Exhibit 99.3
HUMAN RESOURCE MICRO-SYSTEMS, INC. BUSINESS COMBINATION
On June 29, 2007, the Company purchased 100% of the issued and outstanding capital stock of Human Resource Micro-Systems, Inc., a California corporation (“HRMS”). The aggregate purchase price was $2,000,000, of which amount the Company paid the selling shareholders $1,100,000 and issued them 384,968 shares of the Company’s restricted common stock valued at $400,000 (based upon the volume-weighted average closing bid price of the common stock during the ten consecutive trading days immediately preceding the closing). The Stock Purchase Agreement provided that the selling shareholders be paid the remaining $500,000 twelve months after closing through an escrow account, subject to offset with respect to any claims for indemnity by the Company under the terms of the Stock Purchase Agreement.
The HRMS product delivers customizable software solutions for domestic and global mid-market organizations seeking to optimize their human resources service delivery and is being integrated with the Company’s existing human resources outsourcing services based in San Francisco, California in order to broaden the Company’s HRO offering to its customers.
The following unaudited pro forma financial information presents the combined results of operations of the Company and HRMS 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.
1
BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET | ||||||||||||||||
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2006 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Pro forma | ||||||||||||||||
BPO | BPO | |||||||||||||||
Management | Pro forma | Management | ||||||||||||||
Services, Inc. | HRMS | Adjustments | Services, Inc. | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 706,197 | $ | 188,061 | $ | - | $ | 894,258 | ||||||||
Accounts receivable | 743,114 | 208,502 | - | 951,616 | ||||||||||||
Inventory consisting of finished goods | 37,960 | - | - | 37,960 | ||||||||||||
Income taxes receivable | 250,000 | - | - | 250,000 | ||||||||||||
Prepaid expenses and other current assets | 123,165 | 11,190 | - | 134,355 | ||||||||||||
Total current assets | 1,860,436 | 407,753 | - | 2,268,189 | ||||||||||||
Equipment | 509,929 | 5,615 | - | 515,544 | ||||||||||||
Goodwill | 4,009,223 | 2,026,465 | 6,035,688 | |||||||||||||
Intangible assets | 1,114,698 | - | - | 1,114,698 | ||||||||||||
Other Assets | 146,723 | - | - | 146,723 | ||||||||||||
$ | 7,641,009 | $ | 413,368 | $ | 2,026,465 | $ | 10,080,842 | |||||||||
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 credit line | - | 95,000 | - | 95,000 | ||||||||||||
Accounts payable | 1,381,243 | 7,030 | - | 1,388,273 | ||||||||||||
Accrued expenses | 725,935 | 1,671 | 727,606 | |||||||||||||
Purchase price payable-short term | 977,473 | - | 977,473 | |||||||||||||
Income taxes payable | - | - | - | - | ||||||||||||
Deferred revenues | 334,672 | 381,638 | - | 716,310 | ||||||||||||
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 | 485,339 | - | 5,483,355 | ||||||||||||
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 | 169,319 | - | 202,434 | ||||||||||||
Total liabilities | 5,260,513 | 654,658 | - | 5,915,171 | ||||||||||||
Stockholders equity: | ||||||||||||||||
Capital stock | 125,594 | - | 3,850 | 129,444 | ||||||||||||
Additional paid-in capital | 6,462,928 | 107,384 | 2,022,615 | 8,592,927 | ||||||||||||
Accumulated deficit | (4,100,706 | ) | (348,674 | ) | - | (4,449,380 | ) | |||||||||
Accumulated other comprehensive loss, foreign currency translation adjustments | (107,320 | ) | - | - | (107,320 | ) | ||||||||||
Total stockholders ' equity | 2,380,496 | (241,290 | ) | 2,026,465 | 4,165,671 | |||||||||||
$ | 7,641,009 | $ | 413,368 | $ | 2,026,465 | $ | 10,080,842 | |||||||||
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 issued common stock and a corresponding entry to equity. | ||||||||||||||||
All intercompany balances have been eliminated. | ||||||||||||||||
2
BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2006 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
PRO FORMA | ||||||||||||||||
BPO | BPO | |||||||||||||||
MANAGEMENT | PRO FORMA | MANAGEMENT | ||||||||||||||
SERVICES, INC. | HRMS | ADJUSTMENTS | SERVICES, INC. | |||||||||||||
Revenues: | ||||||||||||||||
Enterprise content management | $ | 2,713,769 | $ | - | $ | - | $ | 2,713,769 | ||||||||
IT outsourcing services | 1,833,052 | - | - | 1,833,052 | ||||||||||||
Human resource outsourcing servicing | 164,318 | 1,119,058 | - | 1,283,376 | ||||||||||||
Total revenues | 4,711,139 | 1,119,058 | - | 5,830,197 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of services provided | 1,523,983 | 308,328 | - | 1,832,311 | ||||||||||||
Selling, general and administrative | 5,737,335 | 805,764 | - | 6,543,099 | ||||||||||||
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 | 1,114,092 | - | 8,769,206 | ||||||||||||
Loss from operations | (2,943,975 | ) | 4,966 | - | (2,939,009 | ) | ||||||||||
Interest expense (income) | ||||||||||||||||
Related parties | - | - | - | - | ||||||||||||
Amortization of related party debt discount | - | - | - | - | ||||||||||||
Other (net) | 366,943 | 21,589 | - | 388,532 | ||||||||||||
Other Expense (Income) | (10,732 | ) | 8,892 | - | (1,840 | ) | ||||||||||
Total interest and other expense | 356,211 | 30,481 | - | 386,692 | ||||||||||||
Net loss | $ | (3,300,186 | ) | $ | (25,515 | ) | $ | - | $ | (3,325,701 | ) | |||||
Basic and diluted net loss per share | $ | (0.39 | ) | $ | (0.07 | ) | $ | - | $ | (0.37 | ) | |||||
Basic and diluted weighted average common | 8,496,119 | 384,968 | 8,881,087 | |||||||||||||
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BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET | ||||||||||||||||
FOR THE SIX MONTHS ENDED JUNE 30, 2007 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Pro forma | ||||||||||||||||
BPO | BPO | |||||||||||||||
Management | Pro forma | Management | ||||||||||||||
Services, Inc. | HRMS | Adjustments | Services, Inc. | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 5,250,420 | $ | 15,702 | $ | - | $ | 5,266,122 | ||||||||
Restricted cash | 1,948,434 | - | - | 1,948,434 | ||||||||||||
Accounts receivable | 2,505,583 | 252,008 | - | 2,757,591 | ||||||||||||
Inventory consisting of finished goods | 158,442 | - | - | 158,442 | ||||||||||||
Prepaid expenses and other current assets | 174,675 | 8,876 | - | 183,551 | ||||||||||||
Total current assets | 10,037,554 | 276,586 | - | 10,314,140 | ||||||||||||
Equipment | 949,871 | 2,611 | - | 952,482 | ||||||||||||
Goodwill | 7,676,818 | - | 2,026,465 | 9,703,283 | ||||||||||||
Intangible assets | 1,010,030 | - | - | 1,010,030 | ||||||||||||
Other Assets | 97,689 | - | - | 97,689 | ||||||||||||
$ | 19,771,962 | $ | 279,197 | $ | 2,026,465 | $ | 22,077,624 | |||||||||
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 | 2,985,987 | 6,680 | - | 2,992,666 | ||||||||||||
Accrued expenses | 1,005,785 | (10,660 | ) | - | 995,125 | |||||||||||
Accrued interest-related party | 62,384 | - | - | 62,384 | ||||||||||||
Accrued dividend payable-related party | 75,186 | - | - | 75,186 | ||||||||||||
Amount due former shareholders of acquired companies | 1,886,301 | - | - | 1,886,301 | ||||||||||||
Income taxes payable | 229,506 | - | - | 229,506 | ||||||||||||
Deferred revenues | 623,010 | 481,505 | - | 1,104,515 | ||||||||||||
Related party notes payable | 1,200,000 | - | - | 1,200,000 | ||||||||||||
Severence obligations payable | 480,015 | - | - | 480,015 | ||||||||||||
Total current liabilities | 8,918,674 | 477,525 | - | 9,396,199 | ||||||||||||
Long-term debt, net of current portion | 30,225 | - | - | 30,225 | ||||||||||||
Capital lease obligations, net of current portion | 402,345 | - | - | 402,345 | ||||||||||||
Total liabilities | 9,351,244 | 477,525 | - | 9,828,769 | ||||||||||||
Stockholders equity: | ||||||||||||||||
Capital stock | 140,494 | - | 3,850 | 144,344 | ||||||||||||
Additional paid-in capital | 17,422,327 | 261,282 | 2,022,615 | 19,706,224 | ||||||||||||
Accumulated deficit | (6,744,226 | ) | (459,610 | ) | - | (7,203,836 | ) | |||||||||
Accumulated other comprehensive loss, foreign currency translation adjustments | (397,877 | ) | - | - | (397,877 | ) | ||||||||||
Total stockholders ' equity | 10,420,718 | (198,328 | ) | 2,026,465 | 12,248,855 | |||||||||||
$ | 19,771,962 | $ | 279,197 | $ | 2,026,465 | $ | 22,077,624 | |||||||||
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 issued common stock and a corresponding entry to equity. | ||||||||||||||||
All intercompany balances have been eliminated. | ||||||||||||||||
4
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
FOR THE SIX MONTHS ENDED JUNE 30, 2007 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
PRO FORMA | ||||||||||||||||
BPO | BPO | |||||||||||||||
MANAGEMENT | PRO FORMA | MANAGEMENT | ||||||||||||||
SERVICES, INC. | HRMS | ADJUSTMENTS | SERVICES, INC. | |||||||||||||
Revenues: | ||||||||||||||||
Enterprise content management | $ | 2,362,044 | $ | - | $ | - | $ | 2,362,044 | ||||||||
IT outsourcing services | 1,980,913 | - | - | 1,980,913 | ||||||||||||
Human resource outsourcing servicing | 13,817 | 587,423 | - | 601,240 | ||||||||||||
Total revenues | 4,356,774 | 587,423 | - | 4,944,197 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of services provided | 1,873,488 | 239,634 | - | 2,113,122 | ||||||||||||
Selling, general and administrative | 4,152,679 | 436,499 | - | 4,589,178 | ||||||||||||
Research and development | 93,366 | - | - | 93,366 | ||||||||||||
Share-based compensation | 146,743 | - | - | 146,743 | ||||||||||||
Total operating expenses | 6,266,276 | 676,133 | - | 6,942,409 | ||||||||||||
Loss from operations | (1,909,502 | ) | (88,710 | ) | - | (1,998,212 | ) | |||||||||
Interest expense (income) | ||||||||||||||||
Related parties | 62,597 | - | - | 62,597 | ||||||||||||
Amortization of related party debt discount | 594,029 | - | - | 594,029 | ||||||||||||
Other (net) | 87,345 | 14,434 | - | 101,779 | ||||||||||||
Other Expense | 14 | 7,791 | - | 7,805 | ||||||||||||
Total interest and other expense | 743,985 | 22,225 | - | 766,210 | ||||||||||||
Net loss | $ | (2,653,487 | ) | $ | (110,935 | ) | $ | - | $ | (2,764,422 | ) | |||||
Basic and diluted net loss per share | $ | (0.31 | ) | $ | (0.29 | ) | $ | (0.31 | ) | |||||||
Basic and diluted weighted average common | 8,621,521 | 384,968 | 9,006,489 |
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