UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
Current
report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 10, 2014
Everyday Health, Inc. |
(Exact name of registrant as specified in its charter) |
Delaware | 001-36371 | 80-0036062 |
(State or other jurisdiction of incorporation) |
(Commission File No.) | (I.R.S. Employer Identification No.) |
345
Hudson Street, 16th Floor New York, NY |
10014 | |
(Address of principal executive office) | (Zip Code) |
Registrant’s telephone number, including area code: (646) 728-9500 |
(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:
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.
On November 12, 2014, Everyday Health, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Report”) to report its acquisition of DoctorDirectory.com, Inc., a South Carolina corporation (“DoctorDirectory”), pursuant to an Agreement and Plan of Merger (the “Agreement”) by and among the Company, DRD Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company, DoctorDirectory, and Clifford Donnelly, as the Interested Holders Representative. The Company is obligated to file the financial statements and the pro forma financial information as required by parts (a) and (b) of Item 9.01 of Form 8-K not later than 71 calendar days after the date that the Report was required to be filed. This Form 8-K/A is filed to amend the Report to include the required financial statements and pro forma financial information.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
The audited financial statements of DoctorDirectory as of and for the years ended December 31, 2013 and 2012 and notes related thereto are filed as Exhibit 99.1 and incorporated herein by reference.
The unaudited balance sheet as of September 30, 2014 and the unaudited statements of income and cash flows for the nine months ended September 30, 2014 and 2013 of DoctorDirectory and notes related thereto are filed as Exhibit 99.2 and incorporated herein by reference.
(b) Pro Forma Financial Information
The unaudited pro forma condensed combined balance sheet as of September 30, 2014 and the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2014 and the year ended December 31, 2013 of DoctorDirectory and notes related thereto are filed as Exhibit 99.3 and incorporated herein by reference.
(d) Exhibits
Exhibit |
Description | |
23.1 | Consent of KPMG LLP, Independent Auditors of DoctorDirectory. | |
99.1 | Audited financial statements of DoctorDirectory as of and for the years ended December 31, 2013 and 2012 and notes related thereto. | |
99.2 | Unaudited balance sheet as of September 30, 2014 and the unaudited statements of income and cash flows for the nine months ended September 30, 2014 and 2013 of DoctorDirectory and notes related thereto. | |
99.3 | The unaudited pro forma condensed combined balance sheet as of September 30, 2014 and the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2014 and the year ended December 31, 2013 of DoctorDirectory and notes related thereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Everyday Health, Inc. | |||
Date: January 21, 2015 | By: | /s/ Alan Shapiro | |
Name: | Alan Shapiro | ||
Title: | Executive Vice President and General Counsel |
EXHIBIT INDEX
Exhibit Number |
Description | |
23.1 | Consent of KPMG LLP, Independent Auditors of DoctorDirectory. | |
99.1 | Audited financial statements of DoctorDirectory as of and for the years ended December 31, 2013 and 2012 and notes related thereto. | |
99.2 | Unaudited balance sheet as of September 30, 2014 and the unaudited statements of income and cash flows for the nine months ended September 30, 2014 and 2013 of DoctorDirectory and notes related thereto. | |
99.3 | The unaudited pro forma condensed combined balance sheet as of September 30, 2014 and the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2014 and the year ended December 31, 2013 of DoctorDirectory and notes related thereto. |
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
DoctorDirectory.com, Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 333-201541 and 333-195029) on Form S-8 of Everyday Health, Inc. of our report dated April 21, 2014, with respect to the balance sheets of DoctorDirectory.com, Inc. as of December 31, 2013 and 2012, and the related statements of income, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2013, which report appears in the Form 8-K/A of Everyday Health, Inc. dated January 21, 2015.
/s/ KPMG LLP
Greenville, South Carolina
January 21, 2015
Exhibit 99.1
DoctorDirectory.com, Inc.
Financial Statements
December 31, 2013 and 2012
(With Independent Auditors’ Report Thereon)
DOCTORDIRECTORY.COM, INC.
Table of Contents
Page(s) | ||
Independent Auditors’ Report | 1 | |
Balance Sheets | 2 | |
Statements of Income | 3 | |
Statements of Changes in Shareholders’ Equity | 4 | |
Statements of Cash Flows | 5 | |
Notes to Financial Statements | 6-14 |
The Board of Directors
DoctorDirectory.com, Inc.:
We have audited the accompanying financial statements of DoctorDirectory.com, Inc., which comprise the balance sheets as of December 31, 2013 and 2012, and the related statements of income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of DoctorDirectory.com, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.
Greenville, South Carolina
April 21, 2014
DOCTORDIRECTORY.COM, INC.
December 31, 2013 and 2012
Assets | 2013 | 2012 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,930,116 | $ | 1,837,674 | ||||
Accounts receivable, net of allowance for doubtful accounts of approximately $69 thousand at December 31, 2013 and 2012 | 1,491,919 | 1,725,828 | ||||||
Revenues in excess of billings | 5,112,630 | 1,429,943 | ||||||
Deferred tax assets | 428,955 | 63,440 | ||||||
Other current assets | 173,028 | 186,929 | ||||||
Total current assets | 11,136,648 | 5,243,814 | ||||||
Property and equipment, net | 184,535 | 190,277 | ||||||
Intangible assets, net | 183,451 | 144,255 | ||||||
Total assets | $ | 11,504,634 | $ | 5,578,346 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 595,349 | $ | 441,478 | ||||
Accrued liabilities | 3,189,315 | 1,159,139 | ||||||
Unearned revenue | 945,980 | 932,534 | ||||||
Total current liabilities | 4,730,644 | 2,533,151 | ||||||
Long-term liabilities: | ||||||||
Deferred tax liabilities | 69,342 | 67,506 | ||||||
Total liabilities | 4,799,986 | 2,600,657 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Preferred stock, par value $0.01; Authorized, 5,000,000 shares; no shares issued | — | — | ||||||
Common stock – $0.01 par value, Authorized, 5,000,000 shares; Issued 919,862; Outstanding 661,501 as of December 31, 2013 and 2012 | 9,199 | 9,199 | ||||||
Additional paid-in capital | 2,371,905 | 2,347,949 | ||||||
Retained earnings | 4,886,520 | 1,183,517 | ||||||
Treasury stock | (562,976 | ) | (562,976 | ) | ||||
Total shareholders’ equity | 6,704,648 | 2,977,689 | ||||||
Total liabilities and shareholders’ equity | $ | 11,504,634 | $ | 5,578,346 |
See accompanying notes to financial statements.
2 |
DOCTORDIRECTORY.COM, INC.
Years ended December 31, 2013 and 2012
2013 | 2012 | |||||||
Revenues: | ||||||||
Healthcare professional digital marketing | $ | 13,909,907 | $ | 7,391,284 | ||||
Market research | 3,114,529 | 2,309,415 | ||||||
Other | 3,043 | 3,992 | ||||||
Total revenues | 17,027,479 | 9,704,691 | ||||||
Costs of revenues | 4,097,932 | 2,831,277 | ||||||
Gross profit | 12,929,547 | 6,873,414 | ||||||
Selling, general, and administrative expenses | 6,867,445 | 5,725,342 | ||||||
Income before income taxes | 6,062,102 | 1,148,072 | ||||||
Income taxes | 2,359,099 | 459,275 | ||||||
Net income | $ | 3,703,003 | $ | 688,797 |
See accompanying notes to financial statements.
3 |
DOCTORDIRECTORY.COM, INC.
Statement of Changes in Shareholders’ Equity
Years ended December 31, 2013 and 2012
Additional | ||||||||||||||||||||
Common | paid-in | Retained | Treasury | |||||||||||||||||
stock | capital | earnings | stock | Total | ||||||||||||||||
Balances at December 31, 2011 | $ | 9,196 | $ | 2,325,540 | $ | 494,720 | $ | (562,976 | ) | $ | 2,266,480 | |||||||||
Issuance of common stock | 3 | 1,122 | — | — | 1,125 | |||||||||||||||
Share-based compensation | — | 21,287 | — | — | 21,287 | |||||||||||||||
Net income | — | — | 688,797 | — | 688,797 | |||||||||||||||
Balances at December 31, 2012 | 9,199 | 2,347,949 | 1,183,517 | (562,976 | ) | 2,977,689 | ||||||||||||||
Share-based compensation | — | 23,956 | — | — | 23,956 | |||||||||||||||
Net income | — | — | 3,703,003 | — | 3,703,003 | |||||||||||||||
Balances at December 31, 2013 | $ | 9,199 | $ | 2,371,905 | $ | 4,886,520 | $ | (562,976 | ) | $ | 6,704,648 |
See accompanying notes to financial statements.
4 |
DOCTORDIRECTORY.COM, INC.
Years ended December 31, 2013 and 2012
2013 | 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 3,703,003 | $ | 688,797 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 401,009 | 406,167 | ||||||
Share-based compensation | 23,956 | 21,287 | ||||||
Change in deferred income taxes | (363,679 | ) | 7,694 | |||||
Changes in working capital: | ||||||||
Accounts receivable | 233,909 | (283,933 | ) | |||||
Revenues in excess of billings | (3,682,687 | ) | (666,979 | ) | ||||
Other current assets | 13,901 | (34,012 | ) | |||||
Accounts payable | 153,871 | 46,625 | ||||||
Accrued liabilities | 2,030,176 | 410,111 | ||||||
Unearned revenue | 13,446 | 913,489 | ||||||
Net cash provided by operating activities | 2,526,905 | 1,509,246 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (101,723 | ) | (128,858 | ) | ||||
Purchases of intangible assets | (332,740 | ) | (288,525 | ) | ||||
Net cash used in investing activities | (434,463 | ) | (417,383 | ) | ||||
Cash flows from financing activity: | ||||||||
Proceeds from issuance of common stock | — | 1,125 | ||||||
Net cash provided by financing activity | — | 1,125 | ||||||
Net increase in cash and cash equivalents | 2,092,442 | 1,092,988 | ||||||
Cash and cash equivalents at beginning of year | 1,837,674 | 744,686 | ||||||
Cash and cash equivalents at end of year | $ | 3,930,116 | $ | 1,837,674 | ||||
Supplemental disclosure for cash flow information: | ||||||||
Income taxes paid, net of tax refunds | $ | 1,590,600 | $ | 221,361 |
See accompanying notes to financial statements.
5 |
Notes to Financial Statements
December 31, 2013 and 2012
(1) | Summary of Significant Accounting Policies |
(a) | Description of Business |
DoctorDirectory.com, Inc. (the Company) was incorporated as a South Carolina corporation on September 16, 1996. The Company is an interactive healthcare marketing company and is primarily engaged in providing its customers with a communication channel to reach healthcare professionals and health consumers. The Company provides a suite of marketing solutions to pharmaceutical and biotech companies, advertising agencies, market research firms, and other healthcare-related companies. Its products include i) a comprehensive performance-based promotion solution for pharmaceutical companies, ii) market research solutions, and iii) a suite of virtual sales and marketing solutions, which comprise online advertising, direct to physician advertising, direct to consumer advertising, prescription drug e-detailing, prescription drug e-sampling, and physician and health consumer Customer Relationship Management (CRM) programs as well as clinical research program recruitment services. The Company publishes health-related Internet Web Site Properties (Web Site Properties), which provide: i) health provider directories and healthcare-related information to consumers seeking physicians and health information, ii) medical practice marketing and administrative tools to physicians, and iii) client services tools to the Company’s customers.
(b) | Cash and Cash Equivalents |
The Company considers all cash on hand, cash in depository institutions, and short-term investments with original maturities to the Company of 90 days or less to be cash and cash equivalents.
(c) | Trade Accounts Receivable and Revenues in Excess of Billings |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns.
Revenues in excess of billings are recorded at amounts to be invoiced based on the Company’s customary trade practices which include analysis of program results, calculation of promotional fees earned and client verification of the calculated fees as performance milestones are met.
(Continued)
6 |
DoctorDirectory.com, Inc.
Notes to Financial Statements
December 31, 2013 and 2012
(d) | Property and Equipment |
Property and equipment are stated at cost. Major additions, betterments, and leasehold improvements are capitalized. The Company follows the provisions of Accounting Standards Codification (ASC) Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software, which requires the capitalization of certain costs associated with software development for internal purposes. Depreciation is calculated using the straight-line method based upon the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of useful life or lease term. Useful lives of the Company’s assets are estimated as follows:
Computer equipment | 3 years | |
Computer software | 3 years | |
Office equipment | 4-5 years | |
Leasehold improvements | 5 years |
(e) | Web Site Development Costs |
The Company capitalizes costs incurred to develop its Web Site Properties, including data content acquired, and amortizes such costs over a three-year period using the straight-line method. Amortization commenced in June 1997, at the time the Company’s initial web site was published and became available online. Such costs are primarily comprised of third-party web site development costs. The Company also capitalizes the costs to lease or license certain data content included in its Web Site Properties and amortizes such costs over the term of the agreement.
(f) | Other Current Assets |
Other current assets consist of prepaid insurance, prepaid license fees and other prepaid expenses.
(g) | Income Taxes |
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general, and administrative expenses.
(Continued)
7 |
DoctorDirectory.com, Inc.
Notes to Financial Statements
December 31, 2013 and 2012
(h) | Revenue Recognition |
The Company recognizes revenue as services are delivered, collection of relevant receivables is reasonably assured, persuasive evidence of arrangements exists, and sales prices are fixed or determinable.
Revenues from Market Research services are recognized as surveys are completed and the responses to those surveys are provided to the client. Revenues from Clinical Research Recruitment services are recognized after physicians are recruited to participate in the clinical programs. Revenues from Physician and Consumer CRM Programs are recognized as the Company provides opted-in respondents to the client. The Company recognizes revenue from its interactive advertising, direct to physician, and direct to consumer advertising solutions, including IncreaseRx programs, as those promotions and campaigns are delivered and where applicable, when performance milestones are achieved. eSampling revenues are recognized as physicians agree to participate in the program and request Rx samples.
(i) | Costs of Revenues |
The costs directly associated with the delivery of the Company’s promotion, recruiting, and advertising services are classified as Costs of revenues in the accompanying financial statements. Additionally, the costs associated with the recruitment of and payment of fees and incentives to participants in advertising, clinical, and market research programs are also classified as Costs of revenues. Incentive payments that are unclaimed are reversed in the period in which they expire.
(j) | Share-Based Compensation Expense |
The Company records share-based compensation expense for options granted to employees using ASC Topic 718, Compensation – Stock Compensation, which requires the measurement of the cost of employee services received in exchange for an award of equity instruments be based on the grant-date fair value of those instruments. Because the Company’s shares are not publicly traded and it is not practicable to estimate the expected volatility of the Company’s share price, the Company accounts for the stock-based compensation of its equity instruments using a value as calculated using the Black-Scholes-Merton method and substituting the historical volatility of an appropriate industry sector index for the expected volatility of its share price. Calculated amounts are amortized straight line over the vesting period.
(k) | Use of Estimates |
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. On an ongoing basis, the Company evaluates its estimates, including those related to uncollectible receivables, intangible assets, income taxes, and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
(Continued)
8 |
DoctorDirectory.com, Inc.
Notes to Financial Statements
December 31, 2013 and 2012
(2) | Cash and Cash Equivalents |
The Company maintains an interest-bearing money market account whereby it invests its cash in excess of immediate operating needs. The Company’s cash and cash equivalents included approximately $4,175,143 and $1,667,722 in such account at December 31, 2013 and 2012, respectively.
(3) | Property and Equipment |
Property and equipment consist of the following at December 31:
2013 | 2012 | |||||||
Computer equipment | $ | 340,975 | $ | 312,728 | ||||
Computer software | 656,391 | 588,066 | ||||||
Office equipment | 186,593 | 185,763 | ||||||
Leasehold improvements | 41,996 | 37,675 | ||||||
Subtotal | 1,225,955 | 1,124,232 | ||||||
Less accumulated depreciation | (1,041,420 | ) | (933,955 | ) | ||||
Net property and equipment | $ | 184,535 | $ | 190,277 |
(4) | Intangible Assets |
Intangible assets consist of costs to develop Web Site Properties. Intangible assets at December 31 are as follows:
2013 | 2012 | |||||||
Web site development and content | $ | 2,499,956 | $ | 2,167,216 | ||||
Less accumulated amortization | (2,316,505 | ) | (2,022,961 | ) | ||||
Net intangible assets | $ | 183,451 | $ | 144,255 |
(5) | Operating Leases and Data License Agreements |
The Company is obligated under certain noncancelable leases and licensing agreements, primarily for office space and pharmaceutical prescription data, through 2015.
Lease expenses related to the rental of office space amounted to approximately $204,563 and $201,988, for the years ended December 31, 2013 and 2012, respectively.
The total expenses for data licensed under these agreements in 2013 and 2012 was approximately $266,543 and $178,663, respectively, and is included in Costs of revenues in the accompanying financial statements.
(Continued)
9 |
DoctorDirectory.com, Inc.
Notes to Financial Statements
December 31, 2013 and 2012
The minimum lease payments under noncancelable operating leases and data license agreements for the next two years are as follows:
2014 | $ | 211,650 | ||
2015 | 217,974 | |||
Total | $ | 429,624 |
(6) | Shareholders’ Equity |
(a) | Common Stock |
Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to shareholders. The holders have no other preemptive or other subscription rights and there are no redemption or sinking fund provisions.
During 2012, options to acquire 250 common shares were exercised for total proceeds of $1,125. No options to acquire common shares were exercised during 2013.
As of December 31, 2013 and 2012, there were 661,501 common shares outstanding.
(b) | Stock Options |
The Company’s board of directors has granted stock options awards to certain employees, officers, and directors of the Company to acquire shares of the Company’s common stock at a stated exercise price per share. These stock options vest over 1-5 years and have a 10-year term.
The grant-date fair value of each award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The weighted average assumptions for the 2013 and 2012 grants are provided in the following table. The Company uses the simplified method to estimate the expected term of the award. Since the Company’s shares are not publicly traded, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant:
Year ended December 31, 2013 | Year ended December 31, 2012 | |||||||
Valuation assumptions: | ||||||||
Expected dividend yield | nil | nil | ||||||
Expected volatility | 50 | % | 50 | % | ||||
Expected term (years) | 6.5 | 6.5 | ||||||
Risk-free interest rate | 1.06 | % | 1.03 | % |
(Continued)
10 |
DoctorDirectory.com, Inc.
Notes to Financial Statements
December 31, 2013 and 2012
The following table presents activity related to stock options for the years ended December 31, 2013 and 2012:
Options | ||||||||
Number | Exercise price | |||||||
Balance, December 2011 | 64,710 | $ | 2.00 – 9.50 | |||||
Granted | 4,500 | $ | 12.00 | |||||
Expired | (4,110 | ) | $ | 4.50 – 12.00 | ||||
Exercised | (250 | ) | $ | 4.50 | ||||
Balance, December 2012 | 64,850 | $ | 3.50 – 12.00 | |||||
Granted | 5,000 | $ | 15.00 | |||||
Expired | (2,350 | ) | $ | 3.50 – 12.00 | ||||
Exercised | — | |||||||
Balance, December 2013 | 67,500 | $ | 3.50 – 15.00 |
On August 23, 2012, the Company issued options to certain employees to acquire 4,500 shares of Company common stock at an exercise price of $12.00 per share. These options vest over a 5-year period and have a 10-year term. Total fair value of options granted on August 23, 2012 was $26,654.
On May 4, 2013, the Company issued options to certain employees to acquire 5,000 shares of Company common stock at an exercise price of $15.00 per share. These options vest over a 5-year period and have a 10-year term. Total fair value of options granted on May 4, 2013 was $37,055.
In accordance with the provisions of ASC Topic 718, the Company has determined grant-date fair value for each issuance of stock options to employees and amortized that value over the vesting period as compensation expense, totaling $23,956 and $21,287, in 2013 and 2012, respectively.
(7) | Income Taxes |
The provision (benefit) for total income tax expense consists of:
Current | Deferred | Total | ||||||||||
Year ended December 31, 2013: | ||||||||||||
U.S. federal | $ | 2,230,044 | $ | (297,760 | ) | $ | 1,932,284 | |||||
State and local | 492,734 | (65,919 | ) | 426,815 | ||||||||
$ | 2,722,778 | $ | (363,679 | ) | $ | 2,359,099 |
(Continued)
11 |
DoctorDirectory.com, Inc.
Notes to Financial Statements
December 31, 2013 and 2012
Current | Deferred | Total | ||||||||||
Year ended December 31, 2012: | ||||||||||||
U.S. federal | $ | 367,740 | $ | 6,299 | $ | 374,039 | ||||||
State and local | 83,841 | 1,395 | 85,236 | |||||||||
$ | 451,581 | $ | 7,694 | $ | 459,275 |
Income tax expenses for the years ended December 31, 2013 and 2012 differ from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income from continuing operations as a result of the following:
2013 | 2012 | |||||||
Computed “expected” tax expense | $ | 2,061,115 | $ | 390,344 | ||||
Increase (reduction) in income taxes resulting from: | ||||||||
Permanent differences | 13,622 | 13,457 | ||||||
State and local income taxes, net of federal income tax benefit | 281,698 | 56,256 | ||||||
Other, net | 2,664 | (782 | ) | |||||
$ | 2,359,099 | $ | 459,275 |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2013 and 2012 are presented below:
2013 | 2012 | |||||||
Deferred tax assets (current): | ||||||||
Allowance for doubtful accounts | $ | 26,640 | $ | 26,640 | ||||
Accrued expenses | 54,838 | 36,800 | ||||||
Unearned revenue | 347,477 | — | ||||||
Total gross deferred tax assets | 428,955 | 63,440 | ||||||
Deferred tax liabilities (non-current): | ||||||||
Property and equipment, principally due to differences in depreciation | (69,342 | ) | (67,506 | ) | ||||
Total gross deferred tax liabilities | (69,342 | ) | (67,506 | ) | ||||
Net deferred tax asset (liability) | $ | 359,613 | $ | (4,066 | ) |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of current
(Continued)
12 |
DoctorDirectory.com, Inc.
Notes to Financial Statements
December 31, 2013 and 2012
taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of any valuation allowances. There was no valuation allowance as of December 31, 2013 or 2012.
The Company has adopted the provisions of Interpretation No. 48, included in ASC Subtopic 740-10 – Income Taxes – Overall. The Company determined that it did not have any material unrecognized tax benefits or obligations and the adoption of the guidance did not have a material effect on the Company’s financial position or results of operations in 2013 or 2012. The total amount of gross unrecognized tax benefits was zero at December 31, 2013 and 2012.
(8) | Employee Benefit Plan |
The Company provides a Simple IRA Plan (the Plan) for its employees. Employees who meet eligibility requirements established by the Company are permitted to voluntarily participate in the Plan. Participating employees may contribute a portion of their salaries in each calendar year, in pretax contributions to an individual retirement account held exclusively in their names. The Company is required to make an annual contribution to the participating employees account equal to at least 1% and not more than 3% of the employees’ compensation earned in the year, provided however, the Company cannot contribute less than 3% for more than 2 years within any 5-year period. Both the employees’ pretax contributions and the Company’s contributions are 100% vested in the name of the participating employees. For the years ended December 31, 2013 and 2012, the Company expensed $87,574 and $71,176, respectively, in connection with contributions made to the Plan.
(9) | Concentration of Risk – Customers |
The Company earns substantially all its revenues from customers within the pharmaceutical and biotech industries. The Company earned more than 5% of its annual revenue from 5 customers in 2013 and 2012, respectively. These customers accounted for 78% and 70% of the Company’s revenues in 2013 and 2012, respectively. The Company’s operations are dependent upon these customers, and therefore, the loss of a substantial portion of revenues from any of these customers could have a material negative impact on the Company’s business if those revenues are not replaced with additional revenues from new or existing customers.
(10) | Commitments and Contingencies |
On occasion and as part of the regular course of business, the Company receives complaints regarding its promotion services from recipients of advertising campaigns messages or correspondence to physicians asking them to provide updated information for the Company’s Web Site Properties. Regulations and laws governing the transmission of communications and health-related information are evolving and may require the Company to modify its business plans and operations in the future.
(Continued)
13 |
DoctorDirectory.com, Inc.
Notes to Financial Statements
December 31, 2013 and 2012
(11) | Subsequent Events |
During January 2014, the Company declared and paid a dividend of $2.50 per share. The total dividend payment was $1,653,750.
The Company has evaluated subsequent events from the balance sheet date through April 21, 2014, the date at which the financial statements were available to be issued, and determined there are no other items to disclose.
14 |
Exhibit 99.2
DoctorDirectory.com, Inc.
Unaudited Financial Statements
As of September 30, 2014 and for the nine months
ended September 30, 2014 and 2013
and the notes related thereto
DOCTORDIRECTORY.COM, INC.
Table of Contents
Page(s) | |
Unaudited Balance Sheets | 1 |
Unaudited Statements of Income | 2 |
Unaudited Statements of Cash Flows | 3 |
Notes to Unaudited Financial Statements | 4-11 |
DOCTORDIRECTORY.COM, INC.
As of September 30, 2014 | As of December 31, 2013 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,018,041 | $ | 3,930,116 | ||||
Accounts receivable, net of allowance for doubtful accounts of approximately $69 thousand as of September 30, 2014 and December 31, 2013 | 2,308,100 | 1,491,919 | ||||||
Revenues in excess of billings | 4,337,382 | 5,112,630 | ||||||
Deferred tax assets | 428,955 | 428,955 | ||||||
Other current assets | 186,796 | 173,028 | ||||||
Total current assets | 11,279,274 | 11,136,648 | ||||||
Property and equipment, net | 324,085 | 184,535 | ||||||
Intangible assets, net | 234,527 | 183,451 | ||||||
Total assets | $ | 11,837,886 | $ | 11,504,634 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 710,685 | $ | 595,349 | ||||
Accrued liabilities | 2,201,346 | 3,189,315 | ||||||
Unearned revenue | 6,525 | 945,980 | ||||||
Total current liabilities | 2,918,556 | 4,730,644 | ||||||
Long-term liabilities: | ||||||||
Deferred tax liabilities | 69,342 | 69,342 | ||||||
Total liabilities | 2,987,898 | 4,799,986 | ||||||
Shareholders’ equity: | ||||||||
Preferred stock, par value $0.01; Authorized, 5,000,000 shares; no shares issued | — | — | ||||||
Common stock – $0.01 par value, Authorized, 5,000,000 shares; Issued 919,862; Outstanding 661,501 as of September 30, 2014 and December 31, 2013 | 9,199 | 9,199 | ||||||
Additional paid-in capital | 2,390,237 | 2,371,905 | ||||||
Retained earnings | 7,013,528 | 4,886,520 | ||||||
Treasury stock | (562,976 | ) | (562,976 | ) | ||||
Total shareholders’ equity | 8,849,988 | 6,704,648 | ||||||
Commitments and contingencies | ||||||||
Total liabilities and shareholders’ equity | $ | 11,837,886 | $ | 11,504,634 |
See accompanying notes to the unaudited financial statements.
1 |
DOCTORDIRECTORY.COM, INC.
Unaudited Statements of Income
Nine months ended September 30, | ||||||||
2014 | 2013 | |||||||
Revenues: | ||||||||
Healthcare professional digital marketing | $ | 12,358,305 | $ | 7,916,695 | ||||
Market research | 2,737,800 | 2,054,084 | ||||||
Other | 1,363 | 2,396 | ||||||
Total revenues | 15,097,468 | 9,973,175 | ||||||
Costs of revenues | 2,647,588 | 2,870,258 | ||||||
Gross profit | 12,449,880 | 7,102,917 | ||||||
Selling, general, and administrative expenses | 6,257,895 | 5,013,060 | ||||||
Income before income taxes | 6,191,985 | 2,089,857 | ||||||
Income taxes | 2,411,227 | 844,197 | ||||||
Net income | $ | 3,780,758 | $ | 1,245,660 |
See accompanying notes to the unaudited financial statements.
2 |
DOCTORDIRECTORY.COM, INC.
Unaudited Statements of Cash Flows
Nine months ended September 30, | ||||||||
2014 | 2013 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 3,780,758 | $ | 1,245,660 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 341,149 | 293,062 | ||||||
Share-based compensation | 18,332 | 17,682 | ||||||
Change in deferred income taxes | — | — | ||||||
Changes in working capital: | ||||||||
Accounts receivable | (816,181 | ) | 811,960 | |||||
Revenues in excess of billings | 775,248 | (1,629,811 | ) | |||||
Other current assets | (13,768 | ) | (35,336 | ) | ||||
Accounts payable | 115,336 | (110,608 | ) | |||||
Accrued liabilities | (987,969 | ) | 1,078,222 | |||||
Unearned revenue | (939,455 | ) | 27,244 | |||||
Net cash provided by operating activities | 2,273,450 | 1,698,075 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (245,506 | ) | (78,945 | ) | ||||
Purchases of intangible assets | (286,269 | ) | (257,463 | ) | ||||
Net cash used in investing activities | (531,775 | ) | (336,408 | ) | ||||
Cash flows from financing activity: | ||||||||
Payment of common stock dividend | (1,653,750 | ) | — | |||||
Net cash used in financing activity | (1,653,750 | ) | — | |||||
Net increase in cash and cash equivalents | 87,925 | 1,361,667 | ||||||
Cash and cash equivalents at beginning of period | 3,930,116 | 1,837,674 | ||||||
Cash and cash equivalents at end of period | $ | 4,018,041 | $ | 3,199,341 |
See accompanying notes to the unaudited financial statements.
3 |
DOCTOR DIRECTORY.COM, INC.
Notes to the Unaudited Financial Statements
(1) | Summary of Significant Accounting Policies |
(a) | Description of Business |
DoctorDirectory.com, Inc. (the Company) was incorporated as a South Carolina corporation on September 16, 1996. The Company is an interactive healthcare marketing company and is primarily engaged in providing its customers with a communication channel to reach healthcare professionals and health consumers. The Company provides a suite of marketing solutions to pharmaceutical and biotech companies, advertising agencies, market research firms, and other healthcare-related companies. Its products include i) a comprehensive performance-based promotion solution for pharmaceutical companies, ii) market research solutions, and iii) a suite of virtual sales and marketing solutions, which comprise online advertising, direct to physician advertising, direct to consumer advertising, prescription drug e-detailing, prescription drug e-sampling, and physician and health consumer Customer Relationship Management (CRM) programs as well as clinical research program recruitment services. The Company publishes health-related Internet Web Site Properties (Web Site Properties), which provide: i) health provider directories and healthcare-related information to consumers seeking physicians and health information, ii) medical practice marketing and administrative tools to physicians, and iii) client services tools to the Company’s customers.
(b) | Financial Statements |
The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) on the same basis as the audited financial statements for the year ended December 31, 2013 and, in the opinion of management, include all adjustments of a normal recurring nature considered necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods ended September 30, 2014 and 2013. The results of operations for the nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or any other future periods, due to seasonality and other business factors. These unaudited financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto for the year ended December 31, 2013.
(c) | Cash and Cash Equivalents |
The Company considers all cash on hand, cash in depository institutions, and short-term investments with original maturities to the Company of 90 days or less to be cash equivalents.
(d) | Trade Accounts Receivable and Revenues in Excess of Billings |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by (used in) operating activities in the statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns.
4 |
DOCTOR DIRECTORY.COM, INC.
Notes to the Unaudited Financial Statements
Revenues in excess of billings are recorded at amounts to be invoiced based on the Company’s customary trade practices which include analysis of program results, calculation of promotional fees earned and client verification of the calculated fees as performance milestones are met.
(e) | Property and Equipment |
Property and equipment are stated at cost. Major additions, betterments, and leasehold improvements are capitalized. The Company follows the provisions of Accounting Standards Codification (ASC) Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software, which requires the capitalization of certain costs associated with software development for internal purposes. Depreciation is calculated using the straight-line method based upon the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of useful life or lease term. Useful lives of the Company’s assets are estimated as follows:
Computer equipment | 3 years | |
Computer software | 3 years | |
Office equipment | 4-5 years | |
Leasehold improvements | 5 years |
(f) | Web Site Development Costs |
The Company capitalizes costs incurred to develop its Web Site Properties, including data content acquired, and amortizes such costs over a three-year period using the straight-line method. Amortization commenced in June 1997, at the time the Company’s initial Web Site was published and became available online. Such costs are primarily comprised of third-party web site development costs. The Company also capitalizes the costs to lease or license certain data content included in its Web Site Properties and amortizes such costs over the term of the agreement.
(g) | Other Current Assets |
Other current assets consist of prepaid insurance, prepaid license fees and other prepaid expenses.
(h) | Income Taxes |
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
5 |
DOCTOR DIRECTORY.COM, INC.
Notes to the Unaudited Financial Statements
The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general, and administrative expenses.
(i) | Revenue Recognition |
The Company recognizes revenue as services are delivered, collection of relevant receivables is reasonably assured, persuasive evidence of arrangements exists, and sales prices are fixed or determinable.
Revenues from Market Research services are recognized as surveys are completed and the responses to those surveys are provided to the client. Revenues from Clinical Research Recruitment services are recognized after physicians are recruited to participate in the clinical programs. Revenues from Physician and Consumer CRM Programs are recognized as the Company provides opted-in respondents to the client. The Company recognizes revenue from its interactive advertising, direct to physician, and direct to consumer advertising solutions, including IncreaseRx programs, as those promotions and campaigns are delivered and where applicable, when performance milestones are achieved. eSampling revenues are recognized as physicians agree to participate in the program and request Rx samples.
(j) | Costs of Revenues |
The costs directly associated with the delivery of the Company’s promotion, recruiting, and advertising services are classified as Costs of Revenues in the accompanying unaudited financial statements. Additionally, the costs associated with the recruitment of and payment of fees and incentives to participants in advertising, clinical, and market research programs are also classified as Costs of Revenues. Incentive payments that are unclaimed are reversed in the period in which they expire.
(k) | Share-Based Compensation Expense |
The Company records share-based compensation expense for options granted to employees using ASC Topic 718, Compensation – Stock Compensation, which requires the measurement of the cost of employee services received in exchange for an award of equity instruments be based on the grant-date fair value of those instruments. Because the Company’s shares are not publicly traded and it is not practicable to estimate the expected volatility of the Company’s share price, the Company accounts for the stock-based compensation of its equity instruments using a value as calculated using the Black-Scholes-Merton method and substituting the historical volatility of an appropriate industry sector index for the expected volatility of its share price. Calculated amounts are amortized straight line over the vesting period. The Company recognized share-based compensation expense of $18,332 and $17,682 during the nine months ended September 30, 2014 and September 30, 2013, respectively.
(l) | Use of Estimates |
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
6 |
DOCTOR DIRECTORY.COM, INC.
Notes to the Unaudited Financial Statements
reported period. On an ongoing basis, the Company evaluates its estimates, including those related to uncollectible receivables, intangible assets, income taxes, and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
(m) | Recent Accounting Pronouncements |
In May 2014, the FASB issued amended guidance for revenue recognition. This amendment provides a comprehensive new revenue recognition model. The core principle of the guidance is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This amendment is effective for fiscal years beginning after December 15, 2016, and for periods within those fiscal years. Early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently assessing the impact, if any, the guidance will have upon adoption.
In August 2014, the FASB issued guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures, as current GAAP provides no such explicit guidance. This guidance should reduce diversity in the timing and content of footnote disclosures. The new standard is effective for fiscal years beginning after December 15, 2016, and for periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact, if any, the guidance will have upon adoption.
(2) | Intangible Assets |
Intangible assets consist of costs to develop Web Site Properties. Intangible assets at September 30, 2014 and December 31, 2013 are as follows:
September 30, 2014 | December 31, 2013 | |||||||
Web site development and content | $ | 2,786,225 | $ | 2,499,956 | ||||
Less accumulated amortization | (2,551,698 | ) | (2,316,505 | ) | ||||
Net intangible assets | $ | 234,527 | $ | 183,451 |
Amortization expense of intangible assets was $235,193 and $213,223 for the nine months ended September 30, 2014 and 2013, respectively, and is included in selling, general and administrative expense in the accompanying unaudited statements of income.
7 |
DOCTOR DIRECTORY.COM, INC.
Notes to the Unaudited Financial Statements
(3) | Operating Leases and Data License Agreements |
The Company is obligated under certain noncancelable leases and licensing agreements, primarily for office space and pharmaceutical prescription data, through 2015.
Lease expenses related to the rental of office space amounted to approximately $155,843 and $153,582, for the nine months ended September 30, 2014 and 2013, respectively.
The total expenses for data licensed under these agreements for the nine months ended September 30, 2014 and 2013 was approximately $217,312 and $177,778, respectively, and is included in Costs of revenues in the accompanying unaudited financial statements.
(4) | Common Stock |
Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to shareholders. The holders have no other preemptive or other subscription rights and there are no redemption or sinking fund provisions.
During January 2014, the Company declared and paid a common stock dividend of $2.50 per share. The total dividend payment was $1,653,750.
As of September 30, 2014 and December 31, 2013, there were 661,501 common shares outstanding.
(5) | Income Taxes |
The provision for income taxes represents federal, state and local income taxes. The Company’s tax provision for periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter the Company updates the estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter. The Company’s quarterly tax provision, and the quarterly estimate of the annual effective tax rate, are subject to volatility due to several factors, including the Company’s ability to accurately predict income before provision for income taxes. In addition, the effective tax rate can be more or less volatile based on the amount of income before provision for income taxes.
The Company’s effective tax rate has exceeded the U.S. statutory rate of 34% primarily because of the effect of earnings taxable in the U.S. and state and local taxes, net of U.S. federal income tax benefits.
For the nine months ended September 30, 2014 and 2013, the Company recorded a provision for income taxes of $2,411,227 and $844,197, respectively. The increase in the provision for income taxes was primarily attributable to an increase in pre-tax income in the first nine months of 2014.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of current taxable income and projections for future taxable income over the periods in which the deferred tax assets
8 |
DOCTOR DIRECTORY.COM, INC.
Notes to the Unaudited Financial Statements
are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of any valuation allowances. There was no valuation allowance as of September 30, 2014 or December 31, 2013.
The Company has adopted the provisions of Interpretation No. 48, included in ASC Subtopic 740-10 – Income Taxes – Overall. The Company determined that it did not have any material unrecognized tax benefits or obligations and the adoption of the guidance did not have a material effect on the Company’s financial position or results of operations in 2014 or 2013. The total amount of gross unrecognized tax benefits was zero at September 30, 2014 and December 31, 2013.
(6) | Employee Benefit Plan |
The Company provides a Simple IRA Plan (the Plan) for its employees. Employees who meet eligibility requirements established by the Company are permitted to voluntarily participate in the Plan. Participating employees may contribute a portion of their salaries in each calendar year, in pretax contributions to an individual retirement account held exclusively in their names. The Company is required to make an annual contribution to the participating employees account equal to at least 1% and not more than 3% of the employees’ compensation earned in the year, provided however, the Company cannot contribute less than 3% for more than 2 years within any 5-year period. Both the employees’ pretax contributions and the Company’s contributions are 100% vested in the name of the participating employees. For the nine months ended September 30, 2014 and 2013, the Company expensed $86,563 and $63,896, respectively, in connection with contributions made to the Plan.
(7) | Concentration of Risk – Customers |
The Company earns substantially all its revenues from customers within the pharmaceutical and biotech industries. The Company earned more than 5% of its annual revenue from 4 and 5 customers during the nine months ended September 30, 2014 and 2013, respectively. These customers accounted for 77% of the Company’s revenues for the nine months ended September 30, 2014 and 2013, respectively. The Company’s operations are dependent upon these customers, and therefore, the loss of a substantial portion of revenues from any of these customers could have a material negative impact on the Company’s business if those revenues are not replaced with additional revenues from new or existing customers.
(8) | Commitments and Contingencies |
On occasion and as part of the regular course of business, the Company receives complaints regarding its promotion services from recipients of advertising campaigns messages or correspondence to physicians asking them to provide updated information for the Company’s Web Site Properties. Regulations and laws governing the transmission of communications and health-related information are evolving and may require the Company to modify its business plans and operations in the future.
(9) | Subsequent Events |
The Company has evaluated subsequent events from the balance sheet date through January 21, 2015, the date at which the financial statements were available to be issued, and determined that, other than the sale of the Company to Everyday Health, Inc. as disclosed elsewhere in this Form 8-K/A, there are no significant events to disclose.
9 |
Exhibit 99.3
Everyday Health, Inc.
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial information and related notes present the historical condensed combined financial information of Everyday Health, Inc. (herein referred to as “Everyday Health” or the “Company”) and DoctorDirectory.com, Inc. (“DoctorDirectory” or “DD”) after giving effect to Everyday Health’s acquisition of DoctorDirectory that was completed on November 12, 2014 (the “Acquisition Date”). The unaudited pro forma condensed combined financial information gives effect to Everyday Health’s acquisition of DoctorDirectory based on the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined balance sheet as of September 30, 2014 is presented as if the acquisition of DoctorDirectory had occurred on September 30, 2014. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2014 and the year ended December 31, 2013 are presented as if the acquisition had occurred on January 1, 2013. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the assumed acquisition, (2) factually supportable, and (3) with respect to the condensed combined statements of operations, expected to have a continuing impact on the combined results.
The determination and preliminary allocation of the purchase consideration used in the unaudited pro forma condensed combined financial information are based upon preliminary estimates, which are subject to change during the measurement period (up to one year from the Acquisition Date) as the Company finalizes the valuations of the net tangible and intangible assets acquired.
The unaudited pro forma adjustments are not necessarily indicative of or intended to represent the results that would have been achieved had the transaction been consummated as of the dates indicated or that may be achieved in the future. The actual results reported by the combined company in periods following the acquisition may differ significantly from those reflected in these unaudited pro forma condensed combined financial information for a number of reasons, including cost saving synergies from operating efficiencies and the effect of the incremental costs incurred to integrate the two companies.
The unaudited pro forma condensed combined financial information should be read in conjunction with the Company’s historical consolidated financial statements for the year ended December 31, 2013 and accompanying notes included in the Company’s prospectus dated March 27, 2014, the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, the historical financial statements of DoctorDirectory for the year ended December 31, 2013 and the historical unaudited financial statements of DoctorDirectory as of and for the nine months ended September 30, 2014 contained in this Form 8-K/A.
Everyday Health, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2014
(in thousands)
Historical | ||||||||||||||||
Everyday Health, Inc. | DoctorDirectory | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 57,181 | $ | 4,018 | $ | (18,681 | )(c) | $ | 42,518 | |||||||
Accounts receivable, net | 41,940 | 2,308 | 4,337 | (a) | 48,585 | |||||||||||
Revenues in excess of billings | — | 4,337 | (4,337 | )(a) | — | |||||||||||
Deferred tax asset | 133 | 429 | — | 562 | ||||||||||||
Prepaid expenses and other current assets | 6,760 | 187 | — | 6,947 | ||||||||||||
Total current assets | 106,014 | 11,279 | (18,681 | ) | 98,612 | |||||||||||
Property and equipment, net | 23,694 | 324 | 234 | (a) | 24,252 | |||||||||||
Goodwill | 82,153 | — | 45,672 | (b)(f) | 127,825 | |||||||||||
Intangible assets, net | 8,099 | 234 | (234 | )(a) | ||||||||||||
24,530 | (b) | 32,629 | ||||||||||||||
Other assets | 4,693 | — | 663 | (c) | 5,356 | |||||||||||
Total assets | $ | 224,653 | $ | 11,837 | $ | 52,184 | $ | 288,674 | ||||||||
Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 5,946 | $ | 711 | $ | — | $ | 6,657 | ||||||||
Accrued expenses | 16,320 | 2,201 | — | 18,521 | ||||||||||||
Deferred revenue | 8,445 | 7 | — | 8,452 | ||||||||||||
Current portion of long-term debt | 2,500 | — | 500 | (c) | 3,000 | |||||||||||
Other current liabilities | 873 | — | — | 873 | ||||||||||||
Total current liabilities | 34,084 | 2,919 | 500 | 37,503 | ||||||||||||
Long-term Debt | 37,000 | — | 50,500 | (c) | 87,500 | |||||||||||
Deferred tax liabilities | 5,921 | 69 | 10,033 | (f) | 16,023 | |||||||||||
Other long-term liabilities | 4,246 | — | — | 4,246 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock | 307 | 9 | (9 | )(e) | 307 | |||||||||||
Treasury stock | (55 | ) | (563 | ) | 563 | (e) | (55 | ) | ||||||||
Additional paid-in capital | 283,427 | 2,390 | (2,390 | )(e) | 283,427 | |||||||||||
Retained earnings (accumulated deficit) | (140,277 | ) | 7,013 | (7,013 | )(e) | (140,277 | ) | |||||||||
Total stockholders’ equity | 143,402 | 8,849 | (8,849 | ) | 143,402 | |||||||||||
Total liabilities and stockholders’ equity | $ | 224,653 | $ | 11,837 | $ | 52,184 | $ | 288,674 |
See notes to unaudited pro forma condensed combined financial information
1 |
Everyday Health, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2013
(in thousands, except share and per share data)
Historical | ||||||||||||||||
Everyday Health, Inc. | DoctorDirectory | Pro
Forma Adjustments |
Pro Forma Combined | |||||||||||||
Revenues: | ||||||||||||||||
Advertising and sponsorship revenue | $ | 134,893 | $ | — | $ | 17,027 | (a) | $ | 151,920 | |||||||
Premium services revenue | 20,957 | — | — | 20,957 | ||||||||||||
Healthcare professional digital marketing | — | 13,910 | (13,910 | )(a) | — | |||||||||||
Market research and other | — | 3,117 | (3,117 | )(a) | — | |||||||||||
Total revenue | 155,850 | 17,027 | — | 172,877 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of revenues | 43,338 | 4,098 | 558 | (a) | 47,994 | |||||||||||
Sales and marketing | 44,385 | — | 1,924 | (a) | 46,309 | |||||||||||
Product development | 44,496 | — | 3,378 | (a)(b) | 47,874 | |||||||||||
General and administrative | 26,725 | — | 4,048 | (a)(b) | ||||||||||||
(24 | )(g) | 30,749 | ||||||||||||||
Selling, general and administrative | — | 6,867 | (6,867 | )(a) | — | |||||||||||
Total operating expenses | 158,944 | 10,965 | 3,017 | 172,926 | ||||||||||||
Income (loss) from operations | (3,094 | ) | 6,062 | (3,017 | ) | (49 | ) | |||||||||
Interest expense, net | 8,442 | — | 2,046 | (d) | 10,488 | |||||||||||
Other expense | 359 | — | — | 359 | ||||||||||||
Income (loss) from continuing operations before provision for income taxes | (11,895 | ) | 6,062 | (5,063 | ) | (10,896 | ) | |||||||||
Benefit (Provision) for income taxes | (1,102 | ) | (2,359 | ) | 1,932 | (h) | (1,529 | ) | ||||||||
Income (loss) from continuing operations | $ | (12,997 | ) | $ | 3,703 | $ | (3,131 | ) | $ | (12,425 | ) | |||||
Net loss from continuing operations per common share - basic and diluted | $ | (2.55 | ) | $ | (2.43 | ) | ||||||||||
Weighted-average common shares outstanding - basic and diluted | 5,103,351 | 5,103,351 |
See notes to unaudited pro forma condensed combined financial information
2 |
Everyday
Health, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2014
(in thousands, except share and per share data)
Historical | |||||||||||||||||
Everyday Health, Inc. | DoctorDirectory | Pro Forma Adjustments |
Pro Forma Combined |
||||||||||||||
Revenues: | |||||||||||||||||
Advertising and sponsorship revenue | $ | 107,484 | $ | — | $ | 15,097 | (a) | $ | 122,581 | ||||||||
Premium services revenue | 13,792 | — | — | 13,792 | |||||||||||||
Healthcare professional digitial marketing | — | 12,358 | (12,358 | ) | (a) | — | |||||||||||
Market research and other | — | 2,739 | (2,739 | ) | (a) | — | |||||||||||
Total revenue | 121,276 | 15,097 | — | 136,373 | |||||||||||||
Operating expenses: | |||||||||||||||||
Cost of revenues | 33,388 | 2,648 | 368 | (a) | 36,404 | ||||||||||||
Sales and marketing | 37,053 | — | 1,813 | (a) | 38,866 | ||||||||||||
Product development | 30,049 | — | 3,081 | (a)(b) | 33,130 | ||||||||||||
General and administrative | 21,225 | — | 3,277 | (a)(b) | |||||||||||||
(18 | ) | (g) | 24,484 | ||||||||||||||
Selling, general and administrative | — | 6,258 | (6,258 | ) | (a) | — | |||||||||||
Total operating expenses | 121,715 | 8,906 | 2,263 | 132,884 | |||||||||||||
Income (loss) from operations | (439 | ) | 6,191 | (2,263 | ) | 3,489 | |||||||||||
Interest expense, net | 2,948 | — | 1,329 | (d) | 4,277 | ||||||||||||
Other expense | 4,114 | — | — | 4,114 | |||||||||||||
Income (loss) before provision for income taxes | (7,501 | ) | 6,191 | (3,592 | ) | (4,902 | ) | ||||||||||
Benefit (Provision) for income taxes | (1,003 | ) | (2,411 | ) | 1,973 | (h) | (1,441 | ) | |||||||||
Net income (loss) | (8,504 | ) | 3,780 | (1,619 | ) | (6,343 | ) | ||||||||||
Series G Preferred Stock deemed dividend | (8,079 | ) | — | — | (8,079 | ) | |||||||||||
Net income (loss) attributable to common stockholders | $ | (16,583 | ) | $ | 3,780 | $ | (1,619 | ) | $ | (14,422 | ) | ||||||
Net loss attributable to common stockholders per common share - basic and diluted | $ | (0.76 | ) | $ | (0.66 | ) | |||||||||||
Weighted-average common shares outstanding - basic and diluted | 21,962,026 | 21,962,026 |
See notes to unaudited pro forma condensed combined financial information
3 |
Everyday Health, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in thousands)
(1) | Basis of Pro Forma Presentation |
The unaudited pro forma condensed combined balance sheet as of September 30, 2014 combines our historical condensed consolidated balance sheet with the historical condensed consolidated balance sheet of DoctorDirectory and has been prepared as if our acquisition of DoctorDirectory had occurred on September 30, 2014. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2013 and for the nine months ended September 30, 2014 combine our historical condensed consolidated statements of operations with DoctorDirectory’s historical statements of income and have been prepared as if the acquisition had occurred on January 1, 2013. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the condensed combined statements of operations, expected to have a continuing impact on the combined results.
We have accounted for the acquisition in this unaudited pro forma condensed combined financial information using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”). In accordance with ASC 805, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the Acquisition Date. Goodwill as of the Acquisition Date is measured as the excess of purchase price consideration over the fair value of net tangible and identifiable intangible assets acquired.
The pro forma adjustments described below were developed based on Everyday Health management’s assumptions and estimates, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from DoctorDirectory based on preliminary estimates of fair value. The final purchase consideration and the allocation of the purchase consideration will differ from that reflected in the unaudited pro forma condensed combined financial information after final valuation procedures are performed and amounts are finalized.
The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or financial position.
The unaudited pro forma condensed combined financial information does not reflect any integration activities or cost savings from operating efficiencies, synergies, asset dispositions or other restructurings that could result from the acquisition.
4 |
Everyday Health, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in thousands)
(2) | Preliminary Purchase Consideration and Related Allocation |
On November 12, 2014, Everyday Health acquired all of the outstanding equity of DoctorDirectory, a South Carolina corporation, which provides pharmaceutical companies with multi-channel interactive marketing services that target healthcare professionals, for a cash purchase price of $65,000. The Company expects that the DD acquisition will enable the Company to significantly increase the number of healthcare professionals it reaches, deepen and broaden its relationships with pharmaceutical companies, gain valuable expertise across sales, marketing and data and analytics, and introduce new products and services to healthcare professionals.
Under the terms of the Company’s existing credit facility agreement with a syndicated bank group, the Company maintained a revolver (“Revolver”) with a maximum borrowing limit of $35,000 and a term loan (“Term Loan”) of $40,000 (together, the “Credit Facility”). In anticipation of the DD acquisition discussed above, on November 6, 2014, the Company drew $35,000 under the revolver portion of its Credit Facility, and on November 10, 2014, amended the Credit Facility. Among other matters, the amendment (i) increased the Term Loan from $39,000 outstanding as of the acquisition date to $60,000; (ii) increased the maximum borrowing limit of the Revolver from $35,000 to $55,000; (iii) extended the maturity date of the Term Loan and the due date of principal on the Revolver from March 2019 to November 2019; (iv) approved and consented to the acquisition of DD; and (v) effected certain modifications to the covenants and terms as set forth in the Amended and Restated Credit Facility agreement. On November 17, 2014, the Company repaid $5,000 of the November 6, 2014 advance, yielding a net borrowing for the acquisition of $51,000.
The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed based on their fair values on the assumed acquisition date of September 30, 2014 and the related estimated useful lives of the amortizable intangible assets acquired:
Preliminary estimated useful life | ||||||
Current assets | $ | 7,261 | ||||
Non-current assets | 558 | |||||
Current liabilities | (2,919 | ) | ||||
Non-current liabilities | (10,102 | ) | ||||
Finite-lived intangible assets: | ||||||
Customer Relationships | 15,390 | 10 years | ||||
Tradename | 8,110 | 7 years | ||||
Technology | 1,030 | 3 years | ||||
Goodwill | 45,672 | |||||
$ | 65,000 |
5 |
Everyday Health, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in thousands)
The Company believes the amount of goodwill resulting from the allocation of purchase consideration is primarily attributable to expected synergies from future growth, mainly from expanding the reach with healthcare professionals, deepening and broadening the advertising and promotional opportunities with pharmaceutical companies, and gaining valuable expertise across sales, marketing, and data and analytics. Goodwill is not expected to be deductible for tax purposes. In accordance with ASC 805, goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently if certain indicators of impairment are present. In the event that goodwill has become impaired, the Company will record an expense for the amount impaired during the fiscal quarter in which the determination was made.
Upon completion of the fair value assessment, it is anticipated that the final purchase price allocation will differ from the preliminary assessment outlined above. Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
(3) | Pro Forma Adjustments |
The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:
(a) | The following reclassifications have been made to the presentation of DoctorDirectory’s historical financial statements in order to conform to Everyday Health’s presentation: |
Website development costs of $234 was reclassified from intangible assets to property and equipment.
Revenues in excess of billings of $4,337 was reclassified to accounts receivable.
For the year ended December 31, 2013, Healthcare Professional Digital Marketing revenue of $13,910 and Marketing Research and Other revenue of $3,117 were reclassified to Advertising and Sponsorship revenue.
For the nine months ended September 30, 2014, Healthcare Professional Digital Marketing revenue of $12,358 and Marketing Research and Other revenue of $2,739 were reclassified to Advertising and Sponsorship revenue.
For the year ended December 31, 2013, Selling, General and Administrative expense of $1,924 was reclassified to Sales and Marketing expense; Selling, General and Administrative expense of $3,035 was reclassified to Product Development expense; Selling, General and Administrative expense of $1,350 was reclassified to General and Administrative expense; and Selling, General and Administrative expense of $558 was reclassified to Cost of Revenues.
For the nine months ended September 30, 2014, Selling, General and Administrative expense of $1,813 was reclassified to Sales and Marketing expense; Selling, General and Administrative expense of $2,823 was reclassified to Product Development expense; Selling, General and Administrative expense of $1,254 was reclassified to General and Administrative expense, and Selling, General and Administrative expense of $368 was reclassified to Cost of Revenues.
(b) | To record preliminary fair values of the intangible assets acquired in connection with the DoctorDirectory acquisition and associated amortization expenses: |
6 |
Everyday Health, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in thousands)
Preliminary fair values | Preliminary estimated useful life | Nine months amortization based on preliminary fair values | Annual amortization based on preliminary fair values | |||||||||||
Customer Relationships | $ | 15,390 | 10 years | $ | 1,154 | $ | 1,539 | |||||||
Tradename | 8,110 | 7 years | 869 | 1,159 | ||||||||||
Technology | 1,030 | 3 years | 258 | 343 | ||||||||||
Goodwill | 45,672 | — | — | |||||||||||
$ | 70,202 | $ | 2,281 | $ | 3,041 |
For the year ended December 31, 2013, pro forma amortization expense of $2,698 and $343 was recorded to General and Administrative expense and Product Development expense, respectively.
For the nine months ended September 30, 2014, pro forma amortization expense of $2,023 and $258 was recorded to General and Administrative expense and Product Development expense, respectively.
(c) | To adjust debt obligations for the $51,000 of additional borrowings under the Company’s Amended and Restated Credit Facility (the “Amended Credit Facility”) used to finance the acquisition, including reclassification of $500 to the current portion of long-term debt in connection with the amendments. |
The adjustment to cash and cash equivalents pertains to the use of proceeds from the Amended Credit facility offset by the purchase consideration and other items, as follows:
Cash from Amended Credit Facility, net of cash paid for debt issuance costs (1) | $ | 50,337 | |
Cash purchase price | (65,000 | ) | |
Elimination of DoctorDirectory cash balance (2) | (4,018 | ) | |
Pro forma adjustment to cash and cash equivalents | $ | (18,681 | ) |
(1) Everyday Health incurred debt issuance costs of $663 in connection with amendments to the Credit Facility, which was recorded as deferred financing costs and reflected as a pro forma adjustment to Other Assets.
(2) As per the terms of the merger agreement, the DoctorDirectory cash balance at closing was not part of the assets and liabilities assumed by the Company.
7 |
Everyday Health, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in thousands)
(d) | To record incremental interest expense related to the additional borrowings on the Amended Credit Facility in connection with financing the DoctorDirectory acquisition, and amortization of related deferred financing costs. |
The Amended Credit Facility is a variable interest rate debt agreement. A 1/8% increase in the variable interest rate on the Amended Credit Facility would result in additional pro forma interest expense of approximately $63 for the year ended December 31, 2013 and $44 for the nine months ended September 30, 2014.
(e) | To eliminate DoctorDirectory historical equity as of September 30, 2014. |
(f) | To record approximately $10,033 of goodwill and related net deferred tax liabilities resulting from basis differences in acquired intangible assets that cannot be offset by current and prior year deferred tax assets. For the year ended December 31, 2014, the Company will record a one-time benefit to the provision for income taxes, estimated to be $10,033, as a result of reducing the deferred tax valuation allowance related to these intangible assets. The benefit is not included as a pro forma adjustment as it will not have a continuing impact on the combined results. |
(g) | To eliminate stock-based compensation expense of $24 and $18 recorded by DoctorDirectory during the year ended December 31, 2013 and the nine months ended September 30, 2014, respectively. |
(h) | To eliminate the DoctorDirectory historical federal tax provision of $1,932 and $1,973 for the year ended December 31, 2013 and the nine months ended September 30, 2014, respectively, as the combined entity would have a loss before provision for income taxes for these periods. |
8 |