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): December 14, 2000
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Predictive Systems, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
000-30422 13-3808483
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(Commission File Number) (I.R.S. Employer Identification No.)
417 Fifth Avenue, New York, NY 10016
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(Address of Principal Executive Offices) (Zip Code)
(212) 659-3400
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(Registrant's Telephone Number, Including Area Code)
N.A.
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 14, 2000, Global Integrity Corporation, a Delaware
corporation ("Global") merged with and into Grape Acquisition Corporation
("Merger Sub"), a Delaware corporation and wholly-owned subsidiary of Predictive
Systems, Inc., a Delaware corporation ("Predictive"). The merger was completed
pursuant to the terms of an Agreement and Plan of Reorganization, dated as of
October 17, 2000, by and among Predictive, Merger Sub, Global and Science
Applications International Corporation, a Delaware corporation, as amended.
Global provides information security services to Fortune and Global 1000
companies. The consideration for the acquisition consisted of an aggregate of
5,240,275 shares of Predictive common stock, par value $0.001 per share, and
$31,460,270 cash. Predictive also issued options to purchase 551,048 shares of
Predictive common stock to employees of Global in exchange for their Global
options. Additionally, the Global stockholders and optionholders have the right
to earn up to an additional $14,012,500 in value (to be paid in cash to
stockholders and additional options to optionholders) upon the achievement of
certain revenue milestones by the acquired business.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Predictive hereby files this Form 8K/A to file the financial statements
and related pro forma consolidated financial statements required pursuant to
Item 7 of Form 8-K with respect to the acquisition of Global.
(a) Financial Statements of Business Acquired:
Audited Financial Statements:
1. Independent Auditors' Report.
2. Global Statements of Operations for the years ended January 31, 2000
and 1999.
3. Global Balance Sheets as of January 31, 2000 and 1999.
4. Global Statements of Stockholder's (Deficit) Equity for the years
ended January 31, 2000 and 1999.
5. Global Statements of Cash Flows for the years ended January 31, 2000
and 1999.
6. Global Notes to Financial Statements.
Unaudited Financial Statements:
1. Global Statements of Operations for the nine months ended October
31, 2000 and 1999.
2. Global Balance Sheet as of October 31, 2000.
3. Global Statements of Cash Flows for the nine months ended October
31, 2000 and 1999.
4. Global Notes to Financial Statements.
(b) Pro Forma Financial Information:
1. Unaudited Pro Forma Combined Condensed Statement of
Operations for the nine months ended September 30, 2000.
2. Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1999.
3. Unaudited Pro Forma Combined Condensed Balance Sheet as of
September 30, 2000.
4. Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
1
(c) Exhibits
Exhibit Number Description
2.1 Agreement and Plan of Reorganization, dated as of October 17,
2000, by and among Predictive, Merger Sub, Global and Science
Applications International Corporation (incorporated by
reference to Predictive's Form 8-K filed on December 27,
2000).
2.2 Amendment No. 1 to the Agreement and Plan of Reorganization,
dated December 12, 2000, by and among Predictive, Merger Sub,
Global and Science Applications International Corporation
(incorporated by reference to Predictive's Form 8-K filed on
December 27, 2000).
23.1 Independent Auditors' Consent.
99.1 Press release, dated October 18, 2000, relating to the merger
(incorporated by reference to Predictive's Form 8-K filed on
December 27, 2000).
99.2 Press release, dated December 15, 2000, relating to the merger
(incorporated by reference to Predictive's Form 8-K filed on
December 27, 2000).
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Predictive Systems, Inc.
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(Registrant)
By: /s/ Ronald G. Pettengill, Jr.
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Name: Ronald G. Pettengill, Jr.
Title: Chief Executive Officer
Dated: February 27, 2001
3
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
AUDITED FINANCIAL STATEMENTS
4
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Global Integrity Corporation
We have audited the accompanying balance sheets of Global Integrity Corporation
(a wholly-owned subsidiary of Science Applications International Corporation)
(the "Company") as of January 31, 2000 and 1999, and the related statements of
operations, stockholder's equity, and cash flows for the years 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of January 31, 2000 and 1999,
and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note A to the financial statements, the accompanying financial
statements have been prepared from the separate records maintained by the
Company and may not necessarily be indicative of the conditions that would have
existed or the results of operations if the Company had been operated as an
unaffiliated company. Portions of certain expenses represent corporate
allocations made from items applicable to Science Applications International
Corporation as a whole.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
December 1, 2000
5
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
STATEMENTS OF OPERATIONS
Year ended January 31
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2000 1999
----------------- -----------------
(in thousands)
Revenues........................................... $ 20,273 $ 30,784
Costs and expenses:
Cost of revenues................................. 14,312 19,762
Selling, general and administrative expenses..... 12,166 11,077
----------------- -----------------
Operating loss..................................... (6,205) (55)
------------------ ------------------
Interest expense................................. (425) (734)
-------------------- --------------------
Loss before benefit for income taxes............... (6,630) (789)
Benefit for income taxes .......................... (2,536) (252)
------------------ ------------------
Net loss........................................... $ (4,094) $ (537)
================== ==================
See accompanying notes to financial statements.
6
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
BALANCE SHEETS
January 31
-----------------------------------
2000 1999
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(in thousands)
ASSETS
Current assets:
Receivables, net............................. $ 4,921 $ 6,043
Prepaid expenses and other current assets.... 708 207
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Total current assets.................... 5,629 6,250
Property and equipment......................... 1,925 2,468
Deferred income taxes.......................... 80 -
------------- -------------
$ 7,634 $ 8,718
============= =============
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued liabilities............ $ 1,194 $ 1,088
Accrued payroll and employee benefits............... 1,229 1,266
Collections in excess of revenues on
uncompleted contracts.............................. 1,582 1,298
Due to parent....................................... 5,089 2,423
------------- -------------
Total current liabilities...................... 9,094 6,075
Deferred income taxes............................... - 9
Stockholder's (deficit) equity:
Common stock, $.001 par value....................... 16 16
Retained (deficit) earnings......................... (1,476) 2,618
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Total stockholder's (deficit) equity........... (1,460) 2,634
-------------- -------------
$ 7,634 $ 8,718
============= =============
See accompanying notes to financial statements.
7
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY
Common stock
------------
32,000,000
shares Total
authorized Retained stockholder's
--------------------- (deficit) (deficit)
Shares Amount earnings equity
-------- -------- ---------- -----------------
(in thousands)
Balance at February 1, 1998 - $ - $ 3,155 $ 3,155
Net loss........................................ (537) (537)
Issuance of common stock upon
incorporation of business....................... 16,000 16 16
-------- -------- ---------- -----------------
Balance at January 31, 1999 16,000 16 2,618 2,634
Net loss........................................ (4,094) (4,094)
-------- -------- ----------- ------------------
Balance at January 31, 2000 16,000 $ 16 $ (1,476) $ (1,460)
======== ======== =========== ==================
See accompanying notes to financial statements.
8
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
STATEMENTS OF CASH FLOWS
Year ended January 31
----------------------
2000 1999
-------- --------
(in thousands)
Cash flows from operating activities:
Net loss .......................................................... $(4,094) $ (537)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ................................... 727 485
Loss on disposal of property and equipment ...................... 182 253
Increase (decrease) in cash resulting from changes in:
Receivables, net .............................................. 1,122 2,689
Prepaid expenses and other current assets ..................... (397) 246
Deferred income taxes ......................................... (267) 299
Accounts payable and accrued liabilities ...................... 180 (1,371)
Accrued payroll and employee benefits ......................... (37) 129
Collections in excess of revenues on uncompleted contracts .... 284 300
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(2,300) 2,493
Cash flows from investing activities:
Expenditures for property and equipment ......................... (366) (1,985)
Cash flows from financing activities:
Due to parent ................................................. 2,666 (508)
------- -------
Increase in cash .................................................. -- --
Cash at beginning of year ......................................... -- --
------- -------
Cash at end of year ............................................... $ -- $ --
======= =======
See accompanying notes to financial statements.
9
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
NOTES TO FINANCIAL STATEMENTS
Note A - Overview and Basis of Presentation:
Global Integrity Corporation (the "Company"), a wholly-owned subsidiary of
Science Applications International Corporation ("SAIC") began operations in 1996
as the SAIC Center for Information Protection, which was operated as an
unincorporated business of SAIC, and was incorporated in Delaware in May 1998.
The Company authorized 5,000,000 shares of $.001 par value of preferred stock,
with no shares issued and outstanding, and 32,000,000 shares of common stock,
with 16,000,000 shares issued and outstanding to SAIC.
The Company provides consulting services in electronic security and information
protection, specifically directed at ensuring the safety of information systems
and electronic transactions. The Company's services include a full complement of
e-business security monitoring, incident response, consulting and engineering
and information sharing services.
The accompanying financial statements include the operations of the Company and
the revenues and expenses of various SAIC business units directly related to
work performed for the Company in providing information protection services.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and include the
assets, liabilities, operating results and cash flows of the Company and have
been prepared using SAIC's historical basis in the assets and liabilities and
the historical results of operations of the Company. They include allocations of
certain SAIC corporate expenses (Note I). However, the financial information
included herein may not reflect the financial position, operating results,
changes in stockholder's (deficit) equity and cash flows of the Company in the
future or what they would have been had the Company been a separate, stand-alone
entity during the periods presented.
In September 1999, the Company performed a review of its contracts in progress
to determine if they were in alignment with the Company's strategy of
specifically offering core information security services. As a result of the
review, two contracts, associated assets and liabilities, and certain personnel
were transferred to a different SAIC organization because the services being
rendered were not associated with the Company's core business. Revenues related
to these contracts from inception of the Company to the date of transfer are
reflected in the accompanying financial statements and were approximately
$3,378,000 and $3,594,000 for the years ended January 31, 2000 and 1999,
respectively, with related costs of revenues of approximately $2,663,000 and
$2,036,000 for the same periods, respectively. Had the Company excluded the
revenue and costs of revenues for these transferred contracts from the accompany
financial statements, revenues would have been $16,895,000 and $27,190,000 for
the years ended January 31, 2000 and 1999, respectively, and operating loss
would have been $6,920,000 and $1,613,000 for the same periods, respectively.
Note B - Summary of Significant Accounting Policies:
Revenue recognition
The Company's revenues result from contract services performed for commercial
customers and the U.S. government or from subcontracts with other contractors
engaged in work for the U.S. government under a variety of contracts, some of
which provide for reimbursement of cost plus fees and others which are
fixed-price or time-and-materials type contracts. Generally, revenues
10
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
and fees on these contracts are recognized as services are performed, using the
percentage-of-completion method of accounting. The Company has incurred costs on
projects for which the Company has been requested to begin work under a new
contract or extend work under an existing contract, but for which formal
contracts or contract modifications have not been executed. In accordance with
Statement of Position ("SOP") No. 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts," these costs have been
deferred and are reflected in prepaids and other current assets in the
accompanying balance sheets (Note C).
Revenues from subscription services are recognized on a straight-line basis over
the period the services are provided. Amounts billed but not yet recognized as
revenue under certain types of contracts are deferred in the accompanying
balance sheets.
The Company provides for anticipated losses on contracts by a charge to income
during the period in which the losses are first identified.
Use of estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the Company's
financial statements and accompanying notes. Actual results could differ from
those estimates.
Benefit for income taxes
The Company's operating results have been included in SAIC's consolidated U.S.
and state income tax returns and in tax returns of certain SAIC foreign
subsidiaries. The benefit for income taxes in the Company's financial statements
has been determined as if the Company was a separate taxpayer. Deferred tax
assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax bases of assets and liabilities and their
reported amounts.
Cash
SAIC manages cash on a centralized basis. Cash receipts associated with the
Company's business have been transferred to SAIC on a daily basis and SAIC has
funded the Company's disbursements. Such transactions have been reflected in the
due to parent balance on the accompanying balance sheets.
Property and equipment
Depreciation and amortization of property and equipment are provided over the
estimated useful lives of the assets, primarily using the double
declining-balance method. The useful lives are three to ten years for equipment.
Leasehold improvements are amortized on a straight-line method over the shorter
of the asset life or the lease term.
Additions to property and equipment together with major renewals and betterments
are capitalized. Maintenance, repairs and minor renewals and betterments are
charged to expense. When assets are sold or otherwise disposed of, the cost and
related accumulated depreciation or amortization is removed from the accounts
and any resulting gain or loss is recognized.
Impairment of long-lived assets
The Company assesses potential impairments to its long-lived assets when there
is evidence that events or circumstances have made recovery of the assets
carrying value unlikely and the carrying amount of the asset exceeds the
expected future undiscounted cash flows. When the carrying
11
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
amount of the asset exceeds the expected future undiscounted cash flows, an
impairment loss is recognized to reduce the assets carrying amount to its
estimated fair value based on the present value of the estimated expected future
cash flows.
Stock based compensation
The Company accounts for employee stock based compensation using the
intrinsic-value method prescribed in Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
No compensation cost has been recognized by the Company for such employee stock
plans. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock Based Compensation," provides an alternative accounting method to APB
No. 25 and requires additional pro forma disclosures (Note F).
Comprehensive loss
The Company has no components of other comprehensive loss and accordingly,
comprehensive loss is the same as net loss for all periods presented.
Recent pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments and
requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. The statement is effective for fiscal years beginning after January 31,
2001. The Company does not believe it has any derivative instruments or hedging
activities which would be affected by SFAS No. 133.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements." SAB No. 101 provides the SEC staff's views on applying the
generally accepted accounting principles to selected revenue recognition issues.
The Company will adopt SAB No. 101 in the fourth quarter ending January 31, 2001
and does not expect the adoption of SAB No. 101 to have a material impact on the
Company's financial statements.
Note C - Composition of Certain Financial Statement Captions:
January 31
------------------------------
2000 1999
---------------- ----------
(in thousands)
Prepaid expenses and other current assets:
Prepaid expenses.................................................. $ 133 $ 55
Deferred contract costs........................................... 467 137
Deferred taxes.................................................... 104 -
Other............................................................. 4 15
--------------- -------------
$ 708 $ 207
=============== =============
Property and equipment at cost:
Computers and other equipment..................................... $ 2,085 $ 1,828
Leasehold improvements............................................ 1,036 1,174
Office furniture and fixtures..................................... 289 331
--------------- -------------
3,410 3,333
Less accumulated depreciation and amortization.................... 1,485 865
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$ 1,925 $ 2,468
=============== =============
Accounts payable and accrued liabilities:
Accounts payable.................................................. $ 368 $ 913
Other accrued liabilities......................................... 826 175
--------------- -------------
$ 1,194 $ 1,088
=============== =============
Accrued payroll and employee benefits:
Salaries and amounts withheld from employees'
compensation................................................... $ 305 $ 342
Accrued vacation.................................................. 603 541
Accrued bonuses................................................... 321 383
--------------- -------------
$ 1,229 $ 1,266
=============== =============
12
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
Note D - Receivables:
January 31
-----------------------------
2000 1999
------------ -----------
(in thousands)
Billed..................................................... $ 4,417 $ 4,606
Unbilled .................................................. 612 1,577
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Total accounts receivable.................................. 5,029 6,183
Less - Allowances for uncollectible accounts .............. 108 140
------------ -----------
Receivables, net........................................... $ 4,921 $ 6,043
============ ===========
The balance of unbilled receivables consists of costs and fees billable on
contract completion or other specified events, the majority of which is expected
to be billed and collected within one year.
Note E - Interest Allocation:
Interest expense of $425,000 and $723,000 for 2000 and 1999, respectively, was
allocated by SAIC to the Company based upon SAIC's cost of capital calculation.
Since inception, the Company participated in SAIC's centralized cash management
system whereby cash received from operations was transferred to SAIC's
centralized cash accounts and cash disbursements were funded from such
centralized cash accounts. Accordingly, the SAIC cost of capital formula
provides for charges and credits to the Company based upon management of certain
assets, including accounts receivable and fixed assets. Such amounts are not
necessarily indicative of the cost that would have been incurred if the Company
had been operated as a separate entity.
Note F - Employee Stock Plans:
SAIC Stock Option Plans
Certain of the Company's officers and employees participate in SAIC's stock
option plans and the SAIC Employee Stock Purchase Plan ("ESPP"). As of January
31, 2000 and 1999, 197,392 and 192,280 SAIC stock options were held by employees
of the Company, of which 154,964 and 162,052 were exercisable, respectively.
Options under the SAIC plan are granted at fair market value at the date of
grant and for terms not greater than ten years. Options granted under these
plans generally become exercisable 20%, 20%, 20% and 40% after one, two, three
and four years, respectively.
If the Company had elected to recognize compensation expense in 2000 and 1999,
based upon the fair value at the grant dates for stock options awards granted
and for shares issued under the ESPP, net income would have been reduced by
approximately $73,000 and $84,000, respectively. The fair value of these options
was estimated at the date of grant using the Black-Scholes option
13
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
pricing model with the following assumptions: no dividend yield, no volatility,
risk-free interest rates ranging from 4.6% and 6.8% and expected lives of five
years.
Global Integrity Stock Option Plan
Employees officers and directors of the Company also participate in the Global
Integrity Stock Option Plan. As of January 31, 2000 and 1999, 1,708,400 and
1,820,600 options for Global Integrity stock were outstanding. Of the
outstanding options, 965,100 were vested at January 31, 2000. No options were
vested as of January 31, 1999. Options under the Global Integrity Stock Option
Plan are priced at the estimated fair market value at the measurement date and
for terms not greater than ten years. Options under these plans generally become
exercisable 30%, 30%, 20% and 20% after one, two, three and four years,
respectively.
If the Company had elected to recognize compensation expense in 2000 and 1999,
based upon the fair value at the grant dates for stock option awards granted,
net income would have been reduced by approximately $443,000 and $582,000,
respectively. The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following assumptions: no
dividend yield, no volatility, risk-free interest rates ranging from 4.6% and
6.4% and expected lives of five years.
A summary of changes in outstanding options under the Company's option plan
during the two years ended January 31, 2000, is as follows:
Shares of
Shares of common stock
common stock Weighted average exercisable
under options exercise price under options
------------- ---------------- -------------
January 31, 1998............ - $ - -
Options granted........... 2,214,500 $ 7.90
Options canceled.......... (393,900) $ 7.93
Options exercised......... - $ -
January 31, 1999............ 1,820,600 $ 7.89 -
Options granted........... 933,000 $ 5.93
Options canceled.......... (1,045,200) $ 7.45
Options exercised......... - $ -
January 31, 2000............ 1,708,400 $ 7.09 965,100
Note G - Employee Benefit Plans:
SAIC Benefit Plans
Employees of the Company participate in various SAIC benefit plans, subject to
the applicable eligibility requirements, which include a profit sharing plan, an
employee stock retirement plan, a cash or deferred arrangement plan, an employee
stock purchase plan and various other cash and bonus compensation plans. SAIC
charges the Company directly for the costs of such employee benefit plans. The
costs charged to income were approximately $946,000 and $1,163,000 for 2000 and
1999, respectively, and are reflected in costs of sales and selling, general and
administrative expenses in the accompanying statement of operations. Charges
related to the administration of the SAIC benefit plans in which employees of
the Company participate are included within the SAIC general corporate
allocations (Note I).
14
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
Note H - Benefit for Income Taxes:
The benefit for income taxes is comprised of:
Year ended January 31
-----------------------------
2000 1999
-------------- -------------
(in thousands)
U.S. federal taxes:
Current............................................... $ (2,041) $ (496)
Deferred.............................................. (240) 269
State taxes:
Current.............................................. (228) (55)
Deferred............................................. (27) 30
------------ -----------
$ (2,536) $ (252)
=========== ===========
Deferred income taxes are provided for income and expense items recognized in
different years for tax and financial reporting purposes. Deferred tax assets
(liabilities) are comprised of the following:
Year ended January 31
-----------------------------
2000 1999
-------------- -------------
(in thousands)
Property and equipment.................................. $ 57 $ -
Accrued vacation and other compensation................. 369 195
----------- -----------
Total deferred tax assets...................... 426 195
----------- -----------
Property and equipment.................................. - (26)
Deferred revenue, net of reserves....................... (242) (252)
----------- -----------
Total deferred tax liabilities................. (242) (278)
----------- -----------
Net deferred tax asset (liabilities).................... $ 184 $ (83)
=========== ===========
The current portion of the deferred tax asset is $104,000 at January 31, 2000
and is included in other current assets. The current portion of the deferred tax
liability is $74,000 at January 31, 1999 and is included in accrued liabilities.
Losses reflected on the Company's financial statements are included in SAIC's
consolidated tax return. Accordingly, no valuation allowance has been
established for the deferred tax assets. However, had the Company not operated
as a subsidiary of SAIC, a valuation allowance may have been necessary.
A reconciliation of the benefit for income taxes to the amount computed by
applying the statutory federal income tax (35%) to income before taxes follows:
Year ended January 31
------------------------------
2000 1999
-------------- -------------
(in thousands)
Amount computed at statutory rate ......................... $ (2,320) $ (276)
State income taxes, net of federal tax benefit............. (255) (31)
Non-deductible meals, travel and entertainment............. 39 55
-------------- -------------
$ (2,536) $ (252)
=============== ==============
Note I - Transactions with SAIC:
The Company has recognized revenues from services provided to SAIC business
units of approximately $271,000 and $50,000 during 2000 and 1999, respectively.
15
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
The Company engaged SAIC business units to perform work on customer contracts,
and the costs charged to the Company by those business units are reflected as
cost of sales on the accompanying statements of operations. Costs charged by
those business units were approximately $1,232,000 and $2,917,000 in 2000 and
1999, respectively. The revenues related to these costs are also reflected on
the accompanying statements of operations and were approximately $1,608,000 and
$3,666,000 in 2000 and 1999, respectively.
The Company's statements of operations includes allocations from SAIC for legal,
accounting, treasury, human resources, real estate, payroll, information
services, and other corporate services. These allocations have been determined
on a basis that the Company and SAIC considered to be reasonable reflections of
the utilization of services provided or the benefit received by the Company. The
allocation methods include specific identification, relative revenues or costs,
square footage or headcount. Allocated costs are reflected in selling, general
and administrative expenses and were approximately $562,000 and $867,000 in 2000
and 1999, respectively.
Note J - Commitments:
The Company leases certain real and personal property under noncancelable
operating leases. Most of the leases require the Company to pay maintenance and
operating expenses such as taxes, insurance and utilities and also contain
certain renewal options extending the leases from one to twenty years. Certain
of the leases contain purchase options and provisions for periodic rate
escalations to reflect cost-of-living increases. Certain equipment, primarily
computer-related, is leased under short-term or cancelable operating leases.
Rental expense for facilities and equipment was approximately $1,597,000 in 2000
and $978,000 in 1999.
Minimum rental commitments, primarily for facilities, under all non-cancelable
operating leases in effect at January 31, 2000 are payable as follows (in
thousands):
Year ending January 31
----------------------
2001 ....................... $1,139
2002 ....................... 922
2003 ....................... 758
2004 ....................... 694
2005 ....................... 657
2006 and after ............. 105
------
Total minimum lease payments $4,275
======
The Company utilizes certain facilities and equipment under which SAIC is the
primary lessee.
Note K - Contingencies:
The Company is involved from time to time in lawsuits, claims, investigations
and proceedings, including patent, commercial and environmental matters, which
arise in the ordinary course of business. There are no such matters pending that
the Company expects to be material in relation to its business, financial
conditions, results of operations or cash flows.
Note L - Subsequent Event:
On October 17, 2000, Predictive Systems, Inc. ("Predictive"), a leading network
infrastructure consulting firm, entered into a definitive agreement to acquire
the Company. Under the terms of the agreement, Predictive will issue
approximately 5,800,000 shares of its common stock and up
16
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
to approximately $28,500,000 of cash in exchange for all of the Company's shares
and outstanding options plus up to $3,000,000 in cash for due to parent
repayment. Any remaining due to parent balance will not be assumed by
Predictive. If the Company achieves certain performance conditions in calendar
year 2001, additional purchase price will be paid to SAIC in cash and to the
Company's option holders in Predictive options. The acquisition has been
approved by both companies' Boards of Directors and is subject to various
closing conditions.
17
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
UNAUDITED FINANCIAL STATEMENTS
18
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED OCTOBER 31, 2000 and 1999
(unaudited, in thousands)
2000 1999
----------------- -----------------
Revenues........................................... $ 18,122 $ 14,554
Costs and expenses:
Cost of revenues................................. 10,621 10,479
Selling, general and administrative expenses..... 6,757 8,634
Depreciation and amortization.................... 455 563
----------------- -----------------
Operating income (loss)............................ 289 (5,122)
----------------- -----------------
Non-operating expense:
Interest expense................................. 199 351
----------------- -----------------
Income (loss) before income taxes.................. 90 (5,473)
Provision (benefit) for income taxes .............. 74 (2,093)
----------------- -----------------
Net income (loss) ................................. $ 16 $ (3,380)
================= =================
See accompanying notes to financial statements.
19
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
BALANCE SHEET
OCTOBER 31, 2000
(unaudited, dollars in thousands, except par value)
ASSETS
Current assets:
Cash......................................... $ 12
Receivables, net............................. 6,012
Prepaid expenses and other current assets.... 466
-------------
Total current assets.................... 6,490
Property and equipment......................... 1,636
Deferred income taxes.......................... 108
-------------
$ 8,234
=============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued liabilities............ $ 520
Accrued payroll and employee benefits............... 2,260
Deferred income taxes............................... 67
Taxes payable....................................... 96
Collections in excess of revenues on
uncompleted contracts............................ 1,318
Due to parent....................................... 5,417
-------------
Total current liabilities...................... 9,678
Stockholder's deficit:
Common stock, $.001 par value....................... 16
Retained deficit.................................... (1,460)
--------------
Total stockholder's deficit.................... (1,444)
--------------
$ 8,234
==============
See accompanying notes to financial statements.
20
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIOD ENDED OCTOBER 31, 2000 AND 1999
(unaudited, in thousands)
2000 1999
--------- ---------
Cash flows from operating activities:
Net income (loss).................................................................. $ 16 $(3,380)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................................... 455 563
Loss on disposal of property and equipment....................................... 60 162
Increase (decrease) in cash resulting from changes in:
Receivables, net............................................................... (1,091)
Prepaid expenses and other current assets...................................... 138 687
Deferred income taxes.......................................................... 143 (212)
Accounts payable and accrued liabilities....................................... (674) (267)
Accrued payroll and employee benefits.......................................... 1,031 (384)
Taxes payable.................................................................. 96 646
Collections in excess of revenues on uncompleted contracts..................... (264) (352)
--------- ---------
(90) (2,537)
Cash flows from investing activities:
Expenditures for property and equipment........................................ (276) (232)
Cash flows from financing activities:
Due to parent.................................................................. 378 2,769
--------- ---------
Increase in cash................................................................... 12 -
Cash at beginning of period........................................................ - -
--------- ---------
Cash at end of period.............................................................. $ 12 $ -
========= =========
See accompanying notes to financial statements.
21
GLOBAL INTEGRITY CORPORATION
(a wholly-owned subsidiary of Science Applications International Corporation)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The financial statements and accompanying financial information as of
October 31, 2000 and for the nine months ended October 31, 2000 and 1999 are
unaudited and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position of the Company at
such dates and the operating results and cash flows for those periods. The
financial statements included herein have been prepared in accordance with
generally accepted accounting principles and the instructions of Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These financial statements should be read in conjunction with the Company's
audited financial statements for the years ended January 31, 2000 and 1999.
Results for interim periods are not necessarily indicative of results for the
entire year.
22
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
combine the historical statements of operations of Predictive Systems, Inc.,
("Predictive") with the historical statements of operations of Global Integrity
Corporation ("Global") (Predictive and Global are collectively referred to as
the "Combined Company") after giving effect to Predictive's acquisition of
Global as if the acquisition had occurred January 1, 1999, and the historical
balance sheet of Predictive and Global as if the acquisition occurred on
September 30, 2000.
The fiscal year of Predictive ends on December 31st and the fiscal year of
Global ends on January 31st. For purposes of presenting the unaudited pro forma
combined condensed statement of operations, the historical statements of
Predictive for the year ended December 31, 1999 were combined with the
historical statements of Global for the year ended January 31, 2000. In
addition, the unaudited historical statements of Predictive for the nine months
ended September 30, 2000 were combined with the unaudited statements of Global
for the nine months ended October 31, 2000. For purposes of presenting the
unaudited pro forma combined condensed balance sheet, the historical balance
sheet of Predictive as of September 30, 2000 was combined with the historical
balance sheet of Global as of October 31, 2000.
The unaudited pro forma combined condensed financial information is presented
for informational purposes only. These pro forma amounts are not necessarily
indicative of the results of operations of the Combined Company that would have
actually occurred had the acquisition been consummated on January 1, 1999 or of
the financial condition of the Combined Company had the acquisition been
consummated as of September 30, 2000 or of the future results of operations or
financial condition of the Combined Company. The unaudited pro forma combined
condensed financial information should be read in conjunction with the
historical consolidated financial statements for Predictive and the historical
financial statements of Global. The unaudited pro forma combined condensed
statements of operations and the unaudited pro forma combined condensed balance
sheet do not reflect the operating results of Predictive and Global from
September 30, 2000 through the closing date of the acquisition (December 14,
2000) and any cost savings the Combined Company expects to achieve as a result
of the acquisition.
On October 16, 2000, Predictive acquired Synet Service Corporation ("Synet"), in
a transaction accounted for as a purchase. Synet is a network and systems
management consulting firm that works with organizations to improve the
availability and reliability of e-commerce applications and network
infrastructure. The consideration for the acquisition consisted of an aggregate
of 1,922,377 shares of Predictive common stock, par value $0.001 per share, plus
nine million dollars ($9,000,000) cash including certain transaction expenses.
Predictive also issued options to purchase 242,459 shares of Predictive common
stock to employees of Synet, in exchange for their Synet options. In the
financial statements below, we also include the financial results that might
have occurred if Predictive's acquisition of Synet had been completed
previously, in each case as if the acquisition had been consummated at the
beginning of the earliest period presented. For more information regarding the
Company's acquisition of Synet and the related pro forma adjustments refer to
the previously filed Form 8-K dated October 31, 2000, as amended by the Form
8-K/A dated January 2, 2001.
23
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(dollars in thousands, except per share data)
Synet
----------------------------- Predictive/Synet
Predictive Pro Forma Pro Forma
Historical Historical(a) Adjustments(a) Combined(a)
---------- ------------- -------------- ----------------
Revenues $ 67,087 $ 7,723 $ - $ 74,810
Cost of revenues 34,789 3,402 - 38,191
---------- ----------- ----------- -----------
Gross profit 32,298 4,321 - 36,619
Sales, marketing, general
and administrative 27,765 4,663 - 32,428
Depreciation and amortization 1,806 163 4,817 6,786
Noncash compensation expense 57 3,583 112 3,752
---------- ----------- ----------- -----------
Operating profit (loss) 2,670 (4,088) (4,929) (6,347)
Other income (expense):
Interest income 5,307 22 - 5,329
Other expense (16) (16) - (32)
Interest expense (44) (70) - (114)
---------- ----------- ----------- -----------
Income (loss) before income tax 7,917 (4,152) (4,929) (1,164)
Income tax provision 3,443 7 - 3,450
---------- ----------- ----------- -----------
Net income (loss) $ 4,474 $ (4,159) $ (4,929) $ (4,614)
========== =========== =========== ===========
Net income (loss) per share:
Basic $ 0.18 $ (0.17)
========== ===========
Net income (loss) per share:
Diluted $ 0.13 $ (0.17)
========== ===========
Weighted average shares
outstanding: Basic 25,195,475 1,400,612 26,596,087
========== =========== ===========
Weighted average shares
outstanding: Diluted 33,844,093 26,596,087
========== ===========
Global
------------------------
Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- ----------
Revenues $ 18,122 $ - $ 92,932
Cost of revenues 10,621 - 48,812
---------- ----------- ----------
Gross profit 7,501 - 44,120
Sales, marketing, general and
administrative 6,757 - 39,185
Depreciation and amortization 455 11,808 (1) 19,049
Noncash compensation expense - 23 (2) 3,775
---------- ----------- ----------
Operating profit (loss) 289 (11,831) (17,889)
Other income (expense):
Interest income - - 5,329
Other expense - - (32)
Interest expense (199) - (313)
---------- ----------- ----------
Income (loss) before income tax 90 (11,831) (12,905)
Income tax provision 74 - 3,524
---------- ----------- ----------
Net income (loss) $ 16 $(11,831) $ (16,429)
========== =========== ==========
Net income (loss) per share:
Basic $ (0.52)
==========
Net income (loss) per share:
Diluted $ (0.52)
==========
Weighted average shares
outstanding: Basic 5,240,275 (3) 31,836,362
=========== ==========
Weighted average shares
outstanding: Diluted 31,836,362
==========
The accompanying notes to unaudited pro forma combined condensed financial
statements are an integral part of this statement.
24
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(dollars in thousands, except per share data)
Synet
-------------------------- Predictive/Synet
Predictive Pro Forma Pro Forma
Historical Historical(a) Adjustments(a) Combined(a)
---------- ------------- -------------- ----------------
Revenues $ 52,745 $ 7,143 $ - $ 59,888
Cost of revenues 27,465 3,781 - 31,246
---------- ---------- ---------- ----------
Gross profit 25,280 3,362 - 28,642
Sales, marketing, general and
administrative 25,287 3,309 - 28,596
Depreciation and amortization 1,083 183 6,423 7,689
Noncash compensation expense 48 - 158 206
---------- ---------- ---------- ----------
Operating loss (1,138) (130) (6,581) (7,849)
Other income (expense):
Interest income 944 1 - 945
Other income 76 - - 76
Interest expense (157) (46) - (203)
---------- ---------- ---------- ----------
Loss before income tax
provision (benefit) (275) (175) (6,581) (7,031)
Income tax provision (benefit) 682 20 - 702
---------- ---------- ---------- ----------
Net loss $ (957) $ (195) $ (6,581) $ (7,733)
========== ========== ========== ==========
Net loss per share: Basic and
Diluted $ (0.08) $ (0.57)
========== ==========
Weighted average shares
outstanding: Basic and
Diluted 12,137,560 1,400,612 13,538,172
========== ========== ==========
Global
------------------------
Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- ----------
Revenues $ 20,273 $ - $ 80,161
Cost of revenues 14,312 - 45,558
---------- ---------- ---------
Gross profit 5,961 - 34,603
Sales, marketing, general and
administrative 11,439 - 40,035
Depreciation and amortization 727 15,744 (1) 24,160
Noncash compensation expense - 30 (2) 236
---------- ---------- ---------
Operating loss (6,205) (15,774) (29,828)
Other income (expense):
Interest income - - 945
Other income - - 76
Interest expense (425) - (628)
---------- ---------- ---------
Loss before income tax
provision (benefit) (6,630) (15,774) (29,435)
Income tax provision (benefit) (2,536) - (1,834)
---------- ---------- ---------
Net loss $ (4,094) $ (15,774) $ (27,601)
========== ========== =========
Net loss per share: Basic and
Diluted $ (1.47)
=========
Weighted average shares
outstanding: Basic and Diluted 5,240,275 (3) 18,778,447
========== =========
The accompanying notes to unaudited pro forma combined condensed financial
statements are an integral part of this statement.
25
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(dollars in thousands)
Synet
-------------------------------- Predictive/Synet
Predictive Pro Forma Pro Forma
Historical Historical(a) Adjustments(a) Combined(a)
---------- ------------- -------------- ----------------
ASSETS
Current assets
Cash and cash equivalents $ 124,864 $ 81 $ (8,381) $ 116,564
Investment in marketable securities,
at market value 8,948 - - 8,948
Accounts receivable, net 22,005 1,628 - 23,633
Unbilled work in process 2,639 447 - 3,086
Notes receivable - employees 202 - - 202
Deferred tax asset 6,497 - - 6,497
Prepaid expenses and other
current assets 1,376 204 - 1,580
---------- --------- -------- ----------
Total current assets 166,531 2,360 (8,381) 160,510
Property and equipment, net 7,107 143 - 7,250
Deferred tax asset - - - -
Intangibles, net 3,297 184 (184) 35,412
32,115
Other assets 279 47 - 326
---------- --------- -------- ----------
Total assets $ 177,214 $ 2,734 $ 23,550 $ 203,498
========== ========= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 9,377 $ 1,338 $ 1,700 $ 12,415
Current portion of capital lease
obligations 172 - - 172
Due to parent - - - -
Notes payable - 1,032 - 1,032
Income taxes payable 127 - - 127
Deferred income tax liability 395 - - 395
Deferred income 514 305 - 819
---------- --------- -------- ----------
Total current liabilities 10,585 2,675 1,700 14,960
---------- --------- -------- ----------
Noncurrent liabilities
Capital lease obligations 163 - - 163
Deferred rent 507 - - 507
Other long-term liabilities - 140 - 140
---------- --------- -------- ----------
Total noncurrent liabilities 670 140 - 810
---------- --------- -------- ----------
Total liabilities 11,255 2,815 1,700 15,770
---------- --------- -------- ----------
Commitments and Contingencies
Stockholders' equity
Common stock 27 17 (15) 29
Additional paid-in capital 161,566 4,082 18,647 184,295
Deferred compensation (200) - (474) (674)
Retained earnings 4,844 (3,685) 3,684 4,843
Accumulated other comprehensive loss (278) (8) 8 (278)
Receivables from stock option exercises - (487) - (487)
---------- --------- -------- ----------
Total stockholders' equity 165,959 (81) 21,850 187,728
---------- --------- -------- ----------
Total liabilities and
stockholders equity $ 177,214 $ 2,734 $ 23,550 $ 203,498
========== ========= ======== ==========
Global
------------------------
Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 12 $ (31,460)(4) $ 85,116
Investment in marketable securities,
at market value - - 8,948
Accounts receivable, net 6,012 - 29,645
Unbilled work in process - - 3,086
Notes receivable - employees - - 202
Deferred tax asset - - 6,497
Prepaid expenses and other
current assets 466 - 2,046
---------- --------- ---------
Total current assets 6,490 (31,460) 135,540
Property and equipment, net 1,636 509 (5) 9,395
Deferred tax asset 108 - 108
Intangibles, net - 73,750 (6) 109,162
-
Other assets - - 326
---------- --------- ---------
Total assets $ 8,234 $ 42,799 $ 254,531
========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 2,780 $ 1,830 (7) $ 17,025
Current portion of capital lease
obligations - - 172
Due to parent 5,417 (5,417)(8) -
Notes payable - - 1,032
Income taxes payable 96 - 223
Deferred income tax liability 67 - 462
Deferred income 1,318 - 2,137
---------- --------- ---------
Total current liabilities 9,678 (3,587) 21,051
---------- --------- ---------
Noncurrent liabilities
Capital lease obligations - - 163
Deferred rent - - 507
Other long-term liabilities - - 140
---------- --------- ---------
Total noncurrent liabilities - - 810
---------- --------- ---------
Total liabilities 9,678 (3,587) 21,861
---------- --------- ---------
Commitments and Contingencies
Stockholders' equity
Common stock 16 (11)(9) 34
Additional paid-in capital - 45,058 (9) 229,353
Deferred compensation - (121)(9) (795)
Retained earnings (1,460) 1,460 (9) 4,843
Accumulated other comprehensive loss - - (278)
Receivables from stock option exercises - - (487)
---------- --------- ---------
Total stockholders' equity (1,444) 46,386 232,670
---------- --------- ---------
Total liabilities and
stockholders equity $ 8,234 $ 42,799 $ 254,531
========== ========= =========
The accompanying notes to unaudited pro forma combined condensed financial
statements are an integral part of this balance sheet.
26
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except
per share data)
(a) For information regarding Predictive's acquisition of Synet and the
related Pro Forma Adjustments refer to the previously filed Form 8-K
dated October 31, 2000, as amended by the Form 8-K/A dated January 2,
2001.
The unaudited pro forma combined condensed statements of operations
have been prepared to reflect the acquisition of Global as if this acquisition
occurred on January 1, 1999. The unaudited pro forma combined condensed balance
sheet was prepared to reflect the acquisition as of September 30, 2000. Global's
historical financial statements were derived from its books and records and
reflect:
o The statement of operations of Global for the nine month
period ended October 31, 2000;
o The statement of operations of Global for the year
ended Janaury 31, 2000; and
o The balance sheet of Global as of October 31, 2000.
The acquisition has been accounted for under the purchase method of accounting.
The following is a summary of the adjustments reflected in the
unaudited pro forma combined condensed statements of operations:
1. Represents the amortization of the excess of the purchase price
over the net tangible assets acquired.
2. Represents the noncash compensation expense related to the issuance
of Predictive options to Global option holders in exchange for
the unvested portion of their Global options.
3. Represents the increase in the number of outstanding shares of
common stock to reflect the 5,240,275 shares issued to the
stockholders of Global to fund the purchase price. The 551,048
Predictive options issued to Global option holders in exchange
for their Global options was not included in the weighted
average calculation as their effect would be antidilutive.
The following is a summary of the adjustments reflected in the unaudited
pro forma combined condensed balance sheet:
4. Represents the cash portion of the purchase price paid to the
seller.
5. Adjustment to increase Global's book value to fair market value
on date of acquisition.
6. Represents the preliminary estimates of the excess purchase price
over the fair value of net tangible assets acquired as follows -
-------------------------------------------------------------------------------------------------
Purchase price (including $1,830 of transaction expenses) $ 78,232
-------------------------------------------------------------------------------------------------
Fair value of net tangible assets acquired 4,482
-------------------------------------------------------------------------------------------------
Excess of purchase price over net tangible assets acquired $ 73,750
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Predictive believes that all significant assets and liabilities have
been identified and, accordingly, that the final determination of the allocation
of the Global purchase price should not vary materially from the
preliminary estimate. Predictive anticipates finalizing the purchase price
allocation upon completing the preparation and review of the December 14, 2000
(acquisition date) financial statements of Global.
The identifiable assets are being amortized over their estimated useful
lives. Intangible assets resulting from the excess of the purchase price over
the fair value of the net assets acquired, including workforce, trade names,
developed technology, customer lists and goodwill, are being amortized over a
period of 3 to 5 years.
27
Subsequent to the acquisition, Predictive will review the carrying
values assigned to the intangibles assets to determine whether later events or
circumstances have occurred that indicate that the balance of the intangible
assets may be impaired. Predictive's principal considerations in determining the
impairment of the intangible assets will include the strategic benefit to
Predictive of the particular business as measured by expected undiscounted
future cash flows. Predictive is not aware of any events or circumstances which
would impair the intangible assets.
7. Represents the amount of estimated cost for legal and accounting
services and other expenses associated with the acquisition.
8. Represents the elimination of payables not assumed by Predictive.
9. Reflects the adjustments to stockholders' equity as follows:
Common stock:
Elimination of Global common stock ............................................ $ (16)
Par value of 5.2 million shares of Predictive common stock
issued at $0.001 par value per share in connection with the
acquisition of Global .................................................... 5
------------
Subtotal ............................................................. (11)
Additional paid-in capital:
Additional paid-in capital from issuance of 5.2 million shares of Predictive
common stock in connection with the acquisition of Global Integrity ...... 42,703
Fair market value of 551,048 Predictive stock options issued to
acquired employees ....................................................... 2,355
------------
Subtotal ............................................................. 45,058
Deferred compensation:
Deferred compensation of unvested portion of Predictive
stock options granted to acquired employees .............................. (121)
Retained earning (deficit):
Elimination of Global retained deficit ........................................ 1,460
------------
Total ................................................................ $ 46,386
============
28