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| BPOM.OB > SEC Filings for BPOM.OB > Form 10QSB/A on 13-Jun-2008 | All Recent SEC Filings |
13-Jun-2008
Quarterly Report
FORWARD-LOOKING STATEMENTS
This amended quarterly report on Form 10-QSB/A contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). We intend that those forward-looking statements be subject to the safe harbors created by those sections. These forward-looking statements generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance, and can generally be identified by the use of the words "believe," "intend," "plan," "expect," "forecast," "project," "may," "should," "could," "seek," "pro forma," "goal," "estimates," "continues," "anticipate" and similar words. The forward-looking statements and associated risks may include, relate to, or be qualified by other important factors, including, without limitation:
o Our ability to continue as a going concern;
o Our ability to obtain additional debt or equity financing to the extent needed for our continued operations or for planned expansion, particularly if we are unable to attain and maintain profitable operations in the future;
o Our ability to successfully implement our business plans and the possibility of strategic acquisitions;
o Our ability to attract and retain strategic partners and alliances;
o Our ability to hire and retain qualified personnel;
o The risks of uncertainty of protection of our intellectual property;
o Risks associated with existing and future governmental regulation to which we are subject; and
o Uncertainties relating to economic conditions in the markets in which we currently operate and in which we intend to operate in the future.
These forward-looking statements necessarily depend upon assumptions and estimates that may prove to be incorrect. Although we believe that the assumptions and estimates reflected in the forward-looking statements are reasonable, we cannot guarantee that we will achieve our plans, intentions or expectations. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ in significant ways from any future results expressed or implied by the forward-looking statements. We do not undertake to update, revise or correct any forward-looking statements.
Any of the factors described above or in the "Risk Factors" section of this amended quarterly report on Form 10-QSB/A could cause our future financial results, including our net income (loss) or growth in net income (loss) to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially.
OVERVIEW
The Company was incorporated in Delaware and commenced operations on July 26, 2005. On December 15, 2006, the Company acquired all of the outstanding common stock of publicly-held NetGuru, Inc. in a reverse merger ("Merger"). Upon the closing of the Merger, we adopted Former BPOMS' (as the accounting acquirer) the accounting year end of December 31.
We provide business process outsourcing (BPO) services to enterprises in the United States, Canada and Europe. "BPO" refers to the outsourcing of entire business processes, typically to reduce cost and/or to improve the performance of that process. Our objective is to provide a comprehensive suite of BPO functions to support the back-office business requirements of middle-market enterprises throughout North America and Europe on an outsourced and/or recurring revenue basis.
Our primary business offerings are:
o Document and data management solutions, also known as enterprise content management or "ECM" including Finance and Accounting Services Outsourcing or "FAO";
o Information technology services outsourcing or "ITO"; and
o Human resources outsourcing or "HRO".
CRITICAL ACCOUNTING POLICIES
We have identified the following as accounting policies that are the most critical to aid in understanding and evaluating our financial results:
o revenue recognition;
o allowance for doubtful accounts receivable; and
o impairment of long-lived assets, including goodwill.
REVENUE RECOGNITION
We derive revenues from:
o Enterprise content management services, including collaborative software products and services;
o IT outsourcing services; and
o Human resources outsourcing services.
We recognize revenues when the following criteria are met:
o Persuasive evidence of an arrangement, such as agreements, purchase orders or written or online requests, exists;
o Delivery has been completed and no significant obligations remain;
o Our price to the buyer is fixed or determinable; and
o Collection is reasonably assured.
PERSUASIVE EVIDENCE OF AN ARRANGEMENT
We document all terms of an arrangement in a written contract signed by the customer prior to recognizing revenue.
DELIVERY HAS OCCURRED OR SERVICES HAVE BEEN PERFORMED
We perform all services or deliver all products prior to recognizing revenue. Monthly services are considered to be performed ratably over the term of the arrangement. Professional consulting services are considered to be performed when the services are complete. Equipment is considered delivered upon delivery to a customer's designated location.
THE FEE FOR THE ARRANGEMENT IS FIXED OR DETERMINABLE
Prior to recognizing revenue, a customer's fee is either fixed or determinable under the terms of the written contract. Fees for most monthly services, professional consulting services, and equipment sales are fixed under the terms of the written contract. Fees for certain services are variable based on an objectively determinable factor such as usage. Those factors are included in the written contract such that the customer's fee is determinable. The customer's fee is negotiated at the outset of the arrangement.
COLLECTIBILITY IS REASONABLY ASSURED
We determine that collectibility is reasonably assured prior to recognizing revenue. We assess collectibility on a customer by customer basis based on criteria outlined by management. New customers are subject to a credit review process, which evaluates the customer's financial position and ultimately its ability to pay. We do not enter into arrangements unless collectibility is reasonably assured at the outset. Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined during the arrangement that collectibility is not reasonably assured, revenue will be recognized on a cash basis.
We recognize revenues from software that we customize to fit a customer's requirements based on satisfactory completion of pre-determined milestones (evidenced by written acceptance from the customer) and delivery of the product to the customer, provided no significant obligations remain and collection of the resulting receivable is reasonably assured. Customers may choose to purchase ongoing maintenance contracts that include telephone, e-mail and other methods of support, and unspecified upgrades on a when-and-if available basis. Revenue from the maintenance contracts is deferred and recognized ratably over the life of the contract, usually twelve months.
In 1997, the Accounting Standards Executive Committee ("AcSec") of the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 distinguishes between significant and insignificant vendor obligations as a basis for recording revenue and requires that each element of a software licensing arrangement be separately identified and accounted for based on relative fair values of each element. We determine the fair value of each element in multi-element transactions based on vendor-specific objective evidence ("VSOE"). VSOE for each element is based on the price charged when the same element is sold separately.
In 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2, "Software Revenue Recognition, With Respect to Certain Transactions," which modified SOP 97-2 to allow for use of the residual method of revenue recognition if certain criteria are met. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then we recognize revenue using the residual method. Under the residual method, the fair value of the undelivered elements is deferred, and the remaining portion of the transaction fee is recognized as revenue.
We recognize revenues from our IT services primarily on a time and materials basis, with time at a marked-up rate and materials and other reasonable expenses at cost, as we perform IT services. Certain IT services contracts may be fixed price contracts where we would measure progress toward completion by mutually agreed upon pre-determined milestones and recognize revenue upon reaching those milestones. Our fixed price IT contracts typically are for a short duration of one to nine months.
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
We sell to our customers on credit and grant credit to those who are deemed credit worthy based on our analysis of their credit history. We review our accounts receivable balances and the collectibility of these balances on a periodic basis. Based on our analysis of the length of time that the balances have been outstanding, the pattern of customer payments, our understanding of the general business conditions of our customers and our communications with our customers, we estimate the recoverability of these balances. When recoverability is uncertain, we record bad debt expense and increase the allowance for accounts receivable by an amount equal to the amount estimated to be unrecoverable. If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect our future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and our future results of operations could be materially affected.
IMPAIRMENT OF LONG-LIVED ASSETS INCLUDING GOODWILL
At inception, we adopted the provisions of SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144. Pursuant to SFAS No. 142, we were required to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption.
We are required to perform reviews for impairment annually, or more frequently when events occur or circumstances change that would more likely than not reduce the fair value of the net carrying amount. The evaluation of goodwill impairment involves assumptions about the fair values of assets and liabilities of each reporting unit. If these assumptions are materially different from actual outcomes, the carrying value of goodwill will be incorrect. In addition, the Company's results of operations could be materially affected by the write-down of the carrying amount of goodwill to its estimated fair value.
We assessed the fair value of its three reporting units by considering their projected cash flows, using risk-adjusted discount rates and other valuation techniques and determined that there was no impairment to goodwill. As of June 30, 2007, our goodwill account balance was $9,703,283.
CONSOLIDATED RESULTS OF OPERATIONS -
THREE MONTHS ENDED JUNE 30, 2007 VS. THREE MONTHS ENDED JUNE 30, 2006
The privately held Former BPOMS began operations in July 26, 2005 and merged with the then publicly-held netGuru, Inc. on December 15, 2006 in a reverse merger ("Merger"). For accounting purposes, the acquisition has been treated as a recapitalization of Former BPOMS with Former BPOMS as the accounting acquirer. The historical financial statements prior to December 15, 2006, are those of the Former BPOMS.
Certain reclassifications have been made to the fiscal 2006 consolidated financial statements to conform to the fiscal 2007 presentation. The primary reclassifications relate to the presentation of the three business segments and the presentation of share and per share data giving effect to the one-for-fifteen reverse stock split, the Merger, and the resulting recapitalization of equity.
The following entities of BPOMS are included in the consolidated results of operations from the date of their respective acquisitions:
COMPANY INCEPTION/ACQUISITION DATE
BPO Management Services, Inc. Inception date: July 26, 2005
Adapsys Document Management LP Acquired: July 29, 2005
Adapsys LP Acquired: July 29, 2005
Digica, Inc. Acquired: January 1, 2006
Novus Imaging Solutions, Inc. Acquired: September 30, 2006
NetGuru Systems, Inc. Acquired: December 15, 2006
Research Engineers, GmbH Acquired: December 15, 2006
DocuCom Imaging Solutions, Inc. Acquired: June 21, 2007
Human Resource Micro-Systems, Inc. Acquired: June 29, 2007
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Net Revenues
The following table presents our net revenues by operating segment:
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Net revenues
ECM $ 1,352,273 $ 727,952 $ 2,362,044 $ 1,797,330
% of total net 57.4 % 57.4 % 54.2 % 62.2 %
revenues
ITO 1,000,608 428,483 1,980,913 869,598
% of total net revenues 42.5 % 33.8 % 45.5 % 30.1 %
revenues
HRO 3,299 111,306 13,817 222,681
% of total net revenues
revenues 0.1 % 8.8 % 0.3 % 7.7 %
Total net revenues $ 2,356,180 $ 1,267,741 $ 4,356,774 $ 2,889,609
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Total net revenues increased by $1,088,439 or 86% to $2,356,180 during the three
months ended June 30, 2007 from $1,267,741 during the same period in the prior
year. Total net revenues increased by $1,467,165 or 51% to $4,356,774 during
the six months ended June 30, 2007 from $2,889,609 during the same period in
the prior year. Our total net revenues primarily consisted of net revenues from
(1) enterprise content management, (2) IT Outsourcing services and (3) human
resource outsourcing services.
ENTERPRISE CONTENT MANAGEMENT ("ECM")
Net revenue from ECM products and services during the three months ended June 30, 2007 increased by $478,836 or 66% to $1,206,791 from $727,952 during the three months ended June 30, 2006. During the six months ended June 30, 2007 net revenue increased by $419,232 or 23% to $2,216,562 from $1,797,330 during the same period in the prior year. Net revenue in the ECM business segment in fiscal 2007 also includes net revenue from Novus Imaging Solutions, Inc. ("Novus") which was acquired in October 2006 and net revenues from netGuru, Inc. ("netGuru"), which was acquired in December 2006. The ECM segment includes our ECM solutions group and our collaborative software products and related services. The majority of our ECM solutions group services and our collaborative software revenue are generated from service-oriented projects where the revenue is recognized only upon the completion of specific project deliverables. The timing of these projects and the completion and recognition of revenue from various size projects creates variability in our ECM solutions group services revenues and collaborative software net revenues between quarters and fiscal years.
In addition, the Company completed the acquisition of DocuCom on June 21, 2007. The results of DocuCom operations from June 21 to June 30, 2007 have little impact on the results of this segment, but are expected to increase revenues of this segment in succeeding periods.
IT OUTSOURCING SERVICES ("ITO")
Net revenue from ITO during the three months ended June 30, 2007 increased by $572,125 or 167% to $1,000,608 from $428,483 during the three months ended June 30, 2006. During the six months ended June 30, 2007 net revenue increased by $1,111,315 or 145% to $1,980,913 from $869,598 during the same period in the prior year. Increases were primarily due to the additional revenues from NetGuru Systems, Inc. acquired in December 2006 in conjunction with the reverse merger with NetGuru Inc.
HUMAN RESOURCE OUTSOURCING SERVICES ("HRO")
During the second quarter of fiscal 2007, net revenues from HRO declined 97% to $3,299 from $111,306 during the second quarter of fiscal 2006 and 94% to $13,817 from $222,681 during the six months ended June 30, 2007. The HRO segment prior to the HRMS acquisition consisted consists of a small project/consulting group that delivered HRO related services to our clients on a project basis. While no significant projects were undertaken during the three and six months ended June 30, 2007, we have developed a pipeline of HRO related opportunities which we estimate will bring increased revenues in future periods. The acquisition of HRMS which took place June 29, 2007, is expected to form the cornerstone of our HRO offering in the future and bring increasing revenues to this segment in succeeding periods.
OPERATING EXPENSES
The following table presents our operating expenses and the percentage of total
net revenues:
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Operating Expenses
Cost of services provided expenses $ 971,014 $ 545,475 $ 1,873,488 $ 965,115
% of total net revenues 41.2% 43.0% 43.0% 33.4%
Selling, general and
administrative expenses $ 2,309,092 $ 1,291,576 $ 4,152,679 $ 2,946,218
% of total net revenues 98.0% 101.9% 95.3% 102.0%
Research and development expenses $ 27,355 $ - $ 93,366 $ -
% of total net revenues 1.2% 0.0% 4.0% 0.0%
Share-based compensation expense $ 92,744 $ 19,977 $ 146,743 $ 39,953
% of total net revenues 3.9% 1.6% 3.4% 1.4%
Total operating expenses $ 3,400,205 $ 1,857,028 $ 6,266,275 $ 3,951,286
% of total net revenues 144.3% 146.5% 143.8% 136.7%
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COST OF SERVICES PROVIDED EXPENSES
Cost of services provided increased by $425,539 (78%) to $971,014 during the second quarter of fiscal 2007 from $545,475 during the second quarter of fiscal 2006 primarily due to acquisitions of Novus and DocuCom and of entities acquired from NetGuru subsequent to the second quarter of fiscal 2006.
Cost of services provided expenses increased by $908,373 (94%) to $1,873,488 during the six months of fiscal 2007 from $965,115 during the six months of fiscal 2006 primarily due to acquisistions of Novus and DocuCom and of entities acquired from NetGuru subsequent to the six months of fiscal 2006.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased by $1,017,516 (79%) to $2,309,092 during the second quarter of fiscal 2007 from $1,291,576 during the second quarter of fiscal 2006 primarily due to higher professional fees and higher intangible amortization expense from the assets acquired in the previous year, and higher business integration expense associated with the consolidation of the newly acquired business operations. Additionally, SG&A expenses in the second quarter of fiscal 2007 included those of Novus and DocuCom in the amount of $242,266 and of entities acquired from netGuru in the amount of $304,364 that were not present in the second quarter of 2006 since they were acquired in the fourth quarter ended December 2006 and DocuCom was acquired in June 2007.
Selling, general and administrative ("SG&A") expenses increased by $1,206,461 (41%) to $4,152,679 during the first six months of fiscal 2007 from $2,946,218 during the first six months of fiscal 2006 primarily due to higher professional fees and higher intangible amortization expense from the assets acquired in the previous year, and higher business integration expense associated with the consolidation of the newly acquired business operations. Additionally, SG&A expenses in the first six months of fiscal 2007 included those of Novus and DocuCom in the amount of $435,987 and of entities acquired from netGuru in the amount of $532,714 that were not present in the first six months of 2006 since they were acquired in the fourth quarter ended December 2006 and DocuCom was acquired in June 2007.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development ("R&D") expenses consist primarily of software developers' wages. In the first quarter and the first six months of fiscal 2006 there were no R&D expenses since the Web4 division which is the primary generator of R&D expense was acquired in the fourth quarter of fiscal 2006.
SHARE-BASED COMPENSATION EXPENSE
We recorded share-based compensation expense of $92,744 in the second quarter of fiscal 2007 compared to $19,977 in the same period in the prior year. We recorded share-based compensation expense of $146,743 in the first six months of fiscal 2007 compared to $39,953 in the same period in the prior year. Grants of employee stock options are recognized as expense in the Company's financial statements based on their respective grant date fair values and are charged to compensation expense based on awards that are ultimately expected to vest.
OPERATING LOSS BY SEGMENT
Operating loss in the ECM segment decreased to $138,148 in the second quarter of fiscal 2007 from $216,983 second quarter of 2006 primarily due to higher margin project revenues in the second quarter 2007, along with higher business integration expenses and an increase in the ratio of lower margin third party product sales during the second quarter of fiscal 2006. The increase in operating loss in the ITO segment to $169,140 in the second quarter of fiscal 2007 from $83,936 in the second quarter of fiscal 2006 is primarily due to higher revenues from acquired entities and organic growth in the ITO segment during the second quarter of fiscal 2007 compared to the same period in the prior year. The decrease in operating loss in the HRO segment is primarily due to decrease in salaries in the second quarter of fiscal 2007 compared to the second quarter of fiscal 2006. Corporate expenses increased to $659,044 in the second quarter of fiscal 2007 from $30,110 in the second quarter of 2006 primarily due to additional employees in the corporate headquarters, increased professional fees, intangible amortization expense and share-based compensation expense. The following table details the operating loss by segment:
Three Months Ended June 30,
2007 % of Total 2006 % of Total
Operating loss
ECM $ (138,148 ) 13.2 % $ (216,983 ) 36.8 %
ITO (169,140 ) 16.2 % (83,936 ) 14.2 %
HRO (77,694 ) 7.4 % (258,258 ) 43.8 %
Corporate (659,044 ) 63.1 % (30,110 ) 5.1 %
Consolidated $ (1,044,026 ) 100.0 % $ (589,287 ) 100.0 %
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Operating loss in the ECM segment increased to $503,721 in the first six months of fiscal 2007 from $273,483 in the second quarter of 2006 primarily due to higher margin project revenues in the second quarter 2007, along with higher business integration expenses and an increase in the ratio of lower margin third party product sales during the first six months of fiscal 2006. The operating loss in the ITO segment of $185,784 in the first six months of fiscal 2007 is little changed from $187,234 in the same period in the prior year. The decrease in operating loss in the HRO segment is primarily due to decrease in salaries in the first six months of fiscal 2007 compared to the first six months of fiscal 2006. Corporate expenses increased to $1,071,487 in the first six months of fiscal 2007 from $62,749 in the first six months of 2006 primarily due to additional employees in the corporate headquarters, increased professional fees, intangible amortization expense and share-based compensation expense. The following table details the operating loss by segment:
Six Months Ended June 30,
2007 % of Total 2006 % of Total
Operating loss
ECM $ (503,721 ) 26.4 % $ (273,483 ) 25.8 %
ITO (185,784 ) 9.7 % (187,234 ) 17.6 %
HRO (148,510 ) 7.8 % (538,211 ) 50.7 %
Corporate (1,071,487 ) 56.1 % (62,749 ) 5.9 %
Consolidated $ (1,909,502 ) 100.0 % $ (1,061,677 ) 100.0 %
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OTHER EXPENSE (INCOME)
The following table presents our other expense (income) and its percentage of
total net revenues:
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Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Other Expense (Income)
Related parties interest $ 26,926 $ - $ 62,597 $ -
% of total net revenues 1.1 % 0.0 % 1.4 % 0.0 %
Other interest, net $ 212,751 $ 7,121 $ 681,374 $ 4,996
% of total net revenues 9.0 % 0.6 % 15.6 % 0.2 %
Other income $ 12,253 $ 668 $ 14 $ 911
% of total net revenues 0.05 % 0.1 % 0.0 % 0.0 %
Total other expense (income) $ 251,930 $ 7,789 $ 743,985 $ 5,907
% of total net revenues 10.7 % 0.6 % 17.1 % 0.2 %
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