SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 24, 1998
OAO TECHNOLOGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 000-23173 52-1973990
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
7500 Greenway Center Drive, Greenbelt, Maryland 20770
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (301) 486-0400
<PAGE>
Item 2. Acquisition or Disposition of Assets.
The undersigned registrant, in order to provide the financial statements
required to be included in the Current Report on Form 8-K dated July 24, 1998 in
connection with the acquisition of all of the outstanding capital stock (the
"Acquisition") of OAO Services, Inc. ("Services"), hereby amends the Form 8-K
filed with the Securities and Exchange Commission on August 7, 1998 to report
the following items as set forth in the pages attached hereto.
Item 7. Financial Statements and Pro Forma Financial Information.
a) Financial Statements of Business Acquired.
Independent Auditors' Report
OAO Services, Inc. Balance Sheet as of June 30, 1998
OAO Services, Inc. Statement of Operations for the nine months ended June
30, 1998
OAO Services, Inc. Statement of Stockholders' Equity for the nine months
ended June 30, 1998
OAO Services, Inc. Statement of Cash Flows for the nine months ended June
30, 1998
OAO Services, Inc. Notes to Financial Statements
b) Pro Forma Financial Information.
OAO Technology Solutions, Inc. pro forma balance sheet as of June 30, 1998
(unaudited)
OAO Technology Solutions, Inc. pro forma statement of operations for the
six months ended June 30, 1998 (unaudited)
OAO Technology Solutions, Inc. pro forma statement of operations for the
year ended December 31, 1997 (unaudited)
Explanatory notes to the pro forma financial information
<PAGE>
Financial Statements of Business Acquired
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
OAO Services, Inc.:
We have audited the accompanying balance sheet of OAO Services, Inc. (a majority
owned subsidiary of OAO Corporation) as of June 30, 1998, and the related
statements of operations, stockholders' equity, and cash flows for the nine
months 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of OAO Services, Inc. as of June
30, 1998, and the results of its operations and its cash flows for the nine
months then ended, in conformity with generally accepted accounting principles.
As discussed in Note 6 to the financial statements, on July 24, 1998, all of the
outstanding capital stock of the Company was acquired by OAO Technology
Solutions, Inc.
September 1, 1998
-2-
<PAGE>
OAO SERVICES, INC.
(A majority owned subsidiary of OAO Corporation)
<TABLE>
<CAPTION>
BALANCE SHEET
JUNE 30, 1998
- -------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ --
Accounts Receivable:
Contracts:
Billed, net of allowance for doubtful accounts of $225,000 3,859,607
Unbilled 6,388,661
------------
Total Accounts Receivable 10,248,268
Other Current Assets 20,566
------------
Total Current Assets 10,268,834
PROPERTY AND EQUIPMENT - Net 180,078
OTHER ASSETS:
Deposits and Other 30,659
Due From Parent 2,312,005
------------
$ 12,791,576
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank Overdraft $ 1,126,643
Accounts Payable 7,128,771
Accrued Expenses 1,070,551
Notes Payable 3,465,611
------------
Total Current Liabilities 12,791,576
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Capital stock, $.20 par value - 1,000 shares
authorized, 500 shares issued and outstanding 100
Additional Paid-In Capital $ 1,871,670
Accumulated Deficit (1,871,770)
------------
Total Stockholders' Equity --
------------
$ 12,791,576
============
</TABLE>
See Notes to Financial Statements.
-3-
<PAGE>
OAO SERVICES, INC
(A majority owned subsidiary of OAO Corporation)
STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
Revenues $ 44,349,083
Direct Costs 37,077,248
------------
Gross Profit 7,271,835
Sales, General and Administrative 6,948,181
------------
Income From Operations 323,654
Interest Expense (349,728)
------------
Net Loss $ (26,074)
============
See Notes to Financial Statements.
-4-
<PAGE>
OAO SERVICES, INC.
(A majority owned subsidiary of OAO Corporation)
<TABLE>
<CAPTION>
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1998
- ---------------------------------------------------------------------------------------------------------------------
Common Stock Additional Total
---------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER, 30 1997 500 $ 100 $ 5,114,342 $(1,845,696) $ 3,268,746
Net loss -- -- (26,074) (26,074)
Distribution to OAO Corporation -- -- (3,242,672) (3,242,672)
---------------- ----------------------------- -----------
BALANCE, JUNE 30, 1998 500 $ 100 $ 1,871,670 $(1,871,770) $ --
================ ============================= ===========
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE>
OAO SERVICES, INC.
(A majority owned subsidiary of OAO Corporation)
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (26,074)
Adjustments to reconcile net loss to cash flows
used in operating activities:
Depreciation and amortization 69,861
Provision for doubtful accounts 225,000
Changes in assets and liabilities:
Accounts receivable (880,904)
Due from Parent (1,554,976)
Deposits and other (24,468)
Bank overdraft 1,126,643
Accounts payable (2,889,557)
Accrued expenses 506,595
-----------
Net cash used in operating activities (3,447,880)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (17,731)
-----------
Net cash used in investment activities (17,731)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit, net 3,465,611
-----------
Net cash provided by financing activities 3,465,611
-----------
NET INCREASE (DECREASE) IN CASH --
CASH, BEGINNING OF YEAR --
-----------
CASH, END OF YEAR $ --
===========
SUPPLEMENTAL INFORMATION:
Cash payments of interest $ 349,728
===========
See Notes to Financial Statements.
-6-
<PAGE>
OAO SERVICES, INC.
(A majority owned subsidiary of OAO Corporation)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - OAO Services, Inc. (the "Company" or "OAO
Services") is a 85% majority owned subsidiary of OAO Corporation ("OAOC")
and provides a wide range of outsourced information technology services,
serving as a National Technical Services supplier to International Business
Machine ("IBM") and IBM Global Services. Additionally, OAO Services
provides national customer support center services for IBM Global Services,
as well as serving as a national supplier of Year 2000 personnel services
to IBM.
Revenue Recognition - The Company principally provides services under time
and material contracts, primarily with IBM. Revenues under
time-and-materials contracts are recorded at the contracted rates as the
labor hours and other direct costs are incurred. Anticipated losses on all
contracts are recognized as soon as they become known.
Unbilled Receivables - Unbilled receivables consist primarily of amounts
currently billable that have not yet been invoiced.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization are provided using accelerated depreciation
methods over the estimated lives of the assets.
Income Taxes - The Company is included in the consolidated Federal income
tax return of OAOC. Federal and state income taxes are calculated on a
separate return basis.
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
At June 30, 1998, there was a deferred tax asset of approximately $749,000
representing primarily the effect of net operating loss carryforwards
generated on a stand alone basis since inception, which has been offset by
a valuation allowance for the full amount. Since there is no tax sharing
agreement between the Company and OAOC, the deferred tax asset would, more
likely than not, not be realized on a stand alone basis.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Concentration of Risk - The Company's largest customer accounted for
approximately 99% of total revenues for the nine months ended June 30,
1998.
New Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board issued SFAS No.'s 130 and 131, "Reporting Comprehensive
Income" and "Disclosures about Segments of an Enterprise and Related
Information", in February 1998 issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits - an amendment of FASB
Statements
-7-
<PAGE>
No. 87, 88, and 106", and in June 1998, issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. SFAS
No. 131 establishes standards for the way public business enterprises
report information about operating segments and the related disclosures
about products and services, geographic areas and major customers. SFAS No.
132 revised employers' disclosure about pension and other postretirement
benefit plans. SFAS 133 establishes accounting and reporting standards for
derivative instruments, and for hedging activities. The Company does not
believe that the adoption of SFAS No.'s 130, 131, 132 and 133 will have a
significant effect on the Company's financial statement presentation or
disclosures, or on its earnings and financial position. SFAS No.'s 130, 131
and 132 are effective for financial statements with fiscal years beginning
after December 15, 1997, and SFAS No 133 is effective for years beginning
after June 15, 1999.
2. ACCRUED EXPENSES
Accrued expenses at June 30, 1998, consist of:
Accrued salaries, bonuses, and other
employee benefits $797,257
Payroll taxes and amounts withheld from employees 273,294
----------
$1,070,551
==========
3. FINANCING ARRANGEMENT AND LONG-TERM DEBT
On June 22, 1998, OAO Corporation ("OAOC"), along with OAO Services, Inc.
and SECON, Inc., both subsidaries of OAOC, (the "Borrowing Group") entered
into an amended and restated financing agreement with Sanwa Business Credit
Corporation ("Sanwa") increasing its available line of credit from
$20,000,000 to $25,000,000, and providing a term loan of $5,000,000. This
financing arrangement, which is jointly and severally guaranteed by
collateral of the Borrowing Group, expires on May 8, 2000. Borrowings under
the line of credit are limited up to 90% of all eligible billed receivables
plus 50% of eligible unbilled receivables but not exceeding $2,000,000.
Interest is charged at prime (8.5 % at June 30, 1998) plus 1.125%.
At June 30, 1998, the agreed upon allocation of the debt allocated to OAO
Services, based on its stand alone borrowing base as defined in the
financing agreement was $3,465,611. Subsequent to June 30, 1998, as part of
the acquisition of OAO Services, described in Note 6, this amount was
repaid and the bank released the Company of any future liability with
respect to the financing agreement.
4. CONTINGENCIES
The Company is involved in various litigation arising in the normal course
of business. In management's opinion, the Company's ultimate liability or
loss, if any, resulting from this litigation will not have a material
adverse effect on the accompanying financial statements.
-8-
<PAGE>
5. RELATED PARTY TRANSACTIONS
The Company and OAOT ("OAO Technology Solutions, Inc.") are related parties
as a common group of shareholders hold a substantial ownership interest in
both companies. During the nine months ended June 30, 1998, OAOT serves as
a subcontractor on several contracts for the Company. Total direct expenses
recorded under these contracts amounted to $1,723,124 for the nine months
ended June 30, 1998. The Company had a payable of $831,000 due to OAOT as
of June 30, 1998 which is included in accounts payable.
In connection with the acquisition of the Company by OAOT, described in
Note 6 to the financial statements, certain obligations to the Company from
OAOC as of the date of the sale in the amount of $3,242,672 were forgiven
by the Company and treated as a distribution to OAOC. This transaction has
been reflected in the accompanying financial statements as a reduction in
stockholders equity at June 30, 1998. OAOT has entered into a promissory
note agreement with OAOC for the repayment of $2,547,000, together with
interest at prime plus 2% on December 1, 1999. Of this amount, $2,312,005
was classified as due from parent in the June 30, 1998 financial
statements. The majority shareholder of OAOC has personally guaranteed the
repayment of this note and pledged 1,250,000 shares of OAOT common stock as
security.
The accompanying Statement of Operations includes the allocation of
indirect costs from OAOC, primarily for rent and administrative costs,
including accounting and human resource functions, totaling $2,068,158 for
the nine months ended June 30, 1998, and has been included by the company
in sales, general and administrative expenses. This allocation was based on
the relative sales and labor costs of the Company as compared to the total
sales and labor costs of OAOC, and is considered by management of the
Company and OAOC to be reasonable.
6. ACQUISITION BY OAO TECHNOLOGY SOLUTIONS, INC.
On July 24, 1998, OAOT completed the acquisition of all of the outstanding
capital stock of OAO Services pursuant to a Stock Purchase Agreement dated
July 24, 1998, (the "Stock Purchase Agreement") among OAO Services, OAOT,
OAOC and an individual shareholder (the individual shareholder together
with OAOC, the "Stockholders"). The acquisition was effective as of July 1,
1998.
Pursuant to the terms of the Stock Purchase Agreement, the purchase price
payable by OAOT to the Stockholders in connection with the acquisition
included (i) cash in the amount of $2,305,000, subject to certain purchase
price adjustments, (ii) the payment by OAOT to Sanwa of $4,561,000 for the
retirement of outstanding debt under a financing agreement described in
Note 3 above (of this amount, $3,465,611 is a paydown of the portion of the
debt allocated to the Company, with the remainder, being a payment of the
balance allocated to OAOC), and (iii) earn-out payments to the Stockholders
in amounts equal to 10% of the OAOT's Pre-Tax Profit, as defined in the
Stock Purchase Agreement, in excess, if any, of $2,000,000, subject to
increases as defined in the Stock Purchase Agreement, for the three years
ending December 31, 1999, 2000 and 2001. The aggregate of all earn-out
payments under the Stock Purchase Agreement will not exceed $5,000,000, and
each earn-out payment will be payable by OAOT on the 90th business day
after the OAOT receipt of its audited financial statements for the year for
which such payment is to be made.
Also on July 24, 1998, in connection with the acquisition of the Company,
OAOT entered into an Administrative Services Agreement with OAOC, under
which OAOC will provide OAO Services with administrative support services
through the earlier of the date that OAOT determines, in its sole
discretion, that it no longer requires such services, or December 31, 1998.
In consideration for providing such services, OAOT will pay to OAOC
$100,000 per month.
-9-
<PAGE>
Pro Forma Financial Information
The following unaudited pro forma financial information gives effect to the
acquisition by OAO Technology Solutions, Inc. (the "Company") of all of the
outstanding common stock (the "Acquisition") of OAO Services, Inc. ("Services").
The consideration to be paid pursuant to the Stock Purchase Agreement (the
"Agreement") was $2.3 million in cash subject to purchase price adjustments
based on guaranteed minimum levels of net equity of Services after elimination
of intercompany receivables of Services due from OAO Corporation ("OAOC"), the
majority selling shareholder, and after allocation of a portion of OAOC's debt
to Services, which was to be retired at closing. At closing, approximately $5.7
million was paid to Sanwa Bank to retire the $3.5 million of debt allocated to
Services and assumed by the Company, and $2.2 million of debt of OAOC. The final
audited financial statements of Services resulted in an amount due from OAOC in
excess of their portion of the cash purchase price of $352,000. This amount plus
the $2.2 million of OAOC's debt paid by the Company at closing result in a total
amount due from OAOC to the Company of $2.5 million. The Company has received a
promissory note from OAOC for this amount bearing interest at prime plus 2% due
December 1, 1999. The note is guaranteed by Cecile D. Barker ("Barker"), who is
the Chairman of the Board of Directors and Chief Executive Officer of OAOC,
holder of 95% of OAOC's outstanding shares of capital stock, the Vice Chairman
of the Board of Directors of the Company, and owner of approximately 20% of the
outstanding shares of common stock of the Company. As security on the note,
Barker pledged approximately 1.3 million of his shares of the Company's stock,
currently valued at approximately $5.0 million.
The accompanying pro forma financial information assumes that the
Acquisition was made as of June 30, 1998 for the unaudited pro forma balance
sheet and as of January 1, 1997 for the unaudited pro forma statement of
operations for the year ended December 31, 1997 and for the six months ended
June 30, 1998. Pursuant to the Agreement, the Company will make future earn-out
payments in amounts equal to 10% of the Company's Pre-Tax Profit (as defined in
the Agreement) in excess, if any, of $2.0 million (which amount is subject to
annual increases based on increases in the outstanding shares of common stock of
the Company), for the three years ended December 31, 1999, 2000, and 2001. The
aggregate of all earn-out payments under the Agreement will not exceed $5.0
million.
Services, a nationwide provider of Information Technology ("IT") staffing
augmentation services, supplies technically skilled personnel on a contract
basis, and had revenues of approximately $29.3 million for the six months ended
June 30, 1998. Substantially all of Services revenues have been derived from IBM
Global Services. During the six months ended June 30, 1998 and the year ended
December 31, 1997, the Company served as subcontractor on several contracts with
Services. Total revenues recorded under these contracts amounted to $600,000 and
$4.2 million, respectively. At June 30, 1998 the Company had $831,000 of
receivables, which were due from Services which are included in billed accounts
receivable.
The acquisition has been accounted for under the purchase method of
accounting. The purchase price has been allocated based on the fair values of
the assets acquired and liabilities assumed as of the date of acquisition. The
unaudited pro forma financial statements do not purport to represent what the
Company's results of operations or financial position actually would have been
had the acquisition occurred on the dates specified, or to project the Company's
results of operations or financial position for any future period or date. The
pro forma adjustments are based upon available information and do not reflect
any benefits from economies which might be achieved from the combined
operations. In the opinion of management all adjustments have been made that are
necessary to present fairly the unaudited pro forma financial statements. The
unaudited pro forma balance sheet and statement of operations should be read in
conjunction with the audited financial statements and notes thereto of the
respective companies.
-10-
<PAGE>
OAO Technology Solutions, Inc., and Subsidiaries
Unaudited Pro Forma Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
As of June 30, 1998
------------------------------------------------------------------
OAOTS Services Adjustments Pro Forma
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 17,589 $ -- $ (3,466) (C) $ 11,928
(2,195) (A)
Accounts Receivable
Billed 11,598 3,859 (831) (B) 14,626
Unbilled 4,040 6,389 10,429
-------- ------- --------
15,638 10,248 25,055
Other current assets 3,132 21 (345) (A) 2,808
-------- ------- --------
Total current assets 36,359 10,269 39,791
Property and equipment, net 6,130 180 6,310
Deposits and other assets 395 31 426
Due from OAOC -- 2,312 235 (A) 2,547
(D)
Goodwill 1,852 -- 2,305 (A) 4,157
-------- ------- --------
Total assets $ 44,736 $ 12,792 $ 53,231
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 640 8,255 (831) (B) 8,064
Notes payable -- 3,466 (3,466) (C) --
Accrued expenses 6,635 1,071 7,706
Other current liabilities 565 -- 565
-------- ------- --------
Total current liabilities 7,840 12,792 16,335
Capital lease obligations, net of current portion
791 -- 791
Stockholders' Equity 36,105 -- 36,105
-------- ------- --------
Total liabilities and stockholders' equity
$ 44,736 $ 12,792 $ 53,231
======== ======= ========
</TABLE>
-11-
<PAGE>
OAO Technology Solutions, Inc., and Subsidiaries
Unaudited Pro Forma Statements of Operations
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31, 1997
-------------------------------------------------------------------
OAOTS Services Adjustments Pro Forma
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $84,666 $65,834 (4,200) (E) $146,300
Direct costs 65,882 57,247 (4,200) (E) 118,929
---------- -------- ----------
Gross profit 18,784 8,587 27,371
Selling, general and administrative 231 (F)
13,551 8,037 (777) (I) 21,042
---------- -------- ----------
Income from operations 5,233 550 6,329
Interest expense, net 453 958 (187) (G) 1,224
---------- -------- ----------
Income before income taxes 4,780 (408) 5,105
Provision for income taxes 1,912 (171) 152 (H) 1,893
---------- -------- ----------
Net income (loss) $ 2,868 $ (237) $ 3,212
========== ======== ==========
Net income per common share:
Diluted $ 0.26 $ 0.29
========== ==========
Basic $ 0.27 $ 0.30
========== ==========
Weighted average number of common shares outstanding:
Diluted 11,202,171 11,202,171
========== ==========
Basic 10,598,130 10,598,130
========== ==========
</TABLE>
-12-
<PAGE>
OAO Technology Solutions, Inc., and Subsidiaries
Unaudited Pro Forma Statements of Operations
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the six months ended June 30, 1998
-----------------------------------------------------------------------
OAOTS Services Adjustments Pro Forma
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $43,346 $29,286 (600) (E) $ 72,032
Direct costs 36,733 24,195 (600) (E) 60,328
---------- ---------- ----------
Gross profit 6,613 5,091 11,704
Selling, general and administrative 115 (F)
10,108 4,869 (800) (I) 14,292
---------- ---------- ----------
Income from operations (3,495) 222 (2,588)
Interest (income) expense, net (381) 186 (215) (G) (410)
---------- ---------- ----------
Income before income taxes (3,114) 36 (2,178)
Provision for income taxes (1,080) 14 188 (H) (878)
---------- ---------- ----------
Net (loss) income $(2,034) $ 22 $(1,300)
========== ========== ==========
Net (loss) income per common share:
Diluted $ (0.12) $(0.08)
========== ==========
Basic $ (0.12) $(0.08)
========== ==========
Weighted average number of common shares outstanding:
Diluted 16,346,050 16,346,050
========== ==========
Basic 16,346,050 16,346,050
========== ==========
</TABLE>
-13-
<PAGE>
Explanatory Notes to Pro Forma Financial Statements
(Dollars in Thousands)
A. On June 24, 1998, the Registrant purchased all the outstanding capital
stock of OAO Services, Inc. for $2,305 as shown in the following table.
Cash payment to Sanwa on behalf of OAO Corporation $2,195
Overpayment of cash to OAOC (note D) (235)
Retirement of amounts owed to OAOT by a
shareholder of Services in lieu of cash payment 345
-------
Total purchase price $2,305
=======
The purchase price was allocated to the net assets and liabilities
acquired, based upon preliminary estimates of fair value as follows:
Receivables $10,269
Property and Equipment 180
Due from Parent 2,312
Other Assets 31
Accounts Payable (8,255)
Accrued Expenses (1,071)
Note Payable (3,466)
Goodwill 2,305
--------
Purchase Price $2,305
========
B. Elimination of intercompany accounts receivable and accounts payable.
C. SANWA debt repaid at acquisition.
D. The following details the adjustment to the amount due from OAOC as a
result of the acquisition
Balance due from OAOC at 06/30/98 $2,312
Less: Purchase price allocated to OAOC per the Stock
Purchase Agreement
(1,960)
-------
Excess amount due from OAOC 352
Actual cash payment to OAOC 2,195
-------
Post acquisition amount due from OAOC $2,547
=======
Change in amount due from OAOC $235
=======
E. Elimination of revenue recognized by OAOT, and expenses recognized by OAO
Services for services provided by OAOT to OAO Services under subcontracting
agreements.
F. In connection with the acquisition of OAO Services, OAOT recorded the
amount of purchase price in excess of the fair value of net assets and
liabilities of the OAO Services (based on preliminary estimates) acquired
initially as goodwill. OAOT is amortizing this goodwill over a 10 year
period on a straight line basis, as such, OAOT has recorded pro forma
adjustments for amortization expense of $231 and $115, for the year ended
December 31, 1997 and for the six months ended June 30, 1998, respectively.
-14-
<PAGE>
G. The effect on interest includes the elimination of interest expense
incurred by OAO Services for debt allocated to it by OAOC under the SANWA
financing agreement and additional interest income earned on the $2.5
million note provided by OAOC to OAOT, offset by the interest expense
incurred on the $5.7 million necessary to be borrowed by OAOT to purchase
OAO Services in 1997 and the forgone interest income on the $5.7 million in
1998.
<TABLE>
<CAPTION>
Twelve months ended Six months ended
December 31, 1997 June 30, 1998
----------------- -------------
<S> <C> <C>
Eliminate interest expense on OAO Services debt allocated to OAOC $(507) $(247)
Add interest expense incurred on $5.7 million necessary to be
borrowed by OAOT to purchase OAO Services 570 --
Forgone interest income on $5.7 million (assumes 5.5%) -- 157
Add interest income earned on the $2.5 million note provided
by OAOC to OAOT (250) (125)
----- -----
Interest effect $(187) $(215)
===== =====
</TABLE>
H. Tax effect of proforma adjustments at a statutory (federal and state)
income tax rate of 40% for the year ended December 31, 1997 and for the six
months ended June 30, 1998.
I. Adjustment to eliminate the indirect costs allocated to OAO Services from
OAOC, net of amounts related to an administrative services agreement
entered into between OAO Services and OAOC for $100 per month shown below.
<TABLE>
<CAPTION>
Twelve months Six months
ended ended
December 31, 1997 June 30, 1998
----------------- -------------
<S> <C> <C>
Indirect costs allocated to OAO Services by OAOC $(1,977) $(1,400)
Costs under the administrative services agreement 1,200 600
------- -------
Net pro forma adjustment $(777) $(800)
======= =======
</TABLE>
-15-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OAO Technology Solutions, Inc.
Date: October 5, 1998 By:/s/ Gregory A. Pratt
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Gregory A. Pratt
Chief Executive Officer and President
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