Shutterfly 2007 Annual Report Download - page 67

Table of Contents
SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)
Accrued Liabilities
On June 1, 2005, the Company acquired 100% of Memory Matrix, Inc., (“Memory Matrix”) a Nevada corporation, in exchange for
109 shares of common stock. The acquisition was effected using a “reverse triangular” merger in which a wholly owned Shutterfly subsidiary
was merged with and into Memory Matrix, resulting in Memory Matrix becoming a wholly owned subsidiary of Shutterfly. Memory Matrix
was considered to be a “developmental stage” enterprise and did not meet the definition of a “business” under SFAS No. 141, Business
Combinations , for business combination purposes. In accordance with SFAS No. 141, the acquisition of Memory Matrix was accounted for as
an acquisition of assets.
As additional consideration for the acquisition, the Company also issued 121 shares of common stock to the employees of Memory Matrix,
subject to vesting and repurchase rights over a period of 18 months, in exchange for unvested Memory Matrix restricted shares held by such
employees prior to the merger. $671 of deferred stock-
based compensation was recorded based on the intrinsic value of the shares at the time of
the acquisition. The Company recognized $94 and $500 of stock-
based compensation expense for the year ended December 31, 2006 and 2005,
respectively, relating to the vesting of the restricted shares.
The total purchase price was $690, based on an estimated per share fair value of $6.00 on the date of the transaction, and was allocated to
various tangible and intangible assets, which consisted of $239 of cash, $9 of prepaids, $35 of fixed assets, $279 of acquired workforce, $564
of core technology, related deferred tax liability of $336 and assumed liabilities of $100. In addition, the Company recorded a deferred tax asset
on the date of acquisition of $201, which was offset in full by a valuation allowance. In the fourth quarter of 2005, the valuation allowance was
released, which reduced non-current intangibles accordingly.
The acquired workforce intangible asset was amortized on a straight-
line basis over one year. The net core technology asset is amortized on
a straight-line basis over the asset’s life, which is estimated as three years.
Leases
The Company leases office and production space under various non-cancelable operating leases that expire no later than August 2014.
Rent expense was $1,295, $1,181 and $1,131, for the years ended December 31, 2006, 2005 and 2004, respectively.
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December 31,
2006 2005
Accrued marketing expenses
$
1,822
$
1,318
Accrued compensation
1,201
977
Accrued purchases
483
3,845
Accrued income taxes
1,235
221
Current portion of accrued license fee
—
1,000
Accrued consultant expenses
884
1,059
Accrued production facility expenses
1,784
1,316
Accrued other
1,399
1,784
$
8,808
$
11,520
Note 5
—
Acquisition
Note 6
—
Commitments and Contingencies