EX-99.1 3 exhibit2.htm EX-99.1 EX-99.1

Smart Online, Inc.
Pro Forma Consolidated Balance Sheet
June 30, 2006
(unaudited)

                                         
            Consolidated   Pro forma   Pro Forma
            June 30, 2006   Adjustments (a)        
Assets
                                        
CURRENT ASSETS
                                        
Cash and Cash Equivalents
                   $ 853,129       600,000     $ 1,453,129  
Restricted Cash
                     426,699               426,699  
Accounts Receivable, Net
                     358,568       51,429       409,997  
Other Accounts Receivable
                     70,481       (61,136 )     9,345  
Prepaid Expenses
                     217,228       (4,924 )     212,304  
Total Current Assets
                   $ 1,926,105     $ 585,369     $ 2,511,474  
PROPERTY AND EQUIPMENT, Net
                   $ 596,792       (400,000 )   $ 196,792  
INTANGIBLE ASSETS, Net
                   $ 10,539,148       (1,062,979 )   $ 9,476,169  
OTHER ASSETS
                   $ 268,730       (230,690 )   $ 38,040  
TOTAL ASSETS
                   $ 13,330,775             $ 12,222,475  
Liabilities and Stockholders’ Equity
                                        
CURRENT LIABILITIES
                                        
Accounts Payable
                   $ 1,194,550             $ 1,194,550  
Short-term Portion of Capital Lease
                     9,867       (9,867 )     —  
Short-term Portion of Subscription Financing Payable
             883,987       (883,987 )     -  
Accrued Registration Rights Penalty
                     359,258               359,258  
Current Portion of Notes Payable
                     3,280,712       (125,000 )     3,155,712  
Accrued Liabilities
                     128,975               128,975  
Deferred Revenue
                     586,742       (12,050 )     574,692  
Total Current Liabilities
                   $ 6,444,091       (1,030,904 )   $ 5,413,187  
LONG-TERM LIABILITIES
                                        
Long-term Portion of Notes Payable
                   $ 218,117             $ 218,117  
Subscription Financing Payable
                     659,736       (659,736 )     —  
Deferred Revenue
                     54,883               54,883  
Total Long-term Liabilities
                   $ 932,736       (659,736 )   $ 273,000  
Total Liabilities
                   $ 7,376,827       (1,690,640 )   $ 5,686,187  
STOCKHOLDERS’ EQUITY
                                        
Common Stock, $.001 Par Value, 45,000,000
                                
Shares Authorized, Shares Issued and
                                        
Outstanding:
                   $ 15,804             $ 15,804  
Additional Paid-in Capital
                   $ 59,891,034             $ 59,891,034  
Accumulated Deficit
                   $ (53,952,890 )     582,340     $ (53,370,550 )
Total Stockholders’ Equity
                   $ 5,953,948       582,340     $ 6,536,288  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
           $ 13,330,775             $ 12,222,475  

1

Smart Online, Inc.
Pro Forma Consolidated Statement of Operations
Six Months Ended June 30, 2006
(unaudited)

                         
    As Reported   Pro Forma   Pro Forma
    June 30, 2006   Adjustments (b)        
REVENUES
                        
Subscription Fees
   $ 1,924,032     $ (877,264 )   $ 1,046,768  
Professional Services Fees
     862,325       (60,624 )     801,701  
Integration Fees
     176,410               176,410  
Syndication Fees
     126,267               126,267  
OEM Revenue
     18,000               18,000  
Other Revenues
     118,957       (96,645 )     22,312  
 
                        
Total Revenues
   $ 3,225,991     $ (1,034,533 )   $ 2,191,458  
COST OF REVENUES
   $ 678,407     $ (497,204 )   $ 181,203  
 
                        
GROSS PROFIT
   $ 2,547,584     $ (537,329 )   $ 2,010,255  
OPERATING EXPENSES
                        
General and Administrative
   $ 4,003,323     $ (374,225 )   $ 3,629,098  
Sales and Marketing
     610,472       (78,559 )     531,913  
Research and Development
     1,014,646       (191,446 )     823,200  
 
                        
Total Operating Expenses
   $ 5,628,441     $ (644,230 )   $ 4,984,211  
LOSS FROM OPERATIONS
   $ (3,080,857 )   $ 106,901     $ (2,973,956 )
OTHER INCOME (EXPENSE):
                        
Interest Income (Expense), Net
   $ (228,292 )   $ 89,235     $ (139,057 )
Takeback of Investor Relations Shares
     1,562,500               1,562,500  
Write-off of Investment
     (25,000 )             (25,000 )
Gain on Debt Forgiveness
     144,351               144,351  
 
                        
Total Other Income (Expense)
   $ 1,453,559       89,235     $ 1,542,794  
NET LOSS
   $ (1,627,298 )   $ 196,135     $ (1,431,163 )
Net Loss Attributed to Common Stockholders
   $ (1,627,298 )     196,135     $ (1,431,163 )
NET LOSS PER SHARE:
                        
Net loss attributed to common
                        
stockholders-Basic and Diluted
   $ (0.11 )           $ (0.10 )
SHARES USED IN COMPUTING NET LOSS
                        
PER SHARE
                        
Basis and Diluted
     15,052,205               15,052,205  

2

Smart Online, Inc.
Pro Forma Consolidated Statement of Operations
Year Ended December 31, 2005

                         
    As Reported   Pro Forma   Pro Forma
    December 31, 2005   Adjustments (b)        
REVENUES
                        
Subscription Fees
   $ 914,674     $ (446,053 )   $ 468,621  
Professional Services Fees
     435,486       (33,809 )     401,677  
Integration Fees
     798,178               798,178  
Syndication Fees
     402,847               402,847  
OEM Revenue
     48,000               48,000  
Other Revenues
     102,791       (66,689 )     36,102  
 
                        
Total Revenues
   $ 2,701,976     $ (546,551 )   $ 2,155,425  
COST OF REVENUES
   $ 400,822     $ (245,930 )   $ 154,892  
 
                        
GROSS PROFIT
   $ 2,301,154     $ (300,621 )   $ 2,000,533  
 
                        
OPERATING EXPENSES:
                        
General and Administrative
   $ 15,208,546     $ (169,983 )   $ 15,038,563  
Sales and Marketing
     1,422,345       (36,326 )     1,386,019  
Research and Development
     1,737,092       (87,135 )     1,649,957  
 
                        
Total Operating Expenses
   $ 18,367,983     $ (293,444 )   $ 18,074,539  
LOSS FROM OPERATIONS
   $ (16,066,829 )   $ (7,177 )   $ (16,074,006 )
 
                        
OTHER INCOME (EXPENSE):
                     —  
Interest Expense
   $ (80,414 )   $ 42,912       (37,502 )
Gain on Debt Forgiveness
     556,215               556,215  
Gain on Sale of Investment
     419               419  
 
                        
Total Other Income
   $ 476,220       42,912     $ 519,132  
NET LOSS
   $ (15,590,609 )   $ 35,735     $ (15,554,874 )
Loss Attributed to Common Stockholders
   $ (15,590,609 )   $ 35,735     $ (15,554,874 )
 
                        
NET LOSS PER SHARE:
                        
Net loss Attributed to Common Stockholders
                        
Basic and Diluted
   $ (1.20 )           $ (1.20 )
SHARES USED IN COMPUTING NET LOSS
                        
 
                        
PER SHARE:
                        
Basic and Diluted
     12,960,006               12,960,006  

3

Notes to Pro Forma Financial Statements

The pro forma balance sheet of Smart Online, Inc. presents our balance sheet as it would have appeared if the asset purchase agreement dated September 29, 2006 by and between Smart Online, Inc., Smart CRM, Inc. and Alliance Technologies, Inc. (the “Agreement”) had closed on June 30, 2006. For the purpose of the pro formas, the assumption is made that the terms of the acquisition would have been identical as applied to the asset and liability balances at June 30, 2006.

(a) The removal of the property, plant & equipment, intangible assets, accounts receivable, prepaid expenses and other assets as well as the removal of the assumed liabilities related to the Agreement.

                 
Consideration Paid / Liabilities Assumed
                
Cash
   600,000        
Factor Debt S/T
   883,987        
Factor Debt L/T
   659,736        
Floor Plan Note
   125,000        
Capital Lease Assumption
   9,867        
Deferred Revenue
   12,050        
 
                
 
           2,290,640
Assets Sold
                
A/R
   (51,429 )        
Other A/R
   61,136        
Prepaid Expenses
   4,924        
P,P&E, net
   400,000        
Intangibles, net
   1,062,979        
Other Assets
   230,690        
 
                
 
           1,708,300
Gain on Sale
           582,340
 
                

The pro forma statements of operation present our results of operations as they would have appeared if the operations related to the assets sold under the Agreement had not been included in the periods presented.

  (b)   The operations of Smart CRM, Inc. have been removed as if the transaction occurred on the first day of the reported period.

The pro forma financial information is not necessarily indicative of the actual results which would have occurred if the transaction had occurred on the date indicated or of any results which may occur in the future.

4