EXHIBIT 99.2
Pro Forma Financial Information
On April 3, 2008, the Company purchased substantially all the assets of Intelligent Digital Systems, LLC. (“IDS”). The assets consist of the current TechEye software (“DVR Software”) and computer software in development relating to the TrueHybrid hybrid NVR/DVR technology (“Hybrid DVR Software”). The Company is currently investigating patent protection for a number of the processes included in the DVR software and Hybrid DVR Software. The assets purchased included three trademarks, which the Company does not currently plan to use and therefore assigned no value to them.
Under the terms of the agreement, the Company purchased accounts receivable of $3,185 and inventory of $20,123 as well as the DVR Software and Hybrid DVR Software.
The amount of $1,562,692 was assigned to intangible assets. The intangible assets consist of the DVR Software and Hybrid DVR Software and are being amortized over their estimated useful lives of 1 and 5 years respectively.
The following table summarizes the estimated fair values of the assets acquired at the date of acquisition:
Accounts Receivable | $ | 3,185 | ||
Inventory | 20,123 | |||
DVR Software | 28,555 | |||
Hybrid DVR Software | 1,534,137 | |||
Total | $ | 1,586,000 |
The intangible software assets were valued using the income method, using the company's best estimates of future cash flows from the sales of the products including the software, a 40% tax rate and discount rates between 15 and 20%.
Amortization of $7,139 will be charged to cost of good sold during the quarter ending June 30, 2008 for the DVR Software. The balance of $21,416 will be amortized in equal amounts over the next three quarters.
Amortization associated with the Hybrid DVR Software is not expected to begin until the fourth quarter of 2008, when products containing the software are commercially available. As a result, future amortization is expected to be:
Quarter ending June 30, 2008 | $ | 7,139 | ||
Quarter ending September 30, 2008 | $ | 7,139 | ||
Quarter ending December 31, 2008 | $ | 83,846 | ||
2009 | $ | 313,966 | ||
2010 | $ | 306,827 | ||
2011 | $ | 306,827 | ||
2012 | $ | 306,827 | ||
2013 | $ | 230,121 | ||
Total | $ | 1,562,692 |
The following pro forma condensed consolidated balance sheets and statements of operations are presented to give effect to the acquisition by Visual Management Systems, Inc. of substantially all of the assets of IDS on April 3, 2008. The pro forma condensed consolidated balance sheet assumes that the acquisition occurred as of March 31, 2008. The pro forma condensed consolidated statements of operations assume that the acquisition occurred on January 1, 2007. Such information does not purport to be indicative of the results which would have actually been obtained if the acquisitions had been effected on the dates indicated nor is it indicative of actual or future operating results or financial position.
Visual Management Systems, Inc. and Subsidiaries
Pro Forma Combined Balance Sheet
At March 31, 2008 | Visual Management Systems, Inc. and Subsidiaries | Intelligent Digital Systems, LLC | Pro Forma Adjustments | Pro Forma Combined | |||||||||
Assets | |||||||||||||
Current assets | |||||||||||||
Cash | $ | 111,567 | $ | 2,777 | a | $ | (7,777 | ) | $ | 106,567 | |||
Accounts receivable | 195,912 | 3,185 | - | 199,097 | |||||||||
Inventory | 587,606 | 20,123 | - | 607,729 | |||||||||
Prepaid expenses | 5,190 | - | - | 5,190 | |||||||||
Total current assets | 900,275 | 26,085 | (7,777 | ) | 918,583 | ||||||||
Property and equipment - net | 726,786 | 225 | b | (225 | ) | 726,786 | |||||||
Deposits and other assets | 90,808 | 90,808 | |||||||||||
Investment in joint venture | c | 5,000 | 5,000 | ||||||||||
Intangible assets - net | 1,659,727 | d | 1,562,692 | 3,222,419 | |||||||||
Total Assets | $ | 3,377,596 | $ | 26,310 | $ | 1,559,690 | $ | 4,963,596 | |||||
Liabilities and Stockholders' Deficit | |||||||||||||
Current liabilities | |||||||||||||
Accounts payable | $ | 705,074 | $ | 808 | e | $ | (808 | ) | $ | 705,074 | |||
Accrued expenses and other current liabilities | 973,096 | 973,096 | |||||||||||
Customer Deposits | 236,041 | 236,041 | |||||||||||
Sales tax payable | 78,236 | 78,236 | |||||||||||
Bank line of credit | 49,981 | 49,981 | |||||||||||
Short term debt | - | - | f | 42,000 | 42,000 | ||||||||
Current maturity of convertible notes payable | 833,333 | 833,333 | |||||||||||
Current portion of long-term debt | 346,278 | 346,278 | |||||||||||
Current portion of obligations under capital leases | 53,811 | 53,811 | |||||||||||
Total current liabilities | 3,275,850 | 808 | 41,192 | 3,317,850 | |||||||||
Convertible notes payable | 2,268,334 | g | 1,544,000 | 3,812,334 | |||||||||
(net of current maturities and unamortized discount of $648,333) | |||||||||||||
Long-term debt - net of current portion | 306,696 | 15,000 h | (15,000 | ) | 306,696 | ||||||||
Obligations under capital leases - net of current portion | 100,554 | 100,554 | |||||||||||
Stockholders' equity (deficit) | |||||||||||||
Members Capital | 10,502 | i | (10,502 | ) | - | ||||||||
Preferred stock | 1 | 1 | |||||||||||
Common stock, $.001 par value; 50,000,000 shares authorized | 8,002 | 8,002 | |||||||||||
Additional paid-in-capital | 12,744,785 | 12,744,785 | |||||||||||
Accumulated deficit | (15,176,626 | ) | (15,176,626 | ) | |||||||||
Treasury stock | (150,000 | ) | (150,000 | ) | |||||||||
Total stockholders' equity (deficit) | (2,573,838 | ) | 10,502 | (10,502 | ) | (2,573,838 | ) | ||||||
Total liabilities and stockholder's equity (deficit) | $ | 3,377,596 | $ | 26,310 | $ | 1,559,690 | $ | 4,963,596 |
a | To record the $5,000 invested in the joint venture by VMS and to record the fair value of the cash received. |
b | Adjustment to record the fair value of assets received |
c | Adjustment to record the VMS investment in the joint venture |
d | Adjustment to record the fair value of the intangible assets |
e | Adjustment to record the fair value of the liabilities assumed |
f | Adjustment to record the portion of the purchase price to be paid in seven equal monthly installments |
g | Adjustment to record the convertible note |
h | Adjustment to record the fair value of the liabilities assumed |
i | Adjustment to eliminate share capital of IDS |
Visual Management Systems, Inc. and Subsidiaries
Pro Forma Combined Statement of Operations
Three months ended March 31, 2008 | Visual Management Systems, Inc. and Subsidiaries | Intelligent Digital Systems, LLC | Pro Forma Adjustments | Pro Forma Combined | |||||||||
Revenues - net | $ | 1,577,309 | $ | 9,918 | $ | 1,587,227 | |||||||
Cost of revenues | 843,113 | 63,849 | 906,962 | ||||||||||
Gross margin | 734,196 | (53,931 | ) | 680,265 | |||||||||
Operating expenses | 2,729,362 | 17,303 | aa | 83,846 | 2,830,511 | ||||||||
Loss from operations | (1,995,166 | ) | (71,234 | ) | (83,846 | ) | (2,150,246 | ) | |||||
Other (income) expenses | |||||||||||||
Debt conversion expense | - | - | |||||||||||
Interest income | - | - | - | ||||||||||
Interest expense | 140,003 | 140,003 | |||||||||||
Miscellaneous income | 305 | 305 | |||||||||||
140,308 | - | - | 140,308 | ||||||||||
Net Income (Loss) | $ | (2,135,474 | ) | $ | (71,234 | ) | $ | (83,846 | ) | $ | (2,290,554 | ) | |
Weighted average shares outstanding | 7,442,367 | 7,442,367 | |||||||||||
Per share data (basic and diluted) | $ | (0.29 | ) | $ | (0.31 | ) |
aa | Adjustment for the amortization of the intangible assets over the estimated useful lives |
Visual Management Systems, Inc. and Subsidiaries
Pro Forma Combined Statement of Operations
Year ended December 31, 2007 | Visual Management Systems, Inc. and Subsidiaries | Intelligent Digital Systems, LLC | Pro Forma Adjustments | Pro Forma Combined | |||||||||
Revenues - net | $ | 6,315,622 | $ | 131,260 | $ | 6,446,882 | |||||||
Cost of revenues | 3,392,995 | 130,716 | 3,523,711 | ||||||||||
Gross margin | 2,922,627 | 544 | 2,923,171 | ||||||||||
Operating expenses | 8,490,554 | 337,585 | aa | 335,382 | 9,163,521 | ||||||||
Loss from operations | (5,567,927 | ) | (337,041 | ) | (335,382 | ) | (6,240,350 | ) | |||||
Other (income) expenses | |||||||||||||
Debt conversion expense | 796,084 | 796,084 | |||||||||||
Interest income | - | (12 | ) | (12 | ) | ||||||||
Interest expense | 3,420,634 | 3,420,634 | |||||||||||
Miscellaneous income | - | - | |||||||||||
4,216,718 | (12 | ) | - | 4,216,706 | |||||||||
Loss before provision for income taxes | (9,784,645 | ) | |||||||||||
Provision for income taxes | |||||||||||||
Net loss | (9,784,645 | ) | (337,029 | ) | (335,382 | ) | (10,457,056 | ) | |||||
Provision for income taxes | - | ||||||||||||
Net loss | $ | (9,784,645 | ) | $ | (337,029 | ) | $ | (335,382 | ) | $ | (10,457,056 | ) | |
Deemed dividend on convertible preferred stock | 635,582 | - | - | 635,582 | |||||||||
Net income available to common | $ | (10,420,227 | ) | $ | (337,029 | ) | (335,382 | ) | $ | (11,092,638 | ) | ||
Weighted average shares outstanding | 6,646,751 | 6,646,751 | |||||||||||
Per share data (basic and diluted) | $ | (1.57 | ) | $ | (1.67 | ) |
aa | Adjustment for the amortization of the intangible assets over the estimated useful lives |