<PAGE>
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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): FEBRUARY 1, 1999
METRO INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
VIRGINIA 000-22035 54-1112301
(State of incorporation) (Commission File No.) (I.R.S. Employer Identification Number)
</TABLE>
POST OFFICE BOX 8888, VIRGINIA BEACH, VIRGINIA 23450
(Address of principal executive office) (Zip Code)
(757) 486-1900
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
<PAGE>
This Report on Form 8-K/A amends and restates Item 7 of the Registrant's Report
on 8-K dated February 1, 1999 and filed on February 16, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired:
Audited Combined Financial Statements of The
Professionals -Computer Management & Consulting, Inc.
and Krystal Solutions, Inc. for the year ended
December 31, 1998.
(b) Pro forma financial information:
Unaudited Pro Forma Condensed Consolidated Financial
Statements of Metro Information Services, Inc. and
Subsidiaries for the year ended December 31, 1998.
(c) Exhibits required by Item 601 of Regulation S-K:
(i) 2 Asset Purchase Agreement, dated as of
February 1, 1999, by and among The
Professionals - Computer Management &
Consulting, Inc. and Krystal Solutions,
Inc. and Theodore Schindler and Cathy
Schindler and The Schindler Family 1996
Trust and Metro Information Services,
Inc. and Metro Information Services of
Orange County, Inc.*
(ii) 99 Press release of Metro Information
Services, Inc., dated February 1, 1999.*
* Previously filed as an exhibit to the Registrant's Report on Form 8-K
dated February 1, 1999 and filed on February 16, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Metro Information Services, Inc.
Date Signed: APRIL 16, 1999 By /s/ Robert J. Eveleigh
------------------ ---------------------------------
Robert J. Eveleigh
PRINCIPAL FINANCIAL OFFICER
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Combined Financial Statements of The Professonals - Computer Management
& Consulting, Inc. and Krystal Solutions, Inc.:
Independent Auditors' Report ....................................................................... 1
Combined Financial Statements:
Combined Balance Sheet as of December 31, 1998................................................... 2
Combined Statement of Income and Changes in Retained Earnings
for the year ended December 31, 1998.......................................................... 3
Combined Statement of Cash Flows for the year ended December 31, 1998............................ 4
Notes to Combined Financial Statements........................................................... 5
Unaudited Pro Forma Condensed Consolidated Financial Statements of Metro Information
Services, Inc. and Subsidiaries:
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements..................... 9
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1998.................... 10
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet................................... 11
Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended
December 31, 1998................................................................................ 13
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income............................. 14
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Boards of Directors and Stockholders
The Professionals - Computer Management & Consulting, Inc.
Krystal Solutions, Inc.:
We have audited the accompanying combined balance sheet of The Professionals -
Computer Management & Consulting, Inc. and Krystal Solutions, Inc. (collectively
referred to as the "Company") as of December 31, 1998 and the related combined
statements of income and changes in retained earnings and cash flows for the
year then ended. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Professionals -
Computer Management & Consulting, Inc. and Krystal Solutions, Inc. as of
December 31, 1998, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Norfolk, Virginia
March 19, 1999
1
<PAGE>
THE PROFESSIONALS - COMPUTER MANAGEMENT & CONSULTING, INC. AND
KRYSTAL SOLUTIONS, INC.
Combined Balance Sheet
December 31, 1998
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 278,287
Accounts receivable 7,140,133
Prepaid expenses and other current assets (note 5) 31,041
-----------
Total current assets 7,449,461
Property and equipment, net (note 2) 23,559
Other assets 8,954
-----------
Total assets $ 7,481,974
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (note 3) $ 645,000
Accounts payable 382,965
Accrued expenses 358,555
Notes payable to stockholders (note 5) 405,000
-----------
Total current liabilities 1,791,520
Deferred income taxes (note 4) 1,430,600
-----------
Total liabilities 3,222,120
-----------
Stockholders' equity:
Common stock - The Professionals - Computer Management & Consulting, Inc.;
no par value; 100,000 shares authorized;
40,000 shares issued and outstanding 400
Common stock - Krystal Solutions, Inc.; no par value; 100,000 shares authorized;
5,100 shares issued and outstanding 6,550
Retained earnings 4,252,904
-----------
Total stockholders' equity 4,259,854
Commitments and subsequent events (notes 3, 5, 6, 7 and 8)
-----------
Total liabilities and stockholders' equity $ 7,481,974
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE>
THE PROFESSIONALS - COMPUTER MANAGEMENT & CONSULTING, INC. AND
KRYSTAL SOLUTIONS, INC.
Combined Statement of Income and Changes in Retained Earnings
Year ended December 31, 1998
<TABLE>
<S> <C>
Revenue $ 21,856,402
Cost of revenue 16,842,269
-----------------
Gross profit 5,014,133
-----------------
Selling, general and administrative expenses 4,059,616
Depreciation 11,978
-----------------
Total operating expenses 4,071,594
-----------------
Operating income 942,539
-----------------
Interest income 108,079
Interest expense (7,205)
-----------------
Net interest income 100,874
-----------------
Income before income taxes 1,043,413
Income tax expense (note 4) 24,000
-----------------
Net income 1,019,413
Retained earnings at beginning of year 3,233,491
-----------------
Retained earnings at end of year $ 4,252,904
-----------------
-----------------
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE>
THE PROFESSIONALS - COMPUTER MANAGEMENT & CONSULTING, INC. AND
KRYSTAL SOLUTIONS, INC.
Combined Statement of Cash Flows
Year ended December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 1,019,413
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 11,978
Deferred income taxes 22,000
Changes in operating assets and liabilities increasing (decreasing) cash
used in operating activities:
Accounts receivable (1,779,074)
Prepaid expenses and other current assets (18,060)
Other assets 1,254
Accounts payable 256,678
Accrued expenses 196,498
-----------
Total adjustments (1,308,726)
-----------
Net cash used in operating activities (289,313)
-----------
Cash flows from investing activity -
Acquisition of property and equipment (1,475)
-----------
Cash flows from financing activities:
Net borrowings on line of credit 236,055
Repayments of notes payable to stockholder (171,000)
Advances on notes payable to stockholder 405,000
-----------
Net cash provided by financing activities 470,055
-----------
Net increase in cash and cash equivalents 179,267
Cash and cash equivalents at beginning of year 99,020
-----------
Cash and cash equivalents at end of year $ 278,287
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE>
THE PROFESSIONALS - COMPUTER MANAGEMENT &
CONSULTING, INC. AND KRYSTAL SOLUTIONS, INC.
Notes to Combined Financial Statements
December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying combined financial statements include the accounts of
The Professionals - Computer Management & Consulting, Inc.
("Professionals") and Krystal Solutions, Inc. ("Krystal"), (collectively
referred to as the "Company"), two information technology ("IT")
consulting services companies operated under common ownership for the
purpose of providing IT consultants on a contract basis to organizations
with complex IT operations. On December 31, 1998, the Company had offices
in the Irvine and San Bruno, California areas.
All intercompany balances and transactions have been eliminated.
(A) REVENUE RECOGNITION
The Company derives substantially all of its revenue from
consulting services and all services provided by the Company are
billed on a time and materials basis. Revenue is recognized as
services are performed.
(B) CONCENTRATION OF CREDIT RISK
The Company provides its services to customers throughout Southern
California.
(C) CASH AND CASH EQUIVALENTS
Cash equivalents at December 31, 1998 of approximately $149,000
consisted of money market investments. For purposes of the
combined statement of cash flows, the Company considers
highly-liquid debt instruments with original maturities of three
months or less to be cash equivalents.
(D) FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments,
primarily accounts receivable, accounts payable, accrued expenses,
line of credit and due to stockholders, approximate fair value due
to the short maturity of these instruments.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on
property and equipment is calculated on the straight-line method
over their estimated useful lives.
(Continued)
5
<PAGE>
THE PROFESSIONALS-COMPUTER MANAGEMENT &
CONSULTING, INC. AND KRYSTAL SOLUTIONS, INC.
Notes to Combined Financial Statements
December 31, 1998
(F) INCOME TAXES
The Company, with the consent of its stockholders, is taxed under
the provisions of Subchapter S of the Internal Revenue Code of
1986, which provides that, in lieu of corporate income taxes, the
stockholders of the corporation are taxed on their proportionate
share of the Company's income. The Company elected this tax status
in 1996, and based on provisions of the Internal Revenue Code, is
subject to built-in gains tax for a period of ten years following
the change to an S corporation. Deferred income tax liability
consists primarily of this built-in gains tax.
(G) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of revenue and expense,
assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these combined financial statements in
conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
USEFUL
LIVES
IN YEARS 1998
----------------- -----------------
<S> <C> <C>
Computer equipment 5 $ 73,382
Furniture and fixtures 7 139,663
-----------------
213,045
Less accumulated depreciation (189,486)
-----------------
$ 23,559
-----------------
-----------------
</TABLE>
(3) LINE OF CREDIT
The Company has a $1,000,000 line of credit with a financial institution
bearing interest at the institution's prime rate plus 1% (8.75% at
December 31, 1998). The line of credit is guaranteed by trusts controlled
by the Company's presidents and expires on February 15, 1999. Outstanding
borrowings totaled $645,000 at December 31, 1998. On February 1, 1999,
the Company repaid all amounts outstanding under this line of credit and
terminated the agreement.
(Continued)
6
<PAGE>
THE PROFESSIONALS-COMPUTER MANAGEMENT &
CONSULTING, INC. AND KRYSTAL SOLUTIONS, INC.
Notes to Combined Financial Statements
December 31, 1998
(4) INCOME TAXES
Income tax expense for the year ended December 31, 1998 consists of the
following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------------- ----------------- -----------------
<S> <C> <C> <C>
State $ 2,000 $ 22,000 $ 24,000
----------------- ----------------- ----------------
----------------- ----------------- ----------------
</TABLE>
Deferred income taxes at December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
----------------- ------------------ -----------------
<S> <C> <C> <C>
Deferred built-in gains tax $ 1,101,000 279,000 1,380,000
Deferred franchise tax -- 50,600 50,600
----------------- ------------------ -----------------
$ 1,101,000 $ 329,600 $ 1,430,600
----------------- ------------------ -----------------
----------------- ------------------ -----------------
</TABLE>
(5) RELATED PARTY TRANSACTIONS
At December 31, 1998, the Company has unsecured notes payable to its
stockholders of $405,000. Interest is accrued on these notes at an annual
interest rate of 5%. The notes were repaid in full in January 1999.
At December 31, 1998, the Company has $18,412 due from family members of
the Company's stockholders. Interest is accrued on these notes at an
annual interest rate of 5%. The notes mature in 1999.
(6) LEASES
The Company is obligated under noncancelable operating leases for office
space. The future minimum rental payments required under these operating
leases are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
<S> <C>
1999 $ 63,648
2000 15,992
-----------------
$ 79,640
-----------------
-----------------
</TABLE>
Rent expense for the year ended December 31, 1998 was $63,488 and is
included in selling, general and administrative expenses in the
accompanying combined statement of income.
(Continued)
7
<PAGE>
THE PROFESSIONALS-COMPUTER MANAGEMENT &
CONSULTING, INC. AND KRYSTAL SOLUTIONS, INC.
Notes to Combined Financial Statements
December 31, 1998
(7) SIGNIFICANT CUSTOMERS
Approximately 39% of the Company's sales for the year ended December 31,
1998 were to three unrelated customers. Amounts due from these customers
comprised approximately 41% of the December 31, 1998 accounts receivable
balance included in the accompanying combined balance sheet.
(8) SUBSEQUENT EVENT
Effective February 1, 1999, certain assets and liabilities of the Company
were sold to Metro Information Services of Orange County, Inc., a wholly
owned subsidiary of Metro Information Services, Inc.
8
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet and
statement of income (collectively "the pro forma financial statements") have
been prepared as if the acquisition of The Professionals - Computer Management &
Consulting, Inc. and Krystal Solutions, Inc. (collectively referred to as
"Professionals and Krystal") by Metro Information Services, Inc. occurred as of
December 31, 1998 for purposes of the pro forma balance sheet and as of January
1, 1998 for purposes of the pro forma statement of income. The pro forma
financial statements do not purport to represent the financial position or
results of operations of Metro Information Services, Inc. and subsidiaries
(Metro) as if such transactions had occurred on such dates or to project Metro's
financial position or results of operations as of any future date or for any
future period. The pro forma financial statements contain adjustments to the
historical financial statements of Metro and Professionals and Krystal which
are based on available information and certain assumptions that Metro believes
are reasonable in the circumstances.
The acquisition of Professionals and Krystal is accounted for under the purchase
method of accounting. The allocation of purchase price is based upon the
estimated fair value of assets acquired and liabilities assumed in accordance
with Accounting Principles Board Opinion No. 16. The purchase price allocation
reflected in the accompanying pro forma financial statements may be different
from the final allocation of the purchase price and such differences may be
material.
The pro forma financial statements and accompanying notes should be read in
conjunction with the historical financial statements and the notes thereto of
Metro, and the historical financial statements and the notes thereto of
Professionals and Krystal included elsewhere in this document.
9
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
Acquisitions
----------------------------------------------------------
Professionals Professionals
Metro and Krystal Pro Forma and Krystal
Historical Historical Adjustments Pro Forma
------------------ ------------------ ----------------- ---------------
(1) (1) (2)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,495,580 278,287 (9,854,587) (9,576,300)
Accounts receivable, net 35,994,170 7,140,133 - 7,140,133
Prepaid expenses 457,578 31,041 (18,500) 12,541
Deferred income taxes 851,653 - - -
------------------ ------------------ ----------------- ---------------
Total current assets 55,798,981 7,449,461 (9,873,087) (2,423,626)
Property and equipment, net 9,655,638 23,559 - 23,559
Goodwill, net 15,410,128 - 15,582,633 15,582,633
Other assets 134,951 8,954 50,000 58,954
------------------ ------------------ ----------------- ---------------
$ 80,999,698 7,481,974 5,759,546 13,241,520
------------------ ------------------ ----------------- ---------------
------------------ ------------------ ----------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ - 645,000 11,355,000 12,000,000
Accounts payable 8,119,928 382,965 - 382,965
Accrued compensation and benefits 10,902,482 358,555 - 358,555
Notes payable to shareholders - 405,000 95,000 500,000
------------------ ------------------ ----------------- ---------------
Total current liabilities 19,022,410 1,791,520 11,450,000 13,241,520
------------------ ------------------ ----------------- ---------------
Deferred income taxes 732,195 1,430,600 (1,430,600) -
------------------ ------------------ ----------------- ---------------
Total liabilities 19,754,605 3,222,120 10,019,400 13,241,520
------------------ ------------------ ----------------- ---------------
Stockholders' equity:
Common stock 148,842 6,950 (6,950) -
Paid-in capital 37,585,480 - - -
Retained earnings 23,510,771 4,252,904 (4,252,904) -
------------------ ------------------ ----------------- ---------------
Total stockholders' equity 61,245,093 4,259,854 (4,259,854) -
------------------ ------------------ ----------------- ---------------
$ 80,999,698 7,481,974 5,759,546 13,241,520
------------------ ------------------ ----------------- ---------------
------------------ ------------------ ----------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Metro
Pro Forma
-----------------
<S> <C>
Current assets:
Cash and cash equivalents 8,919,280
Accounts receivable, net 43,134,303
Prepaid expenses 470,119
Deferred income taxes 851,653
-----------------
Total current assets 53,375,355
Property and equipment, net 9,679,197
Goodwill, net 30,992,761
Other assets 193,905
-----------------
94,241,218
-----------------
-----------------
LIABILITIES AND SHAREHOLDERS'
Current liabilities:
Notes payable to bank 12,000,000
Accounts payable 8,502,893
Accrued compensation and benefits 11,261,037
Notes payable to shareholders 500,000
-----------------
Total current liabilities 32,263,930
-----------------
Deferred income taxes 732,195
-----------------
Total liabilities 32,996,125
-----------------
Stockholders' equity:
Common stock 148,842
Paid-in capital 37,585,480
Retained earnings 23,510,771
-----------------
Total stockholders' equity 61,245,093
-----------------
94,241,218
-----------------
-----------------
</TABLE>
10
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(1) HISTORICAL FINANCIAL STATEMENTS
The amounts presented under the heading "Metro Historical" are taken from
the Metro Information Services, Inc. and subsidiaries (herein referred to
as "Metro") historical consolidated balance sheet as of December 31, 1998.
The amounts presented under the heading "Professionals and Krystal
Historical" are taken from The Professionals - Computer Management &
Consulting, Inc. and Krystal Solutions, Inc. (collectively referred to
herein as "Professionals and Krystal") historical combined balance sheet
as of December 31, 1998, included herein.
(2) PRO FORMA ADJUSTMENTS
On February 1, 1999, Metro acquired certain assets and assumed certain
liabilities of Professionals and Krystal for a purchase price of
approximately $17,933,000, subject to certain purchase price adjustments.
The purchase agreement also provides for an additional purchase price
payment if Professionals and Krystal achieve certain pre-determined
financial results during 1999. The unaudited pro forma balance sheet
has been prepared as if the transaction occurred on December 31, 1998.
The following pro forma adjustments to Metro's historical balance sheet
give effect to the acquisition of Professionals and Krystal including
adjustments for assets and liabilities excluded from the transaction.
(A) PROFESSIONALS AND KRYSTAL PURCHASE ACCOUNTING
Metro acquired certain assets and assumed certain liabilities for
$22,076,300, including $156,551 in estimated direct costs of the
acquisition. The acquisition will be accounted for as a purchase. As
a result, the assets and liabilities will be adjusted to their fair
values, with the excess purchase price over the fair value assigned
to goodwill. The following summarizes the preliminary allocation of
the purchase price based on December 31, 1998 asset and liability
balances.
<TABLE>
<S> <C>
Assets purchased:
Accounts receivable $ 7,140,133
Prepaid expenses 12,541
Property and equipment 23,559
Goodwill 15,582,633
Other assets 58,954
-----------
Total assets purchased $ 22,817,820
-----------
</TABLE>
11
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(2) PRO FORMA ADJUSTMENTS, CONTINUED
<TABLE>
<S> <C>
Liabilities assumed:
Accounts payable $ 382,965
Accrued compensation and benefits 358,555
-----------
Total liabilities assumed 741,520
-----------
Purchase price $ 22,076,300
-----------
-----------
</TABLE>
Due to a change in net assets from December 31, 1998 to February 1,
1999, the actual purchase price paid for Professionals and Krystal of
approximately $17,933,000 was significantly less than the pro forma amount
above.
(B) FINANCING OF THE ACQUISITION
Metro financed the acquisition with approximately $9,576,300 in
available cash; $12,000,000 in borrowings under its existing credit
facilities; and, $500,000 in short-term borrowings payable to the
selling shareholders when it acquired Professionals and Krystal on
February 1, 1999.
12
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year ended December 31, 1998
<TABLE>
<CAPTION>
Acquisitions
------------------------------------------------------------
Professionals Professionals
Metro and Krystal Pro Forma and Krystal
Historical Historical Adjustments Pro Forma
------------------ ------------------ ------------------ -----------------
(1) (1) (2)
<S> <C> <C> <C> <C>
Revenue $ 213,891,637 21,856,402 - 21,856,402
Cost of revenue 148,321,681 16,842,269 - 16,842,269
------------------ ------------------ ------------------ -----------------
Gross profit 65,569,956 5,014,133 - 5,014,133
------------------ ------------------ ------------------ -----------------
Selling, general and administrative expenses 40,349,100 4,059,616 (1,829,000) 2,230,616
Depreciation and amortization 1,850,529 11,978 519,400 531,378
------------------ ------------------ ------------------ -----------------
Total operating expenses 42,199,629 4,071,594 (1,309,600) 2,761,994
------------------ ------------------ ------------------ -----------------
Operating income 23,370,327 942,539 1,309,600 2,252,139
------------------ ------------------ ------------------ -----------------
Interest income 837,557 108,079 (108,079) -
Interest expense (56,991) (7,205) (712,500) (719,705)
------------------ ------------------ ------------------ -----------------
Net interest income 780,566 100,874 (820,579) (719,705)
------------------ ------------------ ------------------ -----------------
Income before income taxes 24,150,893 1,043,413 489,021 1,532,434
Income taxes 9,533,849 24,000 602,000 626,000
------------------ ------------------ ------------------ -----------------
Net income $ 14,617,044 1,019,413 (112,979) 906,434
------------------ ------------------ ------------------ -----------------
------------------ ------------------ ------------------ -----------------
</TABLE>
<TABLE>
<CAPTION>
Metro
Pro Forma
-----------------
<S> <C>
Revenue 235,748,039
Cost of revenue 165,163,950
-----------------
Gross profit 70,584,089
-----------------
Selling, general and administrative exp 42,579,716
Depreciation and amortization 2,381,907
-----------------
Total operating expenses 44,961,623
-----------------
Operating income 25,622,466
-----------------
Interest income 837,557
Interest expense (776,696)
-----------------
Net interest income 60,861
-----------------
Income before income taxes 25,683,327
Income taxes 10,159,849
-----------------
Net income 15,523,478
-----------------
-----------------
</TABLE>
13
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME
(1) HISTORICAL FINANCIAL STATEMENTS
The amounts presented under the heading "Metro Historical" are taken from
the Metro Information Services, Inc. and subsidiaries (herein referred to
as "Metro") historical consolidated statement of income for the year ended
December 31, 1998.
The amounts presented under the heading "Professionals and Krystal
Historical" are taken from The Professionals - Computer Management &
Consulting, Inc. and Krystal Solutions, Inc. (collectively referred to
herein as "Professionals and Krystal") historical combined statement of
income for the year ended December 31, 1998, included herein.
(2) PRO FORMA ADJUSTMENTS
The pro forma adjustments described below estimate the effects of the
acquisition of Professionals and Krystal as if such transaction had
occurred on January 1, 1998.
(a) Depreciation and amortization has been estimated based on the fair
value of acquired property and equipment, noncompete agreement and
goodwill. Goodwill is amortized on a straight-line basis over 30
years.
(b) Adjustment to selling, general and administrative expenses reflects
the reduction in selling shareholder salaries to amounts contained
in their employment contracts signed in conjunction with this
acquisition.
(c) Adjustment to interest income reflects the expected reduction in
interest income since cash and cash equivalents were not purchased
by Metro.
(d) Interest expense reflects estimated annual interest on the
$12,000,000 borrowings under Metro's line of credit and $500,000 on
amounts payable to selling shareholders.
(e) Adjustment to income taxes reflects the estimated tax expense as if
the Professionals and Krystal were a C Corp. for the entire year
ended December 31, 1998 at an assumed tax rate of 40.8%.
14
