service, as well as certain assumptions, the most significant of which include: estimates of discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates and mortality rates. The company evaluates these assumptions, at a minimum, annually, and makes changes as necessary.
 
Following is information on assumptions which had a significant impact on net periodic cost and the year-end benefit obligations for the Pension Plan were as follows:
 
   
2005
Weighted-average assumptions used to determine net periodic cost for the year ended December 31:
     
Discount rate
   
6
%
Expected long-term return on plan assets
   
6
%
Rate of compensation increase
   
0
%
Weighted-average assumptions used to determine benefit obligation at December 31:
       
Discount rate
   
—6
%
Rate of compensation increase
   
—0
%
         
The discount-rate assumptions used reflect the yields available on high-quality, fixed income debt instruments.
 
Expected returns on plan assets take into account long-term expectations for future returns and investment strategy. The use of expected long-term rates of return on plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns and therefore result in a pattern of income and expense recognition that more closely matches the pattern of the services provided by the employees. Differences between actual and expected returns, a component of unrecognized gains/losses, are recognized over the service lives of the employees in the plan, provided such amounts exceed thresholds which are based upon the obligation or the value of plan assets, as provided by accounting standards
 
The rate of compensation increases and mortality rates are also significant assumptions used in the actuarial model for pension accounting. The rate of compensation increases is determined by the company, based upon its long-term plans for such increases. Mortality rate assumptions are based on life expectancy and death rates for different types of participants.
 
FUNDED STATUS:
 
It is the company’s general practice to fund amounts for pensions sufficient to meet the minimum requirements set forth in applicable employee benefits laws and local tax laws.
 
Since the principal purpose of the Pension Plan is to provide benefits at normal retirement age, the principal goal of the investment of the funds in the plan should be both security and long-term stability with moderate growth commensurate with anticipated retirement dates of the participants. Investments, other than “fixed dollar” investments, should be included among the plan’s investments to prevent erosion by inflation. However, investments should be sufficiently liquid to enable the plan, on short notice, to make some distributions in the event of death or disability of a participant.
 
12.  Subsequent Events
 
On August 17, 2006, substantially all of the Company’s assets were sold to Aptimus, Inc. for approximately $5.9 million in cash.
 
14

 
EX-99.2 4 v056260_ex99-2.htm Unassociated Document
 
Exhibit 99.2
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
The following unaudited pro forma condensed combined balance sheet as of June 30, 2006 and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2005 and the six months ended June 30, 2006 are based on the historical financial statements of Aptimus, Inc. (“Aptimus”) and High Voltage Interactive, Inc. (“High Voltage”) after giving effect to Aptimus’s acquisition of High Voltage using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.
 
The unaudited pro forma condensed combined balance sheet combines Aptimus’s and High Voltage’s historical condensed consolidated balance sheets as of June 30, 2006, giving effect to the merger as if it had occurred on June 30, 2006. The unaudited pro forma condensed combined statement of income for the year ended December 31, 2005 combines Aptimus’s historical consolidated statement of operations for the year then ended with High Voltage’s historical statement of operations for the year ended December 31, 2005. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2006 combines Aptimus’s historical condensed consolidated statement of operations for the six months ended June 30, 2006 with High Voltage’s historical condensed statement of operations for the six months ended June 30, 2006. The unaudited pro forma condensed combined statements of operations give effect to the merger as if it had occurred on January 1, 2005.
 
The acquisition has been accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Under the purchase method of accounting, the total estimated purchase price, calculated as described in Note 1 to these unaudited pro forma condensed combined financial statements, is allocated to the net tangible and intangible assets of High Voltage acquired in connection with the acquisition, based on their estimated fair values. Management has made a preliminary allocation of the estimated purchase price to the tangible and intangible assets acquired and liabilities assumed based on various preliminary estimates. The allocation of the estimated purchase price is preliminary pending finalization of various estimates and analyses.
 
The unaudited pro forma condensed combined financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the condensed consolidated financial position or results of income in future periods or the results that actually would have been realized had Aptimus and High Voltage been a combined company during the specified periods. The pro forma adjustments are based on the information available at the time of the preparation of this document. The unaudited pro forma condensed combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, Aptimus’s historical consolidated financial statements included in its Annual Report on Form 10-K, as, for its year ended December 31, 2005 and in its Form 10-Q for its quarter ended June 30, 2006, and High Voltage’s historical financial statements for the year ended December 31, 2005 and the six months ended June 30, 2006, which are included as Exhibit 99.1 to this Form 8-K.
 

 
OF APTIMUS, INC. AND HIGH VOLTAGE INTERACTIVE, INC.
AS OF JUNE 30, 2006
(IN THOUSANDS)

       
   
June 30,
2006
Aptimus
 
June 30,
2006
High Voltage
 
 
Pro Forma
Adjustments
     
 
Pro Forma
Combined
 
ASSETS
                     
Cash and cash equivalents
 
$
1,176
 
$
347
 
$
(347
)
 
c
 
$
1,176
 
Accounts receivable, net
   
2,398
   
2,483
   
(7
)
 
h
   
4,874
 
Prepaid expenses and other assets
   
141
   
34
   
         
175
 
Marketable securities
   
8,725
   
   
(3,129
)
 
c
   
5,596
 
Total current assets
   
12,440
   
2,864
   
(3,483
)
 
 
   
11,821
 
Fixed assets, net
   
935
   
47
   
   
 
   
982
 
Intangible assets
   
8
   
   
3,500
   
a
   
3,508
 
Goodwill
   
   
   
1,803
   
b
   
1,803
 
Deposits
   
39
   
3
   
   
 
   
42
 
Total assets
 
$
13,422
 
$
2,914
 
$
1,820
   
 
 
$
18,156
 
LIABILITIES AND SHAREHOLDERS' EQUITY
                     
 
       
Accounts payable
 
$
855
 
$
1,991
 
$
(7
)
 
h
 
$
2,839
 
Accrued and other liabilities
   
1,052
   
268
   
(268
)
 
g
   
1,052
 
Notes payable
   
   
145
   
2,750
   
d
   
2,750
 
                   
(145
)
 
e
       
Total current liabilities
   
1,907
   
2,404
   
2,330
   
 
   
6,641
 
Commitments and contingencies
                     
 
       
Shareholders' equity
                     
 
       
Common stock
   
69,245
   
23
   
(23
)
 
f
   
69,245
 
Additional paid-in capital
   
3,210
   
   
   
 
   
3,210
 
Retained earnings (accumulated deficit)
   
(60,940
)
 
487
   
(487
)
 
f
   
(60,940
)
Total shareholders' equity
   
11,515
   
510
   
(510
)
 
 
   
11,515
 
Total liabilities and
shareholders’ equity
 
$
13,422
 
$
2,914
 
$
1,820
   
 
 
$
18,156
 
 
 
 
are an integral part of these financial statements.
 
1

 
OF APTIMUS, INC. AND HIGH VOLTAGE INTERACTIVE, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(IN THOUSANDS, EXCEPT PER SHARE DATA)
 

       
   
 
Aptimus
 
High Voltage
 
Pro Form
Adjustments
     
Pro Forma
Combined
 
Revenues
 
$
6,145
 
$
5,818
 
$
(52
)
 
i
 
$
11,911
 
Operating expenses:
                     
 
       
Cost of revenues
   
2,970
   
4,005
   
(52
)
 
i
   
6,923
 
Sales and marketing
   
2,621
   
693
         
 
   
3,314
 
Connectivity and network costs
   
439
   
123
         
 
   
562
 
Research and development
   
409
   
203
         
 
   
612
 
General and administrative
   
1,071
   
252
         
 
   
1,323
 
Depreciation and amortization
   
201
   
11
   
221
   
j
   
433
 
Loss on disposal of long-term assets
   
1
   
-
   
-
   
 
   
1
 
Total operating expenses
   
7,712
   
5,287
   
169
   
 
   
13,168
 
Operating income (loss)
   
(1,567
)
 
531
   
(221
)
 
 
   
(1,257
)
Interest income
   
214
   
5
   
(36
)
 
l
   
183
 
Interest expense
   
   
(6
)
 
(90
)
 
k
   
(96
)
Income (loss) before income taxes
   
(1,353
)
 
530
   
(347
)
 
 
   
(1,170
)
Provision for income taxes
   
   
(8
)
 
8
   
n
   
 
Net income (loss)
 
$
(1,353
)
$
522
 
$
(339
)
 
 
 
$
(1,170
)
Earnings (loss) per share:
                     
 
       
Basic
 
$
(0.21
)
             
 
 
$
(0.18
)
Diluted
 
$
(0.21
)
             
 
 
$
(0.18
)
Weighted average shares outstanding:
                     
 
       
Basic
   
6,533
               
 
   
6,533
 
Diluted
   
6,533
               
 
   
6,533
 

The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
are an integral part of these financial statements.
 
2


OF APTIMUS, INC. AND HIGH VOLTAGE INTERACTIVE, INC.
FOR THE YEAR ENDED DECEMBER 31, 2005
(IN THOUSANDS, EXCEPT PER SHARE DATA)

       
   
 
Aptimus
 
High Voltage
 
Pro Form
Adjustments
     
Pro Forma
Combined
 
Revenues
 
$
15,894
 
$
7,853
 
$
(281
)
 
i
 
$
23,466
 
Operating expenses:
                     
 
       
Cost of revenues
   
7,316
   
4,824
   
(281
)
 
i
   
11,859
 
Sales and marketing
   
3,598
   
1,266
         
 
   
4,864
 
Connectivity and network costs
   
865
   
71
         
 
   
936
 
Research and development
   
658
   
352
         
 
   
1,010
 
General and administrative
   
2,004
   
479
         
 
   
2,483
 
Depreciation and amortization
   
356
   
13
   
442
   
j
   
811
 
Loss (gain) on disposal of long-term
   
95
   
         
 
   
95
 
Total operating expenses
   
14,892
   
7,005
   
161
   
 
   
22,058
 
Operating income (loss)
   
1,002
   
848
   
(442
)
 
 
   
1,408
 
Interest income
   
261
   
12
   
(105
)
 
l
   
168
 
Interest expense
   
   
(4
)
 
(189
)
 
k
   
(193
)
Gain on warrant liability
   
89
   
   
   
 
   
89
 
Income (loss) before income taxes
   
1,352
   
856
   
(736
)
 
 
   
1,472
 
Provision for income taxes
   
   
(13
)
 
13
   
n
   
 
Net income (loss)
 
$
1,352
 
$
843
 
$
(723
)
 
 
 
$
1,472
 
Earnings (loss) per share:
                     
 
       
Basic
 
$
0.21
               
 
 
$
0.23
 
Diluted
 
$
0.18
               
 
 
$
0.19
 
Weighted average shares outstanding:
                     
 
       
Basic
   
6,351
               
 
   
6,351
 
Diluted
   
7,575
         
200
   
m
   
7,775
 

The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
are an integral part of these financial statements.

3

 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
1.
BASIS OF PRESENTATION
 

 
On August 17, 2006 Aptimus, Inc. (“Aptimus”) completed the acquisition of High Voltage Interactive, Inc. (“High Voltage”), a privately-held company based in Sausalito California. The total purchase price was approximately $5.9 million in cash, excluding acquisition costs of $40,000.
 
Under the purchase method of accounting, the total estimated purchase price as of June 30, 2006 as shown in the table below is allocated to High Voltage’s net tangible and intangible assets based on their estimated fair values as of June 30, 2006 for pro forma purposes. Management has allocated the preliminary estimated purchase price based on various factors as described in the introduction to these unaudited pro forma condensed combined financial statements. The allocation of the purchase price is preliminary pending the completion of various analyses and the finalization of estimates. The allocation of the preliminary purchase price and the estimated useful lives and first year amortization on an annualized basis associated with acquired assets is as follows (in thousands):

   
 
 
Amount
 
Annualized First Year Amortization
 
Estimated Useful Life
 
Tangible assets 
             
Accounts receivable, net
 
$
2,483
   
n/a
   
n/a
 
Prepaid expenses and deposits
   
34
   
n/a
   
n/a
 
Fixed assets, net
   
47
 
$
18
   
2.5 years
 
Identifiable intangible assets 
               
 
 
Customer contracts and relationships 
   
2,500
   
357
   
7 years
 
Trademark and trade name 
   
1,000
   
67
   
15 years
 
Goodwill 
   
1,803
   
n/a
   
n/a
 
Total assets acquired 
 
$
7,867
   
442
   
 
 
Liabilities assumed 
   
1,991
             
Total preliminary estimated purchase price excluding transaction costs 
 
$
5,876
 
$
442
       
                     
 
A preliminary estimate of $573,000 has been allocated to net tangible assets acquired. This estimate reflects adjustments of acquired assets and liabilities to fair value. A preliminary estimate of $3.5 million has been allocated to amortizable intangible assets acquired. The amortization related to the amortizable intangible assets is reflected as pro forma adjustments to the unaudited pro forma condensed combined statements of income.
 
Identifiable intangible assets. Acquired customer contracts and relationships represent existing contracts that relate to underlying customer relationships. Aptimus will amortize the fair value of these assets on a straight-line basis over an average estimated life of 7 years. Trade name relates to the High Voltage trademark and trade name, which Aptimus will amortize on a straight-line basis over an estimated life of 15 years.
 
Goodwill. Approximately $1.8 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. In accordance with the SFAS No. 142, Goodwill and Other Intangible Assets, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that the management of the combined company determines that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made.
 
4

 
Pro Forma Presentations Reflecting Debt Financing.

 
The company secured a $5,000,000 million line of credit and used $2,750,000 of the line towards the purchase price of High Voltage. The Advances on the line shall bear interest, on the outstanding daily balance thereof, at a variable rate equal to :(i) one quarter of one percent (0.25%) above the Prime Rate if Borrower’s total Cash maintained at Bank is less than Two Million Dollars ($2,000,000), (ii) the Prime Rate if Borrower’s total Cash maintained at Bank is at least Two Million Dollars ($2,000,000) but less than Five Million Dollars ($5,000,000) and (iii) one quarter of one percent (0.25%) below the Prime Rate if Borrower’s total Cash maintained at Bank is greater than Five Million Dollars ($5,000,000). An average prime interest rate of 6.87% for the 2005 year and an average rate of 6.55% for the first six months of 2006 was used for these pro forma calculations. If the prime rate increases or decreases by one eighth of one percent (0.125%), the effect on interest expense would not be significant.
 
Restricted shares issued. As part of the transaction with High Voltage, the Company issued 200,000 restricted shares (“Shares”) of common stock at a price per share of $7.32, which is the closing sale price of the common stock on the date of closing. The restriction on the Shares lapses in respect to specified amounts in three annual increments measured from the closing date conditioned on the retention of the specific key employees of High Voltage to whom the Shares were issued. 115,000 of Shares were issued in reliance upon the exemptions from registration provided by Rule 506 of Regulation D and Section 4(2) under the Securities Act for sales to accredited investors, as that term is defined in Rule 501(a) of Regulation D, and 85,000 of the Shares were issued pursuant to the Company’s 2001 Stock Plan and corresponding Registration Statement on Form S-8.
 
Income Taxes. Aptimus accounts for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recorded. SFAS 109, “Accounting for Income Taxes,” requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. At June 30, 2006, Aptimus had net deferred tax assets balance of $24.5 million. Currently a valuation allowance equal to the balance of the deferred tax assets has been recorded on Aptimus’ books. This valuation allowance has been recorded, as the ability of the Company to utilize the deferred tax assets has not been assessed as being more likely than not.
 
 
2.
PRO FORMA ADJUSTMENTS
 
The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:

 
a)  
To record the fair value of High Voltage’s identifiable intangible assets
 
b)  
To record goodwill
 
c)  
To record net cash used for acquisition and repayment of debt
 
d)  
To record debt used to finance the transaction
 
e)  
To record the extinguishment of debt in connection with the High Voltage acquisition
 
f)  
To eliminate High Voltage’s equity
 
g)  
To eliminate the fair value of liabilities not assumed at acquisition
 
h)  
To eliminate the balance owed to Aptimus by High Voltage at acquisition
 
i)  
To eliminate the impact of transaction between High Voltage and Aptimus
 
j)  
To amortize intangible assets and depreciate fixed assets
 
k)  
To record interest expense
 
l)  
To reduce interest income
 
m)  
To record restricted shares issued
 
n)  
To eliminate High Voltage income tax provision
 
5

 
 
The pro forma basic and diluted net income per share are based on the number of Aptimus shares used in computing basic and diluted net income per share.
 
6

-----END PRIVACY-ENHANCED MESSAGE-----