<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): March 14, 2000
---------------
Entrust Technologies Inc.
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Maryland
- ------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-24733 62-1670648
------------------------ -------------------
(Commission File Number) (I.R.S. Employer
Identification No.)
One Preston Park South, 4975 Preston Park Blvd., Suite 400, Plano, TX 75093
- --------------------------------------------------------------------- ------
(Address of Principal Executive Offices) (Zip Code)
(972) 943-7300
----------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
----------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
This Amendment No. 1 to Current Report on Form 8-K/A is filed for the purpose
of filing the financial statements of CygnaCom Solutions, Inc. ("CygnaCom")
required by Item 7(a) and the pro forma financial information required by Item
7(b).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
-------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired.
--------------------------------------------
The financial statements of CygnaCom required by this item are included as
Exhibit 99.2 to this Amendment No. 1 to Current Report on Form 8-K/A and
incorporated herein by reference.
(b) Pro Forma Financial Information.
--------------------------------
The pro forma financial information required by this item is included as
Exhibit 99.3 to this Amendment No. 1 to Current Report on Form 8-K/A and
incorporated herein by reference.
(c) Exhibits.
---------
See Exhibit Index attached hereto.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 12, 2000 ENTRUST TECHNOLOGIES INC.
----------------------------
(Registrant)
By: /s/ John A. Ryan
----------------
John A. Ryan
President and
Chief Executive Officer
3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2 Stock Purchase Agreement, dated as of March 14, 2000, by and among
Entrust Technologies Inc., CygnaCom Solutions, Inc. and Santosh
Chokhani, Isadore Schoen, Sarbari Gupta, Sadegh Kavoussi, Peter Hesse,
Scott Shorter, Mike Boberski, Johnny Hsiung, Christine Miller, William
Taris, Kristina Rogers, Mark Whitaker, and Edward Morris (previously
filed as Exhibit 2 to the Registrant's Current Report on Form 8-K,
dated March 24, 2000 (File No. 000-24733)).
23.1 Consent of Deloitte & Touche LLP.
99.1 Press Release dated March 15, 2000 (previously filed as Exhibit 99 to
the Registrant's Current Report on Form 8-K, dated March 24, 2000
(File No. 000-24733)).
99.2 Financial Statements of CygnaCom Solutions, Inc.
99.3 Pro Forma Financial Information.
4
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 333-31054, No. 333-65245 and No. 333-65255 of Entrust Technologies Inc. on
Forms S-8 of our report dated May 3, 2000, on the financial statements of
CygnaCom Solutions, Inc. for the year ended December 31, 1999, appearing in this
Amendment No. 1 to Current Report on Form 8-K/A.
/s/ Deloitte & Touche LLP
Dallas, Texas
May 12, 2000
5
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of CygnaCom Solutions, Inc:
We have audited the accompanying balance sheet of CygnaCom Solutions, Inc.
as of December 31, 1999, and the related statements of operations, shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of CygnaCom Solutions, Inc. at December 31,
1999, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
May 3, 2000
6
<PAGE>
CYGNACOM SOLUTIONS, INC.
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash.................................................... $ 746,848
Contract receivables (net of allowance for doubtful
accounts of $123,120).................................. 1,394,943
Prepaid expenses........................................ 22,256
----------
Total current assets.................................. 2,164,047
Property and equipment, net............................... 21,922
Other long-term assets.................................... 26,708
----------
Total assets.......................................... $2,212,677
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................ $ 6,707
Accrued vacation........................................ 81,407
Deferred contract revenues.............................. 128,703
----------
Total current liabilities............................. 216,817
Accrued rent.............................................. 62,142
----------
Total liabilities..................................... 278,959
----------
Shareholders' equity:
Common stock, no par value;
400 shares authorized, issued and outstanding........ 4,000
Retained earnings....................................... 1,929,718
----------
Total shareholders' equity............................ 1,933,718
----------
Total liabilities and shareholders' equity............ $2,212,677
==========
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
CYGNACOM SOLUTIONS, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
Revenues.................................................. $6,196,099
Cost of revenues.......................................... 3,998,684
----------
Gross profit.............................................. 2,197,415
----------
Operating expenses:
Sales and marketing..................................... 178,399
General and administrative.............................. 345,665
----------
Total operating expenses............................. 524,064
----------
Income from operations.................................... 1,673,351
Interest income........................................... 48,308
----------
Net income................................................ $1,721,659
==========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
CYGNACOM SOLUTIONS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Balances at January 1, 1999....... 400 $4,000 $ 1,618,059 $ 1,622,059
Net income........................ - - 1,721,659 1,721,659
Distributions to shareholders..... - - (1,410,000) (1,410,000)
--------- ------------ ----------- -----------
Balances at December 31, 1999..... 400 $4,000 $ 1,929,718 $ 1,933,718
========= ============ =========== ===========
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
CYGNACOM SOLUTIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.............................................. $ 1,721,659
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 26,613
Changes in operating assets and liabilities:
Increase in contract receivables...................... (342,829)
Increase in prepaid expenses.......................... (22,256)
Increase in accounts payable and accrued liabilities.. 4,491
Increase in accrued vacation.......................... 17,011
Increase in deferred contract revenues................ 128,703
Increase in accrued rent.............................. 63,717
-----------
Net cash provided by operating activities 1,597,109
-----------
Cash flows from investing activities:
Purchases of property and equipment.................... (33,025)
Increase in other long-term assets..................... (13,677)
-----------
Net cash used in investing activities (46,702)
-----------
Cash flows from financing activities:
Distributions to shareholders.......................... (1,410,000)
-----------
Net change in cash........................................ 140,407
Cash at beginning of year................................. 606,441
-----------
Cash at end of year....................................... $ 746,848
===========
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
CYGNACOM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
1. DESCRIPTION OF BUSINESS
CygnaCom Solutions, Inc. (the "Company") is a Virginia corporation that
delivers information technology services and related products, with expertise in
public key infrastructure, cryptographic technologies, security engineering and
systems integration and development.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
REVENUE RECOGNITION
The Company provides services under time-and-materials, cost-reimbursement,
and firm fixed-price contracts. Under time-and-materials contracts, the Company
is paid for labor hours at negotiated fixed hourly rates and reimbursed for
other allowable direct costs at actual costs. Under cost-reimbursement
contracts, customers reimburse the Company for its direct costs and allocable
indirect costs, plus a fixed fee or incentive fee. Revenue from time-and-
materials and cost-reimbursement contracts is recognized as services are
performed. Under firm fixed-price contracts, generally for testing services or
consulting services, the Company is required to provide stipulated services and
products for a fixed price. Revenue from laboratory testing services under
fixed-price contracts is recognized upon completion of testing milestones set
forth within individual contracts, which typically are performed within two to
six months. Revenue from consulting services under fixed-price contracts is
recognized on the percentage of completion method, measured primarily by
relating the actual hours of work performed, to date, to the estimated total
hours for each contract, which typically range from six to twelve months.
Changes in contract performance and conditions, including final contract
settlements, may result in revisions to costs. These revisions and any
estimated losses on contracts in progress are recognized in the period in which
the revisions are determinable.
The Company typically bills monthly for its services. The liability
"deferred contract revenues" represents the excess of amounts billed on firm
fixed-price contracts in progress over contract costs and earnings recognized.
11
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided using an accelerated method over the estimated useful
lives of the assets, primarily five to seven years or the related lease terms
if shorter.
12
<PAGE>
CYGNACOM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
INCOME TAXES
The Company has elected S-Corporation status for income tax purposes. Income
taxes are the responsibility of the individual shareholders. Income and loss
from operations and cash distributions are allocated to the shareholders on the
basis of their respective ownership percentages. Accordingly, no provision has
been made for Federal or state and local income tax for the year ended
December 31, 1999.
3. CONTRACT RECEIVABLES AND SIGNIFICANT CUSTOMERS
Contract receivables at December 31, 1999, consist of the following:
Billed contract receivables:
U.S. Government............................... $ 957,130
Commercial.................................... 560,933
----------
Total................................................ 1,518,063
Less: allowance for doubtful accounts................ (123,120)
----------
Contract receivables, net............................ $1,394,943
==========
Six customers accounted for a total of 79% of contract receivables at
December 31, 1999 and 60% of revenues for the year ended December 31, 1999.
These customers, individually, accounted for 21%, 13%, 12%, 11%, 11% and 11% of
contract receivables and 11%, 8%, 17%, 12%, 8% and 4%, of revenues,
respectively.
The Company derives a significant portion of its revenues from departments
and agencies of the United States government and its prime contractors. The
Company's majority owner qualifies as a disadvantaged business owner under
Section 8(a) of the Small Business Act, entitling the Company to preferential
treatment in the competitive bidding process for government contracts. During
1999, approximately 68% of the Company's revenues were attributable to
government contracts and subcontracts. The Company's income from these contracts
is subject to final determination by the U.S. government. In the opinion of
management, these determinations will have no material effect on the Company's
financial position or results of operations.
At December 31, 1999, approximately 69% of the Company's contract receivables
were due from the federal government and its prime contractors.
13
<PAGE>
CYGNACOM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral from its customers to support contract
receivables. Requests to extend significant credit to customers are reviewed and
approved by senior management. The Company maintains an allowance for potential
losses due to credit risk, and believes that the allowance for losses is
adequate.
The following table summarizes the changes in the allowance for doubtful
accounts:
Allowance for doubtful accounts, beginning of year........... $ 10,500
Additional provision......................................... 112,620
--------
Allowance for doubtful accounts, end of year................. $123,120
========
4. CONTRACTS IN PROGRESS
Revenues and billings to date on contracts in progress that are accounted for
under the percentage of completion method at December 31, 1999, are summarized
below:
Revenues recognized to date.................................. $472,869
Less: billings to date....................................... (601,572)
----------
Deferred contract revenues................................... ($128,703)
==========
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999, consists of the following:
Computer and telecom equipment............................... $ 104,986
Furniture and fixtures....................................... 33,276
---------
138,262
Less: accumulated depreciation............................... (116,340)
---------
Property and equipment, net.................................. $ 21,922
=========
14
<PAGE>
CYGNACOM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
6. LEASE COMMITMENTS
The Company leases certain office space and equipment under noncancellable
operating leases expiring through 2004 with certain renewal options. Rental
expense under operating leases totaled $251,839 for the year ended December 31,
1999. Future minimum lease payments under operating leases, as of December 31,
1999, are as follows:
2000......................................................... $ 290,272
2001......................................................... 281,279
2002......................................................... 289,718
2003......................................................... 298,409
2004......................................................... 75,150
----------
Total future minimum lease payments.......................... $1,234,828
==========
As of December 31, 1999, accrued rent in the amount of $63,717, of which
$1,575 is current, is provided to allow for the recognition of rent expense on a
straight-line basis when rental payments are not made on such basis.
7. EMPLOYEE SAVINGS PLAN
The Company maintains a 401(k) retirement savings plan, which is intended to
be a qualified retirement plan under the Internal Revenue Code, covering
substantially all of its full-time employees. Participants may contribute a
portion of their compensation up to the maximum allowed by the federal
government. The Company makes matching contributions in an amount equal to 100%
of employee contributions, subject to a maximum of 3% of compensation. The
Company may also, at its discretion, make an annual profit sharing contribution.
During the year ended December 31, 1999, the Company's contributions to the plan
totaled $82,077.
8. SUBSEQUENT EVENT
In March 2000, the Company's shareholders sold all outstanding shares of the
Company's common stock to Entrust Technologies Inc. ("Entrust"). Entrust
accounted for 21% of contract receivables at December 31, 1999 and 11% of
revenues for the year ended December 31, 1999.
15
<PAGE>
EXHIBIT 99.3
ENTRUST TECHNOLOGIES INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On March 14, 2000, Entrust Technologies Inc. (the "Company") completed the
acquisition of all of the outstanding stock of CygnaCom Solutions, Inc.
("CygnaCom"), a company based in McLean, Virginia that delivers information
technology services and related products, with expertise in public key
infrastructure, cryptographic technologies, security engineering and systems
integration and development, in exchange for $16.0 million in cash.
The accompanying unaudited pro forma combined condensed financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations which may
be reported in future periods or the financial position that actually would have
been realized had the Company and CygnaCom been a combined company during the
specified periods, or had the acquisition been consummated on the date
indicated. The results of operations of CygnaCom subsequent to March 14, 2000,
the effective date of the acquisition, are included in the results of operations
of the Company. The unaudited pro forma combined condensed financial statements,
including the related notes, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical financial statements and
related notes of CygnaCom, included elsewhere in this filing, and the historical
financial statements and related notes of the Company contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
The accompanying unaudited pro forma combined condensed financial
statements give effect to the acquisition between the Company and CygnaCom using
the purchase method of accounting. The unaudited pro forma combined condensed
financial statements are based on the respective historical audited consolidated
financial statements and related notes of the Company and CygnaCom. The pro
forma adjustments are preliminary and are based on management's estimates of the
value of the tangible and intangible assets acquired. In addition, management
is in the process of assessing and formulating its integration plans, which may
include restructuring actions, the full cost of which has not yet been
determined.
The actual adjustments may differ materially from those presented in these
pro forma financial statements. A change in the pro forma adjustments would
result in a different allocation of the purchase price which would affect the
value assigned to the tangible and intangible assets, or could result in a
change to the statement of operations. The effect of these changes on the
statement of operations will depend on the nature and amounts of the assets and
liabilities adjusted. See the notes to the unaudited pro forma combined
condensed financial statements.
The unaudited pro forma combined condensed balance sheet assumes that the
acquisition took place on December 31, 1999, and combines the Company's and
CygnaCom's respective audited December 31, 1999 balance sheets. The unaudited
pro forma combined condensed statements of operations assume the acquisition
took place as of January 1, 1999 and combines the Company's and CygnaCom's
respective audited statements of operations for the year ended December 31,
1999. Adjustments have been made to CygnaCom's financial statements to conform
to the Company's presentation.
16
<PAGE>
<TABLE>
<CAPTION>
ENTRUST TECHNOLOGIES INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
Historical Pro Forma Adjustments Pro Forma
------------------------------------------------------- Combined
Entrust CygnaCom Amount Reference Entrust
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,877 $ 747 $(16,000) (a) $ 6,624
Short-term marketable investments 67,394 - - 67,394
Accounts receivable, net 21,817 1,395 (290) (b) 22,922
Other receivables 1,994 - - 1,994
Prepaid expenses 2,201 22 - 2,223
--------------------------------------------------------------------------
Total current assets 115,283 2,164 (16,290) 101,157
Long-term marketable investments 2,405 - - 2,405
Goodwill and other intangibles, net 2,948 - 16,555 (a) 19,503
Property and equipment, net 6,904 22 - 6,926
Other long-term assets 2,980 27 - 3,007
--------------------------------------------------------------------------
Total assets $130,520 $2,213 $ 265 $132,998
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,636 $ 7 $ (290) (b) $ 6,353
Accrued liabilities 9,169 81 235 (a) 9,485
Accruals related to acquisition - - 2,489 (a) 2,489
Deferred income 10,761 129 - 10,890
Due to related party 799 - - 799
--------------------------------------------------------------------------
Total current liabilities 27,365 217 2,434 30,016
Accrued rent - 62 - 62
--------------------------------------------------------------------------
Total liabilities 27,365 279 2,434 30,078
--------------------------------------------------------------------------
Shareholders' equity:
Common stock 452 4 (4) (a) 452
Special voting stock 52 - - 52
Additional paid-in-capital 122,883 - - 122,883
Unearned deferred compensation (439) - - (439)
Accumulated other comprehensive loss (535) - - (535)
Retained earnings (accumulated deficit) (19,258) 1,930 (2,165) (a) (d) (e) (19,493)
--------------------------------------------------------------------------
Total shareholders' equity 103,155 1,934 (2,169) 102,920
--------------------------------------------------------------------------
Total liabilities and shareholders'
equity $130,520 $2,213 $ 265 $132,998
==========================================================================
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
ENTRUST TECHNOLOGIES INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Historical Pro Forma Adjustments Pro Forma
------------------------------------------------------- Combined
Entrust CygnaCom Amount Reference Entrust
<S> <C> <C> <C> <C> <C>
Revenues:
License $61,482 $ - $ - $61,482
Services and maintenance 23,732 6,196 (666) (b) 29,262
-----------------------------------------------------------------------
Total revenues 85,214 6,196 (666) 90,744
-----------------------------------------------------------------------
Cost of revenues:
License 2,286 - - 2,286
Services and maintenance 13,016 3,999 (666) (b) 16,349
-----------------------------------------------------------------------
Total cost of revenues 15,302 3,999 (666) 18,635
-----------------------------------------------------------------------
Gross profit 69,912 2,197 - 72,109
-----------------------------------------------------------------------
Operating expenses:
Sales and marketing 40,900 178 - 41,078
Research and development 16,605 - - 16,605
General and administrative 7,752 346 - 8,098
Goodwill amortization 712 - 5,520 (c) 6,232
-----------------------------------------------------------------------
Total operating expenses 65,969 524 5,520 72,013
-----------------------------------------------------------------------
Income from operations 3,943 1,673 (5,520) 96
Interest income 3,776 48 - 3,824
-----------------------------------------------------------------------
Income before income taxes 7,719 1,721 (5,520) 3,920
Provision for income taxes (1,800) - (235) (d) (e) (2,035)
-----------------------------------------------------------------------
Net income $ 5,919 $1,721 $(5,755) $ 1,885
=======================================================================
Net income per share
Basic $0.13 $0.04
Diluted $0.11 $0.03
Weighted average common shares
used in per share computations
Basic 43,847 43,847
Diluted 54,803 54,803
</TABLE>
18
<PAGE>
ENTRUST TECHNOLOGIES INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Pro Forma Adjustments
Certain pro forma adjustments have been made to the accompanying unaudited
pro forma combined condensed financial statements, based on the acquisition of
all of the outstanding capital stock of CygnaCom for approximately
$16.4 million, which includes $16.0 million in cash and approximately
$0.4 million in acquisition expenses, and based on the allocation of
$1.9 million to the book value of the net assets of CygnaCom less $2.1 million
related to the accruals associated with the acquisition and $16.6 million to
goodwill and other intangibles.
The unaudited pro forma combined condensed balance sheet as at December 31,
1999 gives effect to the acquisition as if it had occurred on December 31, 1999.
The unaudited pro forma combined condensed statement of operations for the year
ended December 31, 1999 gives effect to the acquisition as if it had occurred at
January 1, 1999.
The following adjustments have been reflected in the unaudited pro forma
combined condensed financial statements:
(a) Reflects the payment of cash to the shareholders of CygnaCom and the
recording of the entries required under the purchase method of accounting.
Accordingly, the total purchase price has been allocated to the tangible assets
and liabilities of CygnaCom based on their relative fair values. The fair value
of the tangible assets and liabilities approximated their historical book values
at December 31, 1999. The amounts and components of the purchase price, along
with the allocation of the purchase price to the net assets acquired,
shareholder distributions from December 31, 1999 through the date of
acquisition, estimated severance and other costs attributable to the acquisition
are presented below, and are subject to change as acquisition accruals are
finalized.
<TABLE>
<CAPTION>
PURCHASE PRICE (in thousands)
<S> <C> <C>
Cash 16,000
Acquisition expenses 431
------
16,431
======
NET ASSETS ACQUIRED
Book value of net tangible assets of CygnaCom 1,934
Less: Shareholder distributions (1,017)
Accruals for estimated severance and other
costs attributable to the acquisition (1,041) (2,058)
------
Goodwill and other intangibles 16,555
------
16,431
======
</TABLE>
19
<PAGE>
(b) Reflects the elimination of intercompany transactions, between the
Company and CygnaCom, that took place during the period presented in the
unaudited pro forma combined condensed financial statements.
(c) Reflects the adjustment to record the amortization of goodwill and
other intangibles resulting from the allocation of the purchase price. The pro
forma adjustment assumes goodwill and other intangibles will be amortized on a
straight-line basis over an estimated useful life of three years. This
determination of the estimated useful life at the date of consummation of the
acquisition is based on the best information available at that date.
(d) Reflects the recognition of a pro forma income tax provision for
CygnaCom for the period presented. The pro forma provision is recorded based on
an income tax rate of 38%, representing the federal statutory rate of 34% plus
an estimated state and local tax rate of 4%, and does not take into account any
potential adjustments to translate accounting income to taxable income.
CygnaCom had elected under Subchapter S of the Internal Revenue Code not to be
taxed as a corporation and accordingly, CygnaCom did not record an income tax
provision on their historical financial statements for Federal or state and
local income tax.
(e) Reflects the income tax benefit of the amortization of deductible
goodwill and other intangibles over a 15 year period for tax purposes, at a 38%
combined Federal, state and local income tax rate.
20
