1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
JUNE 29, 2001
ATLANTIC DATA SERVICES, INC.
(Exact Name of Registrant as Specified in Charter)
MASSACHUSETTS 000-24193 04-2696393
(State or Other (Commission File (I.R.S. Employer
Jurisdiction Number) Identification No.)
of Incorporation)
ONE BATTERYMARCH PARK
QUINCY, MASSACHUSETTS 02169
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:
(617) 770-3333
2
INTRODUCTORY NOTE
On June 29, 2001, Atlantic Data Services, Inc. (the "Company") acquired
substantially all the assets of Cool Springs Associates, Inc. d/b/a
EarningsInsights, a Delaware corporation. On July 12, 2001, the Company filed a
Current Report on Form 8-K (the "Current Report") to report the acquisition. The
purpose of this Amendment No. 1 to the Current Report on Form 8-K is to amend
Item 2 of the Current Report and to file the financial statements of the
business acquired and the pro forma financial statements required by Item 7.
The Company hereby amends Item 2 of the Current Report to read in its entirety
as follows:
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
On June 29, 2001, the Company acquired substantially all the assets of Cool
Springs Associates, Inc. d/b/a EarningsInsights, a Delaware corporation
("EarningsInsights"), pursuant to an asset purchase agreement by and among the
Company, EarningsInsights and certain stockholders of EarningsInsights (the
"Asset Purchase Agreement").
The purchase price for the assets of EarningsInsights consisted of a $2 million
cash payment and the issuance by the Company of a warrant to purchase 300,000
shares of its common stock at an exercise price of $5.08 per share. The Company
paid the cash portion of the consideration for the acquired assets from its
working capital. The Company is required to pay to EarningsInsights an
additional cash payment within 75 days after the end of each twelve-month period
ending on June 29, 2002, June 29, 2003 and June 29, 2004 equal to 50% of the net
income (as defined in the Asset Purchase Agreement) recognized by the Company
that is attributable to the operation of the former business of EarningsInsights
by the Company. Such cash payments will not exceed (i) $100,000 for the period
ending on June 29, 2002, (ii) $200,000 for the period ending on June 29, 2003
and (iii) $300,000 for the period ending on June 29, 2004.
The description of the acquisition is qualified in its entirety by reference to
a copy of the Asset Purchase Agreement filed as Exhibit 2.1 to the Form 8-K
previously filed.
The terms of the Asset Purchase Agreement were determined on the basis of
arms-length negotiations. Prior to the execution of the Asset Purchase
Agreement, neither the Company, nor any of its affiliates, any director or
officer of the Company, nor any associate of such director or officer had any
material relationship with EarningsInsights.
The assets of EarningsInsights acquired by the Company consist of all tangible
and intangible property, including without limitation all personal property and
interests therein, including certain equipment, machines, furniture, tools,
supplies, devices and other tangible property, all rights under certain
contracts, agreements, leases and licenses specifically assumed by the Company,
including a license to certain intellectual property of First Manhattan
Consulting Group, Inc., all intellectual proprietary rights of EarningsInsights,
certain business, marketing and technical records, and all goodwill associated
with the business. Prior to the acquisition of these assets by the Company,
EarningsInsights used such assets to engage in the business of providing
profitability analysis and solutions to financial institutions via an
application service provider delivery mechanism. The Company currently intends
to use the acquired assets primarily to continue the former business of
EarningsInsights.
-2-
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ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
The required financial statements and accompanying notes are attached
hereto on pages 4 through 15.
(b) Unaudited Pro Forma Financial Information of Atlantic Data Services,
Inc.
The required pro forma financial information and accompanying notes are
attached hereto on pages 16 through 19.
(c) Exhibits
2.1* Asset Purchase Agreement, dated as of June 29, 2001, by and
among the Company, EarningsInsights and certain stockholders
of EarningsInsights
4.1 Specimen Certificate for Shares of the Company's Common
Stock (Incorporated by reference to the Company's
Registration Statement on Form S-1 filed March 26, 1998
(File No. 333-48703))
23.1 Consent of PricewaterhouseCoopers LLP
* Previously filed.
-3-
4
ITEM 7. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
COOL SPRINGS ASSOCIATES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONTENTS
Page
----
Report of Independent Accountants ..................................................... 5
Balance Sheet as of April 30, 2001 .................................................... 6
Statement of Operations for the Period from Inception (May 16, 2000) through
April 30, 2001 ...................................................................... 7
Statement of Shareholders' Deficit for the Period from Inception (May 16, 2000) through
April 30, 2001 ...................................................................... 8
Statement of Cash Flows for the Period from Inception (May 16, 2000) through
April 30, 2001 ...................................................................... 9
Notes to Financial Statements ......................................................... 10
-4-
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Cool Springs Associates, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of Cool Springs
Associates, Inc. (a development stage enterprise) at April 30, 2001, and the
results of its operations and its cash flows for the period from inception (May
16, 2000) through April 30, 2001, in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered losses from operations since its
inception and has a net capital deficiency that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
Boston, MA
July 31, 2001
-5-
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COOL SPRINGS ASSOCIATES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
APRIL 30, 2001
ASSETS
Current assets:
Cash $ 2,988
-----------
Total current assets 2,988
-----------
Property and equipment, net 442,278
Other assets 108,692
-----------
Total assets $ 553,958
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable - banks $ 600,000
Notes payable - other 215,529
Accounts payable 193,308
Accrued expenses 44,080
Accrued compensation 309,874
Deferred revenue 7,500
Current portion of capital lease obligations 13,783
-----------
Total current liabilities 1,384,074
-----------
Capital lease obligations 14,632
-----------
Total liabilities 1,398,706
-----------
Commitments (Note 8)
Stockholders' deficit:
Common stock, $0.01 par value; 1,000,000 shares authorized; 417,500
shares issued and outstanding at April 30, 2001 4,175
Additional paid-in capital 1,098,925
Deficit accumulated during development stage (1,947,848)
-----------
Total stockholders' deficit (844,748)
-----------
Total liabilities and stockholders' deficit $ 553,958
===========
The accompanying notes are an integral part of these financial statements.
-6-
7
COOL SPRINGS ASSOCIATES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MAY 16, 2000) THROUGH APRIL 30, 2001
REVENUES
Services $ 87,218
Contract settlement 263,000
-----------
350,218
-----------
EXPENSES
Cost of revenues 161,952
Research and development 58,859
Sales and marketing 275,773
General and administrative 1,769,209
-----------
2,265,793
-----------
Loss from operations (1,915,575)
-----------
Interest expense, net 32,273
-----------
Net loss $(1,947,848)
===========
The accompanying notes are an integral part of these financial statements.
-7-
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COOL SPRINGS ASSOCIATES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (MAY 16, 2000) THROUGH APRIL 30, 2001
DEFICIT
COMMON STOCK ACCUMULATED
-------------------------- ADDITIONAL DURING THE
PAR PAID-IN DEVELOPMENT
SHARES VALUE CAPITAL STAGE TOTAL
----------- ----------- ----------- ----------- -----------
Issuance of Common
Stock 417,500 $ 4,175 $ 1,098,925 $ -- $ 1,103,100
Net loss -- -- -- (1,947,848) (1,947,848)
----------- ----------- ----------- ----------- -----------
Balance at April 30, 2001 417,500 $ 4,175 $ 1,098,925 $(1,947,848) $ (844,748)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-8-
9
COOL SPRINGS ASSOCIATES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MAY 16, 2000) THROUGH APRIL 30, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,947,848)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 112,896
Revenue relating to contract settlement (263,000)
Changes in assets and liabilities:
Increase in other assets (19,775)
Increase in accounts payable 193,309
Increase in accrued expenses 44,080
Increase in accrued compensation 309,874
Increase in deferred revenue 7,500
-----------
Net cash used in operating activities (1,562,964)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (242,486)
Software development costs (97,000)
-----------
Net cash used in investing activities (339,486)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable - banks 600,000
Proceeds from issuance of notes payable - other 215,529
Principal payments on capital lease obligations (13,191)
Proceeds from issuance of common stock 1,103,100
-----------
Net cash provided by financing activities 1,905,438
-----------
Net increase in cash 2,988
Cash, beginning of period --
-----------
Cash, end of period $ 2,988
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 31,286
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property and equipment under capital leases 41,605
The accompanying notes are an integral part of these financial statements.
-9-
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COOL SPRINGS ASSOCIATES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
Cool Springs Associates, Inc. d/b/a EarningsInsights ("EarningsInsights") was
incorporated as a Delaware corporation in May 2000. EarningsInsights was formed
to design, develop and market customer relationship profitability analyses for
financial institutions. Since its inception, EarningsInsights has devoted
substantially all of its efforts to business planning, research and development,
recruiting management and technical staff, acquiring operating assets and
raising capital. Accordingly, EarningsInsights is considered to be in the
development stage as defined in Statement of Financial Accounting Standards
("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises."
The accompanying financial statements have been prepared on a basis which
assumes that EarningsInsights will continue as a going concern and which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. EarningsInsights has a limited
operating history and has incurred losses from operations since its inception.
These circumstances raise substantial doubt about EarningsInsights' ability to
continue as a going concern. Management's plans with regard to these matters
include continued development, marketing and selling of its products as well as
seeking additional financing arrangements. Although management continues to
pursue these plans, there is no assurance that EarningsInsights will be
successful in obtaining sufficient sales from its products or financing on terms
acceptable to EarningsInsights. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
On June 29, 2001, EarningsInsights sold to Atlantic Data Services, Inc.
substantially all of its assets for $2,000,000 in cash and warrants to purchase
300,000 shares of the common stock of Atlantic Data Services, Inc. at an
exercise price of $5.08 per share. Atlantic Data Services is required to pay to
EarningsInsights an additional cash payment within 75 days after the end of each
twelve-month period ending on June 29, 2002, June 29, 2003 and June 29, 2004
equal to 50% of the net income (as defined in the Asset Purchase Agreement)
recognized by Atlantic Data Services that is attributable to the operation of
the former business of EarningsInsights. Such cash payments will not exceed (i)
$100,000 for the period ending on June 29, 2002, (ii) $200,000 for the period
ending on June 29, 2003 and (iii) $300,000 for the period ending on June 29,
2004.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 the 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.
Fair Value of Financial Instruments
The carrying amounts of EarningsInsights' financial instruments, which include
cash, accounts payable, accrued expenses, deferred revenue and capital lease
obligations approximate their fair values.
-10-
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Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose EarningsInsights to
concentrations of credit risk consist primarily of trade accounts receivable. To
minimize risk, ongoing credit evaluations of customers' financial condition are
performed, although collateral generally is not required. At April 30, 2001
there were no accounts receivable. For the period from inception (May 16, 2000)
through April 30, 2001, two customers accounted for the total revenue.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated
useful lives using the straight-line method. Other property and equipment held
under capital leases and leasehold improvements are amortized over the shorter
of the lease term or the estimated useful life of the related asset. Upon
retirement or sale, the cost of assets disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
credited or charged to income. Repairs and maintenance costs are expensed as
incurred.
Internal Use Software
EarningsInsights capitalizes certain internal software development costs under
the provisions of Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1). These
costs are amortized by the straight-line method over the estimated useful life
of the software, not to exceed three years. As of April 30, 2001, unamortized
software development costs were $88,917, net of amortization of $8,083 for the
period from inception (May 16, 2000) through April 30, 2001.
Revenue Recognition
EarningsInsights' revenue is derived primarily from service revenue relating to
profitability analyses for financial institutions, and consulting services.
Revenue from these services are recognized as the services are performed.
Deferred revenue is comprised of billings in excess of revenue recognized.
As part of a contract settlement, EarningsInsights received computer equipment
and software with a fair value of $263,000 as compensation. EarningsInsights
recognized the settlement as revenue.
Accounting for Stock-Based Compensation
Employee stock awards under EarningsInsights' compensation plans are accounted
for in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), and related interpretations.
Accordingly, no compensation expense was recorded for options issued to
employees and directors in fixed amounts and with exercise prices equal to
the fair market value of EarningsInsights' common stock at the date of grant.
EarningsInsights meets the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), and related interpretations. Stock-based awards to nonemployees are
accounted for under the provisions of SFAS No. 123. There were no stock-based
awards granted to nonemployees through April 30, 2001.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs were
approximately $11,010 for the period from inception (May 16, 2000) through April
30, 2001.
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Income Taxes
Deferred taxes are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Valuation
allowances are provided if, based upon the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized.
3. PROPERTY AND EQUIPMENT
ESTIMATED
USEFUL LIFE APRIL 30,
(YEARS) 2001
----------- ---------
Computer equipment 3 $ 269,124
Furniture and fixtures and others 3 43,896
Software 3 234,071
---------
547,091
Less: Accumulated depreciation and amortization (104,813)
---------
$ 442,278
=========
At April 30, 2001, property and equipment under capital leases consists of
computer equipment with a cost basis of $41,605. Amortization of property and
equipment under capital leases totaled $13,868 for the period from inception
(May 16, 2000) through April 30, 2001.
Depreciation and amortization expense for the period from inception (May 16,
2000) through April 30, 2001 was $104,813.
4. DEBT
Notes Payable - Banks
In June 2000, EarningsInsights entered into a $250,000 loan agreement with a
bank for working capital purposes. Borrowings bear interest at the prime rate as
reported in the Wall Street Journal plus 1%. The term of the loan was six months
from the borrowing date. In December 2000, the loan was extended to July 2001.
In June 2000, EarningsInsights also entered into a $100,000 loan agreement with
a different bank. Borrowings bear interest at a rate of 10.5%. The term of the
loan was twelve months from the borrowing date. In November 2000,
EarningsInsights entered into an additional $250,000 loan agreement with the
same bank. Borrowings bear interest at a rate of 12%. The term of the loan was
two months from the borrowing date. In January 2001, it was extended to April
2001. In May 2001, it was extended again to July 2001.
All borrowings under these loans are collateralized by substantially all of
EarningsInsights' assets and three personal guarantors, who are shareholders of
EarningsInsights.
Notes Payable - Others
EarningsInsights issued notes payable to certain of its shareholders totaling
$215,529. The notes provide for an annual interest rate of prime plus 3% per
annum and are payable upon earlier of one year, dissolution of the borrower,
merger or transfer of assets. Total interest expense associated with these notes
was $5,528.
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5. COMMON STOCK
As of April 30, 2001, EarningsInsights has authorized 1,000,000 shares of common
stock with a $0.01 par value per share. Each share of common stock is entitled
to one vote.
6. STOCK OPTION PLAN
In 2000, EarningsInsights' Board of Directors adopted the 2000 Omnibus Stock
Plan (the "Plan") under which 320,000 shares of EarningsInsights' common stock
were reserved for issuance to employees, directors and consultants. Options
granted under the Plan may be incentive stock options or nonqualified stock
options. Stock purchase rights may also be granted under the Plan. Incentive
stock options may only be granted to employees. The Board of Directors
determines the period over which options become exercisable; however, except in
the case of options granted to officers, directors and consultants, options
shall become exercisable at a rate of not less than 10% per year over four years
from the date the options are granted. The exercise price of incentive stock
options and nonqualified stock options shall be no less than 100% of the fair
market value per share of EarningsInsights' common stock on the date of grant.
If an individual owns stock representing more than 10% of the outstanding
shares, the price of each share shall be at least 110% of fair market value, as
determined by the Board of Directors. The terms of the options are ten years or
five years from the date of grant for any employee owning stock possessing more
than 10% of EarningsInsights' common stock.
EarningsInsights applies APB 25 and related interpretations in accounting for
employee and director options granted under the Plan. No compensation cost has
been recognized for employee stock-based compensation for the period from
inception (May 16, 2000) through April 30, 2001. Had compensation cost been
determined based on the fair value at the grant dates for awards in the period
from inception (May 16, 2000) through April 30, 2001, consistent with the
provisions of SFAS No. 123, the impact on EarningsInsights' net loss would not
have been significant.
For purposes of pro forma disclosure, the fair value of each option grant was
estimated on the date of grant using the minimum value method with the following
assumptions for grants for the period from inception (May 16, 2000) through
April 30, 2001: no dividend yield; a risk-free interest rate of 4.06%; expected
volatility of 0%; and an expected life of five years.
The following table summarizes the activity of EarningsInsights' stock option
plan for the period from inception (May 16, 2000) through April 30, 2001:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
Granted 351,615 $3.98
Canceled (168,277) 4.44
--------
Outstanding - End of period 183,338 $3.54
========
Exercisable at end of period 63,059 $3.27
Weighted average fair value for options granted $0.37
-13-
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The following table summarizes information about stock options outstanding at
April 30, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ----------- --------- ----------- ---------
$2.50 - $13.33 183,338 9.33 - 9.41 $ 3.54 63,059 $ 3.27
------- -----
7. INCOME TAXES
Deferred tax assets consist of the following:
APRIL 30,
2001
---------
Deferred tax assets:
Net operating loss carryforwards $ 710,000
Capitalized start-up expenditures 46,000
Capitalized organizational costs 9,000
Other (24,000)
---------
741,000
Deferred tax asset valuation allowance (741,000)
---------
Net deferred tax assets $ --
=========
As of April 30, 2001, EarningsInsights had federal net operating loss ("NOL")
and research and experimentation credit carryforwards of approximately
$1,863,000 and $8,000, respectively, which may be available to offset future
federal income tax liabilities and expire at various dates through 2020. As
required by Statement of Financial Accounting Standards No. 109, management of
EarningsInsights has evaluated the positive and negative evidence bearing upon
the realizability of its deferred tax assets, which are comprised principally of
net operating losses and capitalized start-up expenditures. Management has
determined that it is more likely than not that EarningsInsights will not
recognize the benefits of federal and state deferred tax assets and, as a
result, a valuation allowance of approximately $741,000 has been established at
April 30, 2001.
Ownership changes, as defined in the Internal Revenue Code, may limit the amount
of net operating loss carryforwards that can be utilized annually to offset
future taxable income. Subsequent ownership changes could further affect the
limitation in future years.
8. COMMITMENTS
EarningsInsights leases its office space and certain office equipment under
operating leases. Total rent expense under these operating leases was $218,740
for the period from inception (May 16, 2000) through April 30, 2001.
On June 28, 2001, EarningsInsights was released from its lease agreement dated
May 16, 2000. This event changed the commitments of EarningsInsights and the
future minimum lease payments under capital leases and operating leases to the
following:
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OPERATING CAPITAL
YEAR ENDING APRIL 30, LEASES LEASES
--------- --------
2002 $ 43,424 $ 15,113
2003 -- 15,113
-------- --------
Total minimum lease payments $ 43,424 30,226
========
Less: Portion representing interest (1,811)
--------
Present value of minimum lease payments 28,415
Less: Current portion (13,783)
--------
Long-term portion $ 14,632
========
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ITEM 7. (b) UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF ATLANTIC
DATA SERVICES, INC.
On June 29, 2001, Atlantic Data Services, Inc. (the "Company") purchased
substantially all the assets of Cool Springs Associates, Inc. d/b/a
EarningsInsights ("EarningsInsights"). The unaudited pro forma combined balance
sheets assumes that the transaction took place on March 31, 2001. The unaudited
pro forma combined balance sheet combines the historical balance sheets of
Atlantic Data Services, Inc. as of March 31, 2001 and EarningsInsights as of
April 30, 2001. The unaudited pro forma combined condensed statements of
operations assume that the transaction had been consummated at the beginning of
the periods presented. The unaudited combined condensed statement of operations
for the year ended March 31, 2001 combines the audited historical statement of
operations for Atlantic Data Services for the year ended March 31, 2001 and for
EarningsInsights for the period from inception (May 16, 2000) through April 30,
2001.
The transaction is accounted for under the purchase method of accounting. The
purchase price is allocated to the tangible and intangible assets purchased,
based upon their respective fair values. The allocation of the purchase price
included in the pro forma condensed financial information is preliminary. The
final values may differ from those set forth herein. The Company believes,
however, that the final allocation will not be materially different from the pro
forma allocation.
The pro forma information is presented for illustrative purposes only and does
not purport to be indicative of the operating results or financial position that
would have actually occurred if the transaction had been in effect on the dates
indicated, nor is it indicative of the future operating results or financial
position of the Company. The pro forma adjustments are based upon information
and assumptions available at the time of the filing of this Form 8-K/A.
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ATLANTIC DATA SERVICES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2001
(in thousands, except share data)
ATLANTIC COOL
DATA SPRINGS
SERVICES, ASSOCIATES, PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED
- ------------------------------------------------------------------------------------------------------------------------------
March 31, April 30, (unaudited)
2001 2001
ASSETS
Current assets:
Cash and cash equivalents $ 36,655 $ 3 $ (3)(A)
(2,000)(B) $ 34,655
Accounts receivable, net 3,090 -- -- 3,090
Prepaid expenses 243 -- -- 243
Deferred taxes 464 -- -- 464
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 40,452 3 (2,003) $ 38,452
- ------------------------------------------------------------------------------------------------------------------------------
Long-term investment 3,000 -- -- 3,000
Property and equipment, net 629 442 -- 1,071
Goodwill, net -- -- 1,253 (B) 1,253
Intangibles, net -- -- 1,100 (B) 1,100
Other assets 536 109 (89)(A) 556
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 44,617 $ 554 $ 261 $ 45,432
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks $ -- $ 600 $ (600)(A) $ --
Notes payable - others -- 216 (216)(A) --
Accounts payable 538 193 (193)(A) 538
Accrued expenses and other liabilities 2,828 354 (354)(A)
150 (B) 2,978
Billings in excess of costs and estimated
earnings 86 8 (8)(A) 86
Current portion of capital lease obligations -- 13 -- 13
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,452 1,384 (1,221) 3,615
- ------------------------------------------------------------------------------------------------------------------------------
Capital lease obligations -- 15 -- 15
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,452 1,399 (1,221) 3,630
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (deficit):
Preferred stock, $.01 par value -- -- -- --
Common stock, $.01 par value 131 4 (4)(A) 131
Additional paid-in capital 26,900 1,099 (1,099)(A)
637 (B) 27,537
Retained earnings (deficit) 14,159 (1,948) 1,948 (A) 14,159
Treasury stock (25) -- -- (25)
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 41,165 (845) 1,482 41,802
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity
(deficit) $ 44,617 $ 554 $ 261 $ 45,432
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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ATLANTIC DATA SERVICES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 2001
(in thousands)
HISTORICAL
----------------------------------
COOL
SPRINGS
ATLANTIC DATA ASSOCIATES, PRO FORMA PRO FORMA
SERVICES, INC. INC. ADJUSTMENTS COMBINED
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April 1, 2000 May 16, 2000 (unaudited)
- March 31, - April 30,
2001 2001
Revenues:
Services $ 34,135 $ 87 $ -- $ 34,222
Contract settlement -- 263 (263)(C) --
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 34,135 350 (263) 34,222
Cost of revenues 23,890 162 -- 24,052
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Gross profit 10,245 188 (263) 10,170
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Operating expenses:
Sales and marketing 4,856 276 -- 5,132
General and administrative 6,920 1,769 367 (D) 9,056
Research and development -- 59 -- 59
Restructuring expense 337 -- -- 337
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Total operating expenses 12,113 2,104 367 14,584
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Income (loss) from operations (1,868) (1,916) (630) (4,414)
Interest income (expense), net 2,144 (32) -- 2,112
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Income before provision for income
taxes 276 (1,948) (630) (2,302)
Provision for income taxes 250 -- (250)(E) --
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Net income $ 26 $ (1,948) $ (380) $ (2,302)
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Basic earnings (loss) per share $ 0.00 $ (0.18)
Diluted earnings (loss) per share $ 0.00 $ (0.18)
Shares used in computing earnings
per share (basic) 12,998,000 12,998,000
Shares used in computing earnings
per share (diluted) 13,213,000 (215,000)(F) 12,998,000
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The transaction is accounted for under the purchase method of accounting. The
purchase price is allocated to the tangible and intangible assets purchased,
based upon their respective fair values. The allocation of the purchase price
included in the pro forma condensed financial information is preliminary. The
final values may differ from those set forth herein. The Company believes,
however, that the final allocation will not be materially different from the pro
forma allocation.
Pro forma adjustments to reflect the acquisition of EarningsInsights give effect
to the following:
(A) To eliminate the EarningsInsights assets, liabilities and equity not
relating to the assets acquired in the transaction.
(B) To reflect the tentative purchase price as if the acquisition had occurred
on April 1, 2000. The Company received an independent appraisal completed
on the assets acquired. The purchase price was allocated based on the
estimated fair values at the date of the acquisition, as follows (in
thousands):
Property, plant and equipment $ 442
Other assets 20
Intangibles 1,100
Goodwill 1,253
------
Total $2,815
------
The purchase price is comprised of the following (in thousands):
Cash $ 2,000
Fair value of warrant 637
Assumed liabilities 28
Transaction costs 150
------
Total $2,815
------
(C) To reflect the elimination of the revenue relating to the one-time contract
settlement.
(D) To reflect amortization for the intangibles of $1,100,000 with a useful
life of three years. The Company has adopted FAS 142, "Goodwill and
Intangibles" and therefore did not include any amortization in the pro
forma financials for goodwill.
(E) To decrease provision for income tax expense based on EarningsInsights net
operating loss carryforwards.
(F) To adjust diluted shares to reflect a pro forma combined loss.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC DATA SERVICES, INC.
Date: August 10, 2001 By: /s/ Robert W. Howe
------------------------------------
Robert W. Howe
Chairman and Chief Executive Officer
Date: August 10, 2001 By: /s/ Paul K. McGrath
------------------------------------
Paul K. McGrath
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
2.1* Asset Purchase Agreement, dated as of June 29, 2001, by and among the
Company, EI and certain stockholders of EI
4.1 Specimen Certificate for Shares of the Company's Common Stock
(Incorporated by reference to the Company's Registration Statement on
Form S-1 filed March 26, 1998 (File No. 333-48703))
23.1 Consent of PricewaterhouseCoopers LLP
* Previously filed
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