<PAGE> 1
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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 March 31, 1999
Commission File Number: 000-23989
PROVANT, Inc.
(Exact name of Registrant as Specified in its Charter)
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)
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 May 12, 1999: 16,471,983
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PROVANT, INC.
INDEX
<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and March 31, 1999 3
Pro Forma Combined Statement of Operations for the three months
ended March 31, 1998 and Historical Consolidated Statements
of Operations for the three months ended March 31, 1998 and 1999 4
Pro Forma Combined Statement of Operations for the nine months
ended March 31, 1998 and Historical Consolidated Statements
of Operations for the nine months ended March 31, 1998 and
1999 5
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1998 and 1999 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 14
PART II. - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROVANT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
June 30, March 31,
Assets 1998 1999
-------- ---------
Current Assets: (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $ 6,394 $28,170
Accounts receivable, net of allowance for
doubtful accounts of $740 and $1,689, respectively 19,516 23,589
Inventory 177 4,264
Deferred income taxes 2,127 3,565
Costs in excess of billings 696 2,396
Prepaid expenses and other current assets 1,182 2,284
----------------- --------------------
Total current assets 30,092 64,268
Property and equipment, net 2,548 4,939
Other assets 776 1,120
Goodwill, net 52,942 112,386
----------------- --------------------
Total assets $86,358 $182,713
================= ====================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 3,346 $ 3,779
Accrued expenses 7,361 9,826
Accrued compensation 2,928 4,040
Billings in excess of costs 2,896 3,162
Deferred revenue 669 1,402
Income taxes payable 1,252 119
Current portion of long term debt 533 1,299
----------------- --------------------
Total current liabilities 18,985 23,627
Long term debt, net of current portion 874 1,380
----------------- --------------------
Total liabilities 19,859 25,007
Stockholders' Equity:
Preferred stock, $.01 par value; none issued - -
Common stock, $.01 par value; 9,795,558 and
15,536,992 shares issued and outstanding,
respectively 98 155
Additional paid-in capital 69,462 154,684
Retained earnings (accumulated deficit) (3,061) 2,867
----------------- --------------------
Total stockholders' equity 66,499 157,706
----------------- --------------------
Total liabilities and stockholders' equity $86,358 $182,713
================= ====================
</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 March 31,
----------------------------
1998 1998 1999
---- ---- ----
Pro Forma
Historical Combined Historical
---------- --------- ----------
<S> <C> <C> <C>
Total revenue $ - $ 19,945 $ 36,213
Cost of revenue - 8,475 15,022
----------------- ---------------- ------------------
Gross profit - 11,470 21,191
Selling, general and administrative
expenses 295 8,569 15,574
Goodwill amortization - 334 699
----------------- ---------------- ------------------
Income (loss) from operations (295) 2,567 4,918
Interest and other income (expense), net (47) 3 30
----------------- ---------------- ------------------
Income (loss) before income taxes (342) 2,570 4,948
Provision for income taxes - 1,162 2,259
----------------- ---------------- ------------------
Net income (loss) $ (342) $ 1,408 $ 2,689
================= ================ ==================
Earnings (loss) per common share:
Basic $ (0.10) $0.14 $0.19
================= ================ ==================
Diluted $ (0.10) $0.14 $0.18
================= ================ ==================
Weighted average common shares outstanding:
Basic 3,346,217 9,795,558 14,310,384
================= ================ ==================
Diluted 3,346,217 10,168,889 15,306,769
================= ================ ==================
</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>
Nine Months Ended March 31,
----------------------------
1998 1998 1999
---- ---- ----
Pro Forma
Historical Combined Historical
---------- --------- ----------
<S> <C> <C> <C>
Total revenue $ - $ 55,903 $ 91,663
Cost of revenue - 24,423 38,484
----------------- ---------------- -----------------
Gross profit - 31,480 53,179
Selling, general and administrative
expenses 1,394 24,366 40,333
Goodwill amortization - 1,001 1,672
----------------- ---------------- -----------------
Income (loss) from operations (1,394) 6,113 11,174
Interest and other income (expense), net (95) 2 (178)
----------------- ---------------- -----------------
Income (loss) before income taxes (1,489) 6,115 10,996
Provision for income taxes - 2,846 5,068
----------------- ---------------- -----------------
Net income (loss) $ (1,489) $ 3,269 $5,928
================= ================ =================
Earnings (loss) per common share:
Basic $ (0.48) $ 0.33 $ 0.49
================= ================ =================
Diluted $ (0.48) $ 0.32 $ 0.46
================= ================ =================
Weighted average common shares outstanding:
Basic 3,086,716 9,795,558 12,045,235
================= ================ =================
Diluted 3,086,716 10,168,889 12,913,749
================= ================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
PROVANT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) Nine Months Ended March 31,
---------------------------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,489) $5,928
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Non-cash expense related to the issuance of common stock
and warrants 521 -
Depreciation and amortization 18 2,890
Allowance for doubtful accounts - (43)
Changes in operating assets and liabilities:
Accounts receivable - 2,623
Inventory - (743)
Deferred income taxes - (1,525)
Costs in excess of billings - (155)
Prepaid expenses and other current assets - (1,621)
Other assets (1,017) (250)
Accounts payable and accrued expenses 825 (2,127)
Accrued compensation - (1,137)
Billings in excess of costs - 15
Deferred revenue - (958)
Income taxes payable - (2,704)
-------------------- -----------------
Total adjustments 347 (5,735)
-------------------- -----------------
Net cash provided by (used in) operating activities (1,142) 193
-------------------- -----------------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired - (30,544)
Proceeds from sale of property, plant and equipment - 214
Additions to property and equipment (15) (1,373)
-------------------- -----------------
Net cash used in investing activities (15) (31,703)
-------------------- -----------------
Cash flows from financing activities:
Issuance of common stock 2 54,833
Borrowings of long-term debt - 26,200
Repayment of long-term debt - (27,747)
Increase in notes payable to stockholders 1,186 -
-------------------- -----------------
Net cash provided by financing activities 1,188 53,286
-------------------- -----------------
Net increase in cash and cash equivalents 31 21,776
Cash and cash equivalents, beginning of period 1 6,394
-------------------- -----------------
Cash and cash equivalents, end of period $32 $28,170
==================== =================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ - $ 6,862
==================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
PROVANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 nine months
ended March 31, 1999, the Company acquired in separate transactions seven
additional companies engaged in providing performance improvement training
services and products (collectively such companies are referred to with the
Founding Companies as the "Operating Companies"). Prior to the IPO, PROVANT did
not conduct any revenue generating activities. 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 March 31, 1999 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 in all of its acquisitions to date. 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, (ii) the consummation of the IPO and the application of the net
proceeds therefrom, (iii) acquisitions completed by one of the Founding
Companies prior to the Combination, (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 nine months ended March 31, 1998, the
compensation differential was approximately $800,000 and $4.9 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
7
<PAGE> 8
actually have been if the events indicated above had in fact occurred
on July 1, 1997, or to project what the Company's financial position or results
of operations will be 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.
2. INVENTORY
Inventory consists primarily of film production and other costs associated
with a company acquired during the nine months ended March 31, 1999.
3. ACQUISITIONS
During the quarter ended September 30, 1998, the Company acquired two
companies that provide performance improvement training services and products.
Initial consideration paid by the Company was $16.0 million, consisting of $10.9
million in cash and 430,767 shares of Common Stock. The allocation of the
aggregate purchase price to assets acquired and liabilities assumed resulted in
$12.1 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 purchase price 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 $31.1 million, consisting of $19.3
million in cash and 1,085,476 shares of Common Stock. The allocation of the
aggregate purchase price to assets acquired and liabilities assumed resulted in
$29.8 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 purchase price was funded from cash provided by
operations and $13.7 million of borrowings from the Company's credit facility.
During the quarter ended March 31, 1999, the Company acquired two companies
that provide performance improvement training services and products. Initial
consideration paid by the Company was $10.1 million, consisting of $5.0 million
in cash, $1.0 million in notes and 283,105 shares of Common Stock. The
allocation of the aggregate purchase price to assets acquired and liabilities
assumed resulted in $9.7 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 purchase price was funded from $1.5
million of borrowings from the Company's credit facility and proceeds of the
Company's February 1999 public offering of Common Stock.
During April 1999, the Company acquired an additional company (the
"Subsequent Acquisition") that provides performance improvement training
services and products. Initial consideration paid by the Company was $21.9
million, consisting of $8.7 million in cash and 929,991 shares of Common Stock.
The cash portion of the purchase price was funded from cash provided by
operations and proceeds of the Company's February 1999 public offering of Common
Stock. The acquisition will be accounted for as a purchase transaction.
4. CONTINGENT CONSIDERATION
The agreements between PROVANT and all but one of the Operating Companies
and the Subsequent Acquisition 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 eight Operating Companies and the
Subsequent Acquisition 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. For the Subsequent
Acquisition, additional consideration in the form of cash and shares of Common
Stock is payable if certain performance
8
<PAGE> 9
criteria are met for the year ended June 30, 1999. Contingent Consideration for
the Subsequent Acquisition is based on performance criteria over a two-year
period 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 March 31,
----------------------------
1998 1998 1999
---- ---- ----
Pro Forma
Historical Combined Historical
---------- --------- ----------
<S> <C> <C> <C>
Basic weighted average common shares outstanding 3,346,217 9,795,558 14,310,384
Shares to be issued as Contingent Consideration - - 509,907
Dilutive weighted average shares related to stock options
and warrants under the treasury stock method - 373,331 486,478
-------------- ---------------- ---------------
Diluted weighted average common shares outstanding 3,346,217 10,168,889 15,306,769
============== ================ ===============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1998 1998 1999
---- ---- ----
Pro Forma
Historical Combined Historical
---------- --------- ----------
<S> <C> <C> <C>
Basic weighted average common shares outstanding 3,086,716 9,795,558 12,045,235
Shares to be issued as Contingent Consideration - - 556,716
Dilutive weighted average shares related to stock options
and warrants under the treasury stock method - 373,331 311,798
-------------- ---------------- ---------------
Diluted weighted average common shares outstanding 3,086,716 10,168,889 12,913,749
============== ================ ===============
</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. PROVANT's 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 its 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.
PROVANT's goal is to become the leading single-source provider of high-quality
performance improvement training services and products that are distributed
through multiple delivery methods.
9
<PAGE> 10
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1999
Pro Forma Combined Historical
------------------ ----------
<S> <C> <C> <C> <C>
Total revenue $19,945 100.0% $36,213 100.0%
Cost of revenue 8,475 42.5% 15,022 41.5%
------------ ----------- ----------- ----------
Gross profit 11,470 57.5% 21,191 58.5%
Selling, general and administrative
expenses 8,569 43.0% 15,574 43.0%
Goodwill amortization 334 1.6% 699 1.9%
------------ ----------- ----------- ----------
Income from operations 2,567 12.9% 4,918 13.6%
============ =========== =========== ==========
Net income $1,408 7.1% $2,689 7.4%
============ =========== =========== ==========
</TABLE>
PRO FORMA COMBINED RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (THE "1998
QUARTER") COMPARED TO THE HISTORICAL RESULTS FOR THE THREE MONTHS ENDED MARCH
31, 1999 (THE "1999 QUARTER")
Revenue. Revenue increased $16.3 million, or 81.6%, from $19.9 million in
the 1998 Quarter to $36.2 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
42.5% in the 1998 Quarter to 41.5% in the 1999 Quarter primarily due to revenue
growth greater than the corresponding increase in costs and increased
higher-margin license revenues during the 1999 Quarter.
Gross Profit. Gross profit increased $9.7 million, or 84.8%, from $11.5
million in the 1998 Quarter to $21.2 million in the 1999 Quarter, primarily due
to the growth in revenue. As a percentage of revenue, gross profit increased
from 57.5% in the 1998 Quarter to 58.5% in the 1999 Quarter primarily due to
more efficient use of resources.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.0 million, or 81.7%, from $8.6 million in
the 1998 Quarter to $15.6 million in the 1999 Quarter, primarily due to the
expenses of the businesses acquired during fiscal 1999, the expansion of
corporate infrastructure, increased costs associated with being a public company
and commission costs associated with increased revenue. As a percentage of
revenue, selling, general and administrative expenses remained constant at 43.0%
in both quarters.
Goodwill Amortization. Goodwill amortization increased $365,000, from
$334,000 in the 1998 Quarter to $699,000 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 $1.3 million or 91.0% from $1.4 million in
the 1998 Quarter to $2.7 million in the 1999 Quarter. Diluted earnings per
common share increased $0.04 or 28.6% from $0.14 in the 1998 Quarter to $0.18 in
the 1999 Quarter.
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<PAGE> 11
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 (DOLLARS
IN THOUSANDS):
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1998 1999
Pro Forma Combined Historical
------------------ ----------
<S> <C> <C> <C> <C>
Total revenue $55,903 100.0% 91,663 100.0%
Cost of revenue 24,423 43.7% 38,484 42.0%
-------------- ----------- ----------- ----------
Gross profit 31,480 56.3% 53,179 58.0%
Selling, general and administrative
expenses 24,366 43.6% 40,333 44.0%
Goodwill amortization 1,001 1.8% 1,672 1.8%
-------------- ----------- ----------- ----------
Income from operations 6,113 10.9% 11,174 12.2%
============== =========== =========== ==========
Net income $3,269 5.8% $5,928 6.5%
============== =========== =========== ==========
</TABLE>
PRO FORMA COMBINED RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 1998 (THE "1998
PERIOD") COMPARED TO THE HISTORICAL RESULTS FOR THE NINE MONTHS ENDED MARCH 31,
1999 (THE "1999 PERIOD")
Revenue. Revenue increased $35.8 million, or 64.0%, from $55.9 million in
the 1998 Period to $91.7 million in the 1999 Period. The increase was primarily
attributable to an increased number of government contracts, train-the-trainer
seminars, increased royalties and revenues from businesses acquired during the
1999 Period.
Cost of Revenue. Cost of revenue as a percentage of revenue decreased from
43.7% in the 1998 Period to 42.0% in the 1999 Period primarily due to revenue
growth higher than the corresponding increase in costs and increased
higher-margin license revenues during fiscal 1999.
Gross Profit. Gross profit increased $21.7 million, or 68.9%, from $31.5
million in the 1998 Period to $53.2 million in the 1999 Period, primarily due to
the growth in revenue. As a percentage of revenue, gross profit increased from
56.3% in the 1998 Period to 58.0% in the 1999 Period primarily due to more
efficient use of resources.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $16.0 million, or 65.5%, from $24.4 million in
the 1998 Period to $40.3 million in the 1999 Period, primarily due to the
expenses of the businesses acquired during the 1999 Period, the expansion of
corporate infrastructure, increased 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 43.6% in
the 1998 Period to 44.0% in the 1999 Period primarily due to the expansion of
corporate infrastructure.
Goodwill Amortization. Goodwill amortization increased $671,000, from $1.0
million in the 1998 Period to $1.7 million 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.
Net Income. Net income increased $2.7 million or 81.3% from $3.3 million in
the 1998 Period to $5.9 million in the 1999 Period. Diluted earnings per common
share increased $0.14 or 43.8% from $0.32 in the 1998 Period to $0.46 in the
1999 Period.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash of approximately $28.2 million
and outstanding indebtedness of $2.7 million. The Company has a $75.0 million
credit facility with no related borrowings at March 31, 1999. 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.
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<PAGE> 12
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 $54.8
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 availability under the
credit facility will provide cash sufficient to satisfy the Company's working
capital requirements, debt service requirements and planned capital expenditures
for the next 12 months.
The Company has two effective shelf registration statements on Form S-4. The
first registration statement relates to the issuance of up to 3,000,000 shares
of Common Stock in connection with acquisitions. Of this amount, 1,599,348
shares have been issued through May 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 such date.
The second registration statement also relates to the issuance of up to
3,000,000 shares of Common Stock in connection with acquisitions. Of this
amount, 929,991 shares have been issued through May 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
such date.
During the quarter ended September 30, 1998, the Company acquired two
companies that provide performance improvement training services and products.
Initial consideration paid by the Company was $16.0 million, consisting of $10.9
million in cash and 430,767 shares of Common Stock. The allocation of the
aggregate purchase price to assets acquired and liabilities assumed resulted in
$12.1 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 purchase price 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 $31.1 million, consisting of $19.3
million in cash and 1,085,476 shares of Common Stock. The allocation of the
aggregate purchase price to assets acquired and liabilities assumed resulted in
$29.8 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 purchase price was funded from cash provided by
operations and $13.7 million of borrowings from the Company's credit facility.
During the quarter ended March 31, 1999, the Company acquired two companies
that provide performance improvement training services and products. Initial
consideration paid by the Company was $10.1 million, consisting of $5.0 million
in cash, $1.0 million in notes and 283,105 shares of Common Stock. The
allocation of the aggregate purchase price to assets acquired and liabilities
assumed resulted in $9.7 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 purchase price was funded from $1.5
million of borrowings from the Company's credit facility and proceeds of the
Company's February 1999 public offering of Common Stock.
During April 1999, the Company acquired an additional company (the
"Subsequent Acquisition") that provides performance improvement training
services and products. Initial consideration paid by the Company was $21.9
million, consisting of $8.7 million in cash and 929,991 shares of Common Stock.
The cash portion of the purchase price was funded from cash provided by
operations and proceeds of the Company's February 1999 public offering of Common
Stock. The acquisition will be accounted for as a purchase transaction.
The agreements between PROVANT and all but one of the Operating Companies
and the Subsequent Acquisition 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 eight Operating Companies and the
Subsequent Acquisition 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. For the Subsequent
12
<PAGE> 13
Acquisition, additional consideration in the form of cash and shares of Common
Stock is payable if certain performance criteria are met for the year ended June
30, 1999. Contingent Consideration for the Subsequent Acquisition is based on
performance criteria over a two-year period 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 indicated
the need to replace some personal computers and upgrade two phone switches. The
Company has completed necessary remediation, implementation and final testing of
IT and non-IT systems and products as of 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
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 $76,000 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 June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which requires that all
derivative instruments be recorded on the balance sheet at their fair values.
Changes in the fair value of derivatives are recorded in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
Company will adopt FAS 133 for the Company's fiscal year ending June 30, 2000.
The Company anticipates that the adoption of FAS 133 will not have a material
effect on its financial condition or results of operations.
13
<PAGE> 14
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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) As part of the Combination, the Company agreed to issue shares of Common
Stock to five of the Founding Companies as additional consideration based on
those companies' financial performance during the fiscal year ended June 30,
1999. As a result through March 31, 1999, the Company has issued 901,115 shares
to the former stockholders of such companies. The issuance of the shares as
additional consideration was exempt from the registration requirements of the
Securities Act of 1933, as amended, in accordance with Section 4(2) thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
27. Financial Data Schedule.
B. REPORTS ON FORM 8-K:
None.
14
<PAGE> 15
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: May 14, 1999 By: /s/ Rajiv Bhatt
------------------------------------------------------
Rajiv Bhatt
Executive Vice President, Chief Operating Officer,
Treasurer and Chief Accounting Officer
15
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