EXHIBIT 99.3
BLUE HILL DATA SERVICES, INC. BUSINESS COMBINATION
Through a Stock Purchase Agreement, entered into as of October 10, 2007, the Company purchased the issued and outstanding capital stock of Blue Hill Data Services, Inc., a privately-held data center outsourcing services company, based in Pearl River, New York (“Blue Hill”). At or about the closing date, the Company transferred approximately $11 million of value, as follows: (i) cash payments to the current selling stockholders of approximately $6.6 million; (ii) a 15-month promissory note in the initial principal amount of $1 million, subject to offset in favor of the Company with respect to any claims for indemnity by the Company under the terms of the Stock Purchase Agreement; (iii) cash payment through Blue Hill in the amount of approximately $1.4 million to its former stockholder; and (iv) 2,666,666 shares of the Company’s restricted common stock valued at approximately $1.8 million (based upon the volume-weighted average closing bid price of the common stock during the ten consecutive trading days immediately preceding the closing). The promissory note bears interest from and after January 1, 2009, at the rate of 9% per annum and is “secured” by a document to be held in escrow, styled as a confession of judgment. The principal of the note, less any offsets, is, at the selling stockholders’ option, convertible into restricted shares of the Company’s common stock, the number of which is to be calculated in the same manner as the shares issued at closing were calculated.
The following unaudited pro forma financial information presents the combined results of operations of the Company and Blue Hill for the year ended December 31, 2006 and for the nine months ended September 30, 2007 as if the acquisition had occurred on January 1, 2006 and January 1, 2007, respectively.
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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. | Blue Hill | Adjustments | Services, Inc. | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 706,197 | $ | 12,161 | $ | - | $ | 718,358 | ||||||||
Accounts receivable | 743,114 | 1,025,235 | - | 1,768,349 | ||||||||||||
Inventory consisting of finished goods | 37,960 | - | - | 37,960 | ||||||||||||
Income taxes receivable | 250,000 | - | - | 250,000 | ||||||||||||
Prepaid expenses and other current assets | 123,165 | 144,798 | - | 267,963 | ||||||||||||
Total current assets | 1,860,436 | 1,182,194 | - | 3,042,630 | ||||||||||||
Equipment | 509,929 | 877,224 | - | 1,387,153 | ||||||||||||
Goodwill | 4,009,223 | 10,431,130 | 14,440,353 | |||||||||||||
Intangible assets | 1,114,698 | - | - | 1,114,698 | ||||||||||||
Other Assets | 146,723 | 45,208 | - | 191,931 | ||||||||||||
$ | 7,641,009 | $ | 2,104,626 | $ | 10,431,130 | $ | 20,176,765 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt | $ | 322,778 | $ | 98,528 | $ | - | $ | 421,306 | ||||||||
Current portion of capital lease obligations | 170,976 | - | - | 170,976 | ||||||||||||
Current portion of treasury stock loan payable | - | 382,259 | - | 382,259 | ||||||||||||
Accounts payable | 1,381,243 | 162,906 | - | 1,544,149 | ||||||||||||
Accrued expenses | 725,935 | 133,408 | 859,343 | |||||||||||||
Purchase price payable-short term | 977,473 | - | 1,000,000 | 1,977,473 | ||||||||||||
Line-of-credit | - | 216,092 | - | 216,092 | ||||||||||||
Deferred revenues | 334,672 | 540,507 | - | 875,179 | ||||||||||||
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 | 1,533,700 | 1,000,000 | 7,531,716 | ||||||||||||
Long-term debt, net of current portion | 39,475 | 143,767 | - | 183,242 | ||||||||||||
Treasury stock loan payable, net of current portion | - | 1,320,397 | ||||||||||||||
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 | 2,997,864 | 1,000,000 | 7,937,980 | ||||||||||||
Stockholders equity: | ||||||||||||||||
Capital stock | 125,594 | - | 26,667 | 152,261 | ||||||||||||
Additional paid-in capital | 6,462,928 | (2,498,500 | ) | 9,404,463 | 13,368,891 | |||||||||||
Retained earnings (deficit) | (4,100,706 | ) | 1,605,262 | - | (2,495,444 | ) | ||||||||||
Accumulated other comprehensive loss, foreign currency translation adjustments | (107,320 | ) | - | - | (107,320 | ) | ||||||||||
Total stockholders ' equity | 2,380,496 | (893,238 | ) | 9,431,130 | 10,918,388 | |||||||||||
$ | 7,641,009 | $ | 2,104,626 | $ | 10,431,130 | $ | 18,856,368 | |||||||||
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, issuance of common stock and | ||||||||||||||||
a corresponding entry to equity. All intercompany balances have been eliminated. |
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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. | BLUE HILL | ADJUSTMENTS | SERVICES, INC. | |||||||||||||
Revenues: | ||||||||||||||||
Enterprise content management | $ | 2,713,769 | $ | - | $ | - | $ | 2,713,769 | ||||||||
IT outsourcing services | 1,833,052 | 6,826,667 | - | 8,659,719 | ||||||||||||
Human resource outsourcing servicing | 164,318 | - | - | 164,318 | ||||||||||||
Total revenues | 4,711,139 | 6,826,667 | - | 11,537,806 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of services provided | 1,523,983 | 2,818,393 | - | 4,342,376 | ||||||||||||
Selling, general and administrative | 5,737,335 | 3,427,420 | - | 9,164,755 | ||||||||||||
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 | 6,245,813 | - | 13,900,927 | ||||||||||||
Income (loss) from operations | (2,943,975 | ) | 580,854 | - | (2,363,121 | ) | ||||||||||
Interest expense (income) | ||||||||||||||||
Related parties | - | - | - | - | ||||||||||||
Amortization of related party debt discount | - | - | - | - | ||||||||||||
Other (net) | 366,943 | 146,747 | - | 513,690 | ||||||||||||
Other Expense (Income) | (10,732 | ) | - | - | (10,732 | ) | ||||||||||
Total interest and other expense | 356,211 | 146,747 | - | 502,958 | ||||||||||||
Net income (loss) | $ | (3,300,186 | ) | $ | 434,107 | $ | - | $ | (2,866,079 | ) | ||||||
Basic and diluted net income (loss) per share | $ | (0.39 | ) | $ | 0.16 | $ | - | $ | (0.26 | ) | ||||||
Basic and diluted weighted average common | 8,496,119 | 2,666,666 | 11,162,785 |
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BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET | ||||||||||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Pro forma | ||||||||||||||||
BPO | BPO | |||||||||||||||
Management | Pro forma | Management | ||||||||||||||
Services, Inc. | Blue Hill | Adjustments | Services, Inc. | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 6,102,487 | $ | 35,571 | $ | - | $ | 6,138,058 | ||||||||
Restricted cash | 922,888 | - | - | 922,888 | ||||||||||||
Accounts receivable | 3,672,086 | 1,130,571 | - | 4,802,657 | ||||||||||||
Inventory consisting of finished goods | 184,220 | - | - | 184,220 | ||||||||||||
Prepaid expenses and other current assets | 287,628 | 52,272 | - | 339,900 | ||||||||||||
Total current assets | 11,169,309 | 1,218,414 | - | 12,387,723 | ||||||||||||
Equipment | 1,058,555 | 1,024,494 | - | 2,083,049 | ||||||||||||
Goodwill | 10,179,091 | - | 10,431,130 | 20,610,221 | ||||||||||||
Intangible assets | 960,751 | - | - | 960,751 | ||||||||||||
Other Assets | 33,155 | 51,000 | - | 84,155 | ||||||||||||
$ | 23,400,861 | $ | 2,293,908 | $ | 10,431,130 | $ | 36,125,899 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt | $ | 141,943 | $ | 284,835 | $ | - | $ | 426,779 | ||||||||
Current portion of capital lease obligations | 132,263 | - | - | 132,263 | ||||||||||||
Current portion of treasury stock loan payable | - | 382,259 | ||||||||||||||
Accounts payable | 2,327,226 | 230,027 | - | 2,557,252 | ||||||||||||
Accrued expenses | 1,266,252 | 56,594 | - | 1,322,846 | ||||||||||||
Accrued interest-related party | 9,450 | - | - | 9,450 | ||||||||||||
Accrued dividend payable-related party | 11,392 | - | - | 11,392 | ||||||||||||
Amount due former shareholders of acquired companies | 1,101,771 | - | 1,000,000 | 2,101,771 | ||||||||||||
Income taxes payable | 245,013 | - | - | 245,013 | ||||||||||||
Deferred revenues | 1,655,185 | 645,396 | - | 2,300,581 | ||||||||||||
Related party notes payable | 1,200,000 | - | - | 1,200,000 | ||||||||||||
Severence obligations payable | 272,912 | - | - | 272,912 | ||||||||||||
Total current liabilities | 8,363,407 | 1,599,111 | 1,000,000 | 10,580,259 | ||||||||||||
Long-term debt, net of current portion | 28,058 | 519,680 | - | 547,738 | ||||||||||||
Treasury stock loan payable, net of current portion | - | 1,036,536 | ||||||||||||||
Capital lease obligations, net of current portion | 415,776 | - | - | 415,776 | ||||||||||||
Total liabilities | 8,807,241 | 3,155,327 | 1,000,000 | 11,543,773 | ||||||||||||
Stockholders equity: | ||||||||||||||||
Capital stock | 148,092 | - | 26,667 | 174,759 | ||||||||||||
Additional paid-in capital | 22,916,997 | (2,498,500 | ) | 9,404,463 | 29,822,960 | |||||||||||
Retained earnings (deficit) | (8,032,969 | ) | 1,637,081 | - | (6,395,888 | ) | ||||||||||
Accumulated other comprehensive loss, foreign currency translation adjustments | (438,500 | ) | - | - | (438,500 | ) | ||||||||||
Total stockholders ' equity | 14,593,620 | (861,419 | ) | 9,431,130 | 23,163,331 | |||||||||||
$ | 23,400,861 | $ | 2,293,908 | $ | 10,431,130 | $ | 34,707,104 | |||||||||
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, issuance of common stock and | ||||||||||||||||
a corresponding entry to equity. All intercompany balances have been eliminated. |
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BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
PRO FORMA | ||||||||||||||||
BPO | BPO | |||||||||||||||
MANAGEMENT | PRO FORMA | MANAGEMENT | ||||||||||||||
SERVICES, INC. | BLUE HILL | ADJUSTMENTS | SERVICES, INC. | |||||||||||||
Revenues: | ||||||||||||||||
Enterprise content management | $ | 5,866,997 | $ | - | $ | - | $ | 5,866,997 | ||||||||
IT outsourcing services | 2,861,891 | 5,640,064 | - | 8,501,955 | ||||||||||||
Human resource outsourcing servicing | 260,188 | - | - | 260,188 | ||||||||||||
Total revenues | 8,989,076 | 5,640,064 | - | 14,629,140 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of services provided | 4,436,764 | 2,298,016 | - | 6,734,780 | ||||||||||||
Selling, general and administrative | 7,207,185 | 2,910,543 | - | 10,117,728 | ||||||||||||
Research and development | 261,738 | - | - | 261,738 | ||||||||||||
Share-based compensation | 258,861 | - | - | 258,861 | ||||||||||||
Total operating expenses | 12,164,548 | 5,208,559 | - | 17,373,107 | ||||||||||||
Income (loss) from operations | (3,175,472 | ) | 431,505 | - | (2,743,967 | ) | ||||||||||
Interest expense (income) | ||||||||||||||||
Related parties | 89,819 | - | - | 89,819 | ||||||||||||
Amortization of related party debt discount | 594,029 | - | - | 594,029 | ||||||||||||
Other (net) | 76,045 | 119,111 | - | 195,156 | ||||||||||||
Other Expense | (3,102 | ) | (14,051 | ) | - | (17,153 | ) | |||||||||
Total interest and other expense | 756,791 | 105,060 | - | 861,851 | ||||||||||||
Net income (loss) | $ | (3,932,263 | ) | $ | 326,445 | $ | - | $ | (3,605,818 | ) | ||||||
Basic and diluted net income (loss) per share | $ | (0.45 | ) | $ | 0.12 | $ | (0.32 | ) | ||||||||
Basic and diluted weighted average common | 8,750,543 | 2,666,666 | 11,417,209 |
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