1
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): MARCH 19, 1998
CARNEGIE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-26964 25-1435252
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
FIVE PPG PLACE, PITTSBURGH, PA 15222
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 412-642-6900
2
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Advantage kbs, Inc.
(1) Report of Independent Auditors
(2) Balance Sheet as of December 31, 1997
(3) Statement of Operations for the year ended December 31, 1997
(4) Statement of Changes in Stockholders' Equity (Deficit) for the
year ended December 31, 1997
(5) Statement of Cash Flows - for the year ended December 31, 1997
(6) Notes to Financial Statements
(b) Pro Forma Financial Information (unaudited) to reflect the registrant's
acquisition of Advantage kbs, Inc.
(1) Pro Forma Condensed Consolidated Statements of Operations for the
year ended December 31, 1997 and the three months ended March 31,
1998.
(c) Exhibits
Number Exhibit
------ -------
23.1 Consent of Independent Auditors
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ADVANTAGE KBS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT ........................................... 1
FINANCIAL STATEMENTS
Balance Sheet ................................................... 2
Statement of Operations ......................................... 3
Statement of Changes in Stockholders' Equity (Deficit) ......... 4
Statement of Cash Flows ......................................... 5
Notes to the Financial Statements ............................... 6-9
4
TO THE STOCKHOLDERS OF
ADVANTAGE KBS, INC.
We have audited the accompanying balance sheet of Advantage KBS, Inc. as of
December 31, 1997 and the related statements of operations, changes in
stockholders' equity (deficit), 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 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 Advantage KBS, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ WILKIN & GUTTENPLAN, P.C.
-------------------------------
WILKIN & GUTTENPLAN, P.C.
Certified Public Accountants
East Brunswick, New Jersey
February 12, 1998
(except for Note 14, as to which
the date is March 19, 1998)
5
ADVANTAGE KBS, INC.
BALANCE SHEET
DECEMBER 31,
1997
----
ASSETS
CURRENT ASSETS
Cash $ -
Accounts receivable - Notes 2 and 4 1,075,148
Prepaid expenses 5,595
Advances to stockholders 8,779
-----------
TOTAL CURRENT ASSETS 1,089,522
PROPERTY AND EQUIPMENT, net - Notes 2, 3 and 4 254,955
CAPITALIZED SOFTWARE COSTS, less
accumulated amortization of $343,781 - Note 2 213,817
CLOSING COSTS, less accumulated amortization
of $890 - Note 2 17,810
SECURITY DEPOSITS 35,802
-----------
TOTAL ASSETS $ 1,611,906
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 388,423
Loan payable - bank - current portion - Note 4 59,236
Current portion of capitalized lease obligations - Note 5 130,367
Deferred income - Notes 2 and 6 928,964
Notes payable - stockholders - Note 7 140,000
Loan payable - other 35,000
Profit sharing payable - Note 8 18,000
-----------
TOTAL CURRENT LIABILITIES 1,699,990
OBLIGATIONS UNDER CAPITAL LEASES, LESS
CURRENT PORTION - Note 5 109,099
LOAN PAYABLE - BANK - Non-current portion - Note 4 482,408
-----------
TOTAL LIABILITIES 2,291,497
===========
COMMITMENTS - Note 11
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 1,000,000 shares
authorized, 94,500 shares issued and 90,000
shares outstanding - Note 13 100,200
Additional paid in capital 1,243
Retained earnings (deficit) (732,859)
Treasury stock (48,175)
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (679,591)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,611,906
============
The accompanying notes are an integral part of these financial statements.
6
ADVANTAGE KBS, INC.
STATEMENT OF OPERATIONS
DECEMBER 31,
1997
----
REVENUES $3,182,739
SALARIES AND DIRECT COSTS 2,622,371
----------
GROSS PROFIT 560,368
GENERAL AND ADMINISTRATIVE EXPENSES 1,083,693
----------
OPERATING LOSS (523,325)
INTEREST EXPENSE 90,961
LOSS BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES (614,286)
PROVISION (BENEFIT) FOR INCOME
TAXES - Notes 2 and 9 -
----------
NET LOSS BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE (614,286)
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE - Note 10 131,406
----------
NET LOSS $ (482,880)
==========
The accompanying notes are an integral part of these financial statements.
7
ADVANTAGE KBS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
ADDITIONAL RETAINED
COMMON STOCK ISSUED PAID-IN EARNINGS TREASURY
SHARES PAR VALUE CAPITAL (DEFICIT) STOCK TOTAL
------ --------- ------- --------- ----- -----
BALANCE AT
DECEMBER 31, 1996 94,500 100,200 1,243 (249,979) (48,175) (196,711)
NET LOSS FOR THE YEAR - - - (614,286) - (614,286)
CUMULATIVE EFFECT
OF CHANGE IN
ACCOUNTING PRINCIPAL - - - 131,406 - 131,406
------ -------- ------- --------- ------- --------
BALANCE AT
DECEMBER 31, 1997 94,500 $100,200 $ 1,243 $(732,859) $ (48,175) $(679,591)
====== ======== ======= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
8
ADVANTAGE KBS, INC.
STATEMENT OF CASH FLOWS
DECEMBER 31,
1997
----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(482,880)
---------
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization 366,844
Cumulative effect of change in accounting principle (131,406)
Changes in assets and liabilities:
Increase in accounts receivable (806,173)
Decrease in prepaid expenses 736
Decrease in advance to stockholders 2,293
Increase in security deposits (7,647)
Increase in accounts payable 334,380
Increase in deferred income 793,268
Increase in profit sharing payable 3,000
---------
TOTAL ADJUSTMENTS 555,295
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 72,415
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for capitalized software costs (294,787)
Payments for capitalized closing costs (18,700)
---------
NET CASH USED IN INVESTING ACTIVITIES (313,487)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan payable - bank 560,000
Principal payments on loan payable - bank (18,356)
Proceeds from line of credit - bank 155,000
Principal payments on line of credit - bank (489,659)
Principal payments on obligations under capital leases (127,164)
Proceeds from loan payable - other 80,000
Principal payments on loan payable - other (50,000)
Proceeds from notes payable - stockholders 90,000
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 199,821
---------
NET DECREASE IN CASH (41,251)
CASH - BEGINNING OF YEAR 41,251
---------
CASH - END OF YEAR $ -
=========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 88,668
=========
Taxes paid $ 175
=========
During 1997 capital lease obligations totaling $155,638 have been entered into
to acquire computer equipment.
The accompanying notes are an integral part of these financial statements.
9
ADVANTAGE KBS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF ORGANIZATION:
Advantage KBS, Inc. was incorporated on January 29, 1988 pursuant
to the laws of the State of New Jersey. The Company provides
system development services and software products for customer
support automation to clients throughout the domestic United
States. Primary industries served include cellular and mobile
carriers, telecommunications manufacturers, as well as computer
hardware and software vendors.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 revenue and expenses during the period reported. Actual
results could differ from those estimates.
REVENUE RECOGNITION - Revenue is generated from consulting
services, sales of software products and maintenance contracts.
Revenue from consulting services with fixed fee arrangements are
recognized as milestones are achieved. Profit estimates are
revised periodically based upon changes in facts. Any losses
identified on contracts are recognized immediately. Other
consulting revenues are recognized as time and material are
incurred. Revenues for sales of software products are recognized
upon shipment of the software and the final execution of the
software license agreement with the customer. Maintenance
contracts are recognized proportionately over the contract
period.
INCOME TAXES - Amounts in the financial statements related to
income taxes are calculated using the principles of Financial
Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes" (FAS 109). Under FAS 109, prepaid and deferred
taxes reflect the impact of temporary differences between the
amounts of assets and liabilities recognized for financial
reporting purposes and the amounts recognized for tax purposes as
well as tax credit carryforwards and loss carryforwards. These
deferred taxes are measured by applying currently enacted tax
rates. A valuation allowance reduces deferred tax assets when it
is "more likely than not" that some portion or all of the
deferred tax assets will not be realized.
PROPERTY AND EQUIPMENT - Property and equipment are carried at
cost. Depreciation of property and equipment is provided using
the straight line method and the accelerated methods over the
estimated useful life of the assets - 5-7 years. Maintenance and
repairs are charged to expense as incurred; major renewals and
betterment's are capitalized.
CLOSING COSTS - Closing costs in connection with financing are
amortized over the life of the loan using the straight line
method.
CAPITALIZED SOFTWARE COSTS - Pursuant to Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed,"
issued by the Financial Accounting Standards Board, the Company
is required to capitalize certain software development and
production costs once technological feasibility has been
achieved. Commencing upon initial product release, these costs
are amortized based on the straight line method over a two year
period.
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
December 31,
1997
----
Computer and equipment $ 787,451
Furniture and fixtures 154,243
---------
Subtotal 941,694
Less: Accumulated depreciation (686,739)
---------
Equipment, net $ 254,955
=========
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ADVANTAGE KBS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - LOAN PAYABLE:
On July 9, 1997, the Company obtained a U.S. Small Business
Administrative (SBA) guaranteed loan in the amount of $560,000.
The proceeds of the loan were used to payoff the existing line of
credit, for purchase of equipment and for working capital. The
loan is a seven (7) year, self-amortizing loan with interest
calculated at prime rate plus 2% and is collateralized by the
Company's assets as well as the stockholders' personal guarantees
and equity in personal residences.
Maturities of long-term debt over the next five years are as
follows:
YEAR ENDING
DECEMBER 31,
------------
1998 $ 59,236
1999 65,764
2000 73,011
2001 81,057
Thereafter 262,576
-------
TOTAL $541,644
========
NOTE 5 - CAPITAL LEASES:
The Company leases computer equipment as well as furniture under
capital leases. Ownership of the equipment and furniture
transfers to the Company at the end of the lease term for a
nominal purchase price.
Property under capital leases included in property and equipment
is as follows:
December 31,
1997
----
Equipment, at cost $739,663
Furniture, at cost 105,543
Less: accumulated depreciation (590,251)
--------
$254,955
The following is a schedule of minimum lease payments due under
capital leases:
YEAR ENDING
DECEMBER 31,
1998 $157,152
1999 79,042
2000 44,799
--------
Total net minimum lease payments 280,993
Less: amounts representing interest (41,527)
Present value of minimum lease payments $239,466
========
NOTE 6 - DEFERRED INCOME:
Deferred income represents billings rendered during the current
year in excess of revenue recognition as well as billings for
support and maintenance contracts for future periods.
NOTE 7 - NOTES PAYABLE - STOCKHOLDERS:
Notes payable represents loans to the Company from two
stockholders. Repayment terms of the note include a 12% annual
rate of interest.
11
ADVANTAGE KBS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - PROFIT SHARING PLAN:
The Company maintains a 401(k) plan for its employees. The
Company is required to contribute 20% of the first six percent of
the employees' voluntary contributions. For the year ended
December 31, 1997, the Company's liability was approximately
$18,000.
NOTE 9 - INCOME TAXES:
The Company's deferred tax asset is related primarily to its
operating loss carryforward for tax reporting purposes. The
Company recorded a valuation allowance amounting to the entire
deferred tax asset balance because the Company's financial
condition, possible limitations on the use of carryforwards, and
the expiration dates of the net operating loss carryforwards give
rise to uncertainty as to whether the deferred tax asset is
realizable.
The Company recognizes the deferred tax benefit related to its
deferred tax asset within its income tax provision as income is
earned and the benefits are realized.
The components of the net deferred tax assets is as follows:
Deferred tax asset $ 100,000
Less: Valuation allowance (100,000)
---------
NET DEFERRED TAX ASSET $ -
=========
The Company has net operating loss carryforwards as follows:
AMOUNT EXPIRATION DATE
------ ---------------
$ 23,672 2009
$350,000 2011
NOTE 10 - ACCOUNTING CHANGE:
Effective January 1, 1997, the Company changed its method of
accounting for software development costs according to FASB No.
86 (see Note 2). The cumulative effect of this change was to
increase net income by $131,406.
NOTE 11 - OPERATING LEASE COMMITMENTS:
Commencing July, 1993, the Company entered into a lease
agreement for its premises whereby monthly rent is $7,500. The
initial term of the lease is for 65 months. The following is a
schedule of minimum lease payments due under the operating
lease:
YEAR ENDING
DECEMBER 31,
------------
1998 $ 90,000
========
Rental expenses under operating leases, including real estate
taxes, common area charges and utilities were $144,999 for the
year ended December 31, 1997.
NOTE 12 - CONCENTRATIONS:
During 1997 revenues from three clients collectively
represented approximately 62% of the total revenues of the
Company.
In an effort to diversify its client base, the Company has
begun to license software products which previously were part
of the project engagement. Management believes this product
focus will present an opportunity for an expanded customer base
resulting in additional revenues from software licensing, as
well as support and maintenance programs.
NOTE 13 - INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN:
On July 22, 1996, the Company adopted an incentive and
non-qualified stock option plan. Under the plan, a maximum of
10,000 options to purchase 10,000 shares may be granted at a
price per share determined in each case by the Board of
Directors at its discretion. In the case of the incentive stock
options, the option price shall not be less then 100% (110% in
a case of an incentive stock option granted to a 10%
shareholder) of the fair market value as determined by the
Board based on any reasonable method on the date the option is
granted.
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ADVANTAGE KBS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -(CONT.) Transactions involving non-qualified stock options are
summarized as follows:
OPTION SHARES
Outstanding January 1 5,800
Granted 3,375
-----
Outstanding at December 31, 1997 9,175
=====
Exercisable at December 31, 1997 5,800
=====
In 1994, the Company adopted a value participation plan, the
purpose which is to attract, motivate and retain employees and
to give all eligible employees an opportunity to share in the
growth and the success of the Company. All full time salaried
employees are eligible to participate in the plan. Initially,
5% of the Company's value will be available for allocation and
distribution to the plan. The plan has a term of 7 years.
Units are allocated based on years of service. In the case of
the sale of the Company, participants shall be entitled to
share in 5% of the sales proceeds in proportion to units
allocated as of the date of the sale. As of December 31, 1997,
no units have been allocated to any employees.
NOTE 14 - SUBSEQUENT EVENTS:
On March 19, 1998, the shareholders of the Company sold all of
the Company's outstanding capital stock. In addition to the
sales price of $5 million, the agreement calls for a
contingent payment of up to an additional $2.5 million, based
upon specific performances by the Company during 1998.
The acquiring entity, a public company, provides client/server
software development services and focuses on performing
software development, systems integration and technical
consulting services.
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UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information
reflects the acquisition on March 19, 1998, by Carnegie Group, Inc. (the
"Company") of the capital stock of Advantage kbs, Inc. ("Advantage") for an
aggregate price of approximately $5,000,000 in cash, with terms of the
transaction providing for an additional consideration of up to $2,500,000 in
cash, which is dependent on revenue and earnings of Advantage for the year
ending December 31, 1998.
The unaudited Pro Forma Condensed Consolidated Statements of Operations for the
year ended December 31, 1997 and the three months ended March 31, 1998 reflect
the acquisition as if it had occurred at the beginning of the year ended
December 31, 1997. The pro forma information is based on the historical
financial statements of the Company and Advantage after giving effect to the
acquisition using the purchase method of accounting and assumptions and
adjustments deemed appropriate by the Company, including the preliminary
allocation of the purchase price, certain of which are described in the
accompanying notes to the pro forma financial statements.
The unaudited pro forma condensed consolidated information does not purport to
be indicative of the Company's financial position or results of operations had
the acquisition actually occurred on the dates presented nor is it necessarily
indicative of the Company's future position or future operating results. The
unaudited pro forma consolidated financial information should be read in
conjunction with the separate audited historical consolidated financial
statements of the Company and the notes thereto set forth in the Company's 1997
Annual Report on Form 10-K, and the historical consolidated financial statements
of Advantage and the notes thereto set forth in Item 7(a) of this form 8-K/A.
The acquisition of Advantage is subject to certain risks. The integration of
companies in the information technology services industry may be more difficult
to achieve than in other industries. There can be no assurance that the
acquisition of Advantage will result in any business or financial benefits to
the Company. The realization of any such benefits requires, among other things,
that the operations of Advantage be successfully integrated with those of the
Company in a timely manner. The successful integration of the Company and
Advantage will require the coordination of research and development and sales
and marketing efforts. The difficulties of such integration may be increased by
the need to coordinate geographically separated organizations and integrating
personnel with disparate business backgrounds. In addition, the Company's
senior management has not had previous experience in integrating acquisitions.
There can be no assurance that the Company will be able successfully to manage
the integration of Advantage.
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Carnegie Group, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1997
Carnegie Advantage
Group, Inc. kbs, Inc. Adjustments Pro Forma
----------- --------- ----------- ---------
Revenue
Software Services--unrelated parties $20,138,562 $2,410,087 $ - $ 22,548,649
Software Services--related parties 7,837,364 - - 7,837,364
----------- ---------- ---------- ------------
Total software services 27,975,926 2,410,087 - 30,386,013
Software licenses 1,430,335 772,652 - 2,202,987
----------- ---------- ---------- ------------
Total revenue 29,406,261 3,182,739 - 32,589,000
-
Costs and expenses
Cost of revenue--unrelated parties 13,669,530 2,321,121 318,486 a 16,309,137
Cost of revenue--related parties 5,416,175 - - 5,416,175
----------- ---------- ---------- ------------
Total cost of revenue 19,085,705 2,321,121 318,486 21,725,312
Research and development 1,601,525 - 17,380 a 1,618,905
Selling, general and administrative 8,493,030 1,249,835 30,845 a 9,773,710
Restructuring charges 774,608 - - 774,608
----------- ---------- ---------- ------------
Total costs and expenses 29,954,868 3,570,956 366,711 33,892,535
Income (loss) from operations (548,607) (388,217) (366,711) (1,303,535)
Other income (expense):
Interest income 718,412 - (268,172) b 450,240
Other income 25,447 - - 25,447
Interest expense (13,293) (94,663) 19,360 c (88,596)
----------- ---------- ---------- ------------
Total other income (expense) 730,566 (94,663) (248,812) 387,091
Income (loss) income before taxes 181,959 (482,880) (615,523) (916,444)
Income tax (provision) benefit (72,367) - 366,600 d 294,233
----------- ---------- ---------- ------------
Net income (loss) $ 109,592 $ (482,880) $ (248,923) $ (622,211)
=========== ========== ========== ============
Basic earnings (loss) per share $ 0.02 $ (0.10)
=========== ============
Diluted earnings (loss) per share $ 0.02 $ (0.10)
=========== ============
Weighted average common and common
equivalent shares:
Basic 6,457,263 6,457,263
=========== ============
Diluted 6,846,110 6,457,263
=========== ============
See accompanying notes to unaudited pro forma statement of operations.
15
Carnegie Group, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the three months ended March 31, 1998
Carnegie Advantage
Group, Inc. kbs, Inc. Adjustments Pro Forma
----------- --------- ----------- ---------
Revenue
Software Services--unrelated parties $3,529,062 $ 628,563 $ - $4,157,625
Software Services--related parties 3,408,965 - - 3,408,965
---------- ---------- ----------- ----------
Total software services 6,938,027 628,563 - 7,566,590
Software licenses 359,630 513,194 - 872,824
---------- ---------- ----------- ----------
Total revenue 7,297,657 1,141,757 - 8,439,414
Costs and expenses
Cost of revenue--unrelated parties 2,611,557 818,295 110,611 a 3,540,463
Cost of revenue--related parties 2,159,303 - - 2,159,303
---------- ---------- ----------- ----------
Total cost of revenue 4,770,860 818,295 110,611 5,699,766
Research and development 152,449 - 13,880 a 166,329
Selling, general and administrative 2,354,478 440,621 10,411 a 2,805,510
---------- ---------- ----------- ----------
Total costs and expenses 7,277,787 1,258,916 134,902 8,671,605
Income (loss) from operations 19,870 (117,159) (134,902) (232,191)
Other income (expense):
Interest income 198,363 - (95,017) b 103,346
Other income 6,099 - - 6,099
Interest expense (3,000) (26,498) 14,093 c (15,405)
---------- ---------- ----------- ----------
Total other income (expense) 201,462 (26,498) (80,924) 94,040
Income (loss) income before taxes 221,332 (143,657) (215,826) (138,151)
Income tax (provision) benefit (85,857) - 123,941 d 38,084
---------- ---------- ----------- ----------
Net income (loss) $ 135,475 (143,657) (91,885) (100,067)
========== ========== =========== ==========
Basic earnings (loss) per share $ 0.02 (0.02)
========== ==========
Diluted earnings (loss) per share $ 0.02 (0.02)
========== ==========
Weighted average common and common
equivalent shares:
Basic 6,497,584 6,497,584
========== ==========
Diluted 6,805,691 6,497,584
========== ==========
See accompanying notes to unaudited pro forma statement of operations.
16
Carnegie Group, Inc.
Notes to unaudited Pro Forma Statement of Operations
a. Adjustments to provisions for depreciation and amortization for estimated
fair value adjustments related to property and equipment depreciated over
lives ranging from 3 to 5 years on a straight-line basis, and capitalized
software, goodwill and other intangible assets amortized over 5 to 15 years
on a straight-line basis.
b. Adjustment to decrease interest income as a result of foregone interest
income on cash used in the acquisition of Advantage kbs, Inc.
("Advantage"). Interest was assumed at a rate of approximately 5.38%.
c. Adjustment to decrease interest expense associated with debt held by
Advantage. The debt was paid off with a portion of the proceeds
from the acquisition.
d. Adjustment to record income taxes at Carnegie Group, Inc's current
effective tax rate of 39% applied to Advantage's historical results plus
certain pro forma adjustments. Because the acquisition of Advantage was by
stock purchase, no tax benefit is reflected for the amortization of the
excess of purchase price over the fair value of Advantage's assets.
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
Carnegie Group, Inc.
Date: June 2, 1998 By: /s/ JOHN W. MANZETTI
------------ --------------------------------
John W. Manzetti
Executive Vice President and
Chief Financial Officer