<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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): April 23, 1999
--------------
PROVANT, INC.
-------------
(Exact name of registrant as specified in its charter)
Delaware 000-23989 04-3395167
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
67 Batterymarch Street, Suite 600, Boston, Massachusetts 02110
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 261-1600
--------------
N/A
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
THIS FORM 8-K HAS BEEN AMENDED TO INCLUDE THE FINANCIAL STATEMENTS
AND PRO FORMA FINANCIAL INFORMATION OMITTED FROM THE INITIAL
REPORT ON FORM 8-K FILED ON MAY 7, 1999.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 23, 1999, PROVANT, Inc. acquired by merger Project Management
Services, Inc. and its parent holding company, Petrus 1961, Inc. (collectively,
"PMSI"), for an aggregate purchase price of approximately $8.7 million in cash
and 929,991 shares of common stock (valued for purchase accounting purposes at
approximately $13.2 million). In addition, PROVANT assumed long-term
indebtedness of PMSI of approximately $6.1 million. The former stockholders of
PMSI will be entitled to receive contingent consideration (i) if PMSI's earnings
before interest and taxes for the year ending June 30, 1999 exceed a specified
base amount, and (ii) if PMSI's average annual earnings before interest and
taxes for the two-year period ending June 30, 2001 exceed a specified base
amount. The cash portion of the purchase price for PMSI was funded from cash
flow from operations and proceeds from PROVANT's January 1999 public offering of
common stock. The purchase price paid by PROVANT in the acquisition was
determined as the result of arm's-length negotiations between PROVANT and the
principals of PMSI. PMSI, based in Atlanta, Georgia, provides project
implementation services including on-site project management, skill building,
training, mentoring and internal process development.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
FINANCIAL STATEMENTS
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
AND JUNE 30, 1998
AND
PROJECT MANAGEMENT SERVICES, INC.
AND SUBSIDIARY AND M&A INTEGRATION, INC.
THE PREDECESSOR COMPANY
COMBINED FINANCIAL STATEMENTS
APRIL 20, 1998 AND
DECEMBER 31, 1997
-2-
<PAGE> 3
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
AND
PROJECT MANAGEMENT SERVICES, INC.
AND SUBSIDIARY AND M&A INTEGRATION, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent auditors' reports 1 - 2
Financial statements:
Consolidated and combined balance sheets 3
Consolidated and combined statements of operations 4
Consolidated and combined statements of stockholders' equity 5
Consolidated and combined statements of cash flows 6 - 7
Notes to consolidated and combined financial statements 8 - 16
</TABLE>
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Petrus 1961, Inc. and Subsidiaries
d/b/a Project Management Services, Inc.
We have audited the accompanying consolidated balance sheets of PETRUS 1961,
INC. AND SUBSIDIARIES, d/b/a PROJECT MANAGEMENT SERVICES, INC. (an S
corporation) as of December 31, 1998 and June 30, 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from inception [April 21, 1998] to December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PETRUS 1961, INC.
AND SUBSIDIARIES, d/b/a PROJECT MANAGEMENT SERVICES, INC. as of December 31,
1998 and June 30, 1998, and the results of its operations and its cash flows for
the period of inception ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Habif, Arogeti & Wynne, P.C.
Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
March 19, 1999
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Petrus 1961, Inc. and Subsidiaries
d/b/a Project Management Services, Inc.
We have audited the accompanying combined balance sheets of PROJECT MANAGEMENT
SERVICES, INC. AND SUBSIDIARY AND M&A INTEGRATION, INC. (C corporations) as of
April 20, 1998 and December 31, 1997 and the related combined statements of
operations, stockholders' equity, and cash flows for the period January 1 to
April 20, 1998 and for the year ended December 31, 1997. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of PROJECT MANAGEMENT
SERVICES, INC. AND SUBSIDIARY AND M&A INTEGRATION, INC. as of April 20, 1998 and
December 31, 1997, and the results of its operations and its cash flows for the
period January 1 to April 20, 1998 and for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Habif, Arogeti & Wynne, P.C.
Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
April 16, 1999
<PAGE> 6
PETRUS 1961, INC. AND SUBSIDIARIES d/b/a PROJECT MANAGEMENT SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND JUNE 30,1998,
AND
PROJECT MANAGEMENT SERVICES, INC. AND SUBSIDIARY AND M&A INTEGRATION, INC.
THE PREDECESSOR COMPANY
COMBINED BALANCE SHEETS
AS OF APRIL 20, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
Predecessor Predecessor
December 31, June 30, April 20, December 31,
1 9 9 8 1 9 9 8 1 9 9 8 1 9 9 7
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets
Cash $ 2,793 $ -- $ 172,363 $ 14,827
Accounts receivable, net allowance of $13,762 as of
December 31, 1998, $11,448 as of June 30, 1998, $7,580
as of April 20, 1998 and $-0- as of December 31, 1997 2,890,132 2,497,443 1,752,361 1,615,536
Prepaid expenses 69,747 4,890 320 --
----------- ----------- ----------- -----------
Total current assets 2,962,672 2,502,333 1,925,044 1,630,363
----------- ----------- ----------- -----------
Property and equipment, at cost
Office and computer equipment 382,170 308,340 602,159 542,195
Furniture and fixtures 102,295 51,690 105,574 90,862
Leasehold improvements 34,361 34,361 13,916 46,407
----------- ----------- ----------- -----------
518,826 394,391 721,649 679,464
Allowance for depreciation (56,825) (12,316) (467,808) (414,866)
----------- ----------- ----------- -----------
462,001 382,075 253,841 264,598
----------- ----------- ----------- -----------
Other assets
Deposits 10,092 10,042 2,998 6,871
Deferred income taxes -- -- 111,321 185,186
Other assets -- -- 1,000 1,000
Goodwill, net of accumulated amortization of $92,053 as of
December 31, 1998, $23,013 as of June 30, 1998 5,431,102 5,500,142 -- --
----------- ----------- ----------- -----------
5,441,194 5,510,184 115,319 193,057
----------- ----------- ----------- -----------
$ 8,865,867 $ 8,394,592 $ 2,294,204 $ 2,088,018
=========== =========== =========== ===========
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Cash overdraft $ -- $ 9,658 $ -- $ --
Accounts payable 274,574 667,428 424,986 383,561
Accrued expenses 1,443,466 806,232 654,346 420,739
Unearned revenue 17,875 33,318 27,164 --
Lines-of-credit 508,710 341,521 308,119 75,000
Note payable - current portion 800,000 740,000 -- --
Deferred compensation - current portion 198,574 -- -- --
Income taxes payable -- 29,968 29,968 --
Deferred income taxes -- -- 256,281 340,535
---------- ---------- ---------- ----------
Total current liabilities 3,243,199 2,628,125 1,700,864 1,219,835
---------- ---------- ---------- ----------
Long-term liabilities
Note payable - stockholder 1,000,000 1,000,000 -- --
Note payable, net of current portion 3,360,000 3,840,000 -- --
Deferred compensation, net of current portion 103,251 301,825 301,825 413,000
---------- ---------- ---------- ----------
4,463,251 5,141,825 301,825 413,000
---------- ---------- ---------- ----------
Stockholders' equity
Common stock, no par value; 50,000,000 shares authorized
10,000 shares issued and outstanding as of April 20,1998
and December 31, 1997, respectively -- -- 3,000 3,000
Common stock, no par value; 10,000 shares authorized 1,000
shares issued and outstanding as of April 20, 1998 and
December 31, 1997, respectively -- -- 1,000 1,000
Common stock Class A voting, no par value; 20,000,000
authorized, 1,069,500 shares issued and outstanding
as of December 31, 1998 and June 30, 1998,
respectively 300,000 300,000 -- --
Common stock Class B non-voting, no par value; 430,000
shares authorized, 100,500 shares and -0- shares
issued and outstanding as of December 31, 1998 and
June 30, 1998, respectively 219,090 -- -- --
Retained earnings 640,327 324,642 287,515 451,183
---------- ---------- ---------- ----------
1,159,417 624,642 291,515 455,183
---------- ---------- ---------- ----------
$8,865,867 $8,394,592 $2,294,204 $2,088,018
========== ========== ========== ==========
</TABLE>
See auditors' reports and accompanying notes
-3-
<PAGE> 8
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FROM INCEPTION [APRIL 21, 1998] TO DECEMBER 31, 1998
AND
PROJECT MANAGEMENT SERVICES, INC. AND SUBSIDIARY AND M&A INTEGRATION, INC.
THE PREDECESSOR COMPANY
COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1998 THROUGH APRIL 20, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Predecessor Predecessor
December 31, April 20, December 31,
1 9 9 8 1 9 9 8 1 9 9 7
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 13,478,719 $ 3,506,133 $ 10,907,014
------------ ------------ ------------
Expenses
Cost of services 7,777,369 2,269,035 7,307,919
Selling, general and administrative 4,565,347 1,298,251 3,293,513
Depreciation and amortization 148,877 52,944 89,454
------------ ------------ ------------
12,491,593 3,620,230 10,690,886
------------ ------------ ------------
Income (Loss) from operations 987,126 (114,097) 216,128
------------ ------------ ------------
Other income (expense)
Rental income -- 9,526 39,595
Interest income 6,655 106 2,243
Interest expense (353,454) (34,983) (10,558)
------------ ------------ ------------
(346,799) (25,351) 31,280
------------ ------------ ------------
Income (Loss) before taxes 640,327 (139,448) 247,408
Provision for income taxes -- 24,220 73,684
------------ ------------ ------------
Net income (loss) $ 640,327 $ (163,668) $ 173,724
============ ============ ============
</TABLE>
See auditors' reports and accompanying notes
-4-
<PAGE> 9
PETRUS 1961, INC. AND SUBSIDIARIES d/b/a PROJECT MANAGEMENT SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FROM INCEPTION
[APRIL 21, 1998] TO DECEMBER 31, 1998
AND
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
PROJECT MANAGEMENT SERVICES, INC. AND SUBSIDIARY AND M&A INTEGRATION, INC.
THE PREDECESSOR COMPANY
FOR THE PERIODS ENDED APRIL 20, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------------------------------------
Shares Shares Shares Amount Amount Amount
Predecessor Class A Class B Predecessor Class A Class B
----------- ------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Predecessor Company
Balances, December 31, 1996 10,000 -- -- $3,000 $ -- $ --
Formation of M & A Integration, Inc. 1,000 -- -- 1,000 -- --
Net income -- -- -- -- -- --
------ --------- ------- ------ -------- --------
Balances, December 31, 1997 11,000 -- -- 4,000 -- --
Net loss, January 1, 1998 to
April 20, 1998 -- -- -- -- -- --
------ --------- ------- ------ -------- --------
Balances, April 20, 1998 11,000 -- -- $4,000 $ -- $ --
====== ========= ======= ====== ======== ========
Petrus 1961, Inc. and Subsidiaries
Issuance of Class A stock -- 1,000,000 -- $ -- $300,000 $ --
Class A stock dividend -- 69,500 -- -- -- --
Net income, April 21, 1998 to June
30, 1998 -- -- -- -- -- --
------ --------- ------- ------ -------- --------
Balances, June 30, 1998 -- 1,069,500 -- -- 300,000 --
Class B stock issued for services -- -- 100,500 -- -- 219,090
Net income, July 1, 1998 to
December 31, 1998 -- -- -- -- -- --
------ --------- ------- ------ -------- --------
Balances, December 31, 1998 -- 1,069,500 100,500 $ -- $300,000 $219,090
====== ========= ======= ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Total
Retained Stockholders'
Earnings Equity
-------- ------
<S> <C> <C>
Predecessor Company
Balances, December 31, 1996 $ 277,459 $ 280,459
Formation of M & A Integration, Inc. -- 1,000
Net income 173,724 173,724
--------- -----------
Balances, December 31, 1997 451,183 455,183
Net loss, January 1, 1998 to
April 20, 1998 (163,668) (163,668)
--------- -----------
Balances, April 20, 1998 $ 287,515 $ 291,515
========= ===========
Petrus 1961, Inc. and Subsidiaries
Issuance of Class A stock $ -- $ 300,000
Class A stock dividend -- --
Net income, April 21, 1998 to June
30, 1998 324,642 324,642
--------- -----------
Balances, June 30, 1998 324,642 624,642
Class B stock issued for services -- 219,090
Net income, July 1, 1998 to
December 31, 1998 315,685 315,685
--------- -----------
Balances, December 31, 1998 $ 640,327 $ 1,159,417
========= ===========
</TABLE>
See auditors' reports and accompanying notes
-5-
<PAGE> 10
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FROM INCEPTION [APRIL 21, 1998] TO DECEMBER 31, 1998
AND
PROJECT MANAGEMENT SERVICES, INC. AND SUBSIDIARY M&A INTEGRATION, INC.
THE PREDECESSOR COMPANY
COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1998 THROUGH APRIL 20, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Predecessor Predecessor
December 31, April 20, December 31,
1 9 9 8 1 9 9 8 1 9 9 7
----------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 640,327 $(163,668) $ 173,724
----------- --------- -----------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Depreciation and amortization 148,877 52,944 89,454
Deferred income taxes -- (10,389) 73,683
Stock issued for services 219,090 -- --
Changes in assets and liabilities
Accounts receivable (1,137,771) (136,825) (1,143,075)
Prepaid expenses (69,427) (320) --
Deposits (7,094) 3,873 (5,800)
Other assets -- -- (1,000)
Accounts payable (150,411) 41,425 245,946
Accrued expenses 789,120 233,605 676,862
Unearned revenue (9,289) 27,164 (36,065)
Deferred compensation -- (111,175) --
Income taxes payable (29,968) 29,968 --
----------- --------- -----------
Total adjustments (246,873) 130,270 (99,995)
----------- --------- -----------
Net cash provided (used) by
operating activities 393,454 (33,398) 73,729
----------- --------- -----------
Cash flows from investing activities
Acquisition of property and equipment (223,615) (42,185) (245,140)
Acquisition of business, net of cash acquired (1,127,637) -- --
----------- --------- -----------
Net cash used by investing activities (1,351,252) (42,185) (245,140)
----------- --------- -----------
Cash flows from financing activities
Issuance of common stock 300,000 -- 1,000
Net proceeds on lines-of-credit 200,591 233,119 75,000
Proceeds from notes payable - stockholder 1,000,000 -- --
Principal payments on note payable (540,000) -- --
----------- --------- -----------
Net cash provided by financing activities 960,591 233,119 76,000
----------- --------- -----------
Net increase (decrease) in cash 2,793 157,536 (95,411)
Cash, beginning of period -- 14,827 110,238
----------- --------- -----------
Cash, end of period $ 2,793 $ 172,363 $ 14,827
=========== ========= ===========
</TABLE>
See auditors' reports and accompanying notes
-6-
<PAGE> 11
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS [CONTINUED]
FROM INCEPTION [APRIL 21, 1998] TO DECEMBER 31, 1998
AND
PROJECT MANAGEMENT SERVICES, INC. AND SUBSIDIARY AND M&A INTEGRATION, INC.
THE PREDECESSOR COMPANY
COMBINED STATEMENTS OF CASH FLOWS [CONTINUED]
FOR THE PERIOD JANUARY 1, 1998 THROUGH APRIL 20, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Predecessor Predecessor
December 31, April 20, December 31,
1 9 9 8 1 9 9 8 1 9 9 7
-------- ------- -------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for
Interest $353,454 $34,877 $10,558
Income taxes 34,927 4,646 --
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH FLOW INFORMATION
During the period ended December 31, 1998, the Company issued stock for services
in the amount of $219,090 [see Note F].
During the period ended December 31, 1998, Petrus acquired 100% of the issued
and outstanding shares of PMSI [Note B] subject to the seller financing the sale
in the amount of $4,700,000.
See auditors' reports and accompanying notes
-7-
<PAGE> 12
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND JUNE 30, 1998
AND TO COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
APRIL 20, 1998 AND DECEMBER 31, 1997
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business and Principles of Consolidation:
Petrus 1961, Inc. d/b/a Project Management Services, Inc. ["Petrus"] has
offices in Georgia and Texas and provides project management services to
Fortune 500 companies.
Petrus was formed on April 8, 1998 ["formation"]. On April 21, 1998
["inception"], Petrus acquired PROJECT MANAGEMENT SERVICES, INC. ["PMSI"]
and its wholly-owned subsidiaries Aviation Facilities Group, Inc. ["AFG"]
and M&A Integration, Inc. ["M&A"]. [See Note B]
On May 12, 1998, PMSI formed a wholly-owned subsidiary, Project Management
Center of Excellence, Inc. ["PMCE"]. These are the consolidated financial
statements of Petrus and its wholly-owned subsidiaries [collectively "the
Company"]. All material intercompany transactions have been eliminated.
The Petrus statement of operations reflects the operations of Petrus from the
date of formation through December 31, 1998, and for PMSI and its
subsidiaries from April 21, 1998 [date of inception] through December 31,
1998. Petrus did not enter into any transactions until the date of inception.
Predecessor:
PMSI, and its wholly-owned subsidiary Aviation Facilities Group, Inc., and
M&A Integration, Inc. are the Predecessor entities to the Company.
[Predecessor]. M&A became a wholly-owned subsidiary of PMSI on April 21,
1998. AFG, formed on April 18, 1991, has been a wholly-owned subsidiary
of PMSI from its inception.
Predecessor results of operations consist of the combined operations of PMSI
(and its wholly-owned subsidiary) and M&A for the year ended December 31,
1997 and for the period January 1, 1998 to April 20, 1998. All material
intercompany transactions have been eliminated from the combination.
M&A had no material transactions for the periods reported.
-8-
<PAGE> 13
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1998 AND JUNE 30, 1998
AND TO COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
APRIL 20, 1998 AND DECEMBER 31, 1997
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
Property and Equipment: [Continued]
Property and equipment is carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that
materially extend the life of an asset are capitalized. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets, which are as follows:
Office and computer equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements Life of the lease
Depreciation expense for the period from April 21, 1998 to December 31, 1998
was $56,825, $52,944 for the period January 1 to April 20, 1998 and $89,454
for the year ended December 31, 1997.
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 of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Advertising Costs:
The Company's policy is to expense advertising costs as incurred. The
approximate amount of advertising that was charged to expense for the period
from inception to December 31, 1998 was $168,000, for the period January 1 to
April 20, 1998 was $17,500, and for the year ended December 31, 1997 was
$54,000.
Income Taxes:
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be an S corporation. The Company has elected to
treat each of its wholly-owned subsidiaries as Qualified Subchapter S
Subsidiaries ["QSSS's"] corporations. In lieu of corporate taxes, the
shareholders of an S corporation are taxed on their proportionate share of
the Company's taxable income. Therefore, no provision or liability for
federal or state income taxes has been included in these consolidated
financial statements. All deferred income tax assets and liabilities recorded
by the Predecessor were eliminated on the date of acquisition at which time
the Company became an S corporation.
-9-
<PAGE> 14
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1998 AND JUNE 30, 1998
AND TO COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
APRIL 20, 1998 AND DECEMBER 31, 1997
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
Income Taxes - Predecessor:
Deferred income taxes are provided for differences in timing in reporting
income for financial statement and tax purposes arising primarily from
differences in the basis of accounting, the methods of accounting for
depreciation of property and equipment and net operating losses. The cash
basis method of accounting is used for tax purposes.
B. BUSINESS COMBINATION:
On April 21, 1998, PETRUS acquired 100% of the issued and outstanding stock
of PMSI for $6,000,000, which was accounted for using the purchase method of
accounting in accordance with APB 16 Accounting for Business Combinations.
The goodwill associated with this purchase is being amortized straight-line
over 40 years.
C. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31, June 30, April 20, December 31,
1 9 9 8 1 9 9 8 1 9 9 8 1 9 9 7
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Trade $ 2,876,933 $ 2,503,391 $1,602,055 $1,610,036
Employee 26,961 5,500 8,886 5,500
Officer -0- -0- 149,000 -0-
----------- ----------- ---------- ----------
2,903,894 2,508,891 1,759,941 1,615,536
Less allowance (13,762) (11,448) (7,580) -0-
----------- ----------- ---------- ----------
$ 2,890,132 $ 2,497,443 $1,752,361 $1,615,536
=========== =========== ========== ==========
</TABLE>
The maximum accounting loss from the credit risk associated with accounts
receivable is the amount of the receivable recorded, which is the face amount
of the receivable, less the allowance for doubtful accounts.
D. COMMITMENTS AND CONTINGENCIES:
Concentrations of Credit Risk:
At times the Company maintains cash in excess of FDIC limits. The amount at
risk at December 31, 1998, June 30, 1998, April 20, 1998, and December 31,
1997 was approximately $140,000, $-0-, $112,000 and $32,000, respectively.
-10-
<PAGE> 15
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1998 AND JUNE 30, 1998
AND TO COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
APRIL 20, 1998 AND DECEMBER 31, 1997
D. COMMITMENTS AND CONTINGENCIES: [Continued]
Lines-of-Credit:
The Company has a line-of-credit agreement with Merrill Lynch, which allows
for up to $1,600,000 with a renewal date of September 30, 1999. Interest is
payable monthly. The interest rate of the note is variable based on the rate
of interest in the "Money Rates" section of the Wall Street Journal for
30-day, high-grade, unsecured notes sold through dealers by major
corporations plus 3.15%. The balance of the loan was $508,710 at December 31,
1998, $341,521 at June 30, 1998 and $308,119 at April 20, 1998. The loan is
secured by accounts receivable of the Company and personal guarantees of the
two principle shareholders.
The Predecessor had a line-of-credit agreement with SunTrust Bank in the
amount of $400,000 that matured on May 29, 1998. Interest on the line of
credit was payable monthly at the bank's stated prime rate, plus 1% per
annum. The balance of the line-of-credit at April 20, 1998 and December 31,
1997 was $-0- and $75,000, respectively. The line-of-credit was secured by
all accounts receivable, a personal guarantee from the shareholder, and
assignment of a life insurance policy on the shareholder.
Note Payable - Stockholder:
The Company has a note payable due to Ralf Leszinski, a stockholder of the
Company, in the amount of $1,000,000 at December 31, 1998 and June 30, 1998.
The note bears interest at a rate of 10% per annum. Interest payments are due
annually on April 1, all interest was paid on December 31, 1998. Accrued
interest of $33,333 is included in accrued expenses as of June 30, 1998. The
principle is payable in three consecutive, annual installments of $300,000,
$300,000 and $400,000, respectively, commencing on December 1, 2002 and
continuing annually thereafter through December 1, 2004. Interest on the note
for the period from April 21, 1998 to December 31, 1998 was $83,333. The
principle on this note is subordinated to the principal on the note with the
former owner of the Company.
Note Payable
The Company has a note payable with the former owner of the Predecessor. The
note calls for monthly fixed principal payments of varying amounts. The
interest rate of the note is variable based on the rate of interest in the
"Money Rates" section of the Wall Street Journal for 30-day, high-grade,
unsecured notes sold through dealers by major corporations plus 3.15%. The
interest is payable monthly and all accrued interest was paid on December 31,
1998. Accrued interest of $33,129 is included in accrued expenses as of June
30, 1998. The note is secured by all assets of the Company and personal
guarantees of the shareholders. Interest expense on the note was $263,244 for
the period from April 21, 1998 to December 31, 1998.
-11-
<PAGE> 16
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1998 AND JUNE 30, 1998
AND TO COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
APRIL 20, 1998 AND DECEMBER 31, 1997
COMMITMENTS AND CONTINGENCIES: [Continued]
Note Payable: [Continued]
The maturities of long-term debt as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Note Payable -
Note Payable Stockholder
------------ -----------
<S> <C> <C> <C>
1999 $ 800,000 $ -0-
2000 1,000,000 -0-
2001 1,200,000 -0-
2002 1,160,000 300,000
2003 and thereafter -0- 700,000
------------ ----------
4,160,000 1,000,000
Less current portion (800,000) -0-
$ 3,360,000 $1,000,000
=========== ==========
</TABLE>
Operating Leases:
The Company leases office space and equipment under several operating lease
agreements. Rent expense for the office space and equipment was approximately
$190,000 for the period from inception to December 31, 1998, $64,000 for the
period from January 1 to April 20, 1998, and $177,000 for the year ended
December 31, 1997.
At December 31, 1998, minimum future lease payments under non-cancelable
leases having remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
December 31, Amount
------------ ------
<S> <C>
1999 $103,374
2000 100,305
2001 100,026
2002 100,026
2003 and thereafter 43,968
--------
$447,699
========
</TABLE>
Economic Dependency:
For the period from inception to December 31, 1998, revenues from five
customers totaled $1,799,879, $1,357,921, $2,933,632, $1,906,940 and
$1,365,689 and comprised 13%, 10%, 22%, 14% and 10% of the revenues generated
from the period of inception to December 31,1998, respectively. Receivables
related to these five customers totaled $201,458, $231,955, $401,769,
$463,929 and $489,322 and comprised 7%, 8%, 14%, 16% and 17%, respectively,
of the accounts receivable as of December 31,1998.
-12-
<PAGE> 17
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1998 AND JUNE 30, 1998
AND TO COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
APRIL 20, 1998 AND DECEMBER 31, 1997
E. STOCKHOLDERS' EQUITY:
The Company's Stock Splits:
On November 30, 1998, the board of directors authorized a 500 for 1 Class A
stock split and changed the authorized shares of Class A stock from 1,000,000
to 20,000,000. All references to share data have been adjusted to give effect
to this stock split.
Stock Dividend:
On November 30, 1998, the board of directors authorized a Class A stock
dividend of 69,500 shares to be paid pro rata to the shareholders of Petrus.
Class B Stock:
On November 30, 1998, the board of directors authorized a second, non-voting
class of stock. 430,000 shares of Class B stock were authorized.
Predecessor:
At the date of inception, PMSI had 50,000,000 shares of no par value common
stock authorized with 10,000 shares issued and outstanding. M&A Integration,
Inc. had 10,000 shares of no par value common stock authorized with 1,000
shares issued and outstanding.
F. EMPLOYEE BENEFIT PLANS:
Stock Award Plan:
On December 1, 1998, the Company adopted a stock award plan. The board of
directors, in its sole discretion, shall designate from time to time the
employees who are to be granted Restricted Stock Awards under the plan. Under
the plan, 430,000 shares of Class B common stock have been reserved. The
transfer of the shares issued under this plan is restricted and certain
buy-back rights of the shares vest over a three-year period. In accordance
with the Restricted Stock Agreement, these shares became fully vested when
the Company was purchased by Provant, Inc.
On December 1, 1998, the Company issued 100,500 shares of Class B common
stock under the stock award plan. The shares were valued at $2.18 per share
and resulted in a non-cash charge to operations of $219,090. This award was
used to pay certain employee bonuses accrued as of June 30, 1998.
-13-
<PAGE> 18
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1998 AND JUNE 30, 1998
AND TO COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
APRIL 20, 1998 AND DECEMBER 31, 1997
F. EMPLOYEE BENEFIT PLANS: [Continued]
401(k) Plan:
The Company sponsors a defined contribution 401(k) plan for all regular,
full-time employees who have completed a minimum of three months of
employment and are 21 years of age or older. Under the plan, employees may
elect to defer up to 15% of their gross compensation, up to statutory limits.
The Company matches up to 3% of employees' contributions. Employer
contributions for the period from April 21, 1998 to December 31, 1998 were
approximately $26,000, for the period January 1, 1998 to April 20, 1998 were
approximately $22,000 and for the year ended December 31, 1997 were
approximately $36,000.
G. DEFERRED COMPENSATION:
As of December 31, 1997, PMSI had accrued compensation to the former owner in
the amount of $413,000. During the period from January 1, 1998 to April 20,
1998, other expenses were paid in lieu of deferred compensation in accordance
with the acquisition agreement. The accrued compensation was $301,825 as of
December 31, 1998, June 30, 1998 and April 20, 1998, respectively. The
compensation is payable in one monthly installment of $26,489 on July 1, 1999
and eight installments of $34,417 commencing on August 1, 1999.
H. INCOME TAXES [PREDECESSOR]:
The provision for income taxes consists of:
<TABLE>
<CAPTION>
[Predecessor] [Predecessor]
April 20, December 31,
1 9 9 8 1 9 9 7
-------- --------
<S> <C> <C>
Current taxes
Federal $ 29,500 $ -0-
State 5,109 -0-
-------- --------
34,609 -0-
-------- --------
Deferred taxes [benefits]
Federal (8,906) 63,168
State (1,483) 10,516
-------- --------
(10,389) 73,684
-------- --------
$ 24,220 $ 73,684
======== ========
</TABLE>
-14-
<PAGE> 19
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1998 AND JUNE 30, 1998
AND TO COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
APRIL 20, 1998 AND DECEMBER 31, 1997
H. INCOME TAXES [PREDECESSOR]: [Continued]
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability at April 20,
1998 and December 31, 1997 are presented below:
<TABLE>
<CAPTION>
[Predecessor] [Predecessor]
April 20, December 31,
1 9 9 8 1 9 9 7
--------- ---------
<S> <C> <C>
Current:
Deferred tax assets:
Accounts payable $ 168,550 $ 161,604
Accrued expenses 259,516 136,408
Unearned revenue 10,773 -0-
Deferred tax liability:
Accounts receivable (694,993) (638,547)
Prepaid expenses (127) -0-
Non-current:
Deferred tax assets:
Depreciation and amortization -0- 10,616
Net operating loss carryforward -0- 10,773
Deferred compensation 119,705 163,797
Deferred tax liability:
Depreciation and amortization (8,384) -0-
--------- ---------
Net deferred tax liability ($144,960) ($155,349)
========= =========
</TABLE>
I. SUBSEQUENT EVENTS:
Operating Lease:
On January 1, 1999, the Company entered into an operating lease to rent
office space. The lease term commences July 1, 1999 and expires June 30,
2004. The agreement calls for escalating rent expense that range from
$270,606 per year in the first year to $397,950 in the last year.
-15-
<PAGE> 20
PETRUS 1961, INC. AND SUBSIDIARIES
d/b/a PROJECT MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1998 AND JUNE 30, 1998
AND TO COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
APRIL 20, 1998 AND DECEMBER 31, 1997
I. SUBSEQUENT EVENTS: [Continued]
Letter of Intent:
On March 5, 1999, the Company signed a letter of intent with Provant, Inc.
(NASDAQ: POVT). The letter calls for Provant, Inc. to purchase all of the
outstanding stock of Petrus. The consideration will be made in cash and
Provant, Inc. stock based on certain earnings calculations. The agreement
was contingent on a number of factors, including the execution of a
definitive merger agreement which was completed on April 23, 1999.
-16-
<PAGE> 21
(b) Pro forma financial information.
-17-
<PAGE> 22
PROVANT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION PRO FORMA
PROVANT PMSI EDI TOTAL ADJUSTMENTS CONSOLIDATED
------- ---- --- ----- ----------- ------------
Assets
Current assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 547 $ 3 $ 659 $ 1,209 $ (662) $ 547
Accounts receivable, net 21,089 2,890 766 24,745 (300) 24,445
Inventory 3,944 - 92 4,036 (25) 4,011
Deferred income taxes 3,575 - 13 3,588 - 3,588
Costs in excess of billings 1,612 - 321 1,933 - 1,933
Prepaid expenses and other
current assets 1,509 70 305 1,884 - 1,884
-------- ------ ------ -------- ------- --------
Total current assets 32,276 2,963 2,156 37,395 (987) 36,408
Property and equipment, net 4,343 462 232 5,037 (151) 4,886
Other assets 926 10 16 952 (100) 852
Goodwill, net 99,916 5,431 - 105,347 26,924 132,271
-------- ------ ------ -------- ------- --------
Total assets $137,461 $8,866 $2,404 $148,731 $25,686 $174,417
======== ====== ====== ======== ======= ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 2,954 275 202 3,431 - 3,431
Accrued expenses 8,575 1,443 74 10,092 158 10,250
Accrued compensation 4,721 302 269 5,292 - 5,292
Billings in excess of costs 2,577 - - 2,577 - 2,577
Deferred revenue 2,153 18 214 2,385 125 2,510
Income taxes payable 427 - 385 812 - 812
Current portion of long term debt 995 1,309 65 2,369 - 2,369
-------- ------ ------ -------- ------- --------
Total current liabilities 22,402 3,347 1,209 26,958 283 27,241
Long term debt, net of current
portion 21,889 4,360 21 26,270 11,180 37,450
-------- ------ ------ -------- ------- --------
Total liabilities 44,291 7,707 1,230 53,228 11,463 64,691
Stockholders' Equity:
Common stock 119 519 12 650 (520) 130
Additional paid-in capital 92,873 - 327 93,200 16,218 109,418
Retained earnings 178 640 835 1,653 (1,475) 178
-------- ------ ------ -------- ------- --------
Total stockholders' equity 93,170 1,159 1,174 95,503 14,223 109,726
-------- ------ ------ -------- ------- --------
Total liabilities and stockholders'
equity $137,461 $8,866 $2,404 $148,731 $25,686 $174,417
======== ====== ====== ======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
-18-
<PAGE> 23
PROVANT, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOUNDING
COMPANIES AND COMBINATION AND
ACQUIRED ACQUISITION PRO FORMA
PROVANT PMSI COMPANIES TOTAL ADJUSTMENTS CONSOLIDATED
------- ---- --------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $14,189 $11,446 $106,093 $131,728 $1,419 $133,147
Cost of revenue 6,374 7,157 44,845 58,376 1,056 59,432
------- ------- -------- -------- ------ -----------
Gross profit 7,815 4,289 61,248 73,352 363 73,715
Selling, general, and administrative
expenses 10,447 4,347 50,456 65,250 (8,409) 56,841
Goodwill amortization 245 23 77 345 2,828 3,173
------- ------- -------- -------- ------ -----------
Income (loss) from operations (2,877) (81) 10,715 7,757 5,944 13,701
Interest expense, net 220 128 310 658 1,956 2,614
------- ------- -------- -------- ------ -----------
Income (loss) before income
taxes (3,097) (209) 10,405 7,099 3,988 11,087
Income tax expense (benefit) (203) 109 2,737 2,643 3,061 5,704
------- ------- -------- -------- ------ -----------
Net income (loss) $(2,894) (318) $ 7,668 $ 4,456 $ 927 $ 5,383
======= ======= ======== ======== ====== ===========
Earnings per common share:
Basic $ 0.43
===========
Diluted $ 0.42
===========
Weighted average common shares outstanding:
Basic 12,479,026
===========
Diluted 12,898,330
===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
-19-
<PAGE> 24
PROVANT, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUIRED ACQUISITION PRO FORMA
PROVANT PMSI COMPANIES TOTAL ADJUSTMENTS CONSOLIDATED
------- ---- --------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $55,450 $10,216 $13,050 $78,716 - $ 78,716
Cost of revenue 23,462 6,077 5,597 35,136 - 35,136
------- ------- -------- -------- ------ -----------
Gross profit 31,988 4,139 7,453 43,580 - 43,580
Selling, general, and administrative
expenses 24,759 3,523 5,227 33,509 (2,223) 31,286
Goodwill amortization 973 69 - 1,042 590 1,632
------- ------- -------- -------- ------ -----------
Income from operations 6,256 547 2,226 9,029 1,633 10,662
Interest expense, net 208 232 12 452 1,065 1,517
------- ------- -------- -------- ------ -----------
Income before income taxes 6,048 315 2,214 8,577 568 9,145
Income tax expense (benefit) 2,809 - 143 2,952 1,359 4,311
------- ------- -------- -------- ------ -----------
Net income (loss) $ 3,239 $ 315 $ 2,071 $ 5,625 $ (791) $ 4,834
======= ======= ======== ======== ====== ===========
Earnings per common share:
Basic $ 0.38
===========
Diluted $ 0.36
===========
Weighted average common shares
outstanding:
Basic 12,789,951
===========
Diluted 13,594,529
===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
-20-
<PAGE> 25
PROVANT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
On May 4, 1998, PROVANT, Inc. ("PROVANT" or the "Company") 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"). Since the IPO, the Company has acquired in separate transactions
eleven additional businesses engaged in providing performance improvement
training services and products. Each of the acquisitions have been accounted for
using the purchase method of accounting with the Company being treated as the
accounting acquiror.
(2) BASIS OF PRESENTATION
The unaudited pro forma consolidated statement of operations for the year ended
June 30, 1998 gives effect to (i) the Combination of PROVANT and the Founding
Companies, (ii) the consummation of the IPO and the application of the net
proceeds, (iii) the acquisition by PROVANT by merger on April 23, 1999 of
Project Management Services, Inc. and its parent, Petrus 1961, Inc.
(collectively, "PMSI"), (iv) PROVANT's acquisition subsequent to the IPO and
prior to the acquisition of PMSI of six additional performance improvement
companies (the "Acquired Companies") and (v) certain other transactions
described in the notes to the unaudited pro forma consolidated financial
statements, as if all of those transactions had occurred on July 1, 1997. The
unaudited pro forma consolidated statement of operations for the six months
ended December 31, 1998 gives effect to PROVANT's acquisition of PMSI and the
Acquired Companies as if they had occurred on July 1, 1998.
The unaudited pro forma consolidated balance sheet gives effect to PROVANT's
acquisition of two companies, Educational Discoveries, Inc. ("EDI") on February
11, 1999 (one of the Acquired Companies) and PMSI as if these acquisitions had
occurred on December 31, 1998.
These pro forma financial statements are based on the historical financial
statements of PROVANT, the Founding Companies, PMSI and the Acquired Companies
and the estimates and assumptions set forth in the notes below.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The unaudited pro forma consolidated financial statements do not
purport to represent what PROVANT's results of operations actually would have
been had such events occurred at the beginning of the periods presented, as
assumed, or to project PROVANT's results of operations for any future period or
the future results of the Founding Companies, PMSI or the Acquired Companies.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the historical financial statements and related notes of
PROVANT, the Founding Companies and certain of the Acquired Companies contained
in PROVANT's Registration Statement on Forms S-4 (File No. 333-74725), as well
as the historical financial statements and related notes of PMSI included in
this filing.
(3) UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The pro forma adjustments to the December 31, 1998 balance sheet reflect the
acquisitions of EDI and PMSI as if those acquisitions had occurred on such date.
The total initial consideration paid for PMSI consisted of cash of $8.7 million
and 929,991 shares of common stock valued at $13.2 million. Shares used as
initial consideration were valued at a discount of 20% from their publicly
traded price due to restrictions on their transferability. The acquisition
adjustments for PMSI reflect the creation of approximately $21.2 million of
goodwill from the payment of the common stock and cash consideration less net
assets of PMSI of approximately $1.2 million and purchase accounting adjustments
of $(5.9) million for write-off of acquired goodwill and other adjustments. The
former stockholders of PMSI will be entitled to receive contingent consideration
(i) if PMSI's earnings before interest and taxes for the year ended June 30,
1999 exceeded a specified base amount, and (ii) PMSI's average annual earnings
before interest and taxes for the two-year period ending June 30, 2001 exceed a
specified base amount.
-21-
<PAGE> 26
PROVANT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
The following table summarizes the adjustments to the unaudited pro forma
consolidated statement of operations for the year ended June 30, 1998 (in
thousands):
<TABLE>
<CAPTION>
Adjustments
------------------------------------------------------
Total
(a) (b) (c) (d) (e) Adjustments
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $ -- $ -- $-- $1,419 $1,419
Cost of revenue -- -- -- 1,056 1,056
---- ----- --- ------ ------ ------
Gross profit -- -- -- 363 363
Selling, general and administrative
expenses (245) -- -- (8,164) (8,409)
Goodwill amortization -- 644(1) -- 2,184 2,828
---- ----- --- ------ ------ ------
Income (loss) from operations 245 (644) -- 6,343 5,944
Interest expense, net -- -- -- (514) (1,442) (1,956)
---- ----- --- ------ ------ ------
Income (loss) before income taxes 245 (644) -- (514) 4,901 3,988
Income tax expense (benefit) -- -- (86)(3) (205)(2) 3,352 3,061
---- ----- --- ------ ------ ------
Net income (loss) $245 $(644) $86 $ (309) $1,549 $ 927
==== ===== === ====== ====== ======
</TABLE>
(a) Reflects the reduction in salaries, bonuses and benefits of $245,000 to
certain of the owners of PMSI to which they agreed prospectively. These
reductions in salaries, bonuses and benefits are in accordance with the terms of
each individual's employment agreement with the Company entered into in
connection with the acquisition. These employment agreements are for three years
and contain restrictions related to competition.
(b) Reflects the amortization of goodwill being recorded as a result of the
acquisition of PMSI over a 40-year estimated life.
(c) Reflects a pro forma provision for income taxes adjusted to reflect the
Company's estimated consolidated effective tax rate subsequent to the
acquisition of PMSI after considering nondeductible goodwill amortization.
(d) Reflects the interest expense, net of income tax benefit, assumed to be
incurred in connection with the cash consideration paid for PMSI.
(e) Reflects combination and acquisition adjustments related to the Combination
and the acquisition of the Acquired Companies. These adjustments are described
in PROVANT's Registration Statement on Form S-4 (File Nos. 333-74725) filed with
the Securities and Exchange Commission on March 19, 1999.
The following table summarizes the adjustments to the unaudited pro forma
consolidated statement of operations for the six months ended December 31, 1998
(in thousands):
<TABLE>
<CAPTION>
Adjustments
------------------------------------------------------
Total
(a) (b) (c) (d) (e) Adjustments
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $ -- $ -- $ -- $ -- $ -- $ --
Cost of revenue -- -- -- -- -- --
------ ----- ----- ----- ------- ------
Gross profit -- -- -- -- -- --
Selling, general and administrative
expenses (1,823) -- -- -- (400) (2,223)
Goodwill amortization -- 265(4) -- -- 325 590
------ ----- ----- ----- ------- ------
Income (loss) from operations 1,823 (265) -- -- 75 1,633
Interest expense, net -- -- -- (257) (808) (1,065)
------ ----- ----- ----- ------- ------
Income (loss) before income taxes 1,823 (265) -- (257) (733) 568
Income tax expense (benefit) -- -- 883(3) (103)(5) 579 1,359
------ ----- ----- ----- ------- ------
Net income (loss) $1,823 $(265) $(883) $(154) $(1,312) $ (791)
====== ===== ===== ===== ======= ======
</TABLE>
-22-
<PAGE> 27
PROVANT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(a) Reflects the reduction in salaries, bonuses and benefits of $1.8 million to
certain of the owners of PMSI to which they agreed prospectively. These
reductions in salaries, bonuses and benefits are in accordance with the terms of
each individual's employment agreement with the Company entered into in
connection with the acquisition. These employment agreements are for three years
and contain restrictions related to competition.
(b) Reflects the amortization of goodwill being recorded as a result of the PMSI
acquisition over a 40-year estimated life.
(c) Reflects a pro forma provision for income taxes adjusted to reflect the
Company's estimated consolidated effective tax rate subsequent to the
acquisition of PMSI after considering nondeductible goodwill amortization.
(d) Reflects the interest expense, net of income tax benefit, assumed to be
incurred in connection with the cash consideration paid for PMSI.
(e) Reflects acquisition adjustments related to the acquisition of five of the
Acquired Companies. These adjustments are described in PROVANT's Registration
Statement on Form S-4 (File Nos. 333-74725) filed with the Securities and
Exchange Commission on March 19, 1999.
(5) PRO FORMA NET INCOME PER SHARE
Pro forma basic earnings per share is computed by dividing pro forma net income
by the pro forma weighted average number of shares of Common Stock assumed to be
outstanding during the period. Pro forma diluted earnings per shares is computed
by dividing pro forma net income by the pro forma weighted average number of
shares of Common Stock and dilutive securities assumed to be outstanding during
the period.
The following table summarizes weighted average shares outstanding for all
periods presented:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
June 30, December 31,
1998 1998
---------- ----------
<S> <C> <C>
Basic weighted average common shares outstanding 12,479,026 12,789,951
Shares to be issued as Contingent Consideration -- 580,120
Dilutive weighted average shares related to stock options and warrants
under the treasury stock method 419,304 224,458
========== ==========
Diluted weighted average common shares outstanding 12,898,330 13,594,529
========== ==========
</TABLE>
(6) STOCK-BASED COMPENSATION
The Company currently has four stock-based compensation plans. As of June 1,
1999, the Company has granted stock options under the Equity Incentive Plan,
1998 Non-Qualified Stock Option Plan and Stock Option Plan for Outside Directors
to purchase an aggregate of 1,644,110 shares of Common Stock having per-share
exercise prices ranging from $11.50 to $19.375. The Company also has issued
52,636 shares under its 1998 Employee Stock Purchase Plan. In addition, the
Company has granted options under its Stock Plan for Non-Employee Directors to
purchase an aggregate of 15,000 shares of Common Stock at a per-share exercise
price of $13.00. The Stock Plan for Non-Employee Directors was terminated in
November 1998 with respect to the future grant of options.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation
expense is recognized for its fixed stock option plans and its stock purchase
plan, except for stock options granted to non-employees. If compensation cost
for the Company's stock-based compensation plans were based on the fair value at
the grant date for the awards under the plans consistent with the method of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), the
Company's pro forma net income and income per share for each period presented,
assuming such options were granted at the beginning of the periods presented and
the compensation element of options with immediate vesting was
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<PAGE> 28
PROVANT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized during the year ended June 30, 1998 and the six months ended December
31, 1998, would have been reduced to the amounts indicated below (Dollars in
thousands except per share data):
Six Months
Year Ended Ended
June 30, December 31,
1998 1998
----------- ------------
Net income:
Pro forma $5,383 $4,834
====== ======
Pro forma for SFAS No. 123 $3,200 $4,133
====== ======
Basic income per common share
Pro forma $ 0.43 $ 0.38
====== ======
Pro forma for SFAS No. 123 $ 0.26 $ 0.32
====== ======
The fair value of the stock options used to calculate the pro forma for SFAS No.
123 amounts was determined using the Black-Scholes option-pricing model with the
following assumptions: volatility of 33%; expected dividend yield of 0%;
risk-free interest rate of 6.0% and an expected life of 4 years.
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<PAGE> 29
(c) EXHIBITS.
23. Consent of Habif, Arogeti & Wynne, P.C.
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<PAGE> 30
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.
PROVANT, INC.
By: /s/ Rajiv Bhatt
-------------------------------------
Rajiv Bhatt, Executive Vice
President and Chief Operating Officer
Date: July 6, 1999
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<PAGE> 1
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-72857, 333-62109 and 333-53473) of PROVANT,
Inc. of our reports dated March 19, 1999 and April 16, 1999 appearing in this
Current Report on Form 8-K.
/s/ Habif, Arogeti & Wynne, P.C.
Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
June 29, 1999
