EX-99.2 3 a06-13340_1ex99d2.htm EX-99.2

Exhibit 99.2

 

 

Independent Auditor’s Report

 

Board of Directors

Morex Marketing Group, LLC

Pomona, New York

 

We have audited the accompanying balance sheets of Morex Marketing Group, LLC as of December 31, 2005 and 2004, and the related statements of operations, members’ 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. 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 Morex Marketing Group, LLC 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.

 

 

/s/ Blackman Kallick Bartelstein, LLP

 

 

Chicago, Illinois

April 20, 2006

 


 

Morex Marketing Group, LLC.

BALANCE SHEETS

December 31, 2005 and 2004

 

 

 

2005

 

2004

 

Assets

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash

 

$

152,002

 

$

188,538

 

Trade Receivables

 

1,119,393

 

89,577

 

Prepaid Expenses

 

0

 

5,398

 

Total Current Assets

 

1,271,395

 

283,513

 

 

 

 

 

 

 

Property and Equipment

 

 

 

 

 

Software

 

174,057

 

19,325

 

Equipment

 

9,055

 

2,446

 

Subtotal

 

183,112

 

21,771

 

Less: Accumulated Depreciation

 

(24,786

)

(238

)

Net Property and Equipment

 

158,326

 

21,533

 

 

 

 

 

 

 

Intangible Assets (net of accumulated amortization)

 

1,670,896

 

669,916

 

TOTAL ASSETS

 

$

3,100,617

 

$

974,962

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Trade Payables

 

$

453,212

 

$

233,789

 

Distributions Payable

 

227,789

 

93,785

 

Accrued Expenses

 

191,032

 

2,128

 

Total Current Liabilities

 

872,033

 

329,702

 

 

 

 

 

 

 

Members’ Equity

 

2,228,583

 

645,260

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ EQUITY

 

$

3,100,617

 

$

974,962

 

 

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

 


 

Morex Marketing Group, LLC.

STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2005 and 2004

 

 

 

2005

 

2004

 

Revenue

 

$

5,208,498

 

$

1,283,082

 

 

 

 

 

 

 

Cost of Revenue

 

1,093,892

 

98,390

 

 

 

 

 

 

 

Gross Profit

 

4,114,606

 

1,184,692

 

 

 

 

 

 

 

Selling, General and Administrative Expenses

 

950,942

 

135,836

 

 

 

 

 

 

 

Income from operations

 

3,163,664

 

1,048,856

 

 

 

 

 

 

 

Interest Income

 

379

 

0

 

 

 

 

 

 

 

Net Income

 

$

3,164,043

 

$

1,048,856

 

 

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

 


 

Morex Marketing Group, LLC.

STATEMENTS OF MEMBERS’ EQUITY

For the Years Ended December 31, 2005 and 2004

 

 

 

2005

 

2004

 

Members’ Equity, January 1

 

$

645,260

 

$

0

 

 

 

 

 

 

 

Contributed Capital

 

0

 

19,218

 

 

 

 

 

 

 

Net Income

 

3,164,043

 

1,048,856

 

 

 

 

 

 

 

Distributions

 

(1,580,720

)

(422,814

)

 

 

 

 

 

 

Members’ Equity, December 31

 

$

2,228,583

 

$

645,260

 

 

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

 


 

Morex Marketing Group, LLC.

STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2005 and 2004

 

 

 

2005

 

2004

 

Cash flows from Operating Activities

 

 

 

 

 

Net Income

 

$

3,164,043

 

$

1,048,856

 

Adjustments to Reconcile Net Income to Net Cash

 

 

 

 

 

Provided by Operating Activities

 

 

 

 

 

Depreciation and Amortization

 

1,034,922

 

83,925

 

(Increase)Decrease in Assets:

 

 

 

 

 

Trade Receivables

 

(1,029,816

)

(267,204

)

Prepaid Expenses

 

5,398

 

(5,398

)

Increase(Decrease) in Liabilities

 

 

 

 

 

Trade Payables

 

219,423

 

233,789

 

Accrued Expenses

 

188,904

 

2,128

 

Net Cash Provided by Operating Activities

 

3,585,323

 

1,096,096

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

Capital Expenditures

 

(161,341

)

(21,771

)

Acquisitions of Databases

 

(2,013,233

)

(736,385

)

Net Cash Used in Investing Activities

 

(2,177,023

)

(758,156

)

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

Contributed Capital

 

0

 

2,000

 

Distributions to Members

 

(1,444,837

)

(151,402

)

Net Cash Used in Financing Activities

 

(1,444,837

)

(149,402

)

 

 

 

 

 

 

Net Cash Change

 

(36,536

)

188,538

 

 

 

 

 

 

 

Cash – Beginning of Period

 

188,538

 

0

 

 

 

 

 

 

 

Cash – End of Period

 

$

152,002

 

$

188,538

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Non-Cash Financing Activity:

 

 

 

 

 

Distribution payable to Member (necessary under Company’s operating agreement which requires pro-rata distributions)

 

$

227,789

 

$

93,785

 

 

 

 

 

 

 

Contribution of Member’s Personal Payment of Vendor Invoice for Company Databases

 

$

0

 

$

17,218

 

 

 

 

 

 

 

Trade Receivable Collected Personally by Member and Classified as a Distribution to that Member

 

$

0

 

$

177,627

 

 

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

 


 

MOREX MARKETING GROUP, LLC.

Notes to Financial Statements

For the Years Ended December 31, 2005 and 2004

 

NOTE A - PRINCIPLES OF COMBINATION AND BUSINESS ACTIVITIES

 

Morex Marketing Group, LLC (“Morex”) is a New York limited liability company and the owner of the Internet website www.Babytobee.com. Through Babytobee.com, Morex has developed a model for compiling the names of moms-to-be in the marketplace and direct marketing to expecting and new parents, primarily via the Internet.

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

 

Aspects of the Limited Liability Company

 

As a limited liability company, each member’s liability is limited to the capital invested. Allocation of profits, losses and distributions is in accordance with the terms as defined in the operating agreement. Morex is set up to dissolve on March 1, 2034, unless extended by amendment to the operating agreement as it prescribes.

 

Morex is treated as a partnership for federal income tax purposes. Consequently, federal income taxes are not payable by, or provided for, Morex. Members are taxed individually on their share of the company’s earnings. Morex’s net income or loss is allocated among the members in accordance with the operating agreement of the company. Accordingly, the financial statements do not reflect a provision for income taxes.

 

Morex’s operating agreement requires distributions made to the members to be pro-rata. In the event cash distributions made during the periods were not made pro-rata, it is Morex’s policy to record a distribution payable to members to effectively record distributions pro-rata in accordance with the operating agreement.

 

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 certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

Revenue Recognition

 

Revenue is recognized when the names lists are delivered to the customer.

 

 


 

Trade Receivables

 

Receivables are carried at original invoice amount. No provision for doubtful accounts has been made as of December 31, 2005 and 2004, as management considers all amounts fully collectible. A receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 90 days. Receivables are written off when deemed uncollectible.

 

Depreciation

 

Property and equipment are stated at cost. Depreciation is provided on the straight-line method for financial statement purposes and accelerated methods for tax purposes. Repairs and maintenance are expensed as incurred. The estimated useful lives of the assets are as follows:

 

Equipment

 

5 years

Software

 

3 years

 

Intangible Assets

 

Intangible assets consist of databases of demographic and other data of expectant and new parents in the marketplace. These assets are acquired from external resources, recorded at cost and are amortized using the straight-line method over a period of one to two years.

 

NOTE C - CASH

 

Substantially all of Morex’s cash is held at one financial institution. Cash deposits held by the bank exceeded FDIC-insured limits by $52,002 as of December 31, 2005. Morex has not experienced any losses in such accounts. Morex believes it is not exposed to any significant credit risk on cash.

 

NOTE D - INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

 

 

2005

 

2004

 

Database Acquisition Costs

 

$

2,766,836

 

$

751,153

 

Accumulated Amortization

 

1,095,940

 

81,237

 

 

 

$

1,670,896

 

$

669,916

 

 

Amortization expense was $1,009,019 and $81,237 for the twelve months ended December 31, 2005 and 2004, respectively. Estimated future amortization expense for the following two years is as follows:

 

Year ended December 31, 2006

 

$

1,807,789

 

Year ended December 31, 2007

 

363,107

 

 

 

$

1,670,896

 

 


 

NOTE E - ACCRUED EXPENSES

 

Accrued expenses consisted of the following as of December 31, 2005 and 2004:

 

 

 

2005

 

2004

 

Accrued Payroll

 

$

7,838

 

$

2,128

 

Accrued Professional Fees

 

183,194

 

0

 

Total

 

$

191,032

 

$

2,128

 

 

NOTE F - RELATED PARTIES

 

Morex rents office space from two of its members on a month-to-month basis, beginning in July 2004.  Rent expense charged to the company under this agreement was $48,000 and $24,000 for the years ended December 31 2005 and 2004, respectively.

 

NOTE G – CONCENTRATIONS

 

For the years ended December 31, 2005 and 2004, 54.8% and 79.3%, respectively, of Morex’s revenues were generated from services rendered to two individual customers.  Services rendered to one of these customers, Catamount Group, as described in Note H, account for approximately 12.1% and 15.5% of revenue as of December 31, 2005 and 2004, respectively.  Approximately 25.6% and 64.9% of the trade receivables as of December 31, 2005 and 2004, respectively, were from these same customers.

 

For the years ended December 31, 2005 and 2004, approximately 76.2% and 80.1%, respectively, of the purchases of intangible assets, that are the basis for primary sources of Morex’s revenue, were generated from services rendered by three and two individual vendors.  Approximately 70.4% and 70.3% of the trade payables as of December 31, 2005 and 2004 were payable to these same vendors.

 

NOTE H - SUBSEQUENT EVENT

 

On January 20, 2006, Catamount Group, LLC., Catamount Management, LLC and Plan Bee, LLC (collectively “Catamount Group”) merged with and into Morex. Catamount Group is one of the leading brokers of online lead generation data to the off-line direct marketing industry, offering services beyond the traditional direct marketing agency. As consideration for the merger, the member of Catamount Group received an 8% stake of Morex valued at approximately $1,700,000. Morex is in the process of

 


valuing certain intangible assets related to this acquisition and thus the allocation of the purchase price has not been completed.

 

On January 20, 2006, Morex was acquired by Think Partnership Inc. (“Think Partnership”), a Nevada public company. As consideration for the acquisition, the members of Morex received an aggregate of $9,438,778 in cash and an aggregate of 5,513,845 shares of common stock, valued at $2.18 per share. Further, the members of Morex may receive earnout payments (each, an “Earnout Payment”) to be paid in 2006, 2007, 2008 and 2009. Each year’s earnout payment shall be equal to the excess of (A) four times the aggregate earnings of Morex for the previous calendar year over (B) the aggregate amount of merger consideration previously paid by the Company (including any Earnout Payments); provided, however, in no event shall the total aggregate merger consideration (including the Earnout Payments) payable to the members of Morex exceed $50 million. Each Earnout  Payment, to the extent earned, will be paid 50% in cash and 50% in shares of Think Partnership’s common stock valued at the  average of the closing prices for shares of their common stock on the last day on which such shares were traded for each quarter of the calendar  year on which the particular Earnout Payment is based, provided that, in the Think Partnership’s sole discretion it may pay to the members in cash any Earnout Payment that is otherwise  required to be paid in shares of common stock  (“Earnout Stock”),  if the delivery of shares of the Earnout Stock would cause the total merger consideration paid by Think  Partnership in the form of common stock to exceed 7,674,305 shares. The members of Morex also received warrants to purchase an aggregate of 105,000 shares of Company common stock at $3.50 per share.