Exhibit 99.4
DOCUCOM IMAGING SOLUTIONS INC. BUSINESS COMBINATION
On June 21, 2007, the Company purchased 100% of the issued and outstanding capital stock of DocuCom Imaging Solutions Inc., a Canadian corporation (“DocuCom”) for a total purchase price of Cdn$2,761,097 (approximately US$2.58 million). The DocuCom results of operations have been included in the consolidated financial statements since the date of acquisition. In addition to adding the DocuCom data and document management solutions capability with its long term Canada-based customer relationships, the acquisition enhanced the Company’s ability to offer high quality, cost-effective service utilizing its near shore delivery model to its US customers.
The purchase price consisted of cash in the amount of Cdn$961,097 (approximately US$910,000), at closing on June 21, 2007. The purchase agreement also provided that the Company pay the selling shareholders Cdn$900,000 (approximately US$840,000) three months after closing and Cdn$900,000 (approximately US$840,000) nine months after closing. The Company secured the subsequent payments through a bank-issued irrevocable standby letter of credit in favor of the selling shareholders in the aggregate amount of Cdn$1,800,000 (approximately US$1.68 million). The letter of credit was securitized by the deposit of $1,948,434 that is shown on the balance sheet as restricted cash as of June 30, 2007.
The following unaudited pro forma financial information presents the combined results of operations of the Company and DocuCom for the year ended December 31, 2006 and for the six months ended June 30, 2007 as if the acquisition had occurred on January 1, 2006 and January 1, 2007, respectively.
BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2006
(Unaudited)
BPO Management Services, Inc. | DocuCom | Pro forma Adjustments | Pro forma BPO Management Services, Inc. | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 706,197 | $ | - | $ | - | $ | 706,197 | ||||||||
Accounts receivable | 743,114 | 1,628,013 | - | 2,371,127 | ||||||||||||
Inventory consisting of finished goods | 37,960 | 174,428 | - | 212,388 | ||||||||||||
Income taxes receivable | 250,000 | - | - | 250,000 | ||||||||||||
Prepaid expenses and other current assets | 123,165 | 42,964 | - | 166,129 | ||||||||||||
Total current assets | 1,860,436 | 1,845,405 | - | 3,705,841 | ||||||||||||
Equipment | 509,929 | 284,359 | - | 794,288 | ||||||||||||
Goodwill | 4,009,223 | 3,592,996 | 7,602,219 | |||||||||||||
Intangible assets | 1,114,698 | - | - | 1,114,698 | ||||||||||||
Other Assets | 146,723 | - | - | 146,723 | ||||||||||||
$ | 7,641,009 | $ | 2,129,764 | $ | 3,592,996 | $ | 13,363,769 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt | $ | 322,778 | $ | - | $ | - | $ | 322,778 | ||||||||
Current portion of capital lease obligations | 170,976 | - | - | 170,976 | ||||||||||||
Bank overdraft | - | 210,241 | - | 210,241 | ||||||||||||
Accounts payable | 1,381,243 | 1,275,150 | - | 2,656,393 | ||||||||||||
Accrued expenses | 725,935 | - | 725,935 | |||||||||||||
Purchase price payable-short term | 977,473 | 1,691,820 | 2,669,293 | |||||||||||||
Income taxes payable | - | - | - | - | ||||||||||||
Deferred revenues | 334,672 | 486,526 | - | 821,198 | ||||||||||||
Related party notes payable | 516,157 | - | - | 516,157 | ||||||||||||
Severence obligations payable | 543,291 | - | - | 543,291 | ||||||||||||
Other current liabilities | 25,491 | - | - | 25,491 | ||||||||||||
Total current liabilities | 4,998,016 | 1,971,917 | 1,691,820 | 8,661,753 | ||||||||||||
Long-term debt, net of current portion | 39,475 | - | - | 39,475 | ||||||||||||
Capital lease obligations, net of current portion | 10,328 | - | - | 10,328 | ||||||||||||
Purchase price payable-long term | 179,579 | - | - | 179,579 | ||||||||||||
Other long-term liabilities | 33,115 | - | - | 33,115 | ||||||||||||
Total liabilities | 5,260,513 | 1,971,917 | 1,691,820 | 8,924,250 | ||||||||||||
Stockholders equity: | ||||||||||||||||
Capital stock | 125,594 | - | - | 125,594 | ||||||||||||
Additional paid-in capital | 6,462,928 | 157,847 | 1,901,176 | 8,521,951 | ||||||||||||
Accumulated deficit | (4,100,706 | ) | - | - | (4,100,706 | ) | ||||||||||
Accumulated other comprehensive loss, foreign currency | (107,320 | ) | - | - | (107,320 | ) | ||||||||||
Total stockholders ' equity | 2,380,496 | 157,847 | 1,901,176 | 4,439,519 | ||||||||||||
$ | 7,641,009 | $ | 2,129,764 | $ | 3,592,996 | $ | 13,363,769 |
Pro forma adjustments: The adjustments reflect the booking of goodwill which resulted from the difference between net assets and net liabilities acquired with an entry for the purchase price payable and a corresponding entry to equity. All intercompany balances have been eliminated. |
BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2006
(Unaudited)
BPO MANAGEMENT SERVICES, INC. | DOCUCOM | PRO FORMA ADJUSTMENTS | PRO FORMA BPO MANAGEMENT SERVICES, INC. | |||||||||||||
Revenues | ||||||||||||||||
Enterprise content management | $ | 2,713,769 | $ | 11,634,588 | $ | - | $ | 14,348,357 | ||||||||
IT outsourcing services | 1,833,052 | - | - | 1,833,052 | ||||||||||||
Human resource outsourcing servicing | 164,318 | - | - | 164,318 | ||||||||||||
Total revenues | 4,711,139 | 11,634,588 | - | 16,345,727 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of services provided | 1,523,983 | 8,903,490 | - | 10,427,473 | ||||||||||||
Selling, general and administrative | 5,737,335 | 2,985,981 | - | 8,723,316 | ||||||||||||
Research and development | 19,491 | - | - | 19,491 | ||||||||||||
Change in estimated severance liability | (223,726 | ) | - | - | (223,726 | ) | ||||||||||
Share-based compensation | 598,031 | - | - | 598,031 | ||||||||||||
Total operating expenses | 7,655,114 | 11,889,471 | - | 19,544,585 | ||||||||||||
Loss from operations | (2,943,975 | ) | (254,884 | ) | - | (3,198,859 | ) | |||||||||
Interest expense (income) | ||||||||||||||||
Related parties | - | - | - | - | ||||||||||||
Amortization of related party debt discount | - | - | - | - | ||||||||||||
Other (net) | 366,943 | - | - | 366,943 | ||||||||||||
Other Expense (Income) | (10,732 | ) | - | - | (10,732 | ) | ||||||||||
Total interest and other expense | 356,211 | - | - | 356,211 | ||||||||||||
Net loss | $ | (3,300,186 | ) | $ | (254,884 | ) | $ | - | $ | (3,555,070 | ) | |||||
Basic and diluted net loss per share | $ | (0.39 | ) | $ | (0.03 | ) | $ | - | $ | (0.42 | ) | |||||
Basic and diluted weighted average common | 8,496,119 | 8,496,119 | 8,496,119 |
BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
FOR THE SIX MONTHS ENDED JUNE 30, 2007
(Unaudited)
BPO Management Services, Inc. | DocuCom | Pro forma Adjustments | Pro forma BPO Management Services, Inc. | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 5,040,293 | $ | 225,751 | $ | - | $ | 5,266,044 | ||||||||
Restricted cash | 1,948,434 | - | - | 1,948,434 | ||||||||||||
Accounts receivable | 1,377,637 | 1,538,624 | - | 2,916,262 | ||||||||||||
Inventory consisting of finished goods | 35,426 | 123,016 | - | 158,442 | ||||||||||||
Prepaid expenses and other current assets | 140,719 | 48,996 | - | 189,715 | ||||||||||||
Total current assets | 8,542,510 | 1,936,387 | - | 10,478,897 | ||||||||||||
Equipment | 774,940 | 176,870 | - | 951,810 | ||||||||||||
Goodwill | 6,110,287 | - | 3,592,996 | 9,703,283 | ||||||||||||
Intangible assets | 1,010,030 | - | - | 1,010,030 | ||||||||||||
Other Assets | 90,027 | 7,662 | - | 97,689 | ||||||||||||
$ | 16,527,792 | $ | 2,120,920 | $ | 3,592,996 | $ | 22,241,708 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt | $ | 277,545 | $ | - | $ | - | $ | 277,546 | ||||||||
Current portion of capital lease obligations | 92,955 | - | - | 92,955 | ||||||||||||
Accounts payable | 1,561,155 | 1,431,514 | - | 2,992,667 | ||||||||||||
Accrued expenses | 1,005,785 | - | - | 1,005,785 | ||||||||||||
Accrued interest-related party | 62,384 | - | - | 62,384 | ||||||||||||
Accrued dividend payable-related party | 75,186 | - | - | 75,186 | ||||||||||||
Amount due former shareholders of acquired companies | 194,481 | - | 1,691,820 | 1,886,301 | ||||||||||||
Income taxes payable | - | 229,506 | - | 229,506 | ||||||||||||
Deferred revenues | 786,511 | 142,455 | - | 928,966 | ||||||||||||
Related party notes payable | 1,200,000 | - | - | 1,200,000 | ||||||||||||
Severence obligations payable | 480,015 | - | - | 480,015 | ||||||||||||
Total current liabilities | 5,736,016 | 1,803,475 | 1,691,820 | 9,231,311 | ||||||||||||
Long-term debt, net of current portion | 30,225 | - | - | 30,225 | ||||||||||||
Capital lease obligations, net of current portion | 402,345 | - | - | 402,345 | ||||||||||||
Total liabilities | 6,168,586 | 1,803,475 | 1,691,820 | 9,663,881 | ||||||||||||
Stockholders equity: | ||||||||||||||||
Capital stock | 144,666 | - | - | 144,666 | ||||||||||||
Additional paid-in capital | 16,685,837 | 998,219 | 1,901,176 | 19,585,232 | ||||||||||||
Accumulated deficit | (6,073,419 | ) | (680,774 | ) | - | (6,754,193 | ) | |||||||||
Accumulated other comprehensive loss, foreign currency | (397,877 | ) | - | - | (397,877 | ) | ||||||||||
Total stockholders ' equity | 10,359,207 | 317,445 | 1,901,176 | 12,577,827 | ||||||||||||
$ | 16,527,792 | $ | 2,120,920 | $ | 3,592,996 | $ | 22,241,708 |
Pro forma adjustments: The adjustments reflect the booking of goodwill which resulted from the difference between net assets and net liabilities acquired with an entry for the purchase price payable and a corresponding entry to equity. All intercompany balances have been eliminated. |
BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007
(Unaudited)
BPO MANAGEMENT SERVICES, INC. | DOCUCOM | PRO FORMA ADJUSTMENTS | PRO FORMA BPO MANAGEMENT SERVICES, INC. | |||||||||||||
Revenues: | ||||||||||||||||
Enterprise content management | $ | 2,056,879 | $ | 6,492,596 | $ | - | $ | 8,549,474 | ||||||||
IT outsourcing services | 1,980,913 | - | - | 1,980,913 | ||||||||||||
Human resource outsourcing servicing | 13,817 | - | - | 13,817 | ||||||||||||
Total revenues | 4,051,609 | 6,492,596 | - | 10,544,204 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of services provided | 1,639,425 | 4,750,547 | - | 6,389,972 | ||||||||||||
Selling, general and administrative | 4,113,874 | 1,915,305 | - | 6,029,179 | ||||||||||||
Research and development | 93,366 | - | - | 93,366 | ||||||||||||
Share-based compensation | 146,743 | - | - | 146,743 | ||||||||||||
Total operating expenses | 5,993,408 | 6,665,852 | - | 12,659,260 | ||||||||||||
Loss from operations | (1,941,799 | ) | (173,257 | ) | - | (2,115,056 | ) | |||||||||
Interest expense (income) | ||||||||||||||||
Related parties | 62,597 | - | - | 62,597 | ||||||||||||
Amortization of related party debt discount | 594,029 | - | - | 594,029 | ||||||||||||
Other (net) | 87,345 | - | - | 87,345 | ||||||||||||
Other Expense | 14 | - | - | 14 | ||||||||||||
Total interest and other expense | 743,985 | - | - | 743,985 | ||||||||||||
Net loss | $ | (2,685,784 | ) | $ | (173,257 | ) | $ | - | $ | (2,859,041 | ) | |||||
Basic and diluted net loss per share | $ | (0.31 | ) | $ | (0.02 | ) | $ | (0.33 | ) | |||||||
Basic and diluted weighted average common | 8,623,630 | 8,623,630 | 8,623,630 |