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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 12 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
April 15, 1998
Date of Report (Date of earliest event reported)
PRT GROUP INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-23315 13-3914972
(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
342 Madison Avenue, 11th Floor, New York, New York 10173
(Address of Principal Executive Offices) (Zip Code)
(212) 922-0800
Registrant's telephone number, including area code
Not Applicable
(Former Name or Former Address, if Changes Since Last Report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
On April 15, 1998, PRT Group Inc. (the "Company") consummated the purchase of
substantially all of the assets of Institute for Software Process Improvement,
Inc. ("ISPI"), a Pennsylvania corporation. The audited balance sheets of ISPI as
of December 31, 1996 and 1997, and the related audited statements of operations,
stockholders' equity (deficit) and cash flows for each of the two years in the
period ended December 31, 1997, are incorporated herein by reference to Exhibit
99.3 hereto.
(b) Pro forma Condensed Consolidated Balance Sheet and Statement of
Operations
On July 1, 1997, the Company consummated the purchase of all of the issued and
outstanding capital stock of Computer Management Resources, Inc. ("CMR") and on
January 31, 1998 and April 15, 1998, the Company consummated the purchase of
substantially all the assets of Advanced Computer Techniques, Inc. ("ACT") and
ISPI, respectively. The unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1997 and the three months ended March
31, 1998 give effect to the ISPI, CMR and ACT acquisitions as if they had
occurred on January 1, 1997. The unaudited pro forma condensed consolidated
balance sheet as of March 31, 1998 gives effect to the acquisition of ISPI as
if it had been consummated on March 31, 1998.
(c) Exhibits.
99.3 The audited financial statements of Institute for Software
Process Improvement, Inc. as of December 31, 1997 and 1996 and
the related audited statements of operations, stockholders'
equity (deficit) and cash flows for the years ended December 31,
1997 and 1996, with report of independent auditors, thereon.
99.4 The unaudited pro-forma condensed consolidated statement of
operations for the year ended December 31, 1997 and the three
months ended March 31, 1998 and the unaudited pro-forma
condensed consolidated balance sheet as of March 31, 1998.
<PAGE> 3
SIGNATURE
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.
PRT GROUP INC.
Dated: June 26, 1998 By: /s/ Lowell W. Robinson
Executive Vice President, Finance & Administration
Chief Financial Officer
<PAGE> 4
EXHIBIT INDEX
Exhibit No. Description
99.3 The audited financial statements of the Institute for Software
Process Improvement, Inc. as of and for the years ended December
31, 1997 and 1996, with report of independent auditors, thereon.
99.4 The unaudited pro-forma condensed consolidated statement of
operations for the year ended December 31, 1997 and the three
months ended March 31, 1998 and the unaudited pro-forma condensed
consolidated balance sheet as of March 31, 1998.
<PAGE> 1
Financial Statements
Institute for Software Process Improvement, Inc.
Years ended December 31, 1997 and 1996
with Report of Independent Auditors
<PAGE> 2
Institute for Software Process Improvement, Inc.
Financial Statements
Years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors .................................. 1
Balance Sheets .................................................. 2
Statements of Operations ........................................ 3
Statements of Stockholders' Equity (Deficit) .................... 4
Statements of Cash Flows ........................................ 5
Notes to Financial Statements ................................... 6
<PAGE> 3
Report of Independent Auditors
Board of Directors and Stockholders
Institute for Software Process Improvement, Inc.
We have audited the accompanying balance sheets of Institute for Software
Process Improvement, Inc. as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity (deficit) 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 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 audits provide 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 Institute for Software Process
Improvement, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
May 13, 1998
1
<PAGE> 4
Institute for Software Process Improvement, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 52,300 $ 43,600
Accounts receivable 583,600 346,700
Other current assets - 1,400
--------- -----------
Total current assets 635,900 391,700
Fixed assets, net 37,400 29,700
Other assets - 11,700
--------- -----------
Total assets $ 673,300 $ 433,100
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accrued compensation $ 57,000 $ -
Accounts payable and other accrued expenses 180,300 110,500
Borrowings under line of credit 207,000 249,600
Due to stockholders 72,300 72,300
Deferred revenue 3,500 132,400
--------- -----------
Total current liabilities 520,100 564,800
Stockholders' equity (deficit):
Common stock, $.01 par value; authorized -- 1,000
shares, issued and outstanding -- 100 shares 1 1
Additional paid-in capital 49,999 49,999
Retained earnings (deficit) 103,200 (181,700)
--------- -----------
Total stockholders' equity (deficit) 153,200 (131,700)
--------- -----------
Total liabilities and stockholders' equity (deficit) $ 673,300 $ 433,100
========= ===========
</TABLE>
See accompanying notes.
2
<PAGE> 5
Institute for Software Process Improvement, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
----------- ------------
<S> <C> <C>
Revenues $ 2,309,900 $ 1,403,700
Cost of revenues 1,341,300 1,142,300
----------- ------------
Gross profit 968,600 260,500
Selling, general and administrative expenses 650,800 440,500
----------- ------------
Income (loss) from operations 317,800 (180,000)
Other income (expenses):
Other income 100 5,900
Interest expense (29,700) (7,300)
----------- ------------
Income (loss) before income taxes 288,200 (181,400)
Income tax expense 3,300 300
----------- ------------
Net income (loss) $ 284,900 $ (181,700)
=========== ============
</TABLE>
See accompanying notes.
3
<PAGE> 6
Institute for Software Process Improvement, Inc.
Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
--------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock 100 $ 1 $ 49,999 $ - $ 50,000
Net loss - - - (181,700) (181,700)
------------------------------------------------------------------------
Balance at December 31, 1996 100 1 49,999 (181,700) (131,700)
Net income - - - 284,900 284,900
------------------------------------------------------------------------
Balance at December 31, 1997 100 $ 1 $ 49,999 $ 103,200 $ 153,200
========================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 7
Institute for Software Process Improvement, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
-------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 284,900 $ (181,700)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 34,900 107,500
Bad debt expense 44,400 1,900
Change in operating assets and liabilities:
Accounts receivable (281,300) (348,600)
Other current assets 1,400 (1,400)
Other assets 11,700 (11,700)
Accrued compensation 57,000 -
Accounts payable and other accrued expenses 69,800 110,500
Deferred revenue (128,900) 132,400
-------------------------------------
Net cash provided by (used in) operating activities 93,900 (191,100)
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (42,600) (137,200)
-------------------------------------
Net cash used in investing activities (42,600) (137,200)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock - 50,000
Borrowings under line of credit - 249,600
Repayments under line of credit (42,600) -
Proceeds from stockholders' - 107,600
Repayment of stockholders' loans - (35,300)
-------------------------------------
Net cash (used in) provided by financing activities (42,600) 371,900
-------------------------------------
Net increase in cash and cash equivalents 8,700 43,600
Cash and cash equivalents -- beginning of period 43,600 -
-------------------------------------
Cash and cash equivalents -- end of period $ 52,300 $ 43,600
=====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 30,000 $ 7,300
=====================================
Income taxes paid $ 525 $ 300
=====================================
</TABLE>
See accompanying notes.
5
<PAGE> 8
Institute for Software Process Improvement, Inc.
Notes to Financial Statements
December 31, 1997
1. DESCRIPTION OF BUSINESS
Institute for Software Process Improvement, Inc. ("ISPI" or the "Company") was
incorporated in the State of Pennsylvania in December 1995 and began operations
shortly thereafter. ISPI is a provider of business process improvement
consulting services. The Company provides software capability evaluation
training, software process audits, software process improvement seminars,
assessment training and coaching, and action planning workshops.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from time and materials contracts are recognized during the period in
which the related services are provided. Cash payments received but unearned as
of December 31, 1997 and 1996 are recorded as deferred revenue.
CASH AND EQUIVALENTS
ISPI considers all highly liquid short-term investments purchased with a
maturity of three months or less to be cash equivalents. At December 31, 1997
and 1996, ISPI has substantially all of its cash in one financial institution.
FIXED ASSETS
Fixed assets are stated at cost and depreciation on furniture, fixtures and
equipment is depreciated over the estimated useful lives of the assets ranging
from five to seven years.
INCOME TAXES
The Company, with the consent of its stockholders, has elected to be taxed as an
S corporation pursuant to the Internal Revenue Code and certain state tax laws.
As such, the Company has not been subject to federal and certain state income
taxes and the stockholders have included the Company's taxable income or loss in
their individual income tax returns. Income taxes in 1997 and 1996 primarily
represent minimum state and local income taxes.
6
<PAGE> 9
Institute for Software Process Improvement, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and equivalents and accounts receivable.
Concentrations of credit risk with respect to accounts receivables are limited
due to the creditworthiness of customers comprising the Company's customer base.
Management regularly monitors the creditworthiness of its customers and believes
that it has adequately provided for any exposure to potential credit losses.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-----------------------------------
<S> <C> <C>
Furniture and fixtures $ 12,300 $ 10,900
Equipment 167,500 126,300
-----------------------------------
179,800 137,200
Less accumulated depreciation 142,400 107,500
-----------------------------------
$ 37,400 $ 29,700
===================================
</TABLE>
7
<PAGE> 10
Institute for Software Process Improvement, Inc.
Notes to Financial Statements (continued)
4. BORROWINGS UNDER LINE OF CREDIT
During 1996, the Company obtained a $250,000 credit facility with a bank,
expiring in June 2001 and bearing interest at the bank's prime rate (8.25% at
December 31, 1997) plus 1.25%. Borrowings outstanding under the credit facility
are collateralized by a security interest in substantially all of the Company's
assets. As of December 31, 1997, there was $207,000 outstanding under the credit
facility.
5. DUE TO STOCKHOLDERS
Due to stockholders represents new non-interest bearing advances made to the
Company by its stockholders.
6. PENSION PLAN
The Company maintains a salary reduction profit sharing plan under the
provisions of Section 401(k) of the Internal Revenue Code. The plan covers
substantially all full-time employees. Employees may elect to defer up to a
maximum of 15% of their pay, not to exceed $10,000 and $9,500 for 1997 or 1996,
respectively. The employer is not obligated to make a matching contribution for
the employees of the Company. At December 31, 1997 and 1996, there were no
employer contributions.
7. SIGNIFICANT CLIENTS
Two clients accounted for 16% and 13% of total revenues for the year ended
December 31, 1997. Four clients accounted for 18%, 12%, 11% and 10% of total
revenues for the year ended December 31, 1996.
8. SUBSEQUENT EVENT
Effective April 15, 1998, PRT Group Inc. purchased substantially all of the
assets of the Company for approximately $2.7 million, subject to certain
purchase price adjustments, as defined. On such date, ISPI ceased to operate as
a separate entity.
8
<PAGE> 1
PRT GROUP INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma condensed consolidated financial
statements of PRT Group Inc. and Subsidiaries (the "Company") give effect to the
acquisition on April 15, 1998 of the Institute for Software Process Improvement,
Inc. ("ISPI") for approximately $2.7 million in cash. The unaudited pro forma
condensed consolidated statement of operations also give effect to the
acquisition of (i) all of the issued and outstanding capital stock of Computer
Management Resources, Inc. ("CMR") for cash of $2,864,000, a $2,000,000
promissory note and 119,181 shares of the Company's Common Stock valued as $12
per share on July 1, 1997 and (ii) substantially all the assets of Advanced
Computer Technologies ("ACT") for $13.1 million in cash on January 31, 1998.
The pro forma information is based on the historical financial statements of
the Company, ISPI, CMR and ACT giving effect to the aforementioned acquisitions
under the purchase method of accounting and the assumptions and adjustments in
the accompanying notes to the pro forma condensed consolidated financial
statements.
The allocation of the ISPI purchase price has not been finally
determined. Accordingly, the accounts reflected in the pro forma condensed
consolidated financial statements may differ from the amounts that would have
been determined if the final purchase price allocation had been known.
The unaudited pro forma condensed consolidated statements of operations
for the year ended December 31, 1997 and the three months ended March 31, 1998
give effect to the ISPI, CMR and ACT acquisitions as if they had occurred on
January 1, 1997. The unaudited pro forma condensed consolidated balance sheet
as of March 31, 1998 gives effect to the acquisition of ISPI as if it had been
consummated on March 31, 1998. The Company's historical March 31, 1998 balance
sheet includes CMR and ACT.
The pro forma condensed consolidated financial statements have been
prepared by the Company's management. The pro forma condensed consolidated
financial statements may not be indicative of the results that actually would
have occurred if the acquisitions had been consummated on the dates indicated or
which may be achieved in the future. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes of ISPI included herein and the consolidated
financial statements and notes of PRT Group Inc. included in the Company's
Annual Report on Form 10K for the year ended December 31, 1997.
<PAGE> 2
PRT GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Company CMR ACT
Year Ended Six Months Ended Year Ended
Dec. 31, 1997 June 30, 1997 Adjustments Proforma Dec. 31, 1997
------------- ---------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Revenues 59,816 4,265 - 64,081 13,751
Cost of Revenues 40,898 3,185 - 44,083 9,222
------------- --------------- ----------- -------- -------------
Gross Profit 18,918 1,080 - 19,998 4,529
Selling, general and administrative expenses 19,332 1,350 153 (a) 20,835 4,018
------------- --------------- ----------- -------- -------------
Income (loss) from operations (414) (270) (153) (837) 511
Other income (expenses):
Interest Expense (577) (4) (97)(b) (678) (12)
Interest Income 613 3 - 616 -
------------- --------------- ----------- -------- -------------
Income (loss) before income taxes (378) (271) (250) (899) 499
Income tax expense (benefit) 175 (110) (149)(c) (84) 4
------------- --------------- ----------- -------- -------------
Net Income (loss) (553) (161) (101) (815) 495
============= =============== =========== ======== =============
Basic net loss per share (0.04)
=============
Weighted Average number
of shares used in
computing basic net
loss per share 14,728,087
=============
</TABLE>
<TABLE>
<CAPTION>
ISPI
Year Ended
Adjustments Proforma Dec. 31, 1997 Adjustments Proforma
----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues - 77,832 2,310 - 80,142
Cost of Revenues - 53,305 1,341 - 54,646
----------- --------- ------------- ----------- ------------
Gross Profit 24,527 969 - 25,496
Selling, general and administrative expenses 596 (a) 25,449 651 126 (a) 26,226
----------- --------- ------------- ----------- ------------
Income (loss) from operations (596) (922) 318 (126) (730)
Other income (expenses):
Interest Expense - (690) (30) - (720)
Interest Income - 616 - - 616
----------- --------- ------------- ----------- ------------
Income (loss) before income taxes (596) (996) 288 (126) (834)
Income tax expense (benefit) (49)(c) (129) 3 (52)(c) (178)
----------- --------- ------------- ----------- ------------
Net Income (loss) (547) (867) 285 (74) (656)
=========== ========= ============= =========== ============
Basic net loss per share (0.04)
============
Weighted Average number
of shares used in
computing basic net
loss per share 14,787,678
============
</TABLE>
<PAGE> 3
PRT GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31,1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Assets PRT ISPI ADJUSTMENTS PRO-FORMA
-------- ---- ------------- ---------
<S> <C> <C> <C> <C>
Current assets
Cash and equivalents 7,119 27 (2,700) 4,446
Marketable debt securities 14,622 - - 14,622
Accounts receivable , net 20,430 494 - 20,924
Prepaid expenses and other current assets 1,677 28 - 1,705
-------- ---- ------------- ---------
Total current assets 43,848 549 (2,700) 41,697
Fixed assets,net 9,726 37 (37) (d) 9,726
Goodwill, net 18,688 - 2,529 (d) 21,217
Other assets 532 - - 532
-------- ---- ------------- ---------
Total assets 72,794 586 (208) 73,172
======== ==== ============= =========
Current liabilities
Borrowings under line of credit - 247 - 247
Due to stockholders - 72 (72) (d) -
Accrued compensation 3,431 47 - 3,478
Accounts payable and other accrued expenses 5,872 84 - 5,956
Deferred income taxes 113 - - 113
Current portion of capital leases obligations 547 - - 547
Deferred revenue 1,107 - - 1,107
-------- ---- ------------- ---------
Total current liabilities 11,070 450 (72) 11,448
Note payable 1,000 - - 1,000
Deferred income taxes 44 - - 44
Capital lease obligations, net of current portion 734 - - 734
-------- ---- ------------- ---------
12,848 450 (72) 13,226
Stockholders' equity
Common stock 18 - - 18
Additional paid in capital 86,407 50 (50) 86,407
Retained earnings (deficit) (26,079) 86 (86) (26,079)
Treasury stock (400) - - (400)
-------- ---- ------------- ---------
Total stockholders' equity 59,946 136 (136) (d) 59,946
Total liabilities and stockholders' equity 72,794 586 (208) 73,172
======== ==== ============= =========
</TABLE>
<PAGE> 4
PRT GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
QUARTER ENDED MARCH 31,1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONTH ENDING
1/31/98
COMPANY ACT ISPI
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues 18,852 1,347 487 - 20,686
Cost of Revenues 15,317 943 324 - 16,584
-------------------------------------------------------------------------------
Gross Profit 3,535 404 163 - 4,102
Selling, general and administrative expenses 8,701 449 175 82 (a) 9,407
-------------------------------------------------------------------------------
Income (loss) from operations (5,166) (45) (12) (82) (5,305)
Other income (expenses):
Interest Expense (284) - (7) - (291)
Interest Income 449 - - 449
-------------------------------------------------------------------------------
Income (loss) before income taxes (5,001) (45) (19) (82) (5,147)
Income tax expense (benefit) (775) (6) (3) (33)(c) (817)
-------------------------------------------------------------------------------
Net Income (loss) (4,226) (39) (16) (49) (4,330)
===============================================================================
Basic net loss per share (0.23) (0.24)
================ ============
Weighted Average number
of shares used in
computing basic net
loss per share 18,183,473 18,183,473
================ ============
</TABLE>
<PAGE> 5
PRT GROUP INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
For purposes of determining the pro forma effect of the acquisitions on
the Company's pro forma condensed consolidated statements of operations for the
year ended December 31, 1997 and the three months ended March 31, 1998 and the
pro forma condensed consolidated balance sheet as of March 31, 1998, the
following pro forma adjustments have been made (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DEC. 31, 1997 MAR. 31, 1998
------------- --------------
<S> <C> <C>
(a) Increase in amortization from the increase in
goodwill amortized on a straight-line basis
over twenty years:
CMR $ 153
=========
ACT $ 596 $ 50
=========
ISPI $ 126 $ 32
========= -------
TOTAL $ 82
=======
(b) Increase in interest expense from issuance of
$2,000,000 promissory note
CMR $ 97
=========
(c) Adjustment of tax provision:
Adjustment to historical tax provision
(benefit) due to adjustments (a) and (b):
CMR $ (149)
=========
ACT $ (49) $ (20)
=========
ISPI $ (52) $ (13)
========= -------
TOTAL $ (33)
=======
(d) Cash paid for ISPI Acquisition $ 2,700
Net assets acquired 171
---------
Goodwill $ 2,529
=========
</TABLE>
The historical net income per share is based on the weighted average
number of common shares outstanding during the respective periods. The pro forma
net loss per share gives effect to the issuance of 119,181 shares of the
Company's Common Stock as of January 1, 1997 in connection with the acquisition
of CMR.
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