AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL DATA
The following interim unaudited pro forma financial statements are based upon the application of pro forma adjustments to the American Medical Alert Corp. (“AMAC” or the “Company”) historical consolidated financial statements. The Company is providing this information because the effect of the December 9, 2005 acquisition of substantially all of assets of Answer Connecticut, Inc on the Company’s financial information is considered material.
The interim unaudited pro forma statement of operations data for the nine months ended September 30, 2005 has been prepared to give pro forma effect to the Answer Connecticut, Inc. acquisition as if it occurred on January 1, 2005. The interim unaudited pro forma balance sheet data has been prepared to give effect to the Answer Connecticut, Inc. acquisition as if it had occurred on September 30, 2005.
The pro forma adjustments and preliminary allocation of purchase price are based upon internal valuations and other studies. The final purchase price may vary due to accrued additional direct costs to be incurred by the Company and other final charges and changes in the valuation of assets, as well as the final determination of the impact related to the earn-out for yearly performance thresholds through December 31, 2008. The unaudited pro forma financial statements are for informational purposes only and should not be considered indicative of actual results that would have been achieved had the transaction described above actually been completed on the dates indicated and do not purport to indicate balance sheet information, results of operations, cash flows or other information as of any future date or any future period. Additionally, the following pro forma financial information is not necessarily indicative of the results that the combined businesses would have achieved if they had been combined for the periods shown or in the future.
The following data should be read in conjunction with the historical financial statements included in the Company’s previous filings with the Securities and Exchange Commission.
AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 2005
(in 000's)
| | | | Answer | | | | | | | |
| | AMAC | | Connecticut, Inc | | Pro Forma Adjustments | | Notes | | Pro Forma Combined | |
ASSETS | | | | | | | | | | | |
Current assets: | | | | | | | | | | | |
Cash | | $ | 4,072 | | $ | — | | $ | 233 | | | (1),(4 | ) | $ | 4,305 | |
Accounts receivable | | | 4,128 | | | 225 | | | (205 | ) | | (1),(2 | ) | | 4,148 | |
Notes receivable | | | 24 | | | — | | | — | | | | | | 24 | |
Inventories | | | 493 | | | — | | | — | | | | | | 493 | |
Prepaid expenses and other current assets | | | 746 | | | 11 | | | (11 | ) | | (2 | ) | | 746 | |
Deferred Income taxes | | | 397 | | | — | | | — | | | | | | 397 | |
Total current assets | | | 9,860 | | | 236 | | | 17 | | | | | | 10,113 | |
| | | | | | | | | | | | | | | | |
Property and equipment, net | | | 7,165 | | | 262 | | | (112 | ) | | (1),(2 | ) | | 7,315 | |
Other Assets | | | | | | | | | | | | | | | | |
Long-term portion of notes receivable | | | 80 | | | — | | | — | | | | | | 80 | |
Intangible assets | | | 1,480 | | | 261 | | | 1,139 | | | (1),(3 | ) | | 2,880 | |
Goodwill | | | 2,795 | | | 42 | | | 1,477 | | | (1),(2 | ) | | 4,314 | |
Other assets | | | 379 | | | — | | | — | | | | | | 379 | |
Deferred income taxes | | | 163 | | | — | | | — | | | | | | 163 | |
Total Other Assets | | | 4,897 | | | 303 | | | 2,616 | | | | | | 7,816 | |
Total assets | | $ | 21,922 | | $ | 801 | | $ | 2,521 | | | | | $ | 25,244 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Current portion of notes payable | | | 294 | | | 188 | | | 137 | | | (2),(4 | ) | | 619 | |
Revolving credit line | | | — | | | 73 | | | (73 | ) | | (2 | ) | | — | |
Accounts payable, accrued expenses and taxes payable | | | 1,977 | | | 72 | | | (72 | ) | | (2 | ) | | 1,977 | |
Customer prepayments | | | — | | | 20 | | | (20 | ) | | (2 | ) | | — | |
Current portion of lease obligation | | | 48 | | | — | | | — | | | | | | 48 | |
Deferred revenue | | | 113 | | | 38 | | | (38 | ) | | (2 | ) | | 113 | |
Total current liabilities | | | 2,432 | | | 391 | | | (66 | ) | | | | | 2,757 | |
| | | | | | | | | | | | | | | | |
Long-term portion of notes payable | | | 259 | | | 268 | | | 1,957 | | | (2),(4 | ) | | 2,484 | |
Due to related party | | | — | | | 332 | | | (332 | ) | | (2 | ) | | — | |
Accrued rental obligation | | | 181 | | | — | | | — | | | | | | 181 | |
Deferred tax liability | | | 1,100 | | | — | | | — | | | | | | 1,100 | |
Other liabilities | | | 205 | | | — | | | 618 | | | (1 | ) | | 823 | |
Total liabilities | | | 4,177 | | | 991 | | | 2,177 | | | | | | 7,345 | |
Shareholders' equity: | | | | | | | | | | | | | | | | |
Preferred stock | | | — | | | — | | | — | | | | | | — | |
Common stock | | | 87 | | | 25 | | | (25 | ) | | (3 | ) | | 87 | |
Additional paid in capital | | | 12,486 | | | 85 | | | 68 | | | (1),(3 | ) | | 12,639 | |
Retained Earnings (Accumulated Deficit) | | | 5,278 | | | (300 | ) | | 301 | | | (1),(2),(3 | ) | | 5,279 | |
| | | | | | | | | | | | (4 | ) | | | |
| | | 17,851 | | | (190 | ) | | 344 | | | | | | 18,005 | |
Less: treasury stock | | | (106 | ) | | — | | | — | | | | | | (106 | ) |
Total shareholders' equity | | | 17,745 | | | (190 | ) | | 344 | | | | | | 17,899 | |
Total liabilities and shareholders' equity | | $ | 21,922 | | | 801 | | | 2,521 | | | | | | 25,244 | |
AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 2005
The unaudited pro forma combined balance sheet gives effect to the following unaudited pro forma adjustments:
1. | Reflects the preliminary allocation of the purchase price for the acquisition of substantially all of the assets of Answer Connecticut, Inc. (“ACT”). The purchase price allocation is based on estimates, is subject to change upon the completion of the valuation of the intangibles and has been made solely for the purpose of this pro forma statement. The following summarizes the preliminary purchase price allocation of ACT based on American Medical Alert Corp.’s (“AMAC”) AMAC’s current estimates (dollars in 000’s): |
Accounts Receivable | | $ | 20 | |
Fixed Assets | | | 150 | |
Non-compete Agreement | | | 50 | |
Customer List | | | 1,350 | |
Goodwill | | | 1,519 | |
| | | | |
Cost to acquire ACT | | $ | 3,089 | |
| | | | |
The payment to acquire ACT consisted of: | | | | |
| | | | |
Cash | | $ | 2,317 | |
Common Stock (25,914 shares) | | | 154 | |
Due to Seller | | | 618 | |
| | | | |
Total payment to acquire ACT | | $ | 3,089 | |
2. | Reflects adjustment to the assets and liabilities of ACT which were not acquired as part of the acquisition. |
3. | Reflects the elimination of equity accounts from the Seller. |
4. | Represents adjustment for a term loan in the amount of $3,000,000 obtained in connection with the acquisition of which $450,000 was used to pay down a previous term loan and the Company receiving a net amount of $2,550,000. |
AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2005
(in 000's, except per share data)
| | | | Answer | | Pro Forma | | | | Pro Forma | |
| | AMAC | | Connecticut, Inc | | Adjustments | | Notes | | Combined | |
| | | | | | | | | | | |
Revenues: | | | | | | | | | | | |
Services | | $ | 15,947 | | $ | 2,242 | | $ | — | | | | | $ | 18,189 | |
Product sales | | | 214 | | | | | | | | | | | | 214 | |
Total revenues | | | 16,161 | | | 2,242 | | | — | | | | | | 18,403 | |
| | | | | | | | | | | | | | | | |
Costs and Expenses (Income): | | | | | | | | | | | | | | | | |
Costs related to services | | | 7,626 | | | 1,135 | | | — | | | | | | 8,761 | |
Costs of product sales | | | 118 | | | — | | | — | | | | | | 118 | |
Selling, general and administrative expenses | | | 7,304 | | | 924 | | | (67 | ) | | (1),(2),(3 | ) | | 8,161 | |
| | | | | | | | | | | | (4 | ) | | | |
Interest expense | | | 33 | | | 42 | | | 61 | | | (5), (6 | ) | | 136 | |
Other expenses (income) | | | (276 | ) | | 20 | | | — | | | | | | (256 | ) |
Total cost and expenses | | | 14,805 | | | 2,121 | | | (6 | ) | | | | | 16,920 | |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | 1,356 | | | 121 | | | 6 | | | | | | 1,483 | |
Provision for income taxes | | | 651 | | | — | | | 62 | | | (7),(8 | ) | | 713 | |
| | | | | | | | | | | | | | | | |
Net Income | | $ | 705 | | $ | 121 | | $ | (56 | ) | | | | $ | 770 | |
| | | | | | | | | | | | | | | | |
Basic net income per share | | $ | 0.08 | | | | | | | | | | | $ | 0.09 | |
Diluted net income per share | | $ | 0.08 | | | | | | | | | | | $ | 0.08 | |
Basic weighted average common shares outstanding | | | 8,370,315 | | | | | | 25,914 | | | (1 | ) | | 8,396,229 | |
Diluted weighted average common shares outstanding | | | 9,067,566 | | | | | | 28,793 | | | (9 | ) | | 9,096,359 | |
AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
Nine Months Ended September 30, 2005
The unaudited pro forma combined income statement gives effect to the following unaudited pro forma adjustments:
1. | Reflects amortization expense of $210,000 on the non-compete agreement and customer lists associated with the acquisition of ACT. These assets are being amortized over a five year period. |
2. | Reflects adjustment to record depreciation of $14,714 on fixed assets purchased as part of the acquisition. The assets purchased are being depreciated over five to seven years. |
3. | Reflects adjustment to reverse depreciation and amortization expense of $65,077 and $131,914, respectively, recorded by ACT for 2005. |
4. | Reflects adjustment to decrease Seller’s salary by $95,000. In connection with the asset purchase agreement, an employment agreement was executed for $140,000, $150,000 and $160,000 over the next three years, respectively. |
5. | Reflects the adjustment to reverse the recording of interest expense recorded on debt by ACT during 2005. |
6. | Reflects adjustment for interest expense of 103,000 on bank financing obtained by the Company to consummate the acquisition. |
7. | Reflects adjustment to record the provision for income taxes of $58,000 on the acquired company based on net income earned for the nine months ended September 30, 2005. ACT filed as an S Corp and therefore, a provision for income taxes was not reflected at the corporation level. |
8. | Reflects adjustment to the provision for income taxes of $3,000 for the effect of Notes 1, 2, 3, 4, 5 and 6 above. |
9. | Reflects adjustment to earnings per share based on AMAC granting stock options to the Seller and certain key employees to purchase 45,000 shares of the Company’s common stock at an exercise price of $6.36 per share. |