- --------------------------------------------------------------------------------
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): MARCH 1, 1999
METRO INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 000-22035 54-1112301
(State of incorporation) (Commission File No.) (I.R.S. Employer
Identification Number)
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)
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<PAGE>
This Report on Form 8-K/A amends and restates Item 7 of the Registrant's Report
on 8-K dated March 1, 1999 and filed on March 10, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired:
Audited Financial Statements of Solution Technologies, Inc. as of and 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 as of and 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 March 1, 1999, by and
among Solution Technologies, Inc. and Larry A. Putt, John F.
Jurasits, Jr., Notarfrancesco Trust, Putt Trust, C. Jurasits
Trust and D. Jurasits Trust and Metro Information Services of
Pennsylvania, Inc. and Metro Information Services, Inc.*
(ii) 99 Press release of Metro Information Services, Inc., dated
March 2, 1999.*
* Previously filed as an exhibit to the Registrant's Report on Form 8-K
dated March 1, 1999 and filed on March 10, 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: May 14, 1999 By /s/ Robert J. Eveleigh
---------------------------------
Robert J. Eveleigh
PRINCIPAL FINANCIAL OFFICER
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Audited Financial Statements of Solution Technologies, Inc.:
Independent Auditors' Report ........................................... 1
Financial Statements:
Balance Sheet as of December 31, 1998................................. 2
Statement of Income and Changes in Retained Earnings for the year
ended December 31, 1998............................................. 3
Statement of Cash Flows for the year ended December 31, 1998.......... 4
Notes to 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, 1999 .................................................... 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
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Solution Technologies, Inc.:
We have audited the accompanying balance sheet of Solution Technologies, Inc.
(the "Company") as of December 31, 1998 and the related statements of income and
changes in retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Solution Technologies, Inc. as
of December 31, 1998 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Norfolk, Virginia
April 30, 1999
1
<PAGE>
SOLUTION TECHNOLOGIES, INC.
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
ASSETS (note 3)
<S> <C>
Current assets:
Cash $1,181,150
Accounts receivable, net of allowance for doubtful accounts of $150,000 4,709,333
Prepaid expenses and other current assets 40,206
----------
Total current assets 5,930,689
Property and equipment, net (note 2) 224,807
Other assets 17,338
----------
Total assets $6,172,834
==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Accounts payable $ 149,115
Accrued compensation and benefits 1,146,172
Income taxes payable 11,945
----------
Total current liabilities 1,307,232
Stockholders' equity:
Common stock - no par value; 2,000 shares authorized,
issued and outstanding 1,000
Retained earnings 4,864,602
----------
Total stockholders' equity 4,865,602
Commitments and subsequent events (notes 3, 4, 6 and 7)
----------
Total liabilities and stockholders' equity $6,172,834
==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
SOLUTION TECHNOLOGIES, INC.
Statement of Income and Changes in Retained Earnings
Year ended December 31, 1998
Revenue $ 23,183,253
Cost of revenue 15,549,348
------------
Gross profit 7,633,905
------------
Selling, general and administrative expenses (note 4) 4,962,142
Depreciation 90,496
------------
Total operating expenses 5,052,638
------------
Operating income 2,581,267
------------
Other income (expense):
Interest income 75,699
Interest expense (35,869)
------------
Total other income, net 39,830
------------
Income before taxes 2,621,097
Income tax expense (25,000)
------------
Net income 2,596,097
Stockholder distributions (620,000)
Retained earnings at beginning of year 2,888,505
------------
Retained earnings at end of year $ 4,864,602
============
See accompanying notes to financial statements.
3
<PAGE>
SOLUTION TECHNOLOGIES, INC.
Statement of Cash Flows
Year ended December 31, 1998
Cash flows from operating activities:
Net income $ 2,596,097
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 90,496
Changes in operating assets and liabilities increasing
(decreasing) cash provided by operating activities:
Accounts receivable (1,084,279)
Prepaid expenses and other current assets (27,370)
Other assets (8,875)
Accounts payable 42,771
Accrued compensation and benefits (271,599)
Income taxes payable 4,998
-----------
Total adjustments (1,253,858)
-----------
Net cash provided by operating activities 1,342,239
-----------
Cash flows from investing activities:
Acquisition of property and equipment (37,493)
Repayment of receivable from related party 160,000
-----------
Net cash provided by investing activities 122,507
Cash flows used in financing activity -
Stockholder distributions (620,000)
-----------
Net increase in cash 844,746
Cash at beginning of year 336,404
-----------
Cash at end of year $ 1,181,150
===========
Supplemental disclosure of cash flow information -
Cash paid for interest $ 35,869
===========
See accompanying notes to financial statements.
4
<PAGE>
SOLUTION TECHNOLOGIES, INC.
Notes to Financial Statements
December 31, 1998
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements include the accounts of Solution
Technologies, Inc. (the "Company"), an information technology ("IT")
consulting services company providing IT consultants on a contract basis
to organizations with complex IT operations. On December 31, 1998, the
Company had six offices located in Kansas, Maryland, North Carolina and
Pennsylvania.
(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
Approximately 25% of the Company's sales for the year ended December
31, 1998 were to two unrelated customers. Amounts due from these
customers comprised approximately 23% of the December 31, 1998
accounts receivable balance included in the accompanying balance
sheet.
(C) FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments,
primarily accounts receivable, accounts payable and accrued
compensation and benefits, approximate fair value due to the short
maturity of these instruments.
(D) 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. Depreciation on leasehold improvements is
calculated on the straight-line method over the lesser of the length
of the lease term or their estimated useful lives.
(E) 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 accompanying provision for income
taxes represents corporate level current income taxes payable to
states which do not recognize Subchapter S status.
5
<PAGE>
SOLUTION TECHNOLOGIES, INC.
Notes to Financial Statements
December 31, 1998
(1) CONTINUED
(F) STOCK SPLIT
During 1998, the Board of Directors declared a 4-for-1 stock split
having the effect of increasing outstanding shares of common stock
from 500 shares at December 31, 1997 to 2,000 shares at December 31,
1998.
(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 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:
USEFUL
LIVES 1998
---------- ----------
Computer equipment and software 3 - 5 years $ 188,847
Furniture and fixtures 5 - 7 years 332,364
Leasehold improvements Various 90,090
----------
611,301
Less accumulated depreciation (386,494)
----------
$ 224,807
==========
(3) LINE OF CREDIT
The Company has a $750,000 line of credit with a financial institution
bearing interest at the institution's prime rate (7.75% at December 31,
1998). Amounts available under the line of credit are limited to 80% of
qualified accounts receivable. The line of credit is secured by
substantially all of the Company's assets. There were no borrowings
outstanding under the line of credit at December 31, 1998. On February 26,
1999, the Company terminated the agreement.
6
<PAGE>
SOLUTION TECHNOLOGIES, INC.
Notes to Financial Statements
December 31, 1998
(4) RELATED PARTY TRANSACTIONS
The Company rents two office spaces from a related party with whom the
Company shares common ownership. The first lease provides for annual
rental payments of approximately $138,000 in 1999, increasing to $153,000
through March 2004. The second lease provides for annual rental payments
of approximately $30,000 in 1999, increasing to $40,500 through April
2007. Total rent expense incurred under these related party leases for the
year ended December 31, 1998 amounted to approximately $162,000.
The Company is a guarantor of certain term debt of a related party. The
balance of these loans was $528,322 at December 31, 1998.
During 1998, the Company received $160,000 from a related party for
advances made in 1997.
(5) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) profit sharing plan. The
Company matches 50% up to the first 6% of employee contributions for all
qualifying participants. Company matching contributions begin vesting
after one year of service and become fully vested after five years of
service. The Company can also make discretionary contributions based upon
Company profits. The Company made matching contributions of $129,521 in
1998. There were no discretionary contributions made in 1998.
(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:
Year ended December 31,
----------------------
1999 $ 270,136
2000 273,459
2001 242,288
2002 226,207
2003 193,295
Thereafter 173,378
------------
$ 1,378,763
============
Rent expense, including related party rent expense disclosed in note 4,
for the year ended December 31, 1998 was $264,155 and is included in
selling, general and administrative expenses in the accompanying statement
of income.
7
<PAGE>
SOLUTION TECHNOLOGIES, INC.
Notes to Financial Statements
December 31, 1998
(7) SUBSEQUENT EVENT
Effective March 1, 1999, certain assets and liabilities of the Company
were sold to Metro Information Services of Pennsylvania, 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 acquisitions of Solution Technologies, Inc. ("STI") on
March 1, 1999 and The Professionals - Computer Management & Consulting, Inc. and
Krystal Solutions, Inc. (collectively "Professionals and Krystal") on February
1, 1999 by Metro Information Services, Inc. (the "Company") 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 which are
based on available information and certain assumptions to the historical
financial statements of Metro, STI and Professionals and Krystal.
The acquisitions of STI and Professionals and Krystal are accounted for under
the purchase method of accounting. The allocations of purchase prices are
preliminary and are based upon the estimated fair value of assets acquired and
liabilities assumed in accordance with Accounting Principles Board Opinion No.
16. The purchase price allocations reflected in the accompanying pro forma
financial statements may be different from the final allocations of the purchase
prices 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, the historical financial statements and the notes thereto of STI included
elsewhere in this document, and the historical financial statements and notes
thereto of Professionals and Krystal previously filed by the Company on Form
8-K/A on April 16, 1999.
9
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
Metro,
Professionals Professionals
Metro and Krystal and Krystal STI
Historical Pro Forma Pro Forma Historical
------------- ------------- ------------- -------------
(1) (2) (1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,495,580 (9,576,300) 8,919,280 1,181,150
Accounts receivable, net 35,994,170 7,140,133 43,134,303 4,709,333
Prepaid expenses 457,578 12,541 470,119 40,206
Deferred income taxes 851,653 -- 851,653 --
------------- ------------- ------------- -------------
Total current assets 55,798,981 (2,423,626) 53,375,355 5,930,689
Property and equipment, net 9,655,638 23,559 9,679,197 224,807
Goodwill, net 15,410,128 15,582,633 30,992,761 --
Noncompete agreement -- -- -- --
Other assets 134,951 58,954 193,905 17,338
------------- ------------- ------------- -------------
$ 80,999,698 13,241,520 94,241,218 6,172,834
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank -- 12,000,000 12,000,000 --
Accounts payable 8,119,928 382,965 8,502,893 161,060
Accrued compensation and benefits 10,902,482 358,555 11,261,037 1,146,172
Notes payable to shareholders -- 500,000 500,000 --
------------- ------------- ------------- -------------
Total current liabilities 19,022,410 13,241,520 32,263,930 1,307,232
------------- ------------- ------------- -------------
Deferred income taxes 732,195 -- 732,195 --
------------- ------------- ------------- -------------
Total liabilities 19,754,605 13,241,520 32,996,125 1,307,232
------------- ------------- ------------- -------------
Shareholders' equity:
Common stock 148,842 -- 148,842 1,000
Paid-in capital 37,585,480 -- 37,585,480 --
Retained earnings 23,510,771 -- 23,510,771 4,864,602
------------- ------------- ------------- -------------
Total shareholders' equity 61,245,093 -- 61,245,093 4,865,602
------------- ------------- ------------- -------------
$ 80,999,698 13,241,520 94,241,218 6,172,834
============= ============= ============= =============
<CAPTION>
STI
Pro Forma STI Metro
Adjustments Pro Forma Pro Forma
------------- ------------- -------------
(3)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents (1,181,150) -- 8,919,280
Accounts receivable, net (1,983) 4,707,350 47,841,653
Prepaid expenses -- 40,206 510,325
Deferred income taxes -- -- 851,653
------------- ------------- -------------
Total current assets (1,183,133) 4,747,556 58,122,911
Property and equipment, net -- 224,807 9,904,004
Goodwill, net 24,855,000 24,855,000 55,847,761
Noncompete agreement 480,000 480,000 480,000
Other assets -- 17,338 211,243
------------- ------------- -------------
24,151,867 30,324,701 124,565,919
============= ============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable to bank 28,717,469 28,717,469 40,717,469
Accounts payable -- 161,060 8,663,953
Accrued compensation and benefits -- 1,146,172 12,407,209
Notes payable to shareholders 300,000 300,000 800,000
------------- ------------- -------------
Total current liabilities 29,017,469 30,324,701 62,588,631
------------- ------------- -------------
Deferred income taxes -- -- 732,195
------------- ------------- -------------
Total liabilities 29,017,469 30,324,701 63,320,826
------------- ------------- -------------
Shareholders' equity:
Common stock (1,000) -- 148,842
Paid-in capital -- -- 37,585,480
Retained earnings (4,864,602) -- 23,510,771
------------- ------------- -------------
Total shareholders' equity (4,865,602) -- 61,245,093
------------- ------------- -------------
24,151,867 30,324,701 124,565,919
============= ============= =============
</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 subsidiary (herein referred to as
"Metro") historical consolidated balance sheet as of December 31, 1998.
The amounts presented under the heading "STI Historical" are taken from
STI's historical balance sheet as of December 31, 1998, included herein.
(2) PROFESSIONALS AND KRYSTAL PRO FORMA
The amounts presented under the heading "Professionals and Krystal Pro
Forma" include the historical balance sheet together with the pro forma
adjustments relating to the acquisition of Professionals and Krystal by
the Company including adjustments to (i) record purchase accounting, (ii)
record the financing of the purchase, and (iii) eliminate certain assets
and liabilities excluded from the purchase transaction.
(3) STI PRO FORMA ADJUSTMENTS
On March 1, 1999, Metro acquired certain assets and assumed certain
liabilities of STI for a purchase price of $27,700,000 plus or minus a
purchase price adjustment calculated based on the net assets acquired on
the closing date of the transaction and an adjustment based on the number
of consultants employed at the closing date of the transaction. The
purchase agreement also provides for an additional purchase price payment
if STI achieves certain predetermined financial results for the year
ending February 29, 2000. The unaudited pro forma consolidated balance
sheet has been prepared as if the transaction occurred on December 31,
1998.
The following pro forma adjustments to the Metro historical balance sheet
give effect to the acquisition of STI including adjustments for assets and
liabilities excluded from the transaction.
(A) STI PURCHASE ACCOUNTING
Metro acquired certain assets and assumed certain liabilities for
$29,017,469, including $135,000 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.
11
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(3) PRO FORMA ADJUSTMENTS, CONTINUED
Assets purchased:
Accounts receivable $ 4,707,350
Prepaid expenses 40,206
Property and equipment 224,807
Goodwill 24,855,000
Noncompete agreement 480,000
Other assets 17,338
-----------
Total assets purchased $30,324,701
-----------
Liabilities assumed:
Accounts payable $ 161,060
Accrued compensation and benefits 1,146,172
-----------
Total liabilities assumed 1,307,232
-----------
Purchase price $29,017,469
===========
Due to a change in net assets from December 31, 1998 to March 1,
1999, the actual purchase price paid for STI of approximately
$28,300,000 was less than the pro forma amount above.
(B) FINANCING OF THE ACQUISITION
Metro financed the acquisition with borrowings under its existing
credit facilities of $28,717,469 and $300,000 of amounts payable to
STI's selling shareholders.
12
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Metro,
Professionals Professionals
Metro and Krystal and Krystal STI
Historical Pro Forma Pro Forma Historical
------------- ------------- ------------- -------------
(1) (2) (1)
<S> <C> <C> <C> <C>
Revenue $ 213,891,637 21,856,402 235,748,039 23,183,253
Cost of revenue 148,321,681 16,842,269 165,163,950 15,549,348
------------- ------------- ------------- -------------
Gross profit 65,569,956 5,014,133 70,584,089 7,633,905
------------- ------------- ------------- -------------
Selling, general and administrative expenses 40,349,100 2,230,616 42,579,716 4,962,142
Depreciation and amortization 1,850,529 531,378 2,381,907 90,496
------------- ------------- ------------- -------------
Total operating expenses 42,199,629 2,761,994 44,961,623 5,052,638
------------- ------------- ------------- -------------
Operating income 23,370,327 2,252,139 25,622,466 2,581,267
------------- ------------- ------------- -------------
Interest income 837,557 -- 837,557 75,699
Interest expense (56,991) (719,705) (776,696) (35,869)
------------- ------------- ------------- -------------
Net interest income (expense) 780,566 (719,705) 60,861 39,830
------------- ------------- ------------- -------------
Income before income taxes 24,150,893 1,532,434 25,683,327 2,621,097
Income taxes 9,533,849 626,000 10,159,849 25,000
------------- ------------- ------------- -------------
Net income $ 14,617,044 906,434 15,523,478 2,596,097
============= ============= ============= =============
<CAPTION>
STI
Pro Forma STI Metro
Adjustments Pro Forma Pro Forma
------------- ------------- -------------
(3)
<S> <C> <C> <C>
Revenue -- 23,183,253 258,931,292
Cost of revenue -- 15,549,348 180,713,298
------------- ------------- -------------
Gross profit -- 7,633,905 78,217,994
------------- ------------- -------------
Selling, general and administrative expenses (529,499) 4,432,643 47,012,359
Depreciation and amortization 988,500 1,078,996 3,460,903
------------- ------------- -------------
Total operating expenses 459,001 5,511,639 50,473,262
------------- ------------- -------------
Operating income (459,001) 2,122,266 27,744,732
------------- ------------- -------------
Interest income (75,699) -- 837,557
Interest expense (1,651,896) (1,687,765) (2,464,461)
------------- ------------- -------------
Net interest income (expense) (1,727,595) (1,687,765) (1,626,904)
------------- ------------- -------------
Income before income taxes (2,186,596) 434,501 26,117,828
Income taxes 152,276 177,276 10,337,125
------------- ------------- -------------
Net income (2,338,872) 257,225 15,780,703
============= ============= =============
</TABLE>
13
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
INCOME STATEMENT
(1) HISTORICAL FINANCIAL STATEMENTS
The amounts presented under the heading "Metro Historical" are taken from
the Metro Information Services, Inc. and subsidiary (herein referred to as
"Metro") historical consolidated statement of income for the year ended
December 31, 1998.
The amounts presented under the heading "STI Historical" are taken from
STI's historical statement of income for the year ended December 31, 1998,
included herein.
(2) PROFESSIONALS AND KRYSTAL PRO FORMA
The amounts presented under the heading "Professionals and Krystal Pro
Forma" include the historical statement of income together with the pro
forma adjustments for the Professionals and Krystal and include
adjustments to:
(a) Record depreciation and amortization on the acquired property and
equipment, noncompete agreement and goodwill;
(b) Adjust selling, general and administrative expenses to reduce
selling shareholder salaries to amounts contained in their
employment contracts signed in conjunction with the acquisition;
(c) Eliminate interest income since cash and cash equivalents were not
purchased;
(d) Record interest expense on line of credit borrowings of $12,000,000
and note payable to sellers of $500,000; and,
(e) Record tax expense as if Professionals and Krystal were a C Corp.
for the year ended December 31,1998 at an assumed tax rate of 40.8%.
(3) STI PRO FORMA ADJUSTMENTS
The pro forma adjustments described below estimate the effects of the
acquisition of STI 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. The noncompete agreement is amortized over three years, the
term of the agreement.
(b) Adjust selling, general and administrative expenses to reduce
selling shareholder salaries to amounts contained in their
employment contracts signed in conjunction with the acquisition.
14
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
INCOME STATEMENT
(3) PRO FORMA ADJUSTMENTS, CONTINUED
(c) Adjustment to interest income reflects the expected reduction in
interest income since cash was not purchased by Metro.
(d) Interest expense reflects estimated annual interest on the
$28,717,469 borrowings under Metro's line of credit and on the
$300,000 of amounts payable to selling shareholders.
(e) Adjustment to income taxes reflects the estimated tax expense as if
STI was a C Corp. for the year ended December 31, 1998 at an assumed
tax rate of 40.8%.
15
