<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
Commission File Number: 000-23989
PROVANT, Inc.
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 04-3395167
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
67 BATTERYMARCH STREET, SUITE 600
BOSTON, MA 02110
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (617) 261-1600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of common stock outstanding at February 12, 1999: 15,536,992
<PAGE> 2
PROVANT, INC.
INDEX
PART I. - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1998..................3
Pro Forma Combined Statement of Operations for the three months
ended December 31, 1997 and Historical Consolidated Statements of
Operations for the three months ended December 31, 1997 and 1998.....................4
Pro Forma Combined Statement of Operations for the six months
ended December 31, 1997 and Historical Consolidated
Statements of Operations for the six months ended December 31, 1997 and 1998.........5
Consolidated Statements of Cash Flows for the six months ended December 31, 1997
and 1998.............................................................................6
Notes to Consolidated Financial Statements.............................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................9
Item 3. Quantitative and Qualitative Disclosure On Market Risk.........................12
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................13
Item 6. Exhibits and Reports on Form 8-K...............................................13
Signature..............................................................................14
</TABLE>
2
<PAGE> 3
PROVANT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1998 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................... $ 6,394 $ 547
Accounts receivable, net ..................... 19,516 21,089
Inventory .................................... 177 3,944
Deferred income taxes ........................ 2,127 2,575
Costs in excess of billings .................. 696 1,612
Prepaid expenses and other current assets .... 1,182 1,509
-------- --------
Total current assets ..................... 30,092 32,276
Property and equipment, net .................... 2,548 4,343
Other assets ................................... 776 926
Goodwill, net .................................. 52,942 99,916
-------- --------
Total assets ............................. $ 86,358 $137,461
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ............................. $ 3,346 $ 2,954
Accrued expenses ............................. 7,361 8,575
Accrued compensation ......................... 2,928 4,721
Billings in excess of costs .................. 2,896 2,577
Deferred revenue ............................. 669 2,153
Income taxes payable ......................... 1,252 427
Current portion of long term debt ............ 533 995
-------- --------
Total current liabilities ................ 18,985 22,402
Long term debt, net of current portion ......... 874 21,889
-------- --------
Total liabilities ........................ 19,859 44,291
Stockholders' Equity:
Preferred stock, $.01 par value; none issued . -- --
Common stock, $.01 par value; 9,795,558 and
11,945,406 shares issued and outstanding,
respectively ................................. 98 119
Additional paid-in capital ................... 69,462 92,873
Retained earnings (accumulated deficit) ...... (3,061) 178
-------- --------
Total stockholders' equity ............... 66,499 93,170
-------- --------
Total liabilities and stockholders' equity $ 86,358 $137,461
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
PROVANT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended December 31,
---------------------------------------------------------
1997 1997 1998
------------ ------------ ------------
Pro Forma
Historical Combined Historical
-------------- ------------- -----------------
<S> <C> <C> <C>
Total revenue ............................ $ -- $ 18,220 $ 31,740
Cost of revenue .......................... -- 7,892 13,314
------------ ------------ ------------
Gross profit ....................... -- 10,328 18,426
Selling, general and administrative
expenses ................................ 899 8,239 14,166
Goodwill amortization .................... -- 334 593
------------ ------------ ------------
Income (loss) from operations ...... (899) 1,755 3,667
Interest and other income (expense), net . (40) 2 (205)
------------ ------------ ------------
Income (loss) before income taxes .. (939) 1,757 3,462
Provision for income taxes ............... -- 836 1,622
------------ ------------ ------------
Net income (loss) .................. $ (939) $ 921 $ 1,840
============ ============ ============
Earnings (loss) per common share:
Basic ..................................... $ (0.28) $ 0.09 $ 0.16
============ ============ ============
Diluted ................................... $ (0.28) $ 0.09 $ 0.15
============ ============ ============
Weighted average common shares outstanding:
Basic ..................................... 3,335,978 9,795,558 11,754,513
============ ============ ============
Diluted ................................... 3,335,978 10,168,889 12,310,218
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
PROVANT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended December 31,
----------------------------------------------------------
1997 1997 1998
------------ ------------ ------------
Pro Forma
Historical Combined Historical
-------------- ------------- -----------------
<S> <C> <C> <C>
Total revenue ............................ $ -- $ 35,958 $ 55,450
Cost of revenue .......................... -- 15,948 23,462
------------ ------------ ------------
Gross profit ....................... -- 20,010 31,988
Selling, general and administrative
expenses ................................ 1,099 15,797 24,759
Goodwill amortization .................... -- 667 973
------------ ------------ ------------
Income (loss) from operations ...... (1,099) 3,546 6,256
Interest and other expense, net .......... (48) (1) (208)
------------ ------------ ------------
Income (loss) before income taxes .. (1,147) 3,545 6,048
Provision for income taxes ............... -- 1,684 2,809
------------ ------------ ------------
Net income (loss) .................. $ (1,147) $ 1,861 $ 3,239
============ ============ ============
Earnings (loss) per common share:
Basic ..................................... $ (0.39) $ 0.19 $ 0.30
============ ============ ============
Diluted ................................... $ (0.39) $ 0.18 $ 0.28
============ ============ ============
Weighted average common shares outstanding:
Basic ..................................... 2,956,966 9,795,558 10,912,661
============ ============ ============
Diluted ................................... 2,956,966 10,168,889 11,717,239
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
PROVANT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................... $ (1,147) $ 3,239
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Charges related to the issuance of common stock and
warrants ......................................... 706 --
Depreciation and amortization ....................... 9 1,720
Allowance for doubtful accounts ..................... -- (47)
Changes in operating assets and liabilities:
Accounts receivable ................................. -- 4,326
Inventory ........................................... -- (476)
Deferred income taxes ............................... -- (1,538)
Costs in excess of billings ......................... -- 250
Prepaid expenses and other current assets ........... -- (860)
Other assets ........................................ (800) (72)
Accounts payable and accrued expenses ............... 770 (3,502)
Accrued compensation ................................ -- (146)
Billings in excess of costs ......................... -- (570)
Deferred revenue .................................... -- 107
Income taxes payable ................................ -- (1,881)
-------- --------
Total adjustments ................................. 685 (2,689)
-------- --------
Net cash provided by (used in) operating activities (462) 550
-------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired .... -- (25,846)
Proceeds from sale of property, plant and equipment . -- 214
Additions to property and equipment ................. (7) (452)
-------- --------
Net cash used in investing activities ............. (7) (26,084)
Cash flows from financing activities:
Net borrowings of long-term debt ..................... -- 19,645
Issuance of common stock ............................. 2 42
Increase in notes payable to stockholders ............ 469 --
-------- --------
Net cash provided by financing activities .......... 471 19,687
-------- --------
Net increase (decrease) in cash and cash equivalents ... 2 (5,847)
Cash and cash equivalents, beginning of period ......... 1 6,394
-------- --------
Cash and cash equivalents, end of period ............... $ 3 $ 547
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes ............................. $ -- $ 4,294
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE> 7
PROVANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
PROVANT, Inc., a Delaware corporation (collectively with its subsidiaries,
"PROVANT" or the "Company"), provides a broad range of performance improvement
training services and products primarily to Fortune 1000 companies, other large
and medium-sized corporations and government entities. The Company's objective
is to become the leading single source provider of high-quality performance
improvement training services and products that are distributed through multiple
delivery methods.
On May 4, 1998, PROVANT completed the initial public offering (the
"Offering" or "IPO") of its common stock (the "Common Stock") and simultaneously
acquired in separate merger transactions (the "Combination") seven companies
engaged in providing performance improvement training services and products
(collectively referred to as the "Founding Companies"). During the six months
ended December 31, 1998, the Company acquired in separate transactions five
additional companies engaged in providing performance improvement training
services and products (collectively referred to with the Founding Companies as
the "Operating Companies"). Prior to the IPO, PROVANT did not conduct any
revenue generating activities of its own. For the period from inception through
May 4, 1998, all of PROVANT's activities had been related to the completion of
the IPO and the Combination. All references to the "Company" include PROVANT and
the Operating Companies.
BASIS OF PRESENTATION
The information contained in the following notes to the accompanying
financial statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements and
related notes thereto contained in the Annual Report on Form 10-K for the year
ended June 30, 1998 filed by PROVANT with the Securities and Exchange
Commission.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments considered necessary to present fairly the
financial position of the Company as of December 31, 1998 and the results of
operations and cash flows for the periods presented. The Company prepares its
interim financial information using the same accounting principles as it uses
for its annual financial statements.
For financial statement purposes, PROVANT has been identified as the
accounting acquiror. Accordingly, the consolidated financial statements include
the accounts of PROVANT since its inception, November 16, 1996, and the accounts
of the Operating Companies since their respective dates of acquisition. The
acquisitions of the Operating Companies were accounted for using the purchase
method of accounting. The allocations of the purchase prices to the assets
acquired and liabilities assumed of these companies have been recorded based on
preliminary estimates of fair value and may be changed as additional information
becomes available.
The unaudited pro forma combined statements of operations give effect to (i) the
Combination of PROVANT and the Founding Companies, (ii) the consummation of the
IPO and the application of the net proceeds therefrom, (iii) acquisitions
completed by one of the Founding Companies, (iv) the elimination of non-cash
compensation expense related to the issuance of Common Stock to certain of
PROVANT's officers and consultants, (v) a provision for income tax for those
Founding Companies that were taxed as S corporations during the relevant periods
and (vi) the compensation differential. The compensation differential represents
pro forma adjustments to salary, bonuses and benefits paid to certain
pre-Combination owners of the Founding Companies to certain levels to which they
agreed prospectively. For the three and six months ended December 31, 1997, the
compensation differential was approximately $2.8 million and $4.1 million,
respectively. The unaudited pro forma combined statements of operations give
effect to the Combination, the IPO and the acquisitions completed by one of the
Founding Companies as if they had occurred on July 1, 1997.
The pro forma adjustments are based on estimates, available information and
certain assumptions. The pro forma statements of operations do not purport to
represent what the Company's results of operations would actually have been if
such transactions had in fact occurred on that date and are not necessarily
representative of the Company's financial position or results of operations for
any future period. Since the Founding Companies were not under common control or
management, historical combined results may not be comparable to, or predictive
of, future performance.
7
<PAGE> 8
2. INVENTORY
Inventory consists primarily of film production and other costs associated
with a company acquired during the six months ended December 31, 1998.
3. ACQUISITIONS
During the quarter ended September 30, 1998, the Company acquired two
companies that provide performance improvement services and products. Initial
consideration paid by the Company was $17.5 million, consisting of $10.9 million
in cash and 430,767 shares of Common Stock. The allocation of the respective
purchase prices to assets acquired and liabilities assumed resulted in $12.9
million of goodwill for these acquisitions which were accounted for as purchase
transactions. Goodwill is amortized on a straight-line basis over 40 years. The
cash portion of the acquisitions was funded from cash provided by operations and
$7.5 million of borrowings from the Company's credit facility.
During the quarter ended December 31, 1998, the Company acquired three
companies that provide performance improvement training services and products.
Initial consideration paid by the Company was $34.1 million, consisting of $19.3
million in cash and 1,085,476 shares of Common Stock. The allocation of the
respective purchase prices to assets acquired and liabilities assumed resulted
in $28.6 million of goodwill for these acquisitions which were accounted for as
purchase transactions. Goodwill is amortized on a straight-line basis over 40
years. The cash portion of the acquisitions was funded from cash provided by
operations and $13.7 million of borrowings from the Company's credit facility.
In January and February 1999, the Company acquired two additional businesses
that provide performance improvement training services and products. Initial
consideration paid by the Company was $11.3 million, consisting of $4.6 million
in cash, $1.0 million in notes and 283,105 shares of Common Stock. The cash
portion of the acquisitions was funded from borrowings from the Company's credit
facility and net proceeds of the Company's February 1999 public offering of
Common Stock. The acquisitions will be accounted for as purchase transactions.
4. CONTINGENT CONSIDERATION
The agreements between PROVANT and each of the Operating Companies and one of
the subsequently acquired businesses provide for the payment of additional,
contingent consideration (the "Contingent Consideration"). The number of shares
to be issued as contingent consideration in an acquisition are included as
outstanding in the calculation of diluted weighted average common shares
outstanding after the related performance criteria has been met and the number
of shares can be determined. The former stockholders of seven Operating
Companies and one of the subsequently acquired businesses are entitled to
receive Contingent Consideration of cash and/or shares of Common Stock if
certain performance criteria are met over future periods ranging from one to
three years. For the three companies with Contingent Consideration based on
performance criteria associated with the year ended June 30, 1999, the maximum
Contingent Consideration for two of the companies is $5.7 million in the form of
shares of Common Stock and the Contingent Consideration for the third company is
based entirely on performance criteria for the year and is not currently
determinable. For the one company with Contingent Consideration based on
performance criteria associated with the year ended December 31, 1999, the
maximum Contingent Consideration is $500,000 in the form of cash and/or shares
of Common Stock. Contingent Consideration for the four remaining companies is
based on performance criteria associated with the next three years and is not
currently determinable.
5. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares of Common Stock outstanding during the period.
Diluted EPS is computed by dividing net income by the weighted average number of
shares of Common Stock and dilutive securities outstanding during the period.
The following tables summarize weighted average shares outstanding for all
periods presented:
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------------------------
1997 1997 1998
--------- ---------- ----------
Pro Forma
Historical Combined Historical
----------- ---------- ----------
<S> <C> <C> <C>
Basic weighted average common shares outstanding ... 3,335,978 9,795,558 11,754,513
Shares to be issued as Contingent Consideration .... -- -- 303,356
Weighted average shares related to stock options and
warrants under the treasury stock method ....... -- 373,331 252,349
---------- ---------- ----------
Diluted weighted average common shares outstanding . 3,335,978 10,168,889 12,310,218
========== ========== ==========
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Six Months Ended December 31,
-------------------------------------------------
1997 1997 1998
---------- ---------- ----------
Pro Forma
Historical Combined Historical
---------- ---------- ----------
<S> <C> <C> <C>
Basic weighted average common shares outstanding ... 2,956,966 9,795,558 10,912,661
Shares to be issued as Contingent Consideration .... -- -- 580,120
Weighted average shares related to stock options and
warrants under the treasury stock method ....... -- 373,331 224,458
---------- ---------- ----------
Diluted weighted average common shares outstanding . 2,956,966 10,168,889 11,717,239
========== ========== ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
PROVANT is a leading provider of performance improvement training services
and products. Our clients are Fortune 1000 companies, other large and
medium-sized corporations and government entities. PROVANT offers both
customized and standardized services and products that are designed to provide
measurable improvement in performance and productivity for both employees and
organizations. PROVANT can deliver these performance improvement solutions using
various delivery methods to satisfy our clients' needs, including traditional
delivery methods such as teaching employees in instructor-led classroom training
and certifying client employees as instructors ("train-the-trainer"), as well as
technology-based delivery methods such as CD-ROM, intranets and the Internet. In
addition, PROVANT offers management consulting and training management services.
Our goal is to become the leading single-source provider of high-quality
performance improvement training services and products.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1997 1998
---- ----
Pro Forma Combined Historical
------------------ ----------
<S> <C> <C> <C> <C>
Total revenue ..................... $18,220 100.0% $31,740 100.0%
Cost of revenue ................... 7,892 43.3% 13,314 41.9%
------- -------- ------- --------
Gross profit ...................... 10,328 56.7% 18,426 58.1%
Selling, general and administrative
expenses .......................... 8,239 45.2% 14,166 44.6%
Goodwill amortization ............. 334 1.8% 593 1.9%
------- -------- ------- --------
Income from operations ............ $ 1,755 9.6% $ 3,667 11.6%
======= ======== ======= ========
</TABLE>
PRO FORMA COMBINED RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 (THE
"1998 QUARTER") COMPARED TO THE HISTORICAL RESULTS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998 (THE "1999 QUARTER")
Revenue. Revenue increased $13.5 million, or 74.2%, from $18.2 million in
the 1998 Quarter to $31.7 million in the 1999 Quarter. The increase was
primarily attributable to an increased number of government contracts,
train-the-trainer seminars, royalties and revenues from businesses acquired
during fiscal 1999.
Cost of Revenue. Cost of revenue as a percentage of revenue decreased from
43.3% in the 1998 Quarter to 41.9% in the 1999 Quarter primarily due to revenue
growth greater than the corresponding increase in costs and increased
higher-margin license fees.
Gross Profit. Gross profit increased $8.1 million, or 78.4%, from $10.3
million in the 1998 Quarter to $18.4 million in the 1999 Quarter primarily due
to the growth in revenue. As a percentage of revenue, gross profit increased
from 56.7% in the 1998 Quarter to 58.1% in the 1999 Quarter due to more
efficient use of resources.
9
<PAGE> 10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.0 million, or 71.9%, from $8.2 million in
the 1998 Quarter to $14.2 million in the 1999 Quarter primarily due to the costs
of the businesses acquired during fiscal 1999, the expansion of corporate
infrastructure, costs associated with being a public company and commission
costs associated with increased revenue. As a percentage of revenue, selling,
general and administrative expenses decreased from 45.2% in the 1998 Quarter to
44.6% in the 1999 Quarter due to the increase in revenue.
Goodwill Amortization. Goodwill amortization increased approximately
$259,000 from approximately $334,000 in the 1998 Quarter to approximately
$593,000 in the 1999 Quarter due to additional goodwill recorded in connection
with acquisitions completed during fiscal 1999 and contingent consideration
issued to five of the Founding Companies during fiscal 1999.
Net Income. Net income increased approximately $919,000 or 99.8% from
approximately $921,000 in the 1998 Quarter to $1.8 million in the 1999 Quarter.
Diluted earnings per common share increased $0.06 or 66.7% from $0.09 in the
1998 Quarter to $0.15 in the 1999 Quarter.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
Six Months Ended December 31,
-------------------------------
1997 1998
---- ----
Pro Forma Combined Historical
------------------ ----------
<S> <C> <C> <C> <C>
Total revenue ..................... $35,958 100.0% $55,450 100.0%
Cost of revenue ................... 15,948 44.4% 23,462 42.3%
------- ----- ------- -----
Gross profit ...................... 20,010 55.6% 31,988 57.7%
Selling, general and administrative
expenses ........................ 15,797 43.9% 24,759 44.7%
Goodwill amortization ............. 667 1.9% 973 1.8%
------- ----- ------- -------
Income from operations ............ $ 3,546 9.9% $ 6,256 11.3%
======= ===== ======= =======
</TABLE>
PRO FORMA COMBINED RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 (THE "1998
PERIOD") COMPARED TO THE HISTORICAL RESULTS FOR THE SIX MONTHS ENDED DECEMBER
31, 1998 (THE "1999 PERIOD")
Revenue. Revenue increased $19.5 million, or 54.2%, from $36.0 million in
the 1998 Period to $55.5 million in the 1999 Period. The increase was primarily
attributable to an increased number of government contracts, increased royalties
and revenues from businesses acquired during the 1999 Period.
Cost of Revenue. Cost of revenue as a percentage of revenue decreased from
44.4% in the 1998 Period to 42.3% in the 1999 Period primarily due to revenue
growth higher than the corresponding increase in costs and increased
higher-margin license fees.
Gross Profit. Gross profit increased $12.0 million, or 59.9%, from $20.0
million in the 1998 Period to $32.0 million in the 1999 Period primarily due to
the growth in revenue. As a percentage of revenue, gross profit increased from
55.6% in the 1998 Period to 57.7% in the 1999 Period due to more efficient use
of resources.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $9.0 million, or 56.7%, from $15.8 million in
the 1998 Period to $24.8 million in the 1999 Period primarily due to the costs
of the businesses acquired during the 1999 Period, the expansion of corporate
infrastructure, costs associated with being a public company and commission
costs associated with increased revenue. As a percentage of revenue, selling,
general and administrative expenses increased from 43.9% in the 1998 Period to
44.7% in the 1999 Period primarily due to the expansion of corporate
infrastructure.
Goodwill Amortization. Goodwill amortization increased approximately
$306,000 from approximately $667,000 in the 1998 Period to approximately
$973,000 in the 1999 Period due to additional goodwill recorded in connection
with acquisitions completed during the 1999 Period and contingent consideration
issued to five of the Founding Companies during the 1999 Period.
10
<PAGE> 11
Net Income. Net income increased $1.4 million or 74.0% from $1.9 million in the
1998 Period to $3.2 million in the 1999 Period. Diluted earnings per common
share increased $0.10 or 55.6% from $0.18 in the 1998 Period to $0.28 in the
1999 Period.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had cash of approximately $500,000 and
outstanding indebtedness of $22.9 million. The Company has a $60.0 million
credit facility (increased from $40 million as of December 31, 1998) under which
$20.9 million was outstanding and $39.1 million was available for additional
borrowings at December 31, 1998. The credit facility, which terminates on
December 31, 2001, (i) prohibits the payment of dividends and other
distributions by the Company, (ii) generally does not permit the Company to
incur or assume other indebtedness, and (iii) requires the Company to comply
with certain financial covenants.
In February 1999, the Company completed a public offering of 3,022,750 shares
of Common Stock, from which it received net proceeds of approximately $55.8
million. Of this amount, $22.4 million was used to repay outstanding
indebtedness under the credit facility. The Company anticipates that its cash
flow from operations, proceeds of the public offering and borrowings from the
credit facility will provide cash sufficient to satisfy the Company's working
capital needs, debt service requirements and planned capital expenditures for
the next 12 months.
The Company has an effective shelf registration statement on Form S-4
relating to the issuance of up to 3,000,000 shares of Common Stock in connection
with acquisitions. Approximately 1,599,348 shares have been issued through
February 12, 1999 and a currently undeterminable number of shares may become
issuable as contingent consideration under the registration statement with
respect to acquisitions completed before February 12, 1999.
During the quarter ended September 30, 1998, the Company acquired two
companies that provide performance improvement services and products. Initial
consideration paid by the Company was $17.5 million, consisting of $10.9 million
in cash and 430,767 shares of Common Stock. The allocation of the respective
purchase prices to assets acquired and liabilities assumed resulted in $12.9
million of goodwill for these acquisitions which were accounted for as purchase
transactions. Goodwill is amortized on a straight-line basis over 40 years. The
cash portion of the acquisitions was funded from cash provided by operations and
$7.5 million of borrowings from the Company's credit facility.
During the quarter ended December 31, 1998, the Company acquired three
companies that provide performance improvement training services and products.
Initial consideration paid by the Company was $34.1 million, consisting of $19.3
million in cash and 1,085,476 shares of Common Stock. The allocation of the
respective purchase prices to assets acquired and liabilities assumed resulted
in $28.6 million of goodwill for these acquisitions which were accounted for as
purchase transactions. Goodwill is amortized on a straight-line basis over 40
years. The cash portion of the acquisitions was funded from cash provided by
operations and $13.7 million of borrowings from the Company's credit facility.
In January and February 1999, the Company acquired two additional businesses
that provide performance improvement training services and products. Initial
consideration paid by the Company was $11.3 million, consisting of $4.6 million
in cash, $1.0 million in notes and 283,105 shares of Common Stock. The cash
portion of the acquisitions was funded from borrowings from the Company's credit
facility and net proceeds of the Company's February 1999 public offering of
Common Stock. The acquisitions will be accounted for as purchase transactions.
The agreements between PROVANT and each of the Operating Companies and one
of the subsequently acquired businesses provide for the payment of additional,
contingent consideration (the "Contingent Consideration"). The number of shares
to be issued as contingent consideration in an acquisition are included as
outstanding in the calculation of diluted weighted average common shares
outstanding after the related performance criteria has been met and the number
of shares can be determined. The former stockholders of seven Operating
Companies and one of the subsequently acquired businesses are entitled to
receive Contingent Consideration of cash and/or shares of Common Stock if
certain performance criteria are met over future periods ranging from one to
three years. For the three companies with Contingent Consideration based on
performance criteria associated with the year ended June 30, 1999, the maximum
Contingent Consideration for two of the companies is $5.7 million in the form of
shares of Common Stock and the Contingent Consideration for the third company is
based entirely on performance criteria for the year and is not currently
determinable. For the one company with Contingent Consideration based on
performance criteria associated with the year ended December 31, 1999, the
maximum Contingent Consideration is $500,000 in the form of cash and/or shares
of Common Stock. Contingent Consideration for the four remaining companies is
based on performance criteria associated with the next three years and is not
currently determinable.
THE YEAR 2000 ISSUE
The Company uses information technology ("IT") systems in its internal
operations, including applications used in client order processing, inventory
management, financial business systems and various administrative functions
which are primarily "off-the-shelf" applications. Non-IT systems used in the
Company's internal operations consist primarily of voice and data communications
systems and elevator and climate control systems. In addition, the Company
delivers several of its products on technology-based platforms, such as CD-ROM,
intranets and the Internet. Management has completed the assessment of the
Company's IT and non-IT systems and products. The completed assessment has
indicated the need to replace some personal computers and upgrade two phone
switches. The Company estimates the cost of these remediation efforts to be
approximately $71,000. Management expects to
11
<PAGE> 12
complete any necessary remediation, implementation and final testing of IT and
non-IT systems and products by March 31, 1999. To the extent the source code of
IT and non-IT internal systems and customer products may be deficient despite
the Company's assessment with respect to "Year 2000" issues, the failure to make
any required modifications in order to make the systems and products "Year 2000"
compliant could have a material adverse effect on the Company's business.
The Company derives a substantial amount of its revenues from services and
products delivered to entities affiliated with the federal government. The two
government agencies responsible for funding disbursements have not publicly
announced the status of their year 2000 compliance efforts but have indicated
that such a public announcement will be made in September, 1999. Failure by
these government entities to make their respective computer software programs
and operating systems "Year 2000" compliant could have a material adverse effect
on the Company's business.
The Company has not yet completed its evaluation of the most reasonably
likely worst case "Year 2000" scenario, nor has it completed the contingency
planning with respect to the "Year 2000." The Company also has not yet completed
its evaluation of the vendors' contingency planning with respect to their
potential "Year 2000" deficiencies. The Company intends to complete both these
evaluations and contingency planning by June 30, 1999.
To date, the Company has incurred approximately $71,000 to remediate "Year
2000" issues. Management currently believes that any future costs to remediate
"Year 2000" issues will not be material to the Company's financial position or
results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131) that requires companies to
determine reportable segments based on how management makes decisions about
allocating resources to the segments and measures their performance. Disclosures
for segments are similar to those required under current standards. However,
certain new information and quarterly disclosures will be required. In addition,
new entity-wide disclosures will be required about products and services and the
countries in which material assets are located and that report material
revenues. Prior period information disclosed will be restated to comply with FAS
131. The Company will be adopting FAS 131 in 1999 and it will be applicable for
the Company's year-end disclosures. The disclosure requirements under FAS 131
for interim quarters will be applicable for the Company's first quarter
disclosures in 2000. The Company is still evaluating the effect of this
statement on its reported segment information.
In February 1998, the FASB issued Financial Accounting Standard No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" (FAS
132). The implementation of FAS 132 will revise certain footnote disclosure
requirements and add certain new disclosures related to pension and other
retiree benefit plans. However, it does not change the measurement or
recognition requirements for those plans. Implementation of FAS 132 is required
for the year-end 1999 disclosure.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK
Non-applicable
This report on form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in the
forward-looking statements as a result of any number of factors, many of which
are beyond the control of management. These factors include the Company's
limited combined operating history, risks of integration, risks of internal
growth, risks associated with the Company's acquisition strategy, and the
Company's ability to attract and retain key personnel, to name a few, and are
hereby incorporated by reference from the risk factors included in Company's
Registration Statement on Form S-1 (file no. 333-70119) filed with the
Securities and Exchange Commission.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were approved at the Company's annual meeting of
stockholders, which was held on November 3, 1998:
(a) Election of the following members of the Board of Directors:
<TABLE>
<CAPTION>
Withheld From
For All Nominees Instructed All Nominees
---------------- ---------- ------------
<S> <C> <C>
8,245,047 130,415 11,200
</TABLE>
<TABLE>
<CAPTION>
Votes
-----
For Withheld
------------------------------------
<S> <C> <C>
Paul M. Verrochi 8,375,412 11,250
John H. Zenger 8,375,412 11,250
Dominic J. Puopolo 8,375,412 11,250
Herbert A. Cohen 8,375,412 11,250
Michael J. Davies 8,375,412 11,250
Bert Decker 8,375,412 11,250
Paul C. Green, Ph.D. 8,375,462 11,200
David B. Hammond 8,256,197 130,465
Joe Hanson 8,275,895 110,767
John F. King 8,386,662 -
John R. Murphy 8,386,662 -
Esther T. Smith 8,386,662 -
A. Carl von Sternberg 8,355,764 30,398
Marc S. Wallace 8,245,047 141,615
</TABLE>
(b) Approval of the 1998 Stock Option Plan for Outside Directors:
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
8,271,362 79,986 35,314 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
27. Financial Data Schedule.
B. REPORTS ON FORM 8-K:
The Company filed a Report on Form 8-K with the Securities and Exchange
Commission (the "SEC") on November 30, 1998 to report the acquisition of a
performance improvement business earlier that month. The Company also filed a
Report on Form 8-K with the SEC on December 8, 1998 to report an additional
acquisition completed in November.
13
<PAGE> 14
PROVANT, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has signed this report in his capacity as Chief Accounting Officer,
and the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROVANT, INC.
Date: February 16, 1999 By: /s/ Rajiv Bhatt
Rajiv Bhatt
Executive Vice President,
Chief Operating Officer,
Treasurer and Chief Accounting
Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 547
<SECURITIES> 0
<RECEIVABLES> 22,574
<ALLOWANCES> 1,485
<INVENTORY> 3,944
<CURRENT-ASSETS> 32,276
<PP&E> 5,312
<DEPRECIATION> 969
<TOTAL-ASSETS> 137,461
<CURRENT-LIABILITIES> 22,402
<BONDS> 21,889
0
0
<COMMON> 119
<OTHER-SE> 93,051
<TOTAL-LIABILITY-AND-EQUITY> 137,461
<SALES> 31,740
<TOTAL-REVENUES> 31,740
<CGS> 13,314
<TOTAL-COSTS> 13,314
<OTHER-EXPENSES> 14,759
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205
<INCOME-PRETAX> 3,462
<INCOME-TAX> 1,622
<INCOME-CONTINUING> 1,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,840
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.15
</TABLE>
