Attached files
Exhibit 99.4
Transcend, Inc.
Unaudited Pro Forma Consolidated Financial Statements
The accompanying unaudited pro forma consolidated financial statements have been prepared by Transcend, Inc, to reflect its completed acquisition of Medical Dictation Services, Inc. (“MDSI”), on August 31, 2009, as described in Item 2.01 of the Current report on Form 8-K filed on September 3, 2009. The unaudited pro forma consolidated financial statements include a Balance Sheet as of December 31, 2008 (using the March 31, 2009 Balance Sheet of MDSI) and Statements of Operations for the twelve months ended December 31, 2008 (using the twelve months ended March 31, 2009 for MDSI) and six months ended June 30, 2009.
The following assumptions were used in preparing the adjustments for the consolidated pro forma financial statements:
| 1. | Adjustments relating to the unaudited pro forma consolidated balance sheet were computed assuming the transaction was consummated at the date of the most recent fiscal year end and all adjustments are directly attributable to the transaction and are factually supportable. |
| 2. | Adjustments relating to the unaudited pro forma consolidated statements of operations were computed assuming the transaction was consummated on the first day of the fiscal period and include adjustments which are directly attributable to the transaction, are expected to have a continuing impact and are factually supportable. |
Management believes that the assumptions used and the adjustments made are reasonable given the information available.
The unaudited pro forma consolidated financial statements are presented for informational purposes only and are not necessarily indicative of the operating results or the financial position that would have been achieved had the acquisition been consummated as of the dates indicated or of the results that may be obtained in the future. The unaudited pro forma consolidated financial statements and the accompanying notes should be read in conjunction with our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 11, 2009, Quarterly Report on Form 10-Q filed with the SEC on May 11, 2009, Quarterly Report on Form 10-Q filed with the SEC on August 3, 2009 and recent Current Reports on Form 8-K.
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TRANSCEND SERVICES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
(Rounded to the nearest thousand)
| Transcend Services December 31, 2008 (audited) |
Medical Dictation Services, Inc. March 31, 2009 (audited) |
Adjustments | Note # | Pro Forma (unaudited) |
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| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | 12,282,000 | $ | 93,000 | $ | (2,310,000 | ) | 1.a | $ | 9,990,000 | ||||||||
| (75,000 | ) | 3 | ||||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $99,000 for Transcend and $0 for MDSI |
5,929,000 | 1,431,000 | — | 7,360,000 | ||||||||||||||
| Deferred income tax, net |
288,000 | — | — | 288,000 | ||||||||||||||
| Prepaid expenses and other current assets |
332,000 | 18,000 | — | 350,000 | ||||||||||||||
| Total current assets |
18,831,000 | 1,542,000 | (2,385,000 | ) | 17,988,000 | |||||||||||||
| Property and equipment: |
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| Computer and other equipment |
2,376,000 | 281,000 | — | 2,657,000 | ||||||||||||||
| Software |
2,794,000 | — | — | 2,794,000 | ||||||||||||||
| Furniture and fixtures |
487,000 | 57,000 | — | 544,000 | ||||||||||||||
| Leasehold improvements |
— | 84,000 | — | 84,000 | ||||||||||||||
| Total property and equipment |
5,657,000 | 422,000 | — | 6,079,000 | ||||||||||||||
| Accumulated depreciation and amortization |
(3,973,000 | ) | (278,000 | ) | — | (4,251,000 | ) | |||||||||||
| Property and equipment, net |
1,684,000 | 144,000 | — | 1,828,000 | ||||||||||||||
| Intangible assets: |
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| Goodwill |
4,717,000 | — | 12,298,000 | 1.b | 17,015,000 | |||||||||||||
| Other intangible assets |
795,000 | — | 3,300,000 | 1.b | 4,095,000 | |||||||||||||
| Total intangible assets |
5,512,000 | — | 15,598,000 | 21,110,000 | ||||||||||||||
| Accumulated amortization |
(530,000 | ) | — | — | (530,000 | ) | ||||||||||||
| Intangible assets, net |
4,982,000 | — | 15,598,000 | 20,580,000 | ||||||||||||||
| Deferred income tax, net |
519,000 | — | (519,000 | ) | 2 | — | ||||||||||||
| Other assets |
79,000 | — | — | 79,000 | ||||||||||||||
| Total assets |
$ | 26,095,000 | $ | 1,686,000 | $ | 12,694,000 | $ | 40,475,000 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current liabilities: |
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| Accounts payable |
$ | 981,000 | $ | 299,000 | $ | — | $ | 1,280,000 | ||||||||||
| Accrued compensation and benefits |
1,704,000 | 427,000 | — | 2,131,000 | ||||||||||||||
| Line of credit |
— | 598,000 | (598,000 | ) | 1.c | — | ||||||||||||
| Revolving promissory note |
4,000 | — | — | 4,000 | ||||||||||||||
| Promissory notes payable to related parties |
— | — | 4,000,000 | 1.a | 4,000,000 | |||||||||||||
| Promissory notes payable |
477,000 | — | 1,900,000 | 1.a | 2,377,000 | |||||||||||||
| Note payable—A.L. Myer Living Trust |
— | 89,000 | (89,000 | ) | 1.d | — | ||||||||||||
| Other accrued liabilities |
672,000 | 41,000 | — | 713,000 | ||||||||||||||
| Total current liabilities |
3,838,000 | 1,454,000 | 5,213,000 | 10,505,000 | ||||||||||||||
| Long term liabilities: |
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| Promissory notes payable |
238,000 | — | 5,100,000 | 1.a | 5,338,000 | |||||||||||||
| Note payable—A.L. Myer Living Trust |
— | 598,000 | (598,000 | ) | 1.d | — | ||||||||||||
| Other liabilities |
169,000 | 11,000 | — | 180,000 | ||||||||||||||
| Deferred income tax liability, net |
— | 9,000 | 1,187,000 | 1.b | 677,000 | |||||||||||||
| (519,000 | ) | 2 | ||||||||||||||||
| Total long term liabilities |
407,000 | 618,000 | 5,170,000 | 6,195,000 | ||||||||||||||
| Commitments and contingencies |
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| Stockholders’ equity: |
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| Preferred stock, $0.01 par value; 2,000,000 shares authorized and no shares outstanding at December 31, 2008 |
— | — | — | — | ||||||||||||||
| Common stock, $0.05 par value; 15,000,000 shares authorized at December 31, 2008 and 8,571,000 shares issued and outstanding at December 31, 2008 |
423,000 | — | 6,000 | 1.a | 429,000 | |||||||||||||
| MDSI Common Stock—$10 par value, 1,960 shares authorized, 960 share issued and outstanding at March 31, 2009 |
— | 10,000 | (10,000 | ) | 1.b | — | ||||||||||||
| Additional paid-in capital |
30,439,000 | 48,000 | (48,000 | ) | 1.b | 32,433,000 | ||||||||||||
| 1,994,000 | 1.a | |||||||||||||||||
| Retained deficit |
(9,012,000 | ) | (444,000 | ) | 444,000 | 1.b | (9,087,000 | ) | ||||||||||
| (75,000 | ) | 3 | ||||||||||||||||
| Total stockholders’ equity |
21,850,000 | (386,000 | ) | 2,311,000 | 23,775,000 | |||||||||||||
| Total liabilities and stockholders’ equity |
$ | 26,095,000 | $ | 1,686,000 | $ | 12,694,000 | $ | 40,475,000 | ||||||||||
The accompanying notes are an integral part of these financial statements.
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TRANSCEND SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(rounded to the nearest thousand,
except earnings per share)
| Transcend Services Twelve Months ended December 31, 2008 (audited) |
MDSI Twelve Months ended March 31, 2009 (audited) |
Adjustments | Note # | Pro forma Twelve Months ended December 31, 2008 (unaudited) |
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| Revenue |
$ | 48,696,000 | $ | 13,732,000 | $ | — | $ | 62,428,000 | |||||||||
| Direct costs |
30,852,000 | 9,312,000 | — | 40,164,000 | |||||||||||||
| Gross profit |
17,844,000 | 4,420,000 | — | 22,264,000 | |||||||||||||
| Operating expenses: |
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| Sales and marketing |
1,130,000 | — | — | 1,130,000 | |||||||||||||
| Research and development |
1,065,000 | — | — | 1,065,000 | |||||||||||||
| General and administrative |
5,880,000 | 3,987,000 | 9,867,000 | ||||||||||||||
| Depreciation and amortization |
822,000 | 50,000 | 340,000 | 6 | 1,212,000 | ||||||||||||
| Total operating expenses |
8,897,000 | 4,037,000 | 340,000 | 13,274,000 | |||||||||||||
| Operating income |
8,947,000 | 383,000 | (340,000 | ) | 8,990,000 | ||||||||||||
| Interest and other income and expense: |
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| Interest expense, related party |
6,000 | — | 100,000 | 5 | 106,000 | ||||||||||||
| Interest income |
(132,000 | ) | — | — | (132,000 | ) | |||||||||||
| Interest expense |
145,000 | 84,000 | 263,000 | 4 | 492,000 | ||||||||||||
| Other (income) expense |
(16,000 | ) | 14,000 | — | (2,000 | ) | |||||||||||
| Total interest and other expense, net |
3,000 | 98,000 | 363,000 | 464,000 | |||||||||||||
| Income before income taxes |
8,944,000 | 285,000 | (703,000 | ) | 8,526,000 | ||||||||||||
| Income tax provision |
3,176,000 | 44,000 | 57,000 | 7 | 3,007,000 | ||||||||||||
| — | — | (270,000 | ) | 8 | |||||||||||||
| Net income |
$ | 5,768,000 | $ | 241,000 | $ | (490,000 | ) | $ | 5,519,000 | ||||||||
| Basic earnings per share: |
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| Net earnings per share |
$ | 0.68 | $ | 0.64 | |||||||||||||
| Weighted average shares outstanding |
8,448,000 | 8,568,000 | |||||||||||||||
| Diluted earnings per share: |
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| Net earnings per share |
$ | 0.65 | $ | 0.62 | |||||||||||||
| Weighted average shares outstanding |
8,814,000 | 8,934,000 | |||||||||||||||
The accompanying notes are an integral part of these financial statements.
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TRANSCEND SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(rounded to the nearest thousand,
except earnings per share)
| Transcend Services Six Months Ended June 30, 2009 (unaudited) |
MDSI Six Months Ended June 30, 2009 (unaudited) |
Adjustments | Note # | Pro forma Six Months Ended June 30, 2009 (unaudited) |
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| Revenue |
$ | 31,896,000 | $ | 7,111,000 | $ | — | $ | 39,007,000 | ||||||||||
| Direct costs |
20,438,000 | 4,905,000 | — | 25,343,000 | ||||||||||||||
| Gross profit |
11,458,000 | 2,206,000 | — | 13,664,000 | ||||||||||||||
| Operating expenses: |
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| Sales and marketing |
853,000 | — | — | 853,000 | ||||||||||||||
| Research and development |
733,000 | — | — | 733,000 | ||||||||||||||
| General and administrative |
3,940,000 | 2,459,000 | — | 6,399,000 | ||||||||||||||
| Depreciation and amortization |
564,000 | — | 170,000 | 6 | 734,000 | |||||||||||||
| Total operating expenses |
6,090,000 | 2,459,000 | 170,000 | 8,719,000 | ||||||||||||||
| Operating income |
5,368,000 | (253,000 | ) | (170,000 | ) | 4,945,000 | ||||||||||||
| Interest and other income and expense: |
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| Interest expense, related party |
— | — | 50,000 | 5 | 50,000 | |||||||||||||
| Interest income |
(15,000 | ) | — | — | (15,000 | ) | ||||||||||||
| Interest expense |
76,000 | — | 132,000 | 4 | 208,000 | |||||||||||||
| Other (income) expense, net |
— | 36,000 | — | 36,000 | ||||||||||||||
| Total interest and other expense, net |
61,000 | 36,000 | 182,000 | 279,000 | ||||||||||||||
| Income before income taxes |
5,307,000 | (289,000 | ) | (352,000 | ) | 4,666,000 | ||||||||||||
| Income tax provision |
1,973,000 | — | (107,000 | ) | 7 | 1,775,000 | ||||||||||||
| — | — | (91,000 | ) | 8 | ||||||||||||||
| Net income |
$ | 3,334,000 | $ | (289,000 | ) | $ | (154,000 | ) | $ | 2,891,000 | ||||||||
| Basic earnings per share: |
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| Net earnings per share |
$ | 0.39 | $ | 0.34 | ||||||||||||||
| Weighted average shares outstanding |
8,476,000 | 8,596,000 | ||||||||||||||||
| Diluted earnings per share: |
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| Net earnings per share |
$ | 0.38 | $ | 0.32 | ||||||||||||||
| Weighted average shares outstanding |
8,831,000 | 8,951,000 | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Purchase Accounting Entry: |
| a. | Payment of the purchase price of $15.3 million was made as follows: (a) $9.3 million in cash paid at closing; (b) $2.0 million in cash payable within 30 days of delivery of audited financial statements; (c) a one-year 5% $2.0 million promissory note payable to the selling stockholder; and (d) $2.0 million of Transcend common stock (119,940 shares). |
| b. | The purchase price was allocated between goodwill of $12.3 million, intangibles assets of $3.3 million, net identifiable assets of $0.9 million and a net deferred tax liability of $1.2 million. |
| c. | At closing the amount owed on MDSI’s line of credit with Citibank was paid off. |
| d. | At closing, MDSI’s Notes Payable were paid off. |
| 2. | The long-term deferred income tax asset was netted against the long-term deferred income tax liability. |
| 3. | Acquisition costs are estimated to be $75,000 for the purchase of MDSI. |
| 4. | Transcend and MDSI entered into a new borrowing agreement with Regions Bank, which included a promissory note of $7.0 million, used for part of the purchase price of MDSI. The note bears interest at a rate based on the current LIBOR. For the pro forma financial statements, the monthly interest expense for the note was estimated at an annual interest rate of 3.75% based on the rate for September 2009. |
| 5. | The monthly interest expense for the $2.0 million promissory note to Dorothy Fitzgerald was estimated using an annual interest rate of 5%. |
| 6. | The intangible asset of $3.2 million for customer relationships are being amortized over 120 months, at $26,666 per month, and the intangible asset of $100,000 for non-compete agreements are being amortized over 60 months at $1,667 per month. |
| 7. | MDSI original Income tax expense was adjusted to reflect Transcend’s tax rate at December 31, 2008 of 35.51% and at June 30, 2009 of 37.18%. |
| 8. | Income tax expense calculated on the Adjustments to reflect Transcend’s tax rate at December 31, 2008 of 35.51% and at June 30, 2009 of 37.18%. |
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