Exhibit 99.6
Paradigm Holdings, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
On April 9, 2007, Paradigm Holdings, Inc. ("Paradigm") acquired Trinity IMS,
Inc. ("Trinity") for $4.0 million by issuing a secured promissory note to Ms.
Theresa Kleszewski in connection with the Stock Purchase Agreement filed with
the Commission on January 31, 2007. The acquisition has been accounted for using
purchase accounting.
Trinity provides specialized information assurance and cyber forensics support
services to the federal government, primarily the U.S. Department of State.
Trinity's focus on cyber forensics and information assurance services in support
of the U.S. Department of State compliments the Company's strategic plan to
expand its IT solutions into the national security marketplace. Trinity provides
the Company with access to key customers, security clearances and technical
expertise.
Incentive Compensation
The preliminary purchase price excludes the effect of the incentive bonuses that
the Sellers as defined in the Purchase Agreement will be eligible for which is
contingent on Trinity winning certain new contracts specified in the Qualified
Opportunities and Proposals (Exhibits D and G of the Purchase Agreement filed
with the Commission on January 31, 2007). Any incentive bonuses paid will be
accounted for as compensation expense. Sellers are eligible for up to 45% of the
awarded contracts' estimated cumulative profits which is fixed based on the
Calculation Period Financial Results defined in the Purchase Agreement. Further,
all incentive compensation payments for Qualified Opportunities and Proposals
will be made only if a minimum profitability of twelve percent (12%) (based on
Paradigm's rate structure as bid) is achieved during the Calculation Period. If
the profitability is between 6 and 10%, the bonus payment amounts will be
renegotiated reasonably and in good faith between Paradigm and the Sellers. No
incentive compensation will be paid for contracts with Calculation Period
Financial Results profitability that are less than six percent (6%). In
addition, bonus payments for contract awards will be paid only for Qualified
Opportunities and Proposals set forth in Exhibit D that are awarded within
eighteen (18) months of the execution of the Purchase Agreement. Management is
not able to estimate the potential incentive compensation until winning those
contracts.
Basis of Presentation
The unaudited pro forma condensed combined balance sheet as of December 31, 2006
in this report has been prepared as if the acquisition occurred on December 31,
2006 and condensed combined statements of operations for the twelve months ended
December 31, 2006 included in this report have been prepared as if the
acquisition occurred on January 1, 2006.
The unaudited pro forma condensed combined financial statements, which have been
prepared in accordance with rules prescribed by Article 11 of Regulation S-X,
are provided for informational purposes only and are not necessarily indicative
of the past or future results of operations. No effect has been given for
operational efficiencies that may have been achieved if the acquisition had
occurred on January 1, 2006.
This information should be read in conjunction with our Current Report of Form
8-K, filed with the SEC on April 13, 2007, Paradigm's historical financial
statements and the accompanying notes in both our Annual Report on Form 10-K for
the fiscal year ended December 31, 2006 and Trinity's historical financial
statements and the accompanying notes that are included in this Current Report
on Form 8-K/A.
Paradigm Holdings, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the twelve months ending December 31, 2006
Paradigm Pro Forma Pro Forma
Holdings Trinity Adjustments Note Combined
------------ ------------ ----------- ---- -----------
Contract Revenue
Service contracts $ 43,781,524 $ 4,216,934 $ -- $ 47,998,458
Repair and maintenance contracts 16,046,570 -- -- 16,046,570
------------ ------------ ----------- ------------
Total contract revenue 59,828,094 4,216,934 -- 64,045,028
------------ ------------ ----------- ------------
Cost of revenue
Service contracts 36,690,539 3,317,133 -- 40,007,672
Repair and maintenance contracts 13,817,257 -- -- 13,817,257
------------ ------------ ----------- ------------
Total cost of revenue 50,507,796 3,317,133 -- 53,824,929
------------ ------------ ----------- ------------
Gross margin 9,320,298 899,801 -- 10,220,099
Selling, General & Administrative 8,315,113 612,748 400,000 (1) 9,327,861
------------ ------------ ----------- ------------
Income from operations 1,005,185 287,053 (400,000) 892,238
------------ ------------ ----------- ------------
Other expense
Interest income 708 556 -- 1,264
Interest expense (486,923) (22,086) (184,063) (2) (693,072)
Other expense (23,679) -- -- (23,679)
------------ ------------ ----------- ------------
Total other expense (509,894) (21,530) (184,063) (715,487)
------------ ------------ ----------- ------------
Income from continuing operations
before income taxes 495,291 265,523 (584,063) 176,751
Provision for income taxes 323,255 109,714 (233,625) (3) 199,344
------------ ------------ ----------- ------------
Income from continuing operations $ 172,036 $ 155,809 $ (350,438) $ (22,593)
============ ============ =========== ============
Weighted average number of common shares:
Basic 20,552,097 20,552,097
Diluted 20,713,109 20,713,109
Basic income from continuing operations
per common share $ 0.01 -- $ (0.00)
------------ ------------ ----------- ------------
Diluted income from continuing operations
per common share $ 0.01 -- $ (0.00)
------------ ------------ ----------- ------------
Paradigm Holdings, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 2006
Paradigm Pro Forma Pro Forma
Holdings Trinity Adjustments Note Combined
----------- ----------- ----------- ---- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 371,176 $ 121,654 $ -- $ 492,830
Accounts receivable - net 15,768,449 623,810 -- 16,392,259
Current portion of settlement receivable -- 37,500 -- 37,500
Prepaid expenses 960,184 5,150 -- 965,334
Other current assets 25,903 2,769 -- 28,672
Current assets of discontinued operations 1,594,141 -- -- 1,594,141
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 18,719,853 790,883 -- 19,510,736
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET 593,311 94,633 -- 687,944
----------- ----------- ----------- -----------
OTHER ASSETS
Settlement receivable - less current portion -- 46,875 -- 46,875
Intangible assets -- -- 1,500,000 (4) 1,500,000
Goodwill -- -- 2,774,456 (4) 2,774,456
Other assets 233,414 25,592 -- 259,006
----------- ----------- ----------- -----------
TOTAL OTHER ASSETS 233,414 72,467 4,274,456 4,580,337
----------- ----------- ----------- -----------
TOTAL ASSETS $19,546,578 $ 957,983 $ 4,274,456 $24,779,017
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 2,464,022 $ -- $ -- $ 2,464,022
Note payable - line of credit 5,559,649 -- -- 5,559,649
Note payable -- -- 2,000,000 (5) 2,000,000
Accounts payable and accrued expenses 5,619,834 10,201 -- 5,630,035
Accrued salaries and related payables 2,137,002 190,099 -- 2,327,101
Credit card liabilities -- 49,470 -- 49,470
Stock repurchase -- 40,000 -- 40,000
Income taxes payable -- 106,715 -- 106,715
Expect loss on contract 613,742 -- -- 613,742
Deferred revenue 452,491 -- -- 452,491
Deferred taxes 72,259 209,409 120,000 (6) 401,668
Other current liabilities 110,511 6,448 -- 116,959
Current liabilities of discontinued operations 616,889 -- -- 616,889
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 17,646,399 612,342 2,120,000 20,378,741
----------- ----------- ----------- -----------
LONG TERM LIABILITIES
Note payable -- -- 2,000,000 (5) 2,000,000
Deferred tax liabilities -- -- 480,000 (6) 480,000
Other long term liabilities 244,947 20,097 -- 265,044
----------- ----------- ----------- -----------
TOTAL LONG TERM LIABILITIES 244,947 20,097 2,480,000 2,745,044
----------- ----------- ----------- -----------
TOTAL LIABILITIES 17,891,346 632,439 4,600,000 23,123,785
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock - $.01 par value, 50,000,000
shares authorized, 20,795,152 shares
issued and outstanding 207,951 453 (453) (7) 207,951
Additional paid in capital 2,106,641 -- -- (7) 2,106,641
(Accumulated deficit) retained earnings (659,360) 325,091 (325,091) (7) (659,360)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,655,232 325,544 (325,544) 1,655,232
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,546,578 $ 957,983 $ 4,274,456 $24,779,017
=========== =========== =========== ===========
Paradigm Holdings, Inc.
Notes to Pro Forma Condensed Combined Financial Statements
Basis of Presentation
The unaudited pro forma condensed combined statements of operations for the
twelve months ended December 31, 2006 included in this report have been prepared
as if the acquisition occurred on January 1, 2006. The unaudited pro forma
consolidated balance sheet as of December 31, 2006 included in this report has
been prepared as if the acquisition occurred on December 31, 2006.
The acquisition has been accounted for using purchase accounting.
Financial Notes
(1) The incremental financial impact of the Executive Employment Agreement with
Mr. Christian L. Kleszeswki following the acquisition by Paradigm has been
included. In addition, $300,000 was recorded as SG&A expense attributable
to the first year amortization of identifiable intangible assets.
(2) Adjustment made to reflect additional interest expense assuming the
acquisition occurred at the beginning of the period presented. Interest
expense was calculated using an annual interest rate of 7.75% as specified
in the Promissory Note. Interest expense is calculated in accordance with
the payment schedule [($3,500,000 * 7.75% * 3/12) + ($2,000,000 * 7.75% *
9/12)].
(3) Adjustment made to reflect the income tax effect of increased interest
expense and amortization of intangible assets at the effective tax rate of
40%.
(4) Goodwill represents the excess purchase price of $4.0 million over the
historical basis of the assets and liabilities of Trinity and identifiable
intangible assets. The excess of the purchase price was recorded as
goodwill. The purchase price, purchase price allocation, and financing of
the transaction are summarized as follows:
Purchase price paid as:
Proceed of Promissory Note issued $4,000,000
----------
Total purchase consideration $4,000,000
Allocated to:
Historical book value of Trinity's assets and liabilities 325,544
Identifiable intangible assets 1,500,000
Deferred tax liabilities (600,000)
----------
Excess purchase price over allocation to identifiable
assets and liabilities (goodwill) $2,774,456
----------
The purchase price allocation is preliminary, and Management expects that
reallocation of goodwill to intangible assets will be completed during the
next forty-five (45) days. Purchase price reallocation will be based on
intangible assets associated with the value of the backlog from long-term
contracts, the non-compete agreement contained within the employment
contract with Mr. Kleszewski and existing customer relationships. The
potential magnitude of such reclassifications would be a maximum of $1.5
million of intangible assets that would result in annual amortization of
approximately $0.3 million over an average life of five (5) years. The
intangible assets will be primarily related to Trinity's contract backlog
which extends to May 2012. The purchase price and goodwill calculation do
not include any direct acquisition costs. The Company is currently
reviewing direct acquisition costs to determine which, if any, may be
capitalized.
(5) Adjustment made to reflect the issuance of a $4.0 million promissory note
to finance the purchase price. Paradigm paid $500,000 upon execution of the
Promissory Note.
(6) The Company recorded $600,000 of total deferred tax liabilities related to
the identifiable intangible assets at the 40% tax rate. $120,000 of the
total deferred tax was recorded as a current liability based on the five
year average life of the intangible assets.
(7) Stockholder's equity adjustment reflects the elimination of the
stockholders' equity accounts of Trinity.