Attached files
file | filename |
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8-K/A - FORM 8-K/A - STREAMLINE HEALTH SOLUTIONS INC. | d305078d8ka.htm |
EX-99.2 - EXHIBIT 99.2 - STREAMLINE HEALTH SOLUTIONS INC. | d305078dex992.htm |
EX-99.3 - EXHIBIT 99.3 - STREAMLINE HEALTH SOLUTIONS INC. | d305078dex993.htm |
EX-23.1 - EXHIBIT 23.1 - STREAMLINE HEALTH SOLUTIONS INC. | d305078dex231.htm |
Exhibit 99.4
Pro Forma Condensed Combined Balance Sheet and Statement of Operations
for Streamline Health Solutions, Inc.
and Interpoint Partners, LLC, as of October 31, 2011 and January 31, 2011
The following unaudited pro forma condensed financial statements are presented to illustrate the effect on the historical financial position and operating results as a result of the acquisition of Interpoint Partners, LLC (Interpoint or IPP) by Streamline Health Solutions, Inc. (the Company). The unaudited pro forma condensed financial statements also give effect to events that are directly attributable to the acquisition and are factually supportable, including the debt financing transaction with Fifth Third Bank, used, in part, to finance the acquisition.
The following two unaudited pro forma condensed combined statements of operations are presented using the Companys results for the year ended January 31, 2011 and the nine months ended October 31, 2011, and Interpoints results for the year ended December 31, 2010 and the nine months ended September 30, 2011. The unaudited condensed combined pro forma statements of operations presents the pro forma adjustments as if the acquisition had occurred on February 1, 2010 and the unaudited pro forma condensed balance sheet is presented on a pro forma basis as to give effect to the completed acquisition as if it had occurred on October 31, 2011.
The following unaudited pro forma condensed combined balance sheet is presented using the Companys condition as of October 31, 2011 and IPPs as of September 30, 2011. There have been no unusual events of transactions related to IPP for the one month period ended October 31, 2011 which would require disclosure in the pro forma condensed combined financial statements.
The pro forma financial statements have been prepared using the acquisition method of accounting under GAAP, which is subject to change and interpretation. Streamline Health Solutions, Inc. has been treated as the acquirer in the completed acquisition for accounting purposes. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the pro forma financial statements.
Acquisition accounting is dependent upon certain valuations and other studies that have not yet been completed. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of preparing the pro forma financial statements and are based on preliminary information available at the time of the preparation of this Form 8K/A. Differences between these preliminary estimates and the final acquisition accounting could occur and these differences could have a material impact on the pro forma financial statements and the combined companys future results of operations and financial position.
The pro forma financial statements do not reflect any cost savings or other synergies that the combined company may achieve as a result of the completed acquisition or the costs to integrate the operations of Streamline Health Solutions, Inc. and Interpoint or the costs necessary to achieve these cost savings and other synergies. The effects of the foregoing items could, individually or in the aggregate, materially impact the pro forma financial statements.
The following unaudited pro forma condensed combined financial statements, or the pro forma financial statements were derived from and should be read in conjunction with:
(i) the annual report on Form 10-K of Streamline Health Solutions, Inc. for the fiscal year ended January 31, 2011;
(ii) the quarterly report on Form 10-Q of Streamline Health Solutions, Inc. for the quarter and nine months ended October 31, 2011:
(iii) the Interpoint Partners, LLC audited financial statements for the year ended December 31, 2010, including the notes therein;
(iv) the Interpoint Partners, LLC unaudited balance sheets as of September 30, 2011 and 2010, the related statement of operations for the nine month periods and the cash flow statements for the nine months ended September 30, 2011 and 2010, including the notes therein.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of October 31, 2011
(A) | (B) | (C) | ||||||||||||||
Streamline | Interpoint | (A) + (B) +(C) | ||||||||||||||
Health, Inc. | Partners, LLC | IPP | Pro Forma | |||||||||||||
As Reported | As Reported | Pro Forma | Combined | |||||||||||||
Oct 31, 2011 | Sept 30, 2011 | Adjustments | (D) | |||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
(b) | $ | 2,212,500 | ||||||||||||||
Cash and cash equivalents |
$ | 300,438 | $ | 38,492 | (a) | (1,848,725 | ) | $ | 702,705 | |||||||
Accounts receivable |
2,563,203 | 174,031 | | 2,737,234 | ||||||||||||
Unbilled accounts receivable |
411,753 | | | 411,753 | ||||||||||||
Allowance for doubtful accounts |
(140,000 | ) | | | (140,000 | ) | ||||||||||
Prepaid hardware and third party software for future delivery |
34,365 | | | 34,365 | ||||||||||||
Prepaid customer maintenance contracts |
776,253 | | | 776,253 | ||||||||||||
Other prepaid assets |
205,269 | | | 205,269 | ||||||||||||
Deferred income taxes |
167,000 | | | 167,000 | ||||||||||||
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|
|
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|
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|
|
|||||||||
Total current assets |
4,318,281 | 212,523 | 363,775 | 4,894,579 | ||||||||||||
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|
|||||||||
Property and equipment: |
||||||||||||||||
Computer Equipment |
2,824,153 | 3,925 | | 2,828,078 | ||||||||||||
Computer Software |
2,037,063 | | | 2,037,063 | ||||||||||||
Office furniture, fixtures and equipment |
747,867 | 10,349 | | 758,216 | ||||||||||||
Leasehold improvements |
639,864 | 29,970 | | 669,834 | ||||||||||||
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6,248,947 | 44,244 | | 6,293,191 | |||||||||||||
Accumulated depreciation and amortization |
(5,057,977 | ) | (7,599 | ) | | (5,065,576 | ) | |||||||||
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Total property and equipment |
1,190,970 | 36,645 | | 1,227,615 | ||||||||||||
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Contract receivables, less current portion |
248,121 | | | 248,121 | ||||||||||||
Capitalized software development, net of accumulated amortization of $14,287,329 |
8,090,082 | | (a) | 1,628,000 | 9,718,082 | |||||||||||
Deferred loan costs |
| (b) | 157,500 | 157,500 | ||||||||||||
Intangible assets |
| (a) | 420,000 | 420,000 | ||||||||||||
Goodwill and indefinite intangible assets |
| (a) | 4,060,100 | 4,060,100 | ||||||||||||
Other assets, including deferred income taxes of $711,000 |
874,169 | 12,975 | 887,144 | |||||||||||||
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Total other assets |
9,212,372 | 12,975 | 6,265,600 | 15,490,947 | ||||||||||||
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Total assets |
$ | 14,721,623 | $ | 262,143 | $ | 6,629,375 | $ | 21,613,141 | ||||||||
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Liabilities and Stockholders Equity |
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Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 726,861 | $ | 268,798 | | $ | 995,659 | |||||||||
Accrued compensation |
800,544 | | | 800,544 | ||||||||||||
(a) | (229,148 | ) | ||||||||||||||
Accrued other expenses |
279,563 | 249,148 | (c) | 164,384 | 463,947 | |||||||||||
Capital lease obligation |
27,017 | | | 27,017 | ||||||||||||
Line of credit |
| 301,222 | (a) | (301,222 | ) | | ||||||||||
Notes payable related parties |
| 996,040 | (a) | (996,040 | ) | | ||||||||||
Notes payable |
| 404,764 | (a) | (404,764 | ) | | ||||||||||
Deferred revenues |
3,862,154 | 84,399 | (a) | (84,399 | ) | 3,862,154 | ||||||||||
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|
|||||||||
Total current liabilities |
5,696,139 | 2,304,371 | (1,851,189 | ) | 6,149,321 | |||||||||||
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Long-term liabilities: |
||||||||||||||||
Line of credit, less current portion |
1,750,000 | | (b) | (1,750,000 | ) | | ||||||||||
Term loan |
(b) | 4,120,000 | 4,120,000 | |||||||||||||
Contingent consideration for earn-out |
| (a) | 1,232,720 | 1,232,720 | ||||||||||||
Lease incentive liability, less current portion |
51,179 | 29,915 | (a) | (29,915 | ) | 51,179 | ||||||||||
Convertible subordinated note payable |
| (a) | 3,000,000 | 3,000,000 | ||||||||||||
Deferred revenues, less current portion |
| 184,496 | (a) | (184,496 | ) | | ||||||||||
Capital lease obligation, less current portion |
| | | |||||||||||||
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Total liabilities |
7,497,318 | 2,518,782 | 4,537,120 | 14,553,220 | ||||||||||||
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Stockholders equity: |
||||||||||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued |
| | | | ||||||||||||
Common stock, $.01 par value; 25,000,000 shares authorized; 10,053,980 shares issued and outstanding |
100,540 | | | 100,540 | ||||||||||||
Additional paid in capital |
37,595,082 | | 37,595,082 | |||||||||||||
(c) | (164,384 | ) | ||||||||||||||
Accumulated ( deficit ) |
(30,471,317 | ) | (2,256,639 | )(a) | 2,256,639 | (30,635,701 | ) | |||||||||
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Total stockholders equity |
7,224,305 | (2,256,639 | ) | 2,092,255 | 7,059,921 | |||||||||||
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Total liabilities and stockholders equity |
$ | 14,721,623 | $ | 262,143 | $ | 6,629,375 | $ | 21,613,141 | ||||||||
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See Accompanying Introduction and Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of October 31, 2011
Description of Transaction
On December 7, 2011 the Company signed a definitive asset purchase agreement to purchase substantially all of the assets of Interpoint for $2,000,000 in cash and a $3,000,000 convertible note, prior to earn-out adjustments, at $2.00 per share. Additionally, the Agreement provides for a contingent earn-out payment in convertible subordinated notes based on Interpoints financial performance for the 12 month period beginning six months after closing and ended 12 months thereafter. The earn-out payment is calculated as 2 times current IPP client revenue and revenue for client contracts signed during the earn-out period plus one times revenue for the Company clients who signed a contract for IPP services during that period. As part of the acquisition, the Company assumed certain accounts payable and accrued liabilities as of the closing date.
Basis of Presentation
The pro forma financial statements were prepared using the acquisition method of accounting in accordance with Financial Accounting Standards Boards Accounting Standards Codification (ASC) 805, Business Combinations, and uses the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures. ASC 805 requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair value as of the date the acquisition was completed. ASC 820 defines the term fair value and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined in ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This is an exit price concept for valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. As a result of these standards, Streamline Health Solutions, inc. may be required to record assets which are not intended to be used or sold and/or to value assets at fair value measures that do not reflect the Companys intended use of those assets. Many of these fair value measurements can be highly subjective and it is also possible that other professionals, applying reasonable judgement to the same facts and circumstances, could develop and support a range of alternative estimated amounts.
Under ASC 805 acqusition-related transaction costs (e.g., advisory, legal, valuation, other professional fees) and certain acquisition-related restructuring charges impacting the target company are not included as a component of consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. Total advisory, legal, regulatory and valuation costs expected to be incurred by the Company are estimated to be approximately $174,000. None of these amounts have been paid in the nine months ended October 31, 2011, and therefore, all of these costs for the Company are reflected in the unaudited pro forma condensed combined balance sheet as an accrual and a reduction to retained earnings.
(a) | To reflect the allocation of purchase consideration for the IPP acquisiton and elimination of historical equity accounts. |
Purchase price includes: |
||||
Cash, at closing |
$ | 1,848,725 | ||
Convertible subordinated note |
3,000,000 | |||
Estimated Earnout |
1,232,720 | |||
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|||
Total purchase price |
$ | 6,081,445 | ||
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|
The following reconciles the net assets of Interpoint at September 30, 2011, to the amount acquired in the completed acqusiiton:
Historical BV | Adjustment | Assumed | ||||||||||
Cash |
$ | 38,492 | $ | | $ | 38,492 | ||||||
Accounts Receivable |
174,031 | | 174,031 | |||||||||
Property and equipment |
36,645 | | 36,645 | |||||||||
Security deposits |
12,975 | | 12,975 | |||||||||
Accounts payable |
268,798 | | 268,798 | |||||||||
Accrued liabilities |
249,148 | (229,148 | ) | 20,000 | ||||||||
Deferred rent liability |
29,915 | (29,915 | ) | | ||||||||
Deferred revenue |
268,895 | (268,895 | ) | | ||||||||
Lines of credit |
301,222 | (301,222 | ) | | ||||||||
Convertible notes payablerelated parties |
996,040 | (996,040 | ) | | ||||||||
Convertible notes payable, net of discount |
153,989 | (153,989 | ) | | ||||||||
Notes payablerelated parties |
250,775 | (250,775 | ) | | ||||||||
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Total |
$ | (2,256,639 | ) | $ | 2,229,984 | $ | (26,655 | ) | ||||
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Net working capital |
(76,275 | ) | ||||
PP&E |
36,645 | |||||
Deposit |
$ | 12,975 | ||||
Cust. Relationships |
413,000 | |||||
Non-compete |
7,000 | |||||
Software |
1,628,000 | |||||
Tradename |
21,000 | |||||
Goodwill |
4,039,100 | |||||
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|
|||||
Consideration to be transferred |
$ | 6,081,445 |
As part of the purchase agreement, the Company only assumes current accounts payable and accrued liabilities of $20,000 whereby the sellers must leave $75,000 in net working capital. The purchase agreement provides for an adjustment to the purchase price for working capital less than $75,000.
The net working capital as of 9/30/11 would be as follows:
Cash |
$ | 38,492 | ||||
Accounts receivable |
174,031 | |||||
Accounts payable |
(268,798 | ) | ||||
Accrued liabilities |
(20,000 | ) | ||||
Net working capital |
(76,275 | ) | ||||
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Required net working capital |
75,000 | |||||
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Adjustment to purchase price |
$ | 151,275 | Adjustment to cash at closing | |||
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(b) | To record term loan used to finance the cash portion of the IPP acquisition. The term loan required the Company to pay down its revolving line of credit as part of the transaction. |
Term loan cash proceeds |
$ | 4,120,000 | ||
Less: Line of credit pay-off |
(1,750,000 | ) | ||
Loan fees |
(157,500 | ) | ||
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|||
Net cash proceeds from term loan |
$ | 2,212,500 | ||
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The deferred costs associated with the term loan are as follows:
Commitment fee |
$ | 120,000 | ||
Closing costs |
10,000 | |||
Underwriter fees |
27,500 | |||
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Total deferred loan costs |
$ | 157,500 | ||
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These cost will be amortized over the two year term of the loan.
(c) | To reflect the non-recurring costs associated with the IPP acquisiton: |
Legal fees |
$ | 100,360 | ||
Accounting/audit fees |
37,024 | |||
Other advisor fees |
36,000 | |||
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Total |
173,384 | |||
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Less amount accrued |
(9,000 | ) | ||
Total |
$ | 164,384 | ||
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Twelve Months Ended January 31, 2011
(A) | (B) | (C) | ||||||||||||||
Streamline | Interpoint | (A) + (B) +(C) | ||||||||||||||
Health, Inc. | Partners, LLC | IPP | Pro Forma | |||||||||||||
As Reported | As Reported | Pro Forma | Combined | |||||||||||||
Jan 31, 2011 | Dec 31, 2010 | Adjustments | (D) | |||||||||||||
Revenue |
$ | 17,605,991 | $ | 1,153,791 | | $ | 18,759,782 | |||||||||
Operating expenses: |
||||||||||||||||
Cost of sales |
11,291,412 | 400,963 | | 11,692,375 | ||||||||||||
(g) | 78,750 | |||||||||||||||
(f) | 359,356 | |||||||||||||||
Selling, general and administrative |
6,406,190 | 1,101,258 | (e) | 150,000 | 8,095,554 | |||||||||||
Product research and development |
1,759,694 | 204,794 | | 1,964,488 | ||||||||||||
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Total operating expenses |
19,457,296 | 1,707,015 | 588,106 | 21,752,417 | ||||||||||||
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Operating profit (loss) |
(1,851,305 | ) | (553,224 | ) | (588,106 | ) | (2,992,635 | ) | ||||||||
Interest income |
| | | | ||||||||||||
(d) | (240,000 | ) | ||||||||||||||
(c) | (494,400 | ) | ||||||||||||||
(b) | 74,734 | |||||||||||||||
Interest Expense |
(116,392 | ) | (15,970 | )(a) | 15,970 | (776,058 | ) | |||||||||
Other Income (expense), net |
34,080 | | | 34,080 | ||||||||||||
Tax (provision) benefit |
(1,017,000 | ) | | | (1,017,000 | ) | ||||||||||
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Net earnings (loss) |
$ | (2,950,617 | ) | $ | (569,194 | ) | $ | (1,231,802 | ) | $ | (4,751,613 | ) | ||||
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Basic Loss per common share |
$ | (0.31 | ) | $ | (0.50 | ) | ||||||||||
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Number of shares used in Basic per share computation |
9,504,986 | 9,504,986 | ||||||||||||||
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Diluted Loss per common share |
$ | (0.31 | ) | $ | (0.50 | ) | ||||||||||
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Number of shares used in Diluted per share computation |
9,504,986 | 9,504,986 | ||||||||||||||
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Nine Months Ended October 31, 2011
(A) | (B) | (C) | ||||||||||||||
Streamline | Interpoint | (A) + (B) +(C) | ||||||||||||||
Health, Inc. | Partners, LLC | IPP | Pro Forma | |||||||||||||
As Reported | As Reported | Pro Forma | Combined | |||||||||||||
Oct 31, 2011 | Sept 30, 2011 | Adjustments | (D) | |||||||||||||
Revenue |
$ | 12,598,046 | $ | 990,430 | | $ | 13,588,476 | |||||||||
Operating expenses: |
||||||||||||||||
Cost of sales |
6,662,009 | 346,651 | | 7,008,660 | ||||||||||||
(h) | (9,000 | ) | ||||||||||||||
(g) | 59,063 | |||||||||||||||
(f) | 333,056 | |||||||||||||||
Selling, general and administrative |
4,742,084 | 1,915,338 | (e) | 37,500 | 7,078,041 | |||||||||||
Product research and development |
1,063,903 | | | 1,063,903 | ||||||||||||
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Total operating expenses |
12,467,996 | 2,261,989 | 420,619 | 15,150,604 | ||||||||||||
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Operating profit (loss) |
130,050 | (1,271,559 | ) | (420,619 | ) | (1,562,128 | ) | |||||||||
Interest income |
| | | | ||||||||||||
(d) | (180,000 | ) | ||||||||||||||
(c) | (370,800 | ) | ||||||||||||||
(b) | 48,237 | |||||||||||||||
Interest Expense |
(67,529 | ) | (359,667 | )(a) | 359,667 | (570,092 | ) | |||||||||
Other Income (expense), net |
(42,155 | ) | | | (42,155 | ) | ||||||||||
Tax (provision) benefit |
(12,315 | ) | | | (12,315 | ) | ||||||||||
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Net Earnings (Loss) |
$ | 8,051 | $ | (1,631,226 | ) | $ | (563,515 | ) | $ | (2,186,690 | ) | |||||
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Basic Earnings (Loss) per common share |
$ | 0.00 | $ | (0.22 | ) | |||||||||||
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|||||||||||||
Number of shares used in Basic per share computation |
9,823,937 | 9,823,937 | ||||||||||||||
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|||||||||||||
Diluted Loss per common share |
$ | 0.00 | $ | (0.22 | ) | |||||||||||
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|||||||||||||
Number of shares used in Diluted per share computation |
9,837,750 | 9,837,750 | ||||||||||||||
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS
For the year ended January 31, 2011 and the nine months ended October 31, 2011
YTD 10/31/11 | Y/E 1/31/11 | |||||||||
(a) To eliminate the historical interest expense of IPP as debt was not assumed as part of the acquisition |
$ | 359,667 | $ | 15,970 | ||||||
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YTD 10/31/11 | Y/E 1/31/11 | |||||||||
(b) To eliminate historical interest expense of Streamline Health for revolving line of credit paid off as part of closing of term loan agreement |
$ | 48,237 | $ | 74,734 | ||||||
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|
|||||||
YTD 10/31/11 | Y/E 1/31/11 | |||||||||
(c) To record interest expense for term loan used to pay cash proceeds of IPP acquisition |
||||||||||
$4,120,000 at 12% interest annually |
$ | 370,800 | $ | 494,400 | ||||||
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|
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YTD 10/31/11 | Y/E 1/31/11 | |||||||||
d) To record interest on convertible subordinated note issued to IPP sellers as part of purchase price |
||||||||||
$3,000,000 convertible subordinated note at 8% interest annually |
$ | 180,000 | $ | 240,000 | ||||||
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|
|
|
|||||||
YTD 10/31/11 | Y/E 1/31/11 | |||||||||
(e) To adjust salaries of two IPP employees according to new employment contracts signed as part of acquisition and signing bonus of $50,000 each |
||||||||||
$ | 37,500 | $ | 150,000 | |||||||
|
|
|
|
New contract annual salary |
$ | 150,000 | ||||||
Historical annual salary |
125,000 | |||||||
|
|
|||||||
Annual difference |
$ | 25,000 | ||||||
|
|
|||||||
Nine month difference |
$ | 18,750 | ||||||
|
|
|||||||
Signing bonus |
$ | 50,000 | ||||||
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|
(f) | To record amortization of IPP identifiable intangible assets as follows: |
Amount | Useful life | |||||||
Customer relationships |
$ | 413,000 | 10 years | |||||
Covenants not to compete |
7,000 | 1/2 year | ||||||
Internally developed software |
1,628,000 | 5 years | ||||||
Trade name |
21,000 | N/A | ||||||
Goodwill |
4,039,100 | N/A | ||||||
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Total |
$ | 6,108,100 | ||||||
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The amortization of the customer relationships intangible asset and internally developed software intangible asset was calculated using the estimated economic benefit of the cash flows for those respective intangible assets over their estimated useful lives, which results in an accelerated amortization rather than amortization on a straight-line basis.
Amortization expense over the next five years is expected to be as follows:
Year ended January 31, |
2012 | $ | 359,356 | |||||
2013 | $ | 444,075 | ||||||
2014 | $ | 443,598 | ||||||
2015 | $ | 365,057 | ||||||
2016 | $ | 289,270 |
YTD 10/31/11 | Y/E 1/31/11 | |||||||||||
Amortization expense |
333,056 | 359,356 | ||||||||||
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YTD 10/31/11 | Y/E 1/31/11 | |||||||||||
(g) To record amortization of deferred loan costs over the two year term of the term loan |
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Deferred loan costs |
$ | 157,500 | $ | 59,063 | $ | 78,750 | ||||||
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YTD 10/31/11 | Y/E 1/31/11 | |||||||||||
(h) To remove transaction costs accrued as of October 31, 2011 |
$ | 9,000 | $ | | ||||||||
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(i) The Company did not record any tax effects when estimating the impact of the acquisition due to net operating loss carryforwards. |