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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
COMMISSION FILE NUMBER 000-23989
------------------------
PROVANT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-3395167
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
67 BATTERYMARCH STREET, SUITE 600, BOSTON, MASSACHUSETTS 02110
(Address of principal executive offices)
(617) 261-1600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of each class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 15, 2000, 21,065,141 shares of Common Stock were
outstanding, of which 18,394,450 were beneficially owned by non-affiliates. The
aggregate market value of shares held by non-affiliates was approximately
$147,155,600, based on the last sale price of the Common Stock on such date as
reported by the Nasdaq National Market.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Provant's definitive Proxy Statement for its Annual Meeting of
Stockholders, which will be filed within 120 days of the end of Provant's fiscal
year ended June 30, 2000, are incorporated by reference into Part III hereof as
provided therein.
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Provant, Inc. (together with its subsidiaries, "Provant" or the "Company")
is a leading provider of performance improvement training services and products.
Provant's clients include Fortune 1000 companies, other large and medium-sized
corporations and government entities. The Company offers both customized and
standardized services and products that are designed to improve the performance
of a client's workforce. In addition, the Company offers consulting, needs
assessment and project management services.
Provant resulted from the May 1998 acquisition, in separate combination
transactions (collectively, the "Combination"), of seven providers of
performance improvement services and products (collectively, the "Founding
Companies"). Subsequent to the Combination through September 15, 2000, the
Company has acquired 14 businesses. The Provant companies are recognized leaders
in their respective fields and have developed a wide range of services and
products, a substantial knowledge base created from years of research and
development, and a well-established client base.
BUSINESS STRATEGY
The Company's objective is to become the leading single source provider of
high-quality performance improvement services and products to Fortune 1000
companies and comparably sized government entities. To achieve this objective,
the Company is pursuing a business strategy with the following key elements:
PROVIDE A BROAD RANGE OF SERVICES AND PRODUCTS. The Company offers a broad
array of best-in-class customized and standardized services and products that
are designed to provide measurable improvements in performance and productivity
for both employees and organizations. In addition, the Company offers management
consulting services that are designed to improve its clients' overall corporate
performance, project management services that help clients implement and
complete discrete projects efficiently, and training management services that
enable clients to better manage their performance improvement programs. The
Company believes that its comprehensive service and product offerings will allow
its clients the convenience of "one-stop shopping" so that they can reduce their
reliance on multiple vendors for training content and delivery and maximize
their overall performance improvement results.
UTILIZE MULTIPLE DELIVERY METHODS. The Company offers multiple delivery
methods including instructor-led classroom training, train-the-trainer programs,
CD-ROM, intranets, the Internet, books, and audio and video tapes. The Company's
primary delivery methods can be combined in blended solutions to most
efficiently and effectively address a client's needs.
PROVIDE SPECIALIZED INDUSTRY EXPERTISE. The Company has developed and
continues to develop industry-focused service and product offerings that can
better satisfy its clients' specific performance improvement needs. By
leveraging its existing industry-specific content and delivery capabilities, the
Company can provide clients with customized yet cost-effective performance
improvement solutions. For example, the Company has developed a standard
point-of-sale simulator to assist companies in the retail industry. With minor
modifications, the Company can rapidly customize this product to address the
specific needs of other retailers who rely on point-of-sale devices. The Company
believes that its experience and capabilities developed by serving clients in
certain industries, including the retail, finance, automotive and
telecommunications industries, as well as the government sector, gives it an
important competitive advantage in obtaining new clients in these areas.
PERFORMANCE IMPROVEMENT SERVICES AND PRODUCTS
The Company's services and products enable the Company's clients to provide
training to employees at virtually every level of an organization, access
consulting services that permit the organization as a whole to undergo change,
use project management services to effectively implement and complete strategic
as well as
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training initiatives, and utilize web-based training management services to
better manage and track their training programs. The Company offers the
following customized and standardized products and services:
PERFORMANCE SKILLS. The Company delivers a wide range of services and
products to numerous corporate and government entities that are designed to
provide or improve the skills necessary to perform a particular task or job.
Typically, the Company's experts work closely with its clients to custom-design
performance skills products, training courses and course materials. For example,
the Company has delivered specialized performance skills training on how to
operate a manufacturing system for a paper products company, how to operate
communication switches for a telecommunications company, how to maintain and
repair equipment for a railroad, and how to provide and manage basic medical
care for Army and Navy healthcare personnel.
RECRUITMENT, RETENTION AND CAREER DEVELOPMENT. The Company offers services
and products designed to assist clients in hiring and retaining effective
employees as well as in career development training for employees. In
particular, the Company helps clients understand the skills required of their
employees, implements more effective recruitment and retention processes to
maximize employee productivity, which reduces turnover rates. For example,
Behavioral Interviewing(R) teaches managers how to identify specific job
competencies required for success, interview prospective candidates and evaluate
their skills. Complementing this service and similar services are the Company's
outplacement services, which the Company provides to several federal government
agencies to assist in work force restructuring.
SELLING SKILLS AND CUSTOMER SERVICE. The Company offers services and
products designed to increase customer loyalty and retention, customer service
and sales. The Company's Solution Selling process is widely used by leading
companies, particularly where complex products and services are involved.
Several of the Company's specialized programs, including Creating Loyal
Customers, Customer Service at the Register and Professional Selling, are
designed to improve customer service in the retail workplace by simulating
important retail situations and environments in technology-based delivery
formats.
COMMUNICATION. The Company offers services and products designed to
improve public speaking/ presentation and spoken communication skills. For
example, Effective Communicating is a two-day workshop designed to enable
clients' key staff members to become more effective in public speaking, sales
and other types of oral communication.
MANAGEMENT DEVELOPMENT AND LEADERSHIP. The Company offers services and
products that are designed to improve employees' operational management,
supervisory, leadership skills and decision making skills. For example, Managing
Individual and Team Effectiveness is designed to provide managers in complex
work environments with "360-degree" feedback on their management skills, and the
Just-in-Time Information products provide solutions to common management
problems on CD-ROM. For a major healthcare manufacturing client, the Company
created a general management simulation that helped managers from different
functional areas think more interdependently about delivering customer value.
DIVERSITY AND INCLUSION. The Company offers services and products designed
to help managers and employees understand diversity issues, such as race and
gender. For example, Managing Inclusion is a multi-day session designed to help
individual managers and client companies enhance understanding of workplace
diversity, build morale and satisfaction in the work force, and increase
productivity through more effective team relationships.
NEGOTIATIONS. The Company offers services and products designed to help
employees improve their negotiation skills. For example, Bottom Line Buying Plus
trains merchandise buyers to negotiate to both improve profitability and
strengthen vendor relationships.
NEEDS ASSESSMENT, ORGANIZATIONAL DEVELOPMENT AND CHANGE MANAGEMENT. The
Company's consulting services are designed to help improve overall corporate
performance by assisting clients in, among other things, assessing their
organizational needs given their strategic direction and implementing and
managing change. For example, the Company assisted a large trucking company in
developing alternative organization designs and cost reduction initiatives. By
using Provant's recommendations, the company was able to undertake significant
structural changes and cost-cutting measures. The Company's needs assessment
services help clients to determine where in the client's organization an
improvement in the performance skills of the client's
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employees or in the client's organizational culture will lead to a significant
increase in the client's overall performance. The Company also provides its
clients with a variety of survey tools by which feedback can be gathered and
analyzed on either an organizational or individual basis. The Company develops
the survey forms and methodologies, conducts the surveys, and collects and
analyzes the data for its corporate clients. For example, the Company assisted a
large mortgage bank in identifying critical areas for organizational change by
administering an employee survey to more than 10,000 employees.
PROJECT MANAGEMENT. The Company provides project management services to
help clients with complex project implementation efforts. The Company also
provides project management training programs. These services are designed to
increase clients' profitability by managing the completion of a wide variety of
major projects in a timely and cost-effective basis. For example, the Company
assisted an airline in deploying multimedia equipment for the computer-based
training of its customer service personnel. The Company's responsibilities in
the project included developing the initial project parameters, designing and
managing the construction of training facilities, procuring systems and
coordinating computer equipment delivery and set-up.
TRAINING MANAGEMENT SYSTEMS. The Company provides customized,
organization-wide services that allow clients to better manage a broad range of
performance improvement activities. The Company's web-based training management
systems provide clients with an automated approach to the enrollment, tracking
and measurement of performance improvement activities. The Company can install
these systems at the client's site or operate them from the Company's facility.
For example, the Company developed a web-based training management system for a
manufacturing client that allows the client's 12,000 employees to access a
course catalog, enroll in courses, take tests, review transcripts, company news,
and other information, and will eventually deliver performance improvement
content through the client's intranet.
DELIVERY METHODS
The Company offers multiple delivery methods for its performance
improvement services and products to better serve the particular needs, cost
objectives and cultures of the Company's clients. The Company's primary delivery
methods are described below and can be combined in blended solutions to most
efficiently and effectively address a client's needs.
INSTRUCTOR-LED TRAINING. The Company delivers certain of its programs to
clients' employees through the use of either salaried employees or certified
contract instructors. Most of the Company's instructor-led training is delivered
at clients' facilities, although the Company also delivers certain programs at
the Company's own training facilities. In some cases, the Company's programs are
delivered in a public seminar format to a small group of individuals from
multiple client companies or through video conferencing. The Company typically
provides textual materials as a part of the Company's instructor led programs,
and in some cases sells related supplemental materials. The Company also
develops custom courseware that ultimately is delivered by instructors who are
not affiliated with the Company. The Company's courses and programs generally
range in length from a few hours to several days and include from one to
hundreds of participants.
TRAIN-THE-TRAINER. For several of the Company's services and products, the
Company trains and certifies qualified employees of clients in an instructor-led
program. The certified client employees then are licensed to use the Company's
methodologies and materials to train other employees of the client in
instructor-led classes at client sites. The Company supplies training materials
for these classes and ongoing training for the certified trainers. The Company
receives fees for the employee-led classes on either a per-participant or
per-site basis.
TECHNOLOGY-BASED FORMATS. The Company increasingly delivers its products
in technology-based delivery formats, such as CD-ROM, intranets, the Internet
and other distance-based media. Because of the benefits of technology-based
training, the Company plans to convert an increased number of its products to
technology-based formats to capture the benefits of technology-based training.
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BOOKS AND TAPES. The Company also delivers some of its training through
books and video and audiotapes. The Company offers approximately 400 titles of
standardized books, tapes and other written materials.
CLIENT BASE
The Company seeks to establish long-term relationships with Fortune 1000
companies, other large and medium-sized corporations and government entities
with substantial performance improvement needs. The Company has developed a
broad client base of over 1,500 corporate and government clients. Except for
sales to the U.S. Government entities, no single customer accounted for 10% or
more of the Company's total revenue in fiscal 1998, 1999 or 2000. The Company's
sales to U.S. Government entities accounted for approximately 23%, 12% and 15%
of the Company's total revenue in fiscal 1998, 1999 and 2000, respectively.
SALES AND MARKETING
Each Provant company maintains its own sales force. In addition, the
Company is implementing a national sales initiative including a corporate level
sales force to market its entire portfolio of services and products to strategic
accounts. The Company's sales force numbered 65 at the time of the Company's May
1998 initial public offering (the "IPO"). Since the IPO, the Company's sales
force has grown to approximately 185 from both acquisitions and internal growth.
Through one of its acquisitions, the Company has added a nationwide telesales
organization, through which the Company intends to offer many of its services
and products. The Company also markets and sells its services and products
through public seminars, client referrals, direct marketing, a Web site and
trade publications.
A key component of the Company's marketing strategy is to cross-sell its
various services and products within its existing client base. To aid the
Company's cross-selling efforts, the Company has instituted a compensation
system designed to reward cross selling. The Company also has established a
web-based corporate database that can be accessed by each Provant company to
review company-wide client relationships and service and product capabilities.
Finally, the Company launched a corporate branding campaign to establish
national brand identification for the Provant name, while leveraging the value
of the established names of the Provant companies.
The Company generates significant revenues through sales of services and
products to government entities. Typically, these sales occur through a
competitive bidding process started by the entity's issuance of a request for
proposal ("RFP") for a contemplated project. The Company may submit a proposal
on its own behalf or as a subcontractor to another company. Many services and
products delivered to federal government agencies are provided through orders
placed under a General Services Administration ("GSA") Supply Schedule contract
and under Office of Personnel Management/Training Management Assistance ("OPM").
The Company is one of only a few training providers authorized under both
funding mechanisms. The Company benefits from its status as a preferred provider
under certain funding mechanisms (including the GSA and OPM vehicles), which
allow the Company to negotiate contracts without an RFP.
BOARD OF ADVISORS
The Company has formed a Board of Advisors to assist in identifying
emerging trends in the marketplace and areas where the Company should build
strategic capability through investment or acquisition. The Board of Advisors
currently consists of the following six leaders in the performance improvement
industry:
- Frank Cespedes, Managing Partner, The Center for Executive Development
and former Harvard Business School Professor;
- Marshall Goldsmith, Founding Director, Keilty, Goldsmith & Company;
- Frances Hesselbein, President and Chief Executive Officer of The Peter
F. Drucker Foundation for Non-Profit Management;
- Jon Katzenbach, Author of Teams at the Top and Founder of Katzenbach
Partners, LLC;
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- Edward Lawler, III, Professor and Director of the Center for Effective
Organizations at the University of Southern California; and
- David Ulrich, Consultant and Professor at the University of Michigan.
COMPETITION
The performance improvement industry is highly fragmented and competitive.
The Company believes the principal competitive factors in the industry are the
strength of client relationships, quality of services and products, breadth of
service and product offerings, quality and number of delivery methods,
reputation, and the ability to provide customized services and products.
The Company competes with thousands of privately held training companies,
most of which provide a limited range of services and products. In addition to
these small competitors, a number of larger companies are engaged in the
business of providing performance improvement services and products, including
AchieveGlobal (a subsidiary of the Times Mirror Company), Development Dimensions
International, EPS Solutions, The Forum Corporation (a subsidiary of Pearson
Plc), Wilson Learning Corporation, and several large publishers of professional
reference materials who recently have entered the industry. The Company also
occasionally competes with large professional service companies that generally
offer training services in conjunction with strategic consulting and other
client assignments of larger scope. In addition, many of the Company's clients
and potential clients have internal training departments. Some of the Company's
competitors have significantly greater financial, managerial, technical,
marketing and other resources than the Company. Moreover, the Company expects to
face additional competition from new entrants into the performance improvement
market due, in part, to the evolving nature of the market.
The Company's competitors for government contracts include service
companies such as Booz-Allen & Hamilton, as well as contract suppliers of
equipment to the government such as Raytheon Company and Lockheed Martin
Corporation.
INTELLECTUAL PROPERTY
The Company regards many of its performance improvement services and
products as proprietary and relies primarily on a combination of statutory and
common law copyright, trademark, service mark and trade secret laws, customer
licensing agreements, employee and third-party nondisclosure agreements and
other methods to protect its proprietary rights. There can be no assurance that
third parties will not claim that the Company's current or future products
and/or services infringe on the proprietary rights of others.
EMPLOYEES
As of June 30, 2000, the Company employed 1,569 full-time and part-time
employees. The Company believes that its relationships with its employees are
good. In addition, the Company provides certain of its services and products
through independent contractors, which as of June 30, 2000 numbered
approximately 220.
ITEM 2. PROPERTIES
The Company leases its principal executive office located in Boston,
Massachusetts, and maintains 42 additional leased office locations in 19 states,
one in Canada and one in the United Kingdom. The remaining terms of the
Company's leases are less than eight years. Provant's principal offices are
located in: Alexandria, Virginia; Atlanta, Georgia; Boulder, Colorado;
Charlotte, North Carolina; Columbia, Maryland; West Des Moines, Iowa; Lansing,
Michigan; Lexington, Massachusetts; Long Beach, North Hollywood, and San
Francisco, California; Memphis, Tennessee; Provo, Utah; and Ridgewood, New
Jersey. The Company believes that its facilities are adequate to serve its
current level of operations. If additional facilities are required, the Company
believes that suitable additional or alternative space will be available as
needed on commercially reasonable terms.
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ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time a party to litigation arising in the
ordinary course of business. Management believes that no pending legal
proceeding will have a material adverse effect on the business, financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended June 30, 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
John R. Murphy, age 66, has been Chairman of the Board of the Company and a
consultant to the Company since March 2000. From May 1998 to March 2000, Mr.
Murphy served as a director of the Company. Since March 1998, Mr. Murphy has
served as Vice Chairman of the National Geographic Society ("National
Geographic"). Mr. Murphy has served National Geographic in several capacities,
including as its President and Chief Executive Officer from May 1995 until March
1998, and as its Executive Vice President from May 1993 until May 1995.
Previously, from July 1981 until January 1991, Mr. Murphy served as President
and publisher of The Baltimore Sun. Mr. Murphy is a past President of the United
States Golf Association, and currently serves as a director of Omnicom Group and
MSD&T Mutual Funds.
Curtis M. Uehlein, age 41, has been President, Chief Executive Officer and
a director of the Company since March 2000. From November 1999 to March 2000,
Mr. Uehlein served as President, Chief Operating Officer and a director of the
Company. Prior to joining the Company, Mr. Uehlein spent more than 18 years at
IBM, most recently as head of IBM Learning Services, Americas from 1998 to 1999.
From 1995 to 1997, Mr. Uehlein served as IBM's Director of Multimedia and
Interactive Solutions. From 1992-1994, Mr. Uehlein was Manager of Technology
Solutions at IBM. Mr. Uehlein earned a B.S. in Business from Shippensburg
University in 1981.
John H. Zenger, age 68, has been Vice Chairman of the Board of the Company
since November 1999. From May 1998 to November 1999, Mr. Zenger served as
President and a director of the Company. Prior to the IPO, from May 1997 until
May 1998, Mr. Zenger was a consultant to the Company. From April 1992 to
November 1996, Mr. Zenger was employed in various capacities, including Vice
President and Chairman, by the Times Mirror Training Group, one of the nation's
largest training companies, consisting of Kaset, Learning International and
Zenger Miller, the company that he founded in 1977. Mr. Zenger has taught at the
University of Southern California School of Business and the Stanford Graduate
School of Business. Mr. Zenger received his Doctorate degree in Business
Administration from the University of Southern California, his Masters in
Business Administration from the University of California, Los Angeles and his
Bachelor of Science degree from Brigham Young University.
Dominic J. Puopolo, age 57, has been Vice Chairman of the Board of the
Company since November 1999. From May 1998 to November 1999, Mr. Puopolo served
as Executive Vice President, Chief Financial Officer and a director of the
Company. Prior to the IPO, Mr. Puopolo also served as Treasurer and a director
of the Company. Mr. Puopolo is a co-founder and principal of American Business
Partners LLC. In 1992, Mr. Puopolo co-founded American Medical Response, Inc.
("AMR"). From August 1992 to January 1996, Mr. Puopolo served as Executive Vice
President, Chief Financial Officer, Treasurer and a member of the Board of
Directors of AMR. Mr. Puopolo serves as a member of the Board of Trustees of
Emerson College of Communications and is Chairman of its Resource Development
Committee. Mr. Puopolo also serves on the Executive Committee of the Boston
University School of Medicine and is a member of the Board of Trustees of
Northeastern University. Mr. Puopolo, a Certified Public Accountant, is a member
of the Massachusetts Society of Certified Public Accountants, The American
Institute of Certified Public Accountants and the National Association of
Accountants. Mr. Puopolo received his Masters in Business Administration degree
from Suffolk University and his Bachelor of Science degree in Business
Administration from Northeastern University.
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Rajiv Bhatt, age 42, has been Executive Vice President and Chief Financial
Officer of the Company since November 1999. From December 1998 to November 1999,
Mr. Bhatt served as Executive Vice President and Chief Operating Officer of the
Company. Mr. Bhatt also has served as Treasurer and Chief Accounting Officer of
the Company since May 1998. From May 1998 until December 1998, Mr. Bhatt also
was Senior Vice President of the Company. Prior to the IPO, from August 1997
until May 1998, Mr. Bhatt was a consultant to the Company. From September 1994
to August 1997, Mr. Bhatt was Executive Vice President, Chief Financial Officer
and Treasurer of Summit Technology, Inc., a publicly-traded manufacturer of
ophthalmic laser systems. From September 1988 to September 1994, Mr. Bhatt was
Chief Financial Officer, Secretary and a member of the Board of Directors of
Carlisle Plastics, Inc., a publicly-traded plastics manufacturer. Also from
September 1988 to September 1994, Mr. Bhatt was Chief Financial Officer of
Carlisle Capital Corporation, a privately held mergers and acquisitions company.
Mr. Bhatt serves as a director of Big Brothers Association of Boston. Mr. Bhatt,
a Certified Public Accountant, received his Masters in Business Administration
degree from the University of Michigan and his Bachelor of Commerce degree from
the University of Bombay.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock is quoted on the Nasdaq National Market
("Nasdaq") under the symbol "POVT." The following table sets forth the high and
low sale prices for the common stock for the years ended June 30, 1999 and 2000
of each quarter for the Common Stock as reported by Nasdaq for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999 HIGH LOW
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First Quarter............................................... $19.00 $10.00
Second Quarter.............................................. 24.25 9.50
Third Quarter............................................... 24.75 15.25
Fourth Quarter.............................................. 19.13 12.13
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 2000 HIGH LOW
------------------------ ---- ---
<S> <C> <C>
First Quarter............................................... $18.38 $12.50
Second Quarter.............................................. 26.00 15.25
Third Quarter............................................... 25.25 5.88
Fourth Quarter.............................................. 8.38 2.88
</TABLE>
On September 15, 2000, the last sale price of the Common Stock was $8.00 as
reported by Nasdaq and there were 280 holders of record of Common Stock.
DIVIDEND POLICY
The Company intends to retain all of its earnings to finance the expansion
of its business and for general corporate purposes, and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. Any future
determination as to the payment of dividends on the Common Stock will be at the
discretion of the Board of Directors and will depend upon, among other things,
the Company's future earnings operating and financial condition and capital
requirements, as well as general business conditions and any other factors the
Board of Directors of the Company may consider. In addition, the Company's
credit facility currently restricts the Company's ability to pay dividends
without the consent of the lenders.
RECENT SALES OF UNREGISTERED SECURITIES
On June 1, 2000, in connection with the acquisition of Resolution Software,
Inc., the Company issued warrants to purchase an aggregate of 200,000 shares of
Common Stock at an exercise price of $14.00 per share. The warrants become
exercisable in full on the date of issuance and expire on June 1, 2003. The
transaction was exempt from registration by virtue of Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial
data for the Company which has been derived from the Company's historical
consolidated financial statements included elsewhere in this Report on Form
10-K. For acquisitions accounted for under the purchase method of accounting,
the operating results have been included from the date of acquisition. For the
one acquisition accounted for under the pooling-of-interests method of
accounting, the operating results for all periods presented include the results
of Provant, Senn-Delaney Leadership Consulting Group, Inc. and Senn-Delaney
Leadership Consulting U.K., Ltd. (together "Senn-Delaney Leadership").
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 16, 1996 FOR THE YEAR ENDED JUNE 30,
(DATE OF INCEPTION) --------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) TO JUNE 30, 1997 1998 1999 2000
--------------------------------------------- ------------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.............................. $ 13,847 $ 36,911 $ 165,615 $ 217,359
Cost of revenue............................ 4,169 13,001 65,793 86,754
---------- ---------- ----------- -----------
Gross profit............................... 9,678 23,910 99,822 130,605
Selling, general and administrative
expenses................................. 6,121 32,970 81,743 105,689
Reorganization charge...................... -- -- -- 8,287
Pooling costs.............................. -- -- -- 1,215
Goodwill amortization...................... -- 245 2,622 5,383
---------- ---------- ----------- -----------
Income (loss) from operations.............. 3,557 (9,305) 15,457 10,031
Other income (expense)..................... 13 (21) 884 72
Interest expense, net...................... 31 42 131 2,408
---------- ---------- ----------- -----------
Income (loss) before income taxes.......... 3,539 (9,368) 16,210 7,695
Provision for income taxes(1).............. 1,530 271 8,832 5,922
---------- ---------- ----------- -----------
Net income (loss).......................... $ 2,009 $ (9,639) $ 7,378 $ 1,773
========== ========== =========== ===========
Earnings (loss) per common share:
Basic.................................... $ 0.49 $ (1.48) $ 0.48 $ 0.08
========== ========== =========== ===========
Diluted.................................. $ 0.46 $ (1.48) $ 0.44 $ 0.08
========== ========== =========== ===========
Weighted average common shares outstanding:
Basic.................................... 4,118,806 6,518,455 15,376,145 20,897,579
Diluted.................................. 4,323,908 6,518,455 16,656,475 21,793,771
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1998 1999 2000
---------------------- ------- ------- -------- --------
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BALANCE SHEET DATA:
Working capital................................ $ 6,621 $11,437 $ 9,585 $ 10,207
Total assets................................... 10,871 93,148 298,695 301,461
Long-term debt, net of current portion......... -- 874 9,242 41,699
Stockholders' equity........................... 6,298 66,207 201,584 205,038
</TABLE>
---------------
(1) Through December 12, 1999, Senn-Delaney Leadership had elected to be treated
as an S corporation and, accordingly, there was no provision for income
taxes for periods ending on or prior to that date.
10
<PAGE> 11
STAR MOUNTAIN SELECTED FINANCIAL DATA
Provant reports operating results commencing with its inception on November
16, 1996. For the purpose of providing five full years of selected historical
financial data, as required under the Securities Act, the following historical
selected financial data for Star Mountain, a significant predecessor company, is
presented. The selected data for the years ended December 31, 1995, 1996 and
1997 and the period January 1, 1998 to May 4, 1998 is derived from, and should
be read in conjunction with, Star Mountain's audited financial statements (and
the notes thereto) appearing elsewhere in this Report on Form 10-K. The data
presented below is neither comparable to nor indicative of Star Mountain's or
Provant's post-Combination financial position or results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------------------ JANUARY 1, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1996 1997 TO MAY 4, 1998
--------------------------------------------- ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................................ $ 14,306 $ 16,313 $ 23,775 $ 11,052
Cost of revenue.............................. 8,668 9,457 14,504 6,109
---------- ---------- ---------- ----------
Gross profit................................. 5,638 6,856 9,271 4,943
Selling, general and administrative
expenses................................... 4,411 5,476 7,591 3,650
---------- ---------- ---------- ----------
Income from operations....................... 1,227 1,380 1,680 1,293
Interest and other income (expense), net..... (235) (379) (406) (137)
---------- ---------- ---------- ----------
Income before provision for income taxes..... 992 1,001 1,274 1,156
Provision for income taxes(1)................ -- 397 546 457
---------- ---------- ---------- ----------
Net income................................... $ 992 $ 604 $ 728 $ 699
========== ========== ========== ==========
Earnings per common share:
Basic...................................... $ 0.11 $ 0.07 $ 0.09 $ 0.09
========== ========== ========== ==========
Diluted.................................... $ 0.11 $ 0.07 $ 0.08 $ 0.08
========== ========== ========== ==========
Weighted average common shares outstanding:
Basic...................................... 8,825,000 8,422,000 8,078,000 8,074,000
Diluted.................................... 8,963,000 8,565,000 8,823,000 8,871,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
(DOLLARS IN THOUSANDS) 1995 1996 1997
---------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 942 $ 871 $ 64
Total assets............................... 4,775 5,983 10,677
Long term debt, net of current portion..... -- -- 304
Stockholders' equity....................... 1,859 2,010 2,778
</TABLE>
---------------
(1) Through December 31, 1995, Star Mountain had elected to be treated as an S
corporation and, accordingly, there was no provision for income taxes for
periods ending on or prior to that date.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements as a result of any number of factors, including the
risk factors set forth in the Company's Registration Statement on Form S-4 (File
No. 333-74725).
FOUNDING COMPANIES
The Company's operations in the performance improvement industry began in
May 1998 when the Company acquired the seven Founding Companies in the
Combination.
In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97"), relating to business combinations
immediately prior to an initial public offering, which required that business
combinations like the Combination to be accounted for using the purchase method
of accounting. Under the purchase method, PROVANT was designated as the
accounting acquiror of the Founding Companies in the Combination. Approximately
$53.2 million, representing the excess of the fair value of the consideration
received in the Combination over the fair value of the net assets acquired, was
recorded as goodwill on the Company's June 30, 1998 balance sheet. During fiscal
1999 and 2000, the Company recorded additional goodwill of $45.2 million with
respect to the acquisition of the Founding Companies, in connection with the
contingent consideration provisions of the Founding Company merger agreements.
Goodwill is being amortized as a non-cash charge to the Company's income
statement over a 40-year period. The amount amortized, however, is not
deductible for tax purposes.
PURCHASE ACQUISITIONS SINCE THE COMBINATION
Since the Combination, the Company has acquired 14 businesses. All of these
acquisitions except one were accounted for under the purchase method of
accounting. During fiscal 1999, the Company acquired in separate transactions 11
additional businesses engaged in providing performance improvement training
services and products (collectively such companies are referred to as the
"Fiscal 1999 Acquisitions"). During fiscal 2000, the Company acquired in
separate transactions accounted for as purchases two additional businesses
engaged in providing performance improvement training services and products
(collectively such companies are referred to as the "Fiscal 2000 Purchase
Acquisitions"). Also during fiscal 2000, the Company acquired Senn-Delaney
Leadership in an acquisition accounted for as a pooling-of-interests.
Through August 31, 2000, the aggregate purchase price paid for the Fiscal
1999 Acquisitions was $127.6 million, consisting of $57.6 million in initial
cash consideration, $9.0 million in contingent cash consideration, $7.3 million
of convertible notes payable, 3,436,187 shares of Common Stock valued at $45.1
million, 582,806 shares of Common Stock issued as contingent consideration
valued at $6.4 million and $2.2 million accrued at June 30, 2000 as contingent
consideration. In addition, the former owners of certain of these businesses are
entitled to receive contingent consideration based upon the future performance
of these businesses. For accounting purposes, any contingent consideration paid
in these acquisitions will be treated as additional purchase price.
Through August 31, 2000, the aggregate purchase price paid for the Fiscal
2000 Purchase Acquisitions was $8.2 million, consisting of $2.6 million in cash,
$5.2 million of notes payable as consideration and warrants to purchase 200,000
shares of Common Stock valued at $0.4 million. The warrants to purchase 200,000
shares of Common Stock are exercisable at a per share exercise price of $14.00
per share. The warrants expire on June 1, 2003. None of the Fiscal 2000 Purchase
Acquisitions provide for the payment of any contingent consideration.
Goodwill is being amortized as a non-cash charge to the Company's income
statement over a 40-year period. The amount amortized, however, is not
deductible for tax purposes.
POOLING OF INTERESTS
In December 1999, the Company acquired Senn-Delaney Leadership Consulting
Group, Inc. and Senn-Delaney Leadership Consulting, U.K. Ltd. (together,
"Senn-Delaney Leadership") for an aggregate purchase
12
<PAGE> 13
price of 2,168,286 shares of Common Stock in an acquisition accounted for as a
pooling-of-interests. In connection with the acquisition, the Company also
assumed Senn-Delaney Leadership options that were converted into options to
purchase an aggregate of 352,212 shares of the Company's Common Stock. As
required under the pooling-of-interests method, the results of all periods
presented include the results of Provant and Senn-Delaney Leadership.
REORGANIZATION PROGRAM
In fiscal 2000, the Company recorded charges related to its reorganization
program of $11.7 million. Of this $11.7 million, approximately $1.4 million was
recorded through cost of revenue, $2.0 million was recorded through selling,
general and administrative expense and $8.3 million was recorded as a
reorganization charge. The reorganization program includes the elimination of
executive positions, a reduction in service delivery and administrative
employees, the combination of certain redundant operating facilities,
abandonment of certain property, equipment and leasehold improvements, and the
elimination of certain services and products.
REVENUES, COSTS AND EXPENSES
The Company receives revenue from five main sources: (i) instructor-led and
train-the-trainer seminars; (ii) license fees; (iii) custom services and
products; (iv) consulting and training management services; and (v) standardized
products. The Company recognizes revenue from instructor-led training and
train-the-trainer programs, usually on a participant basis, when the training is
delivered. From its train-the-trainer arrangements, the Company also recognizes
license fees on a per-participant basis when a certified client trainer delivers
the Company's courses and materials to other employees of the client. The
Company recognizes revenue from a site license when the Company has no further
obligations with respect to the license, which is usually upon delivery. The
Company recognizes maintenance fees on our training management services as they
are performed over the life of the contract. The Company generally recognizes
revenue from its custom services and products based on the
percentage-of-completion method. The Company recognizes revenue from fees for
its consulting services, for which it charges an hourly or per diem rate, when
the consulting is provided. The Company also recognizes revenue for its
standardized products, such as books or videotapes, when the products are
delivered.
Cost of revenue primarily consists of: (i) salaries and benefits for the
Company's instructors, consultants and course designers and costs of independent
contractors; and (ii) the cost of developing, designing and producing training
courses and materials, including materials costs. As a result, the Company's
gross margins are affected by the number of instructors, consultants and course
designers and their utilization during any given period.
Selling, general and administrative expenses consist primarily of salaries,
benefits and bonuses for the Company's corporate, sales, marketing and
administrative personnel, and marketing and advertising expenses for the
Company's services and products. Selling, general and administrative expenses
also include incentive and discretionary bonuses paid to executives and other
key employees. Other selling, general and administrative expenses include
non-reimbursable travel expenses, rent, depreciation, telecommunication costs,
postage and other operating costs.
RESULTS OF OPERATIONS
The following historical consolidated financial information represents the
operations of Provant and subsidiaries. For acquisitions accounted for under the
purchase method of accounting, the operating results have been included from the
date of acquisition. For the one acquisition accounted for under the pooling-of-
interests method of accounting, the operating results for all periods presented
included the results of Provant and Senn Delaney Leadership.
The following historical financial information for the year ended June 30,
1998 includes a non-recurring fee of $750,000 paid upon completion of the IPO
for information related to the training industry, non-cash compensation expense
totaling $686,000 related to the issuance of Common Stock and stock options to
officers
13
<PAGE> 14
of and consultants to the Company, and non-recurring Combination-related costs
of $588,000, and reflects normal recurring corporate costs of Provant subsequent
to the IPO.
The following historical financial information for the years ended June 30,
1998, 1999 and 2000 include compensation of $9.9 million, $7.9 million and $3.3
million, respectively, related to certain employee owners of Senn-Delaney
Leadership. When such amounts are referred to as compensation differential, this
represents pro forma adjustments to salary, bonus, and benefits paid to certain
employee owners of Senn-Delaney Leadership to certain levels to which they have
contractually agreed prospectively.
This historical consolidated information has been derived from the audited
financial statements of the Company included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1999 2000
---------------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue...................... $36,911 100.0% $165,615 100.0% $217,359 100.0%
Cost of revenue.................... 13,001 35.2 65,793 39.7 86,754 39.9
------- ----- -------- ----- -------- -----
Gross profit....................... 23,910 64.8 99,822 60.3 130,605 60.1
Selling, general and administrative
expenses......................... 32,970 89.3 81,743 49.4 105,689 48.6
Reorganization charge.............. -- -- -- -- 8,287 3.8
Pooling costs...................... -- -- -- -- 1,215 0.6
Goodwill amortization.............. 245 0.7 2,622 1.6 5,383 2.5
------- ----- -------- ----- -------- -----
Income (loss) from operations...... (9,305) (25.2) 15,457 9.3 10,031 4.6
------- ----- -------- ----- -------- -----
Other income (expense)............. (21) (0.1) 884 0.5 72 --
Interest expense, net.............. 42 0.1 131 0.1 2,408 1.1
Provision for income taxes......... 271 0.7 8,832 5.3 5,922 2.7
------- ----- -------- ----- -------- -----
Net income (loss).................. $(9,639) (26.1)% $ 7,378 4.5% $ 1,773 0.8%
======= ===== ======== ===== ======== =====
</TABLE>
RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 ("1998") COMPARED TO THE
YEAR ENDED
JUNE 30, 1999 ("1999")
Revenue. Revenue increased $128.7 million, from $36.9 million in 1998 to
$165.6 million in 1999. The increase was due to the inclusion in 1999 of the
operating results of the Founding Companies for an entire year and the inclusion
of the operating results for the 11 businesses acquired during 1999 from their
respective dates of acquisition.
Cost of Revenue. Cost of revenue increased $52.8 million, from $13.0
million in 1998 to $65.8 million in 1999. The increase was due to the inclusion
in 1999 of the operating results of the Founding Companies for an entire year
and the inclusion of the operating results for the 11 businesses acquired during
1999 from their respective dates of acquisition. Cost of revenue as a percentage
of revenue increased from 35.2% in 1998 to 39.7% in 1999 primarily due to a
reduction in higher-margin license revenues during 1999 for Senn-Delaney
Leadership.
Gross Profit. Gross profit increased $75.9 million, from $23.9 million in
1998 to $99.8 million in 1999. The increase was due to the inclusion in 1999 of
the operating results of the Founding Companies for an entire year and the
inclusion of the operating results for the 11 businesses acquired during 1999
from their respective dates of acquisition. As a percentage of revenue, gross
profit decreased from 64.8% in 1998 to 60.3% in 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $48.8 million, from $33.0 million in 1998 to
$81.7 million in 1999. The increase was due to the inclusion of the operating
results of the Founding Companies for an entire year and the inclusion of the
operating results for the 11 businesses acquired during 1999 from their
respective dates of acquisition.
Included in selling, general and administrative expenses is $9.9 million
and $7.9 million of Senn-Delaney Leadership compensation differential related
expense for 1998 and 1999. Excluding the compensation
14
<PAGE> 15
differential, as a percentage of revenue, selling, general and administrative
expenses decreased from 62.5% in 1998 to 44.6 % in 1999.
Goodwill Amortization. Goodwill amortization increased $2.4 million, from
$245,000 in 1998 to $2.6 million in 1999, due to additional goodwill recorded in
connection with acquisitions completed during 1998 and 1999 and contingent
consideration issued to five of the Founding Companies during 1999.
Other Income (Expense). Other income for 1999 consisted primarily of a
non-recurring gain of $982,000 from the settlement of litigation by Senn-Delaney
Leadership.
Interest Expense, net. Interest expense, net increased $89,000 from
$42,000 in 1998 to $131,000 in 1999, due to increased borrowings under the line
of credit and notes payable assumed in connection with certain of the 11
businesses acquired during 1999.
Net Income (Loss). Net income (loss) increased $17.0 million from a $(9.6)
million loss in 1998 to a $7.4 million profit in 1999. Diluted earnings per
common share increased $1.92 from a $(1.48) loss in 1998 to a $0.44 profit in
1999.
RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1999 ("1999") COMPARED TO THE
YEAR ENDED JUNE 30, 2000 ("2000")
Revenue. Revenue increased $51.8 million, from $165.6 million in 1999 to
$217.4 million in 2000. The increase was mainly attributable to the inclusion in
2000 of the operating results of the 11 businesses acquired during 1999 for an
entire year as well as increased service revenue, train-the-trainer seminars,
license fees and royalties.
Cost of Revenue. Cost of revenue increased $21.0 million, from $65.8
million in 1999 to $86.8 million in 2000. The increase was due to the inclusion
in 2000 of the operating results of the 11 businesses acquired during 1999 for
an entire year. Cost of revenue as a percentage of revenue increased from 39.7%
in 1999 to 39.9% in 2000 primarily due to a $1.4 million reorganization charge
recorded in 2000 related to the Company's reorganization program. Excluding the
$1.4 million charge, cost of revenue as a percentage of revenue decreased from
39.7% in 1999 to 39.3% in 2000.
Gross Profit. Gross profit increased $30.8 million, from $99.8 million in
1999 to $130.6 million in 2000. The increase was due to the inclusion in 2000 of
the operating results of the 11 businesses acquired during 1999 for an entire
year. As a percentage of revenue, gross profit decreased from 60.3% in 1999 to
60.1% in 2000. Excluding the $1.4 million reorganization charge, gross profit as
a percentage of revenue increased from 60.3% in 1999 to 60.7% in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $24.0 million, from $81.7 million in 1999 to
$105.7 in 2000. The increase was primarily due to the inclusion in 2000 of the
operating results of the 11 businesses acquired during 1999 for an entire year.
Included in selling, general and administrative expenses for 2000 is a $2.0
million charge related to the reorganization program. Included in selling,
general and administrative expenses is $7.9 million and $3.3 million of
Senn-Delaney Leadership compensation differential for 1999 and 2000,
respectively. Excluding the compensation differential and reorganization charge,
as a percentage of revenue, selling, general and administrative expenses
increased from 44.6% in 1999 to 46.1% in 2000 due to the expansion of corporate
infrastructure.
Pooling Costs. Pooling costs consist of accounting, legal, investment
banker fees and due diligence expenses incurred in connection with the
acquisition of Senn-Delaney Leadership.
Goodwill Amortization. Goodwill amortization increased $2.8 million, from
$2.6 million in 1999 to $5.4 million in 2000, due to additional goodwill
recorded in connection with acquisitions completed during 1999 and contingent
consideration recorded during 1999 and 2000.
15
<PAGE> 16
Other Income (Expense). Other income for 1999 consisted primarily of a
non-recurring gain of $982,000 from the settlement of litigation by Senn-Delaney
Leadership. Other income for 2000 consisted primarily of a $362,000 gain
recorded on proceeds of $833,000 from the sale of a business.
Interest Expense, net. Interest expense, net increased $2.3 million from
$131,000 in 1999 to $2.4 million in 2000, due to increased borrowings under the
line of credit and higher interest rates during 2000.
Income Taxes. Provision for income taxes decreased from $8.8 million in
1999 to $5.9 million in 2000, due to decreased pre-tax income in fiscal 2000.
Net Income. Net income decreased $5.6 million from $7.4 million in 1999 to
$1.8 million in 2000. Diluted earnings per common share decreased $0.36 from
$0.44 in 1999 to $0.08 in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company used approximately $5.5 million of cash in operating activities
during 1998. The Company generated net cash from operating activities of
approximately $6.4 million and $685,000 in 1999 and 2000, respectively. Net cash
used in investing activities was $19.5 million in 1998 and $55.8 million in
1999, primarily for acquisitions of businesses and purchases of property and
equipment. Net cash used in investing activities was $43.5 million in 2000,
primarily for payment of contingent consideration, acquisitions of businesses
and purchases of property and equipment.
As of June 30, 2000 the Company had cash of approximately $2.2 million and
outstanding indebtedness under a credit facility of $38.0 million. The Company
currently has a $105.0 million credit facility, guaranteed by all of the
Company's subsidiaries and secured by a pledge of the capital stock of certain
of the Company's subsidiaries. The Company can use the credit facility to
finance acquisitions (including the refinancing of indebtedness of acquired
companies), working capital and general corporate purposes. Loans made under the
credit facility bear interest at a rate, at the Company's option, based on
either a Eurodollar rate or the bank's prime rate. The credit facility, which
terminates on December 31, 2001, (i) generally prohibits the Company from paying
dividends and other distributions, (ii) generally does not permit the Company to
incur or assume other indebtedness, and (iii) requires the Company to comply
with certain financial covenants. As of September 15, 2000, $42.5 million was
outstanding under the credit facility. The Company expects to pay $968,000 as
additional contingent consideration to certain former stockholders of the
acquired businesses through borrowings under the revolving credit arrangement in
the second quarter of fiscal 2001.
In February 1999, the Company completed a public offering of 3,022,750
shares of Common Stock, from which the Company received net proceeds of
approximately $54.4 million. Of this amount, $22.4 million was used to repay
outstanding indebtedness under the credit facility, $24.5 million was used for
acquisitions, $6.3 million was used to repay indebtedness of an acquired company
and $1.2 million was used for the Company's working capital needs.
The Company anticipates that its cash flow from operations and borrowings
under the credit facility will provide cash sufficient to satisfy the Company's
future acquisitions, working capital needs, debt service requirements and
planned capital expenditures for the next 12 months.
The Company has two effective shelf registration statements on Form S-4.
Each registration statement relates to the issuance of up to 3,000,000 shares of
Common Stock in connection with acquisitions. Of those shares, 3,758,888 shares
have been issued through September 15, 2000 and a currently undeterminable
number of shares may become issuable as contingent consideration under the
registration statements with respect to acquisitions completed before such date.
The Company intends to pursue acquisition opportunities from time to time.
The timing, size or success of any acquisition and the associated potential
capital commitments are unpredictable. The Company expects to fund future
acquisitions through the issuance of shares of common stock, borrowings,
including use of amounts available under its revolving credit arrangement, and
cash flow from operations. To the extent the Company funds a significant portion
of the consideration for future acquisitions with cash, it may have to increase
the amount of the revolving credit arrangement or obtain other sources of
financing.
16
<PAGE> 17
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants, issued Staff Accounting
Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements," ("SAB
101"), which provides guidance on the ability to recognize revenue when it is
realized or realizable and earned. Subsequently, the Staff issued SAB 101B,
which delayed the required implementation until the fourth fiscal quarter for
years beginning after December 15, 1999. SAB 101 requires companies currently
not in compliance to retroactively apply the SAB to all periods presented. The
Company is evaluating the impact the adoption of SAB 101 may have on the
Company's financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 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 SFAS No. 133 in the first quarter of the
Company's fiscal year ending June 30, 2001, pursuant to SFAS No. 137, which
delayed the implementation date. In June 2000, the FASB issued SFAS No. 138,
which eases the implementation difficulties of SFAS No. 133; however, the
effective date remains unchanged. The Company anticipates that the adoption of
SFAS No. 133 will not have a material effect on its financial condition or
results of operations.
RESULTS OF OPERATIONS -- STAR MOUNTAIN
Star Mountain provides customized work skills training, primarily to
federal, state and local government agencies. Star Mountain delivers its
courseware to clients in a variety of formats (including written materials and
interactive multimedia software), but typically does not directly train its
clients. Star Mountain's revenue is derived primarily from fees received from
the provision of training services as a contractor or subcontractor under
government contracts.
The following table sets forth certain selected financial data for Star
Mountain on an historical basis and as a percentage of revenue for the periods
indicated. For all periods presented below, selling, general and administrative
expenses include amounts classified as "Other, net" in Star Mountain's
historical financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------------------ JANUARY 1, 1998
(DOLLARS IN THOUSANDS) 1996 1997 TO MAY 4, 1998
---------------------- ---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue.............................. $16,313 100.0% $23,775 100.0% $11,052 100.0%
Cost of revenue...................... 9,457 58.0 14,504 61.0 6,109 55.3
------- ----- ------- ----- ------- -----
Gross profit......................... 6,856 42.0 9,271 39.0 4,943 44.7
Selling, general and administrative
expenses........................... 5,815 35.6 7,897 33.2 3,682 33.3
------- ----- ------- ----- ------- -----
Income from operations............... $ 1,041 6.4% $ 1,374 5.8% $ 1,261 11.4%
======= ===== ======= ===== ======= =====
Compensation differential............ $ 304 1.9% $ 180 0.8% $ 28 0.3%
</TABLE>
RESULTS FOR THE PERIOD FROM JANUARY 1, 1998 TO MAY 4, 1998 (THE "1998
PERIOD") -- STAR MOUNTAIN
Total Revenue. Revenue was $11.0 million in the 1998 Period. Revenue was
derived primarily from federal government contracts including: (i)
instructor-led and train-the-trainer seminars; (ii) license fees; (iii) custom
services and products; (iv) consulting services; and (v) off-the-shelf products.
Cost of Revenue. Cost of revenue was $6.1 million in the 1998 Period. As a
percentage of revenue, cost of revenue was 55.3%. These costs consist primarily
of: (i) salaries and benefits for the Company's instructors,
17
<PAGE> 18
consultants and course designers and costs of independent contractors; and (ii)
the cost of developing, designing and producing training courses and materials,
including material costs.
Gross Profit. Gross profit was $4.9 million in the 1998 Period. As a
percentage of revenue, gross profit was 44.7%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $3.7 million in the 1998 Period. As a percentage of
revenue, selling, general and administrative expenses were 33.3%. These costs
consist primarily of salaries, benefits and bonuses for the Company's corporate,
sales, marketing and administrative personnel, and marketing and advertising
expenses for the Company's services and products.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 ("1997") COMPARED TO THE YEAR ENDED
DECEMBER 31, 1996 ("1996") -- STAR MOUNTAIN
Revenue. Revenue increased $7.5 million, or 45.7%, from $16.3 million in
1996 to $23.8 million in 1997, primarily due to an increase in the number of
federal government contracts undertaken, as well as revenue of $5.6 million
contributed by businesses acquired during the third quarter of 1996 and the
first and fourth quarters of 1997. Revenue was significantly lower during the
first half of 1996 as a result of a decline in new client engagements due to
prolonged Congressional budget negotiations.
Cost of Revenue. Cost of revenue increased $5.0 million, or 53.4%, from
$9.5 million in 1996 to $14.5 million in 1997. As a percentage of revenue, cost
of revenue increased from 58.0% in 1996 to 61.0% in 1997, primarily due to the
increased use of subcontractors during 1997.
Gross Profit. Gross profit increased $2.4 million, or 35.2%, from $6.9
million in 1996 to $9.3 million in 1997. As a percentage of revenue, gross
profit decreased from 42.0% in 1996 to 39.0% in 1997, primarily due to increased
subcontracting costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.1 million, or 35.8%, from $5.8 million in
1996 to $7.9 million in 1997. The owners and key employees of Star Mountain
agreed in the Combination to certain adjustments in their annual historical
salaries, bonuses and benefits. The difference between the base salary of the
owners and key employees immediately after the Combination and their salaries,
bonuses and benefits during a comparable period is referred to as the
"Compensation Differential." Excluding the Compensation Differential of
approximately $304,000 and approximately $180,000 attributable to Star Mountain
in 1996 and 1997, respectively, selling, general and administrative expenses
would have increased $2.2 million, or 40.0%, from $5.5 million in 1996 to $7.7
million in 1997. As a percentage of revenue, selling, general and administrative
expenses would have decreased on an adjusted basis from 33.8% in 1996 to 32.5%
in 1997, primarily due to the company's larger revenue base.
LIQUIDITY AND CAPITAL RESOURCES -- STAR MOUNTAIN
Star Mountain generated net cash from operating activities of approximately
$1.1 million and $864,000 in the years ended December 31, 1996 and 1997,
respectively, and generated approximately $115,000 in operating activities in
the 1998 Period. Net cash used in investing activities was $565,000 and $2.3
million in the years ended December 31, 1996 and 1997, respectively, primarily
in connection with acquisitions, and approximately $264,000 in the 1998 Period
for property and equipment capital expenditures. Net cash used in financing
activities was $478,000 in the year ended December 31, 1996. Net cash provided
by financing activities was $1.8 million and approximately $129,000 in the year
ended December 31, 1997 and the 1998 Period, respectively, primarily from
borrowings on the company's line of credit.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests its cash in money market instruments. These investments
are denominated in U.S. dollars. Due to the conservative nature of these
instruments, the Company does not believe that it has a material exposure to
interest rate or market risk. The investment portfolio is used to preserve the
Company's
18
<PAGE> 19
capital until it is required to fund operations or acquisitions. None of these
instruments are held for trading purposes. The Company does not own derivative
financial instruments.
The Company is exposed to interest rate risk in the ordinary course of
business. For fixed rate debt, interest rate changes affect the fair value but
do not affect earnings or cash flow. Conversely, for floating rate debt,
interest rate changes generally do not affect the fair market value, but do
affect future earnings or cash flow. A one-percentage increase in interest rates
would have a material effect on the Company's future earnings or cash flow.
Based on the Company's borrowings of $38.0 million under the credit facility as
of June 30, 2000, a one-percentage increase in interest rates would decrease
cash flow by approximately $0.4 million and earnings, net of taxes, by
approximately $0.2 million.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROVANT, INC. AND SUBSIDIARIES:
Independent Auditors' Report.............................. 21
Consolidated Balance Sheets............................... 22
Consolidated Statements of Operations..................... 23
Consolidated Statements of Stockholders' Equity........... 24
Consolidated Statements of Cash Flows..................... 25
Notes to Consolidated Financial Statements................ 26
Quarterly Results (Unaudited)............................. 45
STAR MOUNTAIN, INC. AND SUBSIDIARIES:
Independent Auditors' Reports............................. 46
Consolidated Balance Sheets............................... 48
Consolidated Statements of Operations..................... 49
Consolidated Statements of Stockholders' Equity........... 50
Consolidated Statements of Cash Flows..................... 51
Notes to Consolidated Financial Statements................ 53
</TABLE>
20
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders,
Provant, Inc.:
We have audited the accompanying consolidated balance sheets of Provant,
Inc. and subsidiaries, as of June 30, 1999 and 2000 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three year period ended June 30, 2000. In connection with our
audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule as listed in Item 14(a)2 of this
report. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Provant,
Inc. and subsidiaries as of June 30, 1999 and 2000 and the results of their
operations and their cash flows for each of the years in the three year period
ended June 30, 2000, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, the related consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Boston, Massachusetts
August 8, 2000
21
<PAGE> 22
PROVANT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 2000
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 7,616 $ 2,232
Accounts receivable, net of allowance for doubtful
accounts of $742 and $1,158, respectively............. 33,085 38,090
Contract receivables................................... 6,103 6,555
Inventory.............................................. 4,470 4,423
Deferred taxes......................................... 2,791 3,621
Costs in excess of billings............................ 6,965 5,834
Prepaid expenses and other current assets.............. 3,561 3,208
-------- --------
Total current assets.............................. 64,591 63,963
Property and equipment, net................................. 7,238 8,548
Other assets................................................ 3,387 3,737
Goodwill, net............................................... 223,479 225,213
-------- --------
Total assets...................................... $298,695 $301,461
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 8,412 $ 9,257
Accrued expenses....................................... 22,323 13,714
Accrued compensation................................... 8,332 8,639
Billings in excess of costs............................ 7,391 5,501
Deferred revenue....................................... 1,480 676
Income taxes payable................................... 5,591 1,110
Accrued reorganization costs........................... -- 4,366
Current portion of long term debt...................... 1,477 10,493
-------- --------
Total current liabilities......................... 55,006 53,756
Accrued contingent consideration............................ 32,863 968
Long term debt, net of current portion...................... 9,242 41,699
-------- --------
Total liabilities................................. 97,111 96,423
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding
Common stock, $.01 par value; 40,000,000 shares
authorized; 19,325,893 and 20,975,985 shares issued
and outstanding at June 30, 1999 and 2000,
respectively.......................................... 193 210
Additional paid-in capital............................. 178,675 197,937
Shares issuable as contingent consideration............ 18,881 1,283
Retained earnings...................................... 3,835 5,608
-------- --------
Total stockholders' equity........................ 201,584 205,038
-------- --------
Total liabilities and stockholders' equity.................. $298,695 $301,461
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
PROVANT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1998 1999 2000
---------- ----------- -----------
<S> <C> <C> <C>
Total revenue........................................ $ 36,911 $ 165,615 $ 217,359
Cost of revenue...................................... 13,001 65,793 86,754
---------- ----------- -----------
Gross profit.................................... 23,910 99,822 130,605
Selling, general and administrative expenses......... 32,970 81,743 105,689
Reorganization charge................................ -- -- 8,287
Pooling costs........................................ -- -- 1,215
Goodwill amortization................................ 245 2,622 5,383
---------- ----------- -----------
Income (loss) from operations................... (9,305) 15,457 10,031
Other income (expense), net.......................... (21) 884 72
Interest expense, net................................ 42 131 2,408
---------- ----------- -----------
Income (loss) before income taxes............... (9,368) 16,210 7,695
Income tax expense................................... 271 8,832 5,922
---------- ----------- -----------
Net income (loss)............................... $ (9,639) $ 7,378 $ 1,773
========== =========== ===========
Pro forma adjustments for Pooling-of-Interests
(unaudited):
Compensation differential....................... 3,344
Pooling costs................................... 1,215
Income tax provision............................ (1,259)
-----------
Pro forma net income............................ $ 5,073
===========
Earnings (loss) per common share:
Basic........................................... $ (1.48) $ 0.48 $ 0.08
========== =========== ===========
Diluted......................................... $ (1.48) $ 0.44 $ 0.08
========== =========== ===========
Pro forma earnings per common share (unaudited):
Basic........................................... $ 0.24
===========
Diluted......................................... $ 0.23
===========
Weighted average common shares outstanding:
Basic........................................... 6,518,455 15,376,145 20,897,579
Diluted......................................... 6,518,455 16,656,475 21,793,771
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
PROVANT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL SHARES ISSUABLE AS RETAINED
------------------- PAID-IN CONTINGENT EARNINGS
SHARE AMOUNT CAPITAL CONSIDERATION (DEFICIT) TOTAL
---------- ------ ---------- ------------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997........ 4,118,806 $ 42 $ 160 $ -- $ 6,096 $ 6,298
Issuance of stock:
Issuance of management
shares..................... 1,395,697 13 473 -- -- 486
Acquisition of Founding
Companies.................. 3,459,341 35 35,942 -- -- 35,977
Issuance of shares sold in
Initial Public Offering.... 2,990,000 30 32,625 -- -- 32,655
Issuance of stock options and
warrants................... -- -- 422 -- -- 422
Net loss........................ -- -- -- -- (9,639) (9,639)
---------- ---- -------- -------- ------- --------
Balance at June 30, 1998........ 11,963,844 120 69,622 -- (3,543) 66,199
Issuance of stock:
Issuance of shares for
acquisitions............... 3,378,047 34 44,439 -- -- 44,473
Issuance of shares for
Contingent Consideration... 901,115 9 9,363 -- -- 9,372
Issuance of shares sold in
Public Offering............ 3,022,750 30 54,402 -- -- 54,432
Issuance of shares under
employee benefit plans..... 52,636 -- 755 -- -- 755
Exercise of stock options..... 7,501 -- 94 -- -- 94
Shares issuable as contingent
consideration................. -- -- -- 18,881 -- 18,881
Net income...................... -- -- -- -- 7,378 7,378
---------- ---- -------- -------- ------- --------
Balance at June 30, 1999........ 19,325,893 $193 $178,675 $ 18,881 $ 3,835 $201,584
Issuance of stock:
Issuance of shares for
acquisitions............... 58,139 1 598 -- -- 599
Issuance of shares for
Contingent Consideration... 1,450,139 14 16,399 (18,881) -- (2,468)
Issuance of shares under
employee benefit plans..... 59,006 1 783 -- -- 784
Exercise of stock options..... 82,808 1 873 -- -- 874
Shares issuable as contingent
consideration................. -- -- -- 1,283 -- 1,283
Warrants issued for
acquisition................... -- -- 400 -- -- 400
Tax benefit from disqualifying
dispositions.................. -- -- 209 -- -- 209
Net income...................... -- -- -- -- 1,773 1,773
---------- ---- -------- -------- ------- --------
Balance at June 30, 2000........ 20,975,985 $210 $197,937 $ 1,283 $ 5,608 $205,038
========== ==== ======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
PROVANT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1998 1999 2000
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(9,639) $ 7,378 $ 1,773
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 560 4,684 8,873
Allowance for doubtful accounts........................ 135 2 314
Charges related to issuance of common stock, warrants
and stock options.................................... 908 -- --
Non-cash reorganization charge......................... -- -- 3,252
Gain on sales of businesses............................ -- -- (362)
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,864) (1,289) (4,623)
Contract receivables................................. (581) 1,192 (452)
Inventory............................................ -- (949) (1,541)
Deferred taxes....................................... (1,191) (751) --
Due from stockholders................................ 600 -- --
Costs in excess of billings.......................... (1,021) (3,799) 309
Prepaid expenses and other current assets............ (148) (2,986) 231
Other assets......................................... 106 (1,763) 131
Accounts payable and accrued expenses................ 2,990 3,444 (7,944)
Accrued compensation................................. 1,229 (833) 303
Billings in excess of costs.......................... 1,640 3,230 (1,888)
Deferred revenue..................................... 228 (1,642) (824)
Accrued reorganization costs......................... -- -- 4,366
Income taxes payable................................. 580 444 (1,233)
------- -------- --------
Total adjustments................................. 4,171 (1,016) (1,088)
------- -------- --------
Net cash provided by (used in) operating
activities...................................... (5,468) 6,362 685
------- -------- --------
Cash flows from investing activities:
Payment of contingent consideration.................... -- -- (33,342)
Proceeds from sales of businesses...................... -- -- 833
Acquisitions of businesses, net of cash acquired....... (19,302) (52,856) (3,740)
Proceeds from sale of property, plant and equipment.... -- 214 --
Additions to property and equipment.................... (227) (3,205) (7,266)
------- -------- --------
Net cash used in investing activities................ (19,529) (55,847) (43,515)
------- -------- --------
Cash flows from financing activities:
Issuance of common stock............................... 32,665 55,270 1,658
Decrease in notes payable to stockholders.............. (298) -- --
Borrowings under line of credit........................ -- 28,200 57,250
Repayments under line of credit........................ -- (34,192) (20,750)
Repayment of long-term debt............................ (5,772) -- (712)
------- -------- --------
Net cash provided by financing activities............ 26,595 49,278 37,446
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 1,598 (207) (5,384)
Cash and cash equivalents, beginning of period.............. 6,225 7,823 7,616
------- -------- --------
Cash and cash equivalents, end of period.................... $ 7,823 $ 7,616 $ 2,232
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND 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 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 "IPO")
of its common stock (the "Common Stock") and simultaneously acquired in separate
merger transactions seven companies engaged in providing performance improvement
training services and products (collectively referred to as the "Founding
Companies"). Since the completion of the IPO, the Company acquired in separate
transactions 14 additional businesses engaged in providing performance
improvement training services and products (collectively such companies are
referred to with the Founding Companies as the "Operating Companies"). The
Company provides services nationally, and has offices in 19 states, one in
Canada and one in the United Kingdom.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
For financial statement purposes, Provant has been identified as the
accounting acquiror in all of its acquisitions accounted for under the purchase
method. Accordingly, the consolidated financial statements include the accounts
of Provant since its date of inception, November 16, 1996, and the accounts of
the Operating Companies since their respective dates of acquisition for those
accounted for using the purchase method. The allocations of the purchase prices
to the assets acquired and liabilities assumed of certain of the companies
acquired in fiscal 2000 have been recorded based on preliminary estimates of
fair value and may be changed as additional information becomes available.
In December 1999, Provant acquired Senn-Delaney Leadership Consulting
Group, Inc. and Senn-Delaney Leadership Consulting U.K., Ltd. (together,
"Senn-Delaney Leadership") in an acquisition accounted for as a
pooling-of-interests. As required under the pooling-of-interests method, the
results of all periods presented include the results of Provant and Senn-Delaney
Leadership.
The pro forma adjustments give effect to (i) the compensation differential,
(ii) pooling-related costs, and (iii) provision for income taxes using an
effective corporate tax rate of 41.5% for Senn-Delaney Leadership and 40% for
Provant, adjusted for non-tax deductible goodwill. The compensation differential
represents pro forma adjustments to salary, bonus and benefits paid to certain
employee owners of Senn-Delaney Leadership to which they have contractually
agreed prospectively. The aggregate compensation differential for the year ended
June 30, 2000 was $3.3 million.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Provant, its wholly-owned subsidiaries and subsidiaries in which a controlling
interest is held. All significant inter-company accounts and transactions have
been eliminated.
Revenue Recognition
The Company recognizes revenue when services are performed and related
products are delivered. The Company recognizes revenue from a site license when
the Company has no further obligations with respect to the license, which is
usually upon delivery. A significant portion of the Company's revenue results
from services performed under long-term contracts, either directly or through
subcontracts. The majority of the Company's long-term contracts are fixed-price
contracts. Revenue on fixed price contracts is recognized using
26
<PAGE> 27
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the percentage of completion method based on costs incurred in relation to total
estimated costs. Revenue on time-and-materials contracts is recognized to the
extent of fixed billable rates for hours delivered plus reimbursable costs.
Revenue on cost-plus-fee contracts is recognized based on reimbursable costs
incurred plus estimated fees earned thereon. Deferred revenue is recognized for
payments received prior to services being performed. The asset "costs in excess
of billings" represents revenues recognized in excess of amounts billed. The
liability "billings in excess of costs" represents billings in excess of
revenues recognized. Provisions for the total estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Cash Flow Information
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Cash paid for interest in fiscal 1998, 1999 and 2000 was $118,000,
$345,000, and $2,037,000, respectively. Cash paid for taxes in fiscal 1998, 1999
and 2000 was $14,000, $8,744,000 and $7,645,000, respectively.
The Company recorded the following non-cash transactions during fiscal
1998, 1999 and 2000 (Dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1998 1999 2000
---- ------ ------
<S> <C> <C> <C>
Discount on indebtedness associated with issuance of stock
warrants.................................................. $221 $ -- $ --
Compensation expense in connection with sales of Company
stock..................................................... $485 $ -- $ --
Compensation expense in connection with stock options
granted to consultants to the Company..................... $201 $ -- $ --
Issuance of notes payable for acquired businesses........... $ -- $7,298 $5,175
</TABLE>
The following is a reconciliation of net cash paid for acquisitions during
fiscal 1998, 1999 and 2000 (Dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1998 1999 2000
-------- -------- -------
<S> <C> <C> <C>
Fair value of assets acquired....................... $ 82,386 $197,131 $12,871
Liabilities assumed................................. (21,954) (26,661) (883)
Additional purchase price accrued but not yet
paid.............................................. (755) (51,744) (2,250)
Notes payable issued................................ -- (7,298) (5,175)
Fair value of stock and warrant consideration....... (35,977) (53,845) (400)
-------- -------- -------
Cash paid........................................... 23,700 57,583 4,163
Less cash acquired.................................. (4,398) (4,727) (423)
-------- -------- -------
Net cash paid for acquisitions................. $ 19,302 $ 52,856 $ 3,740
======== ======== =======
</TABLE>
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable, contract receivables, accounts
payable, accrued expenses and accrued contingent consideration approximate fair
value due to the short term nature of these instruments. The carrying value of
the long-term debt approximates fair value based on current rates available to
the Company for debt of similar maturity and terms.
27
<PAGE> 28
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Film cost inventory is stated at the lower of cost or net realizable value.
Amortization of film cost inventories is computed primarily by the
individual-film-forecast method, which provides for amortization of film costs
in the ratio that current gross revenues bear to estimated gross revenues over
the life of the film. Estimates of anticipated gross revenues are reviewed
periodically and revised when necessary to reflect more current information.
Unamortized film costs are compared with net realizable value each reporting
period on a film-by-film basis. If estimated future gross revenues from a film
are not sufficient to recover the unamortized film costs, the unamortized film
costs are written down to net realizable value. It is reasonably possible that
the Company's estimates of anticipated future gross revenues and the
recoverability of the remaining estimated unamortized film cost, or both, could
be sensitive to change in the near term based upon changes in future market
conditions.
Other inventories are stated at the lower of average cost or market.
Property and Equipment
Property and equipment are stated at cost and include additions and major
replacements or betterments. Depreciation is computed using accelerated and
straight-line methods over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the expected life
of the lease or the estimated useful life of the asset. Maintenance and repairs
are expensed when incurred. Upon retirement or disposition of property and
equipment, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in the statement of
operations.
Goodwill
Goodwill represents the excess of the aggregate purchase price paid by the
Company over the fair value of the net assets acquired. Goodwill is amortized on
a straight-line basis over 40 years.
The estimated fair value is based on the excess of the purchase price over
the estimated fair value of the tangible and other intangible assets acquired
and liabilities assumed. Recoverability of goodwill is measured by a comparison
of the carrying amount of the asset to future undiscounted net cash flows
expected to be generated by the acquired Company. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment, based upon undiscounted future cash flows, and appropriate losses
are recognized whenever the carrying amount of an asset may not be recovered in
accordance with Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of.
Capitalized Computer and Educational Software Development Costs
Capitalized computer and educational software development costs consist of
costs to develop and purchase computer and educational software to be licensed
or otherwise marketed to customers. Development costs incurred in the research
and development of new computer and educational software products and
enhancements to existing products are expensed in the period incurred, unless
these costs qualify for capitalization in accordance with Statement of Financial
Accounting Standards No. 86, Accounting for the Costs of Computer Software to Be
Sold, Leased or Otherwise Marketed. Capitalized computer and educational
software development costs are amortized over the economic lives of the related
products, typically three to five years, beginning at their initial shipment
date. Capitalized computer and educational software development costs of
$400,000 and $1,761,000 are included in other assets at June 30, 1999 and 2000,
respectively.
28
<PAGE> 29
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accumulated amortization was $85,000 and $277,000 as of June 30, 1999 and 2000,
respectively. Amortization expense was $85,000 and $192,000 for fiscal 1999 and
2000, respectively.
Concentrations of Credit Risk
The Company provides services to customers located in a broad range of
geographical regions. The Company's credit risk primarily consists of
receivables from a variety of customers including U.S. Government entities and
commercial and industrial companies. The Company reviews its accounts receivable
and provides allowances as deemed necessary.
The Company's sales to U.S. Government entities accounted for approximately
23%, 12% and 15% of the Company's total revenue in fiscal 1998, 1999 and 2000,
respectively. The Company had contract receivables as of June 30, 1999 and 2000
of approximately $6.1 million and $6.6 million from U.S Government entities.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect, if any, on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Accounting for Stock-Based Compensation
The Company applies Accounting Principles Board ("APB") Opinion 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock option plans. Accordingly, compensation expense is
recorded for options issued to employees in fixed amounts to the extent that the
fixed exercise prices are less than the fair market value of the Company's
common stock at the date of grant. The Company follows the disclosure
requirements of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation (Note 14). All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing income
(loss) available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings (loss) per common share
is based upon the weighted average number of common shares outstanding during
the period plus additional weighted average common equivalent shares outstanding
during the period when the effect is dilutive. Common equivalent shares result
from the assumed exercise of outstanding stock options or warrants, the proceeds
of which are then assumed to repurchase outstanding stock using the treasury
stock method. Common equivalent shares are not included in the diluted earnings
(loss) per common share calculation if their effect would be anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of revenues, expenses, assets,
liabilities and contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
29
<PAGE> 30
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
(3) BUSINESS COMBINATIONS
Concurrently with the completion of its IPO on May 4, 1998, Provant
acquired the Founding Companies. During fiscal 1999, the Company acquired in
separate transactions 11 additional businesses engaged in providing performance
improvement training services and products (collectively such companies are
referred to as the "Fiscal 1999 Acquisitions"). During fiscal 2000, the Company
acquired in separate transactions that were accounted for as purchases two
additional businesses engaged in providing performance improvement training
services and products (collectively such companies are referred to as the
"Fiscal 2000 Purchase Acquisitions"). Also during fiscal 2000, the Company
acquired Senn-Delaney Leadership in an acquisition accounting for as a
pooling-of-interests.
PURCHASE METHOD OF ACCOUNTING
The acquisition of each of the Founding Companies, the Fiscal 1999
Acquisitions and the Fiscal 2000 Purchase Acquisitions were accounted for using
the "purchase" method of accounting. Accordingly, the results of operations for
the acquired businesses have been included since their respective dates of
acquisition. The purchase agreements between Provant and all but three of these
acquired companies provided for the payment of additional, contingent
consideration (the "Contingent Consideration") based upon the future performance
of these businesses. For accounting purposes, any Contingent Consideration paid
in these acquisitions is treated as additional purchase price. (See Note 12)
The aggregate purchase price for the Founding Companies was $105.5 million,
consisting of $24.3 million in initial cash consideration, $25.8 million in cash
Contingent Consideration, 3,459,341 shares of Common Stock issued as initial
consideration valued at $36.0 million, and 1,768,448 shares of Common Stock
issued as Contingent Consideration valued at $19.4 million.
The aggregate purchase price paid to date for the Fiscal 1999 Acquisitions
was $127.6 million, consisting of $57.6 million in initial cash consideration,
$9.0 million in cash Contingent Consideration, $7.3 million of convertible notes
payable, 3,436,187 shares of Common Stock valued at $45.1 million, 582,806
shares of Common Stock issued as Contingent Consideration valued at $6.4 million
and $2.2 million accrued at June 30, 2000 as contingent consideration.
The aggregate purchase price for the Fiscal 2000 Purchase Acquisitions is
$8.2 million, consisting of $2.6 million in cash, $5.2 million of notes payable
and warrants to purchase 200,000 shares of Common Stock valued at $0.4 million.
The warrants to purchase 200,000 shares of Common Stock are exercisable at a per
share exercise price of $14.00 per share. The warrants expire on June 1, 2003.
The consolidated balance sheet as of June 30, 2000 includes allocations of
the respective purchase prices of the Founding Companies, Fiscal 1999
Acquisitions and Fiscal 2000 Purchase Acquisitions to the assets acquired and
liabilities assumed based on estimates of fair value. The allocations for
certain of the Fiscal 2000 Purchase Acquisitions were based on preliminary
estimates of fair value and are subject to final adjustment. The allocations
resulted in $53.2 million, $173.2 million and $7.2 million of goodwill recorded
during fiscal 1998, 1999 and 2000, respectively, which represents the excess of
purchase price over the estimated fair value
30
<PAGE> 31
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the net assets acquired. In conjunction with these acquisitions, goodwill was
determined as follows (Dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1998 1999 2000
-------- -------- -------
<S> <C> <C> <C>
Cash paid, net of cash acquired..................... $ 19,302 52,856 2,160
Additional purchase price accrued but not yet
paid.............................................. 755 51,744 2,250
Cash paid as contingent consideration............... -- -- 1,520
Fair value of stock consideration issued............ 35,977 53,845 598
Fair value of warrants issued....................... -- -- 400
Notes payable issued................................ -- 7,298 5,175
Liabilities assumed................................. 21,954 26,661 883
Less fair value of tangible assets acquired, net of
cash acquired..................................... (24,801) (19,245) (5,774)
-------- -------- -------
Goodwill............................................ $ 53,187 $173,159 $ 7,212
======== ======== =======
</TABLE>
The unaudited pro forma combined financial data presented below consists of
the income statement data presented in these consolidated financial statements
plus income statement data for the Founding Companies, Fiscal 1999 Acquisitions,
and Fiscal 2000 Purchase Acquisitions as if they were acquired effective July 1,
1997 (Dollars in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1998 1999 2000
-------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Revenue............................................ $174,602 $213,303 $223,685
Net income......................................... $ 7,322 $ 16,363 $ 5,305
Basic Earnings per common share............... $ 0.45 $ 0.93 $ 0.25
Diluted Earnings per common share............. $ 0.44 $ 0.89 $ 0.24
</TABLE>
The unaudited pro forma combined financial data gives effect to (i) the
acquisition of the Operating Companies, (ii) the consummation of the IPO and the
application of the net proceeds therefrom, (iii) the elimination of a
non-recurring fee of $750,000 in the year ended June 30, 1998 for information
related to the training industry, (iv) acquisitions completed by one of the
Founding Companies, (v) the elimination of non-cash compensation expense
totaling $686,000 for the year ended June 30, 1998 related to the issuance of
Common Stock and stock options to officers of and consultants to the Company,
(vi) a provision for income tax for the Operating Companies that were taxed as S
corporations during the relevant periods, (vii) the elimination of non-recurring
legal and accounting fees related to the IPO and acquisition of the Operating
Companies, (vii) the compensation differential and (viii) the elimination of
pooling related costs incurred in connection with the acquisition of
Senn-Delaney Leadership. The compensation differential represents pro forma
adjustments to salary, bonuses and benefits paid to certain owners of the
Operating Companies to certain levels to which they have agreed prospectively.
The unaudited pro forma combined results presented above are not
necessarily indicative of actual results which might have occurred had the
operations and management teams of Provant and the Operating Companies been
combined at the beginning of the periods presented.
POOLING OF INTERESTS METHOD
In December 1999, Provant acquired Senn-Delaney Leadership for an aggregate
purchase price of 2,168,286 shares of Common Stock in an acquisition accounted
for as a pooling-of-interests. In connection with the merger, the Company also
assumed Senn-Delaney Leadership options that were converted into options to
purchase an aggregate of 352,212 shares of the Company's Common Stock.
31
<PAGE> 32
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the pooling-of-interests method of accounting, the
results of operations previously reported by the separate enterprises and the
combined amounts presented in the accompanying consolidated financial statements
are summarized below (Dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1998 1999 2000
---------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Provant.................................... $ 14,189 $ 138,676 $ 185,103
Senn-Delaney Leadership.................... 22,722 26,939 32,256
---------- ----------- -----------
Combined................................... $ 36,911 $ 165,615 $ 217,359
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1998 1999 2000
---------- ----------- -----------
<S> <C> <C> <C>
Net Income:
Provant.................................... $ (2,894) $ 9,711 $ (286)
Senn-Delaney Leadership.................... (6,745) (2,333) 2,059
---------- ----------- -----------
Combined................................... $ (9,639) $ 7,378 $ 1,773
========== =========== ===========
</TABLE>
(4) BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per common share for fiscal 1998, 1999, and 2000 (Dollars in
thousands):
<TABLE>
<CAPTION>
1998 1999 2000
---------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income (loss).......................... $ (9,639) $ 7,378 $ 1,773
========== =========== ===========
Denominator:
Basic weighted average common shares
outstanding............................. 6,518,455 15,376,145 20,897,579
Effect of dilutive securities: stock
options, warrants and convertible
notes................................... -- 505,311 671,237
Effect of securities under contingent
consideration arrangements.............. -- 775,019 224,955
---------- ----------- -----------
Diluted weighted average common shares
outstanding............................. 6,518,455 16,656,475 21,793,771
========== =========== ===========
</TABLE>
The number of shares to be issued as contingent consideration are included
as outstanding in the calculation of diluted weighted average common shares upon
the related performance criteria having been met, the number of shares being
determined, and the effect on basic earnings per common share is dilutive. (See
Note 12)
The following securities that could potentially dilute future basic
earnings per common share were not included in the computations of diluted
earnings per common share because to do so would have been anti-dilutive:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------
1998 1999 2000
---------- ----------- -----------
<S> <C> <C> <C>
Stock options................................ 42,942 66,152 1,131,807
Warrants..................................... 18,400 -- 632,984
---------- ----------- -----------
Total........................................ 61,342 66,152 1,764,791
========== =========== ===========
</TABLE>
32
<PAGE> 33
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) CONTRACT ACCOUNTING
Contract receivables are summarized as follows (Dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 2000
--------- ---------
<S> <C> <C>
U.S. Government customers:
Amounts due currently -- prime contractor................... $ 4,568 $ 5,540
Amounts due currently -- subcontractor...................... 928 602
Recoverable costs and accrued profit on progress
completed -- not billed................................... 481 313
Retainage................................................... 126 100
--------- ---------
Total....................................................... $ 6,103 $ 6,555
========= =========
</TABLE>
In accordance with industry practice, amounts relating to long-term
contracts are classified as current assets although an indeterminable portion of
these amounts is not expected to be realized within one year. Receivable
balances billed but not paid by customers pursuant to retainage provisions in
contracts are due upon completion of the contracts and acceptance by the
customer. Based on the Company's experience with similar contracts in recent
years, the retention balance is billed and collected in the following fiscal
year.
All unbilled contract receivables, net of retainage, are expected to be
billed and collected within one year.
Costs in excess of billings and billings in excess of costs are summarized
as follows (Dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 2000
--------- ---------
<S> <C> <C>
Costs incurred and estimated earnings on uncompleted
contracts................................................. $ 135,688 $ 174,102
Less: Billings to date...................................... (136,114) (173,769)
--------- ---------
$ (426) $ 333
========= =========
Included in the accompanying balance sheet under the
following captions:
Costs in excess of billings............................... $ 6,965 $ 5,834
========= =========
Billings in excess of costs............................... $ (7,391) $ (5,501)
========= =========
</TABLE>
(6) INVENTORIES
Inventories consist of the following (Dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 2000
--------- ---------
<S> <C> <C>
Released film costs......................................... $ 8,352 $ 7,694
Accumulated amortization on released film costs............. (4,869) (5,394)
Film in progress............................................ 21 818
Other inventory............................................. 966 1,305
--------- ---------
Total inventory............................................. $ 4,470 $ 4,423
========= =========
</TABLE>
33
<PAGE> 34
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) NON-CURRENT ASSETS
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
USEFUL LIFE 1999 2000
----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Equipment........................................... 3 - 7 years $ 6,877 $ 8,532
Software............................................ 3 years 938 2,813
Furniture and fixtures.............................. 3 - 7 years 1,609 1,480
Leasehold improvements.............................. 3 - 7 years 672 681
------- -------
Property and equipment.............................. 10,096 13,506
Less accumulated depreciation and amortization...... (2,858) (4,958)
------- -------
Property and equipment, net......................... $ 7,238 $ 8,548
======= =======
</TABLE>
Depreciation expense was $315,000, $2,062,000 and $3,490,000 for fiscal
1998, 1999, and 2000 respectively.
Goodwill amortization expense was $245,000, $2,622,000, and $5,383,000 for
fiscal 1998, 1999, and 2000 respectively. Accumulated amortization was
$2,867,000 and $8,250,000 as of June 30, 1999 and 2000, respectively.
(8) ACCRUED EXPENSES
Accrued expenses consist of the following (Dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------
1999 2000
------- -------
<S> <C> <C>
Accrued lease abandonment costs............................. $ 792 $ 680
Accrued taxes............................................... 5,642 4,628
Accrued profit distribution................................. 6,005 --
Other accrued liabilities................................... 9,884 8,406
------- -------
Total....................................................... $22,323 $13,714
======= =======
</TABLE>
Accrued profit distribution consists of Senn-Delaney Leadership's accrued
profits for periods prior to being acquired by Provant. These amounts were
distributed to certain former employee owners of Senn-Delaney Leadership during
fiscal 2000.
(9) REORGANIZATION AND OTHER CHARGES
In fiscal 2000, the Company recorded charges related to its reorganization
program of $11.7 million. Of this $11.7 million, approximately $1.4 million was
recorded through cost of sales, $2.0 million was recorded through selling,
general and administrative expenses and $8.3 million was recorded as a
reorganization charge.
The reorganization program includes the elimination of executive positions,
reduction in service delivery and administrative employees, the combination of
certain redundant operating facilities, abandonment of certain property,
equipment and leasehold improvements, and the elimination of certain services
and products, which are not material to the Company's business. As part of the
reorganization program, the Company plans on terminating approximately 190
employees, of which, 178 employees were terminated as of June 30, 2000.
34
<PAGE> 35
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amounts recorded related to the reorganization program were as follows
(Dollars in thousands):
<TABLE>
<CAPTION>
SELLING,
GENERAL AND
REORGANIZATION COST OF ADMINISTRATIVE TOTAL
CHARGE SALES EXPENSE CHARGES
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Executive severance.................. $3,884 $ -- $ -- $ 3,884
Employee severance................... 813 -- -- 813
Employee retention................... -- -- 444 444
Lease termination costs.............. 2,361 -- 2,361
Inventory and contract termination
costs.............................. -- 1,385 -- 1,385
Abandonment of property and
equipment.......................... 629 -- 1,378 2,007
Other costs related to eliminated
activities......................... 600 -- 214 814
------ ------ ------ -------
Total................................ $8,287 $1,385 $2,036 $11,708
====== ====== ====== =======
</TABLE>
The following table summarizes the activity related to the reorganization
program costs at June 30, 2000 (Dollars in thousands):
<TABLE>
<CAPTION>
NON-
BEGINNING CASH CASH ENDING
BALANCE CHARGE PAYMENTS BALANCE
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Severance and retention benefits.... $ 5,141 $ (309) $(2,687) $ 2,145
Exit costs.......................... 3,175 (7) (947) 2,221
Asset impairments................... 3,392 (3,392) -- --
------- ------- ------- -------
Total............................... $11,708 $(3,708) $(3,634) $ 4,366
======= ======= ======= =======
</TABLE>
The Company expects to make future cash payments of approximately $4.4
million in fiscal 2001 and beyond. The severance and lease obligations will be
disbursed over a period based upon the terms of the severance and lease
agreements.
(10) DEBT AND CREDIT ARRANGEMENTS
Borrowings are summarized as follows (Dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 2000
------- --------
<S> <C> <C>
Notes payable to former stockholders........................ $ 2,613 $ 6,808
Convertible notes payable................................... 6,328 6,718
Revolving credit arrangement................................ 1,500 38,000
Capital lease obligations................................... 278 666
------- --------
$10,719 $ 52,192
Less current portion of debt and capital lease
obligations............................................... (1,477) (10,493)
------- --------
Long-term debt and capital lease obligations................ $ 9,242 $ 41,699
======= ========
</TABLE>
Notes Payable to Former Stockholders
Notes payable to former stockholders consists primarily of amounts due to
former stockholders of the Operating Companies. These notes mature through June
2009 and bear interest at rates ranging from 7.0% to 14.2%.
35
<PAGE> 36
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Convertible Notes Payable
In connection with an acquisition, the Company issued an aggregate of
$7,132,000 of convertible non-interest bearing promissory notes ("promissory
notes"). The promissory notes are convertible at the election of the holders at
the conversion price of $16.125 per share into an aggregate of approximately
442,295 shares of Common Stock. The promissory notes were recorded at
$6,328,000, the net present value, based on a 6% interest rate.
Revolving Credit Arrangement
The Company has entered into a revolving credit facility with Fleet
National Bank (as agent). The facility provides the Company with a revolving
line of credit of up to $105.0 million, guaranteed by all of the Company's
subsidiaries and secured by a pledge of the capital stock of certain of the
Company's subsidiaries. The credit facility may be used for refinancing of
existing indebtedness, acquisitions, working capital and general corporate
purposes. Loans made under the credit facility bear interest, at the Company's
option, at a rate based on either a Eurodollar rate or the bank's prime rate. In
addition, a commitment fee is payable on the unused portion of the revolving
line of credit at a rate of between 0.25% and 0.45% depending on the ratio of
the Company's consolidated total funded debt to consolidated earnings before
interest, taxes, depreciation and amortization. The credit facility will
terminate on December 31, 2001 and all amounts outstanding thereunder (if any)
will be due at such time. The credit facility (i) generally 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.
At June 30, 2000, future minimum payments on debt and capital lease
obligations were as follows (Dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING JUNE 30, DEBT LEASES
-------------------- ------- -------
<S> <C> <C>
2001........................................................ $10,243 $269
2002........................................................ 40,685 284
2003........................................................ 131 168
2004........................................................ 131 --
2005........................................................ 131 --
After 2005.................................................. 204 --
------- ----
51,525 721
Less: amounts representing interest......................... -- (54)
------- ----
Total....................................................... $51,525 $667
======= ====
</TABLE>
Accrued Contingent Consideration
As of June 30, 1999, the Company had accrued $32.9 million of contingent
consideration, which was expected to be paid in cash to the former stockholders
of certain acquired businesses. The actual Contingent Consideration paid during
fiscal 2000 in cash totaled $33.3 million.
As of June 30, 2000, the Company has accrued $968,000 of Contingent
Consideration, which is expected to be paid in cash in the second quarter of
fiscal 2001 to the former stockholder of a certain acquired business. (See Note
12)
36
<PAGE> 37
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES
Income tax expense (benefit) consists of (Dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $ 540 $7,260 $3,599
State.................................................. 284 1,839 1,412
Foreign................................................ 348 448 314
------ ------ ------
Total current.................................. 1,172 9,547 5,325
------ ------ ------
Deferred:
Federal................................................ (860) (659) 420
State.................................................. (41) (56) 177
Foreign................................................ -- -- --
------ ------ ------
Total deferred................................. (901) (715) 597
------ ------ ------
Income tax expense (benefit)................... $ 271 $8,832 $5,922
====== ====== ======
</TABLE>
Total income tax expense for the years ended June 30, 1998, 1999 and 2000
were allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1998 1999 2000
---- ------ -------
<S> <C> <C> <C>
Income from continuing operations......................... $271 $8,832 $ 5,922
Items recorded directly to goodwill or other noncurrent
intangible assets....................................... -- -- (2,452)
Other items charged directly to equity.................... -- -- (209)
---- ------ -------
Total..................................................... $271 $8,832 $ 3,261
==== ====== =======
</TABLE>
The income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 35 percent to pretax income as a result of the
following (Dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1998 1999 2000
------- ------ ------
<S> <C> <C> <C>
Current:
Income tax expense (benefit) at the statutory rate.... $(3,279) $5,674 $2,620
Increase in income tax expense or decrease in income
tax benefit resulting from:
Reduction of valuation allowance due to interaction
of acquiror and acquired companies tax
positions........................................ 659 -- --
Amortization of goodwill........................... 79 822 1,634
Senn Delaney Leadership S corporation losses and
reserves......................................... 2,543 1,052 550
Non-deductible pooling costs....................... -- -- 413
Deferred taxes booked in pooling-of-interests...... -- -- (337)
State income taxes, net of federal income tax
benefit.......................................... 158 1,159 1,049
Other, net......................................... 111 125 (7)
------- ------ ------
Income tax expense at effective rate.................. $ 271 $8,832 $5,922
======= ====== ======
</TABLE>
37
<PAGE> 38
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (Dollars in thousands).
<TABLE>
<CAPTION>
JUNE 30,
------------------
1999 2000
------- -------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities....................................... $ 3,822 $ 8,235
Allowance for doubtful accounts........................... 562 792
Start-up costs capitalized for tax purposes............... 957 1,350
Intangibles............................................... 85 --
Abandoned lease reserves.................................. 538 438
Film inventory............................................ 147 --
Other..................................................... 425 620
------- -------
Total gross deferred tax assets............................. 6,536 11,435
Less valuation allowance.................................. (1,085) (2,461)
------- -------
Net deferred tax assets................................... 5,451 8,974
------- -------
Deferred tax liabilities:
Change from cash to accrual method for acquired
companies.............................................. 2,271 3,602
Change of inventory method for acquired companies......... -- 684
Intangibles............................................... -- 308
Other..................................................... 389 759
------- -------
Total gross deferred liabilities............................ 2,660 5,353
------- -------
Net deferred tax asset...................................... $ 2,791 $ 3,621
======= =======
</TABLE>
The valuation allowance for deferred tax assets was $1,085,000 and
$2,461,000 as of June 30, 1999 and 2000 respectively. The valuation allowance
for deferred income taxes increased by $1,376,000 from June 30, 1999 to June 30,
2000. The increase in the valuation allowance relates to deferred tax assets
recorded in connection with the acquisition of certain companies during the year
ended June 30, 2000 and was recorded as an adjustment to goodwill. Reductions of
the valuation allowance, if any, will be recorded as a reduction to goodwill.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Although realization is
not assured, based upon the level of historical taxable income of the Company
and projections for the Company's future taxable income over the periods during
which the deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences. The amount of the deferred tax asset considered realizable,
however, could be reduced or increased in the near term if estimates of future
taxable income during the carryforward period are reduced or increased.
(12) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has several leases for its office space as well as for the
Operating Companies' operating space, vehicles, and equipment under cancelable
and non-cancelable operating leases that expire on various
38
<PAGE> 39
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dates through fiscal 2008. Most of these leases generally provide for rent
escalation based upon changes in real estate taxes and operating expenses.
Future minimum lease payments under all non-cancelable operating leases,
including leases to related parties, are as follows (Dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
2001........................................................ $ 6,775
2002........................................................ 5,127
2003........................................................ 3,485
2004........................................................ 2,944
2005........................................................ 999
Thereafter.................................................. 1,278
-------
Total....................................................... $20,608
=======
</TABLE>
Rent expense for fiscal 1998, 1999 and 2000 was $1.1 million, $6.1 million,
and $7.4 million, respectively. Sublease income for fiscal 1999 and 2000 was
$219,000 and $621,000, respectively.
U.S. Government Contracts
A substantial portion of the Company's revenue and costs for all periods
presented is subject to audit by agencies of the U.S. Government. Management
does not expect the results of these audits to have a material impact on the
financial position or future results of operations of the Company. The Company
has been audited by agencies of the U.S. Government through April 30, 1998.
Government funding continues to be dependent on congressional approval of
program level funding and on contracting agency approval for the Company's work.
The extent to which projects will be funded in the future cannot be determined.
Environmental Liabilities
The Company has provided for the estimated costs associated with
environmental remediation activities at one of its current operating locations.
The Company provides for the estimated costs of the investigation and
remediation of these sites when such losses are probable and the amounts can be
reasonably estimated. The actual cost incurred may vary from these estimates due
to the inherent uncertainties involved.
Contingent Payments to Former Stockholders of the Operating Companies
The merger agreements between Provant and each of the Founding Companies
provided for the payment of Contingent Consideration. With respect to five of
the Founding Companies, Contingent Consideration was paid in fiscal 1999 through
the issuance of 901,115 shares of Common Stock valued at $9.4 million. For the
remaining two Founding Companies, Contingent Consideration was paid in fiscal
2000 through the issuance of 867,333 shares of Common Stock valued at $10.0
million and cash payments of $25.9 million.
The acquisition agreements between Provant and all but one of the Fiscal
1999 Acquisitions provide for the payment of 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. The Contingent Consideration
will be paid in shares of Common Stock or cash in accordance with a formula
based on the relationship of defined earnings before interest and taxes ("EBIT")
or revenue of the respective acquired business to a specified baseline EBIT or
revenue target and certain other adjustments. For the three businesses acquired
in fiscal 2000, the acquisition agreements did not provide for the payment of
any Contingent Consideration.
39
<PAGE> 40
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the two Fiscal 1999 Acquisitions with Contingent Consideration based on
performance criteria associated with the year ended June 30, 1999, Contingent
Consideration was paid in fiscal 2000 through the issuance of 582,806 of Common
Stock valued at $6.4 million and cash payments of $7.5 million.
For one of the Fiscal 1999 Acquisitions with Contingent Consideration based
on performance criteria associated with the year ended June 30, 2000, $2.2
million of Contingent Consideration has been accrued, consisting of $968,000 in
cash and 228,089 shares of Common Stock valued at $1.3 million. The Contingent
Consideration is expected to be paid in the second quarter of fiscal 2001.
For the remaining Fiscal 1999 Acquisitions, Contingent Consideration of
cash and/or shares of Common Stock up to maximum amounts of $33.0 million could
be payable based on performance criteria associated with the two years ended
June 30, 2001. For one of the Fiscal 1999 Acquisitions, Contingent Consideration
of cash and/or shares of common stock is payable based entirely on performance
criteria over a three-year period and is not currently determinable.
Other Matters
The Company is from time to time a party to litigation arising in the
ordinary course of business. Management believes that no pending legal
proceeding will have a material adverse effect on the business, financial
condition or results of operations of the Company.
(13) STOCKHOLDERS' EQUITY
Common and Preferred Stock
On May 4, 1998, the Company completed its IPO, issuing to the public
2,600,000 shares of its Common Stock at a price of $13.00 per share, and on May
7, 1998, the Company sold 390,000 shares of Common Stock at a price of $13.00
per share pursuant to the over-allotment option granted to the underwriters. The
Company realized net proceeds from these sales of $32.7 million, net of the
underwriting commissions and discounts and other expenses of the offering.
On February 3, 1999, the Company completed a public offering of 3,022,750
shares of its Common Stock at a price of $19.50 per share. The Company realized
net proceeds from the sale of $54.4 million, net of the underwriting commissions
and discounts and other expenses of the offering.
The Company has two effective shelf registration statements on Form S-4.
Each registration statement relates to the issuance of up to 3,000,000 shares of
Common Stock in connection with acquisitions. Of these shares, 3,758,888 shares
have been issued through September 15, 2000 and a currently undeterminable
number of shares may become issuable as contingent consideration under the
registration statements with respect to acquisitions completed before such date.
As of June 30, 2000, 6,817,778 shares of Common Stock have been reserved
for issuance upon the conversion of convertible notes payable, the exercise of
options, warrants or in the employee stock purchase plan.
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders, and do not have
cumulative voting rights.
The Preferred Stock, if issued, could have priority over the Common Stock
with respect to dividends and other distributions, including the distribution of
assets upon liquidation. As of June 30, 2000, the Company had not issued any
shares of Preferred Stock.
As of June 30, 2000, the Company has recorded $1.3 million of Contingent
Consideration to be issued in the form of stock to the former stockholders of a
certain acquired business. (See Note 12) This amount was estimated based on the
portion of Contingent Consideration to be paid in cash based upon preliminary
40
<PAGE> 41
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
elections from the former stockholder. During fiscal 2000, 1,450,139 shares of
Common Stock valued at $16.4 million were issued as Contingent Consideration.
Stock Purchase Warrants
The Company issued two warrants to each of two officers and directors of
the Company in exchange for these executives extending financing to the Company
in the period prior to the IPO. The first warrant entitles the holder to
purchase 173,194 shares of Common Stock at a per share exercise price equal to
$13.00. The second warrant entitling the holder to purchase 216,492 shares of
Common Stock becomes exercisable only if the market price of the Common Stock
increases to certain threshold levels (except as otherwise described below) (the
"Contingent Warrant"). Specifically, 20% of the total number of shares issuable
under the Contingent Warrant will become exercisable on each of the three
occasions that the market price of the Common Stock reaches $26.00, $39.00 and
$52.00, respectively, and the remaining 40% of the total number of shares
issuable under the Contingent Warrant will become exercisable if the market
price of the Common Stock reaches $65.00. However, under certain circumstances
involving the merger or sale of the Company, the Contingent Warrant will become
exercisable to purchase all of the warrant shares. The exercise price of the
Contingent Warrant increases on each anniversary of the closing of the IPO (May
4, 1998). Specifically, the exercise price is equal to the initial public
offering price of $13.00 for the first 12 months following May 4, 1998 and, for
each 12 month period thereafter, is equal to $13.00 plus $1.30 multiplied by the
number of full 12 month periods elapsed since May 4, 1998. However, once a
portion of the Contingent Warrant becomes exercisable, that portion's exercise
price is fixed as of that date. The warrants expire on May 4, 2005. The warrants
have been accounted for in accordance with Opinion No. 14 of the Accounting
Principles Board. The holders of the warrants have the right to require the
Company to register the resale of the shares that may be acquired upon exercise
of the warrants under the Securities Act of 1933, as amended. During fiscal
2000, 43,298 shares became exercisable under the terms of each of the second
warrants described above.
During fiscal 2000, the Company issued four warrants in connection with the
acquisition of a business acquired during fiscal 2000. The warrants entitle the
holders to purchase 200,000 shares of Common Stock at a per share exercise price
equal to $14.00. The warrants expire on June 1, 2003.
Shareholder Rights Plan
In July 2000, the Company adopted a Preferred Stock Purchase Rights Plan
pursuant to which a dividend of one share purchase right for each share of
Common Stock was distributed to stockholders of record as of the close of
business on July 28, 2000. The rights, which expire on July 28, 2010, become
exercisable only if a person or group acquires 15% or more of the Common Stock
or announces a tender offer the consummation of which would result in ownership
by a person or group of 15% or more of the Common Stock. Each right will entitle
stockholders to buy one-hundredth of Series A Preferred Stock of the Company at
an exercise price of $25 per one one-hundredth of a Series A Preferred Share.
Until the rights become exercisable, they will trade with the Common Stock as a
unit.
(14) STOCK-BASED COMPENSATION PLANS
The Company has granted stock options under four stock-based compensation
plans: the 1998 Equity Incentive Plan, the 1998 Non-Qualified Stock Option Plan,
the Stock Plan for Non-Employee Directors, and the 1998 Stock Option Plan for
Outside Directors.
Equity Incentive Plan
The Company has adopted the 1998 Equity Incentive Plan which provides for
the award of up to 2,350,000 shares of Common Stock in the form of incentive
stock options, non-qualified stock options, stock appreciation rights,
performance shares, restricted stock or stock units. All directors and employees
of, and all
41
<PAGE> 42
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consultants and advisors to, the Company are eligible to participate. Options
generally vest over a three year period and expire seven years from date of
grant.
1998 Non-Qualified Stock Option Plan
The Company has adopted the 1998 Non-Qualified Stock Option Plan which
provides for the award of up to 2,000,000 shares of common stock in the form of
non-qualified stock options. All employees, consultants and advisors of the
Company are eligible to participate. Except for non-qualified stock options
covering no more than 25,000 shares of Common Stock in the aggregate, directors
and officers of the Company are not eligible to participate.
Stock Plan for Non-Employee Directors
The Company has adopted the Stock Plan for Non-Employee Directors which
provided for the award of up to 100,000 shares of common stock in the form of
non-qualified options. Each non-employee director of the Company who was not a
stockholder prior to the IPO received an option to purchase 7,500 shares of
common stock at $13.00 per share. Each option expires after 10 years and is
exercisable six months following the date of grant. As of June 30, 1999 and
2000, options to purchase 15,000 shares of Common Stock were granted under this
plan. The Stock Plan for Non-Employee Directors was terminated in November 1998
with respect to the future grant of options.
1998 Stock Option Plan for Outside Directors
In November 1998, the Company adopted the 1998 Stock Option Plan for
Outside Directors which provides for the award of up to 100,000 shares of Common
Stock in the form of non-qualified stock options. The 1998 Stock Option Plan for
Outside Directors replaced the Stock Plan for Non-Employee Directors, except for
options currently outstanding. All directors who are not employees or full-time
consultants of the Company are eligible to participate.
Stock Purchase Plan
The Company also has adopted the 1998 Employee Stock Purchase Plan that
allows all employees who work more than 20 hours per week, other than employees
owning more than 5% or more of the combined voting power of all classes of stock
of the Company, to purchase shares of Common Stock at a discount on a periodic
basis.
Purchases can occur at the end of option periods, each of six months'
duration. The first such period began on June 1, 1998. The purchase price of
Common Stock under the Employee Stock Purchase Plan is 85% of the lesser of the
last sale price of the Common Stock on the day prior to the beginning of an
option period and the last sale price of the common stock on the day prior to
the end of the option period. Participants may elect under the Plan to have from
up to 2% to 10% of their pay applied to the purchase of shares at the end of the
option period.
A total of 500,000 shares have been reserved for issuance under the
Employee Stock Purchase Plan. During fiscal 1999, 52,636 shares of common stock
at a weighted average price of $14.36 were issued to employees under the plan.
During fiscal 2000, 59,006 shares of Common Stock at a weighted average price of
$13.28 were issued to employees under the plan. Had the Company adopted SFAS No.
123, the weighted average fair value of each purchase right granted during
fiscal 1999 and 2000 would have been $3.09 and $4.02, respectively. The fair
value was estimated at the beginning of the period with the following weighted
average assumptions: (1) expected life of one half year (2) expected volatility
of 33%, (3) risk-free interest rate of 6% and (4) no dividend yield.
42
<PAGE> 43
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity under all plans during the periods indicated is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance at June 30, 1997 and prior.......................... 352,212 $ 0.60
Granted................................................ 883,983 13.00
Forfeited.............................................. (9,966) 13.00
---------
Balance at June 30, 1998.................................... 1,226,229 9.44
Granted................................................ 836,726 14.35
Exercised.............................................. (6,501) 13.00
Forfeited.............................................. (70,911) 13.58
---------
Balance at June 30, 1999.................................... 1,985,543 11.35
Granted................................................ 2,459,876 14.13
Exercised.............................................. (72,808) 12.89
Forfeited.............................................. (821,639) 16.54
---------
Balance at June 30, 2000.................................... 3,550,972 $12.04
========= ======
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock-based
compensation plans and, accordingly, no compensation cost has been recognized in
the financial statements, except for stock options granted to non-employees for
which compensation expense of $201,000 has been recorded in the year ended June
30, 1998. Had the Company determined compensation cost based on the fair value
at the grant date for its stock-based compensation plans under SFAS No. 123, the
Company's net income (loss) and earnings (loss) per share would have changed to
the pro forma amounts indicated below (Dollars in thousands, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1998 1999 2000
-------- ------ -------
<S> <C> <C> <C>
Net income (loss):
As reported......................................... $ (9,639) $7,378 $ 1,773
Pro forma for SFAS No. 123.......................... $(10,424) $5,418 $(3,560)
Basic earnings (loss) per common share:
As reported......................................... $ (1.48) $ 0.48 $ 0.08
Pro forma for SFAS No. 123.......................... $ (1.60) $ 0.35 $ (0.17)
Diluted earnings (loss) per common share:
As reported......................................... $ (1.48) $ 0.44 $ 0.08
Pro forma for SFAS No. 123.......................... $ (1.60) $ 0.33 $ (0.17)
</TABLE>
At June 30, 2000, there were 1,486,391 additional shares available for
grant under the Company's stock option plans. The per share weighted-average
fair value of stock options granted during fiscal 1998, 1999, and 2000 was
$4.53, $4.98, and $4.73 on the date of grant using the Black Scholes
option-pricing model with the following weighted average assumptions for all
three years: volatility of 33%; expected dividend yield 0%, risk-free interest
rate of 6.0% and an expected life of 4 years.
43
<PAGE> 44
PROVANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of stock options outstanding at June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING YEARS AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- --------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.00--$5.00....... 352,212 3.50 $ 0.60 352,212 $ 0.60
$5.01--$10.00...... 816,500 6.79 $ 6.68 -- $ --
$10.01--$15.00..... 1,390,690 5.30 $13.10 658,929 $13.05
$15.01--$20.00..... 740,820 5.41 $17.56 145,729 $18.39
Above $20.00....... 250,750 6.36 $23.39 12,756 $22.21
--------- ---------
3,550,972 1,169,626
========= =========
</TABLE>
In addition to the options granted under the plans noted above, in 1998 the
Company issued an option to purchase 10,000 shares of Common Stock at a purchase
price of $5.00 per share. In fiscal 2000, all 10,000 of these options were
exercised.
During fiscal 2000, the Company granted options to purchase 652,212 shares
of Common Stock outside of the existing stock-based compensation plans,
including options to purchase 300,000 shares of Common Stock that were granted
in connection with the recruitment of executives to the Company and options
assumed by the Company in connection with the acquisition of Senn-Delaney
Leadership that were converted into options to purchase 352,212 shares of Common
Stock.
(15) EMPLOYEE BENEFIT PLANS
The Operating Companies provide various retirement plans for eligible
employees. These plans consist of defined contribution plans and profit sharing
plans and cover employees at substantially all of the Company's operating
locations. The defined contribution plans provide for contributions ranging from
1.5% to 2.0% of covered employees' salaries or wages, or at the discretion of
the Company. Total expense for contributions under all plans totaled $308,000,
$838,000, and $1.5 million for fiscal 1998, 1999 and 2000.
(16) RELATED PARTY TRANSACTIONS
Prior to acquisition, certain Operating Companies had entered into lease
arrangements with stockholders for facilities. These lease arrangements are for
periods ranging from three to five years. Related lease expense was $81,000,
$404,000 and $471,000 for fiscal 1998, 1999, and 2000 respectively. Future
commitments with respect to these leases are included in the schedule of minimum
lease payments in Note 12.
Expenses paid by PROVANT prior to the closing of the IPO were advanced
under a $3 million line of credit issued on October 6, 1997 by two of the
Company's stockholders. As of June 30, 1998, this loan was repaid in its
entirety and the line of credit was terminated.
(17) SEGMENT REPORTING
The Company adopted SFAS No. 131 Disclosures about Segments of an
Enterprise and Related Information ("FAS 131") as of June 30, 1999 and current
year information has been presented in conformity with this accounting standard.
The Company has one reportable business segment as defined by FAS 131.
Revenue from the federal government and its agencies accounted for 23%,
12%, and 15% of the Company's total revenue in fiscal 1998, 1999, and 2000
respectively. There was no other customer that accounted for 10% or more of the
Company's total revenue in fiscal 1998, 1999 and 2000.
44
<PAGE> 45
PROVANT, INC. AND SUBSIDIARIES
QUARTERLY RESULTS (UNAUDITED)
The following table presents the unaudited quarterly results of operations
for fiscal 1998, 1999 and 2000:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998
Revenue............................................. $ 6,083 $ 6,372 $ 4,998 $19,458
Gross profit........................................ $ 4,393 $ 4,694 $ 3,454 $11,369
Net income (loss)................................... $ 1,944 $(9,492) $ (531) $(1,560)
Earnings (loss) per common share:
Basic.......................................... $ 0.41 $ (1.72) $ (0.10) $ (0.16)
Diluted........................................ $ 0.41 $ (1.72) $ (0.10) $ (0.16)
YEAR ENDED JUNE 30, 1999
Revenue............................................. $29,393 $37,605 $43,404 $55,213
Gross profit........................................ $17,564 $22,596 $26,229 $33,433
Net income.......................................... $ 1,069 $ 1,128 $ 2,084 $ 3,097
Earnings per common share:
Basic.......................................... $ 0.09 $ 0.08 $ 0.13 $ 0.16
Diluted........................................ $ 0.08 $ 0.08 $ 0.12 $ 0.15
YEAR ENDED JUNE 30, 2000
Revenue............................................. $55,397 $56,869 $51,317 $53,776
Gross profit........................................ $32,945 $34,690 $29,827 $33,143
Net income (loss)................................... $ 2,608 $ 2,225 $(4,558) $ 1,498
Earnings (loss) per common share:
Basic.......................................... $ 0.13 $ 0.11 $ (0.22) $ 0.07
Diluted........................................ $ 0.12 $ 0.10 $ (0.22) $ 0.07
</TABLE>
45
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
Board of Directors
Star Mountain, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of Star Mountain, Inc. for the year ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Star
Mountain, Inc. for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
Friedman & Fuller, P.C.
Rockville, Maryland
February 16, 1996
46
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Star Mountain, Inc.:
We have audited the accompanying consolidated balance sheets of Star
Mountain, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1997 and
for the period from January 1, 1998 to May 4, 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Star
Mountain, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1997 and for the period from January 1, 1998
to May 4, 1998, in conformity with generally accepted accounting principles.
KPMG LLP
Boston, Massachusetts
August 10, 1998
47
<PAGE> 48
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 39 $ 358
Accounts receivable....................................... 4,395 6,091
Current portion of notes receivable, related parties...... 181 666
Inventory................................................. 100 129
Other current assets...................................... 71 100
Deferred income taxes..................................... 29 117
------ -------
Total current assets.............................. 4,815 7,461
------ -------
Property and equipment:
Furniture and fixtures.................................... 65 531
Office equipment.......................................... 746 1,444
Computer software......................................... 69 114
Leasehold improvements.................................... 16 87
Automobiles............................................... 31 73
------ -------
927 2,249
Less accumulated depreciation and amortization............ 423 1,303
------ -------
504 946
------ -------
Other assets:
Notes receivable, related parties, net of current
portion................................................ 267 --
Other assets.............................................. 140 459
Land held for investment.................................. 110 110
Goodwill, net of accumulated amortization of $23 and
$88.................................................... 147 1,701
------ -------
664 2,270
------ -------
Total assets...................................... $5,983 $10,677
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, bank........................................ $ 905 $ 2,858
Current portion of notes payable.......................... 95 455
Accounts payable.......................................... 1,295 1,685
Accrued expenses.......................................... 573 1,152
Billings in excess of costs and earnings.................. 1,076 1,247
------ -------
Total current liabilities......................... 3,944 7,397
------ -------
Long-term liabilities:
Notes payable, net of current portion..................... -- 304
Deferred income taxes..................................... 29 198
------ -------
Total long-term liabilities....................... 29 502
------ -------
Total liabilities................................. 3,973 7,899
------ -------
Commitments and contingencies
Stockholders' equity:
Common stock.............................................. 8 2,147
Additional paid-in capital................................ 2,058 --
Retained earnings......................................... 529 1,257
------ -------
2,595 3,404
Less common stock held in treasury at cost................ (585) (626)
------ -------
Total stockholders' equity........................ 2,010 2,778
------ -------
Total liabilities and stockholders' equity........ $5,983 $10,677
====== =======
</TABLE>
See accompanying notes to consolidated financial statements
48
<PAGE> 49
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------------- JANUARY 1, 1998
1995 1996 1997 TO MAY 4, 1998
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Total revenue.................................. $14,306 $16,313 $23,775 $11,052
Cost of revenue................................ 8,668 9,457 14,504 6,109
------- ------- ------- -------
Gross profit................................... 5,638 6,856 9,271 4,943
Operating expenses............................. 4,411 5,476 7,591 3,650
------- ------- ------- -------
Income from operations......................... 1,227 1,380 1,680 1,293
------- ------- ------- -------
Other income (expense):
Interest income................................ 19 25 44 15
Interest expense............................... (54) (65) (144) (120)
Other, net..................................... (200) (339) (306) (32)
------- ------- ------- -------
Other expense, net............................. (235) (379) (406) (137)
------- ------- ------- -------
Income before income taxes..................... 992 1,001 1,274 1,156
Income taxes................................... -- 397 546 457
------- ------- ------- -------
Net income..................................... $ 992 $ 604 $ 728 $ 699
======= ======= ======= =======
Basic income per share......................... $ 0.11 $ 0.07 $ 0.09 $ 0.09
======= ======= ======= =======
Diluted income per share....................... $ 0.11 $ 0.07 $ 0.08 $ 0.08
======= ======= ======= =======
Weighted average shares outstanding............ 8,825 8,422 8,078 8,074
======= ======= ======= =======
Weighted average shares and potentially
dilutive shares outstanding.................. 8,963 8,565 8,823 8,871
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
49
<PAGE> 50
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
------------------ PAID-IN EARNINGS ------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
--------- ------ ---------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994...... 740,852 $ 8 $ 1,955 $ (688) -- $ -- $1,275
Issuance of common stock upon
exercise of options........... 11,827 -- 36 -- -- -- 36
Distributions to shareholders... -- -- -- (379) -- -- (379)
Purchase of treasury stock...... -- -- -- -- 22,700 (65) (65)
Net income...................... -- -- -- 992 -- -- 992
--------- ------ ------- ------ --------- ----- ------
Balance, December 31, 1995...... 752,679 8 1,991 (75) 22,700 (65) 1,859
Issuance of common stock upon
exercise of options........... 9,414 -- 67 -- -- -- 67
Purchase of treasury stock...... -- -- -- -- 65,671 (520) (520)
Net income...................... -- -- -- 604 -- -- 604
--------- ------ ------- ------ --------- ----- ------
Balance, December 31, 1996...... 762,093 8 2,058 529 88,371 (585) 2,010
Issuance of common stock upon
exercise of options........... 87,621 32 -- -- -- -- 32
Purchase of treasury stock...... -- -- -- -- 12,584 (41) (41)
Stock split, conversion to no
par stock..................... 8,383,023 2,058 (2,058) -- 1,110,505 -- --
Issuance of common stock........ 50,735 49 -- -- -- -- 49
Net income...................... -- -- -- 728 -- -- 728
--------- ------ ------- ------ --------- ----- ------
Balance, December 31, 1997...... 9,283,472 2,147 $ -- 1,257 1,211,460 (626) $2,778
Issuance of common stock........ 1,553 12 -- -- -- -- 12
Net income...................... -- -- -- 699 -- -- 699
--------- ------ ------- ------ --------- ----- ------
Balance, May 4, 1998............ 9,285,025 $2,159 $ -- $1,956 1,211,460 $(626) $3,489
========= ====== ======= ====== ========= ===== ======
</TABLE>
See accompanying notes to consolidated financial statements
50
<PAGE> 51
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
-------------------------------- JANUARY 1, 1998
1995 1996 1997 TO MAY 4, 1998
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.............. $ 13,419 $ 16,428 $ 23,529 $10,152
Cash paid to suppliers and employees...... (12,620) (14,890) (22,083) (9,679)
Interest received......................... 19 25 44 16
Interest paid............................. (54) (65) (144) (122)
Income taxes paid......................... -- (420) (482) (252)
-------- -------- -------- -------
Net cash provided by operating
activities...................... 764 1,078 864 115
-------- -------- -------- -------
Cash flows from investing activities:
Issuance of notes receivable.............. (64) (96) (218) --
Acquisition of property and equipment..... (159) (61) (358) (264)
Business acquisitions..................... (100) (300) (1,752) --
Purchase of land held for investment...... -- (110) -- --
Other..................................... (8) 2 -- --
-------- -------- -------- -------
Net cash used in investing
activities...................... (331) (565) (2,328) (264)
-------- -------- -------- -------
Cash flows from financing activities:
Net borrowings (payments) on
line-of-credit......................... (15) (86) 1,953 403
Principal repayments on long-term debt.... -- -- (210) (286)
Proceeds from other notes payable......... 25 95 -- --
Payments on other notes payable........... (34) (35) -- --
Proceeds from issuance of common stock.... 36 68 81 12
Purchase of treasury stock................ (65) (520) (41) --
Distributions to shareholders............. (379) -- -- --
Decrease in deferred income taxes......... -- -- -- --
-------- -------- -------- -------
Net cash provided by (used in)
financing activities............ (432) (478) 1,783 129
-------- -------- -------- -------
Net (decrease) increase in cash............. 1 35 319 (20)
Cash and cash equivalents, beginning of
period.................................... 3 4 39 358
-------- -------- -------- -------
Cash and cash equivalents, end of period.... $ 4 $ 39 $ 358 $ 338
======== ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements
51
<PAGE> 52
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
-------------------------- JANUARY 1, 1998
1995 1996 1997 TO MAY 4, 1998
------- ------ ----- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Reconciliation of net income to net cash provided
by operating activities:
Net income...................................... $ 992 $ 604 $ 728 $ 699
------- ------ ----- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 96 139 314 136
Loss on sale of assets.......................... -- 4 11 --
Deferred income taxes........................... -- -- (9) (6)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable.......................... (1,053) (637) (417) (2,094)
Inventory.................................... -- 18 (29) 37
Other current assets......................... 47 (34) 24 440
Other assets................................. (25) (69) (237) (183)
Intercompany assets.......................... -- -- -- (50)
Increase (decrease) in:
Accounts payable............................. 425 168 90 335
Accrued expenses............................. 116 133 218 271
Billings in excess of costs and anticipated
profits.................................... 166 752 171 530
------- ------ ----- -------
Total adjustments............................... (228) 474 136 (584)
------- ------ ----- -------
Net cash provided by operating activities....... $ 764 $1,078 $ 864 $ 115
======= ====== ===== =======
</TABLE>
Non-cash investing and financing activities: In February 1997, the Company
issued a note payable of $506,000 for a portion of the purchase price of ORA. In
October 1997, the Company issued a note payable of $325,000 for a portion of the
purchase price of SED.
See accompanying notes to consolidated financial statements
52
<PAGE> 53
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Star Mountain, Inc. (together with its direct and indirect wholly-owned
subsidiaries the "Company") was founded in 1987. The Company is primarily
engaged in contracting with the U.S. Government to provide technical and
professional services in the form of computer-based training, software
development and computer applications support. In August 1996, the Company
formed a wholly-owned subsidiary, Star Digital, Inc. to acquire the assets of
Computer Visions, Inc. Star Digital, Inc. is primarily a value added distributor
of computer equipment. In February 1997, the Company acquired the stock of
Odyssey Research Associates, Inc. ("ORA"). ORA is primarily engaged in
contracting with the U.S. Government to perform research relating to computer
access and security. ORA includes the accounts of 168004 Canada, Inc. ("ORA
Canada"), a wholly-owned subsidiary, which had performed similar contracts for
the Canadian Government, but currently has minimal activity. Effective October
1, 1997, the Company acquired the net assets of the SED Division of Essex
Corporation, which now operates as a division of the Company. This division
provides weapons handling training for the U.S. Department of Defense.
On May 4, 1998, PROVANT, Inc. ("PROVANT") acquired all of the outstanding
stock of the Company for cash and shares of PROVANT common stock, and the
Company became a wholly-owned subsidiary of PROVANT.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
A major portion of the Company's revenue results from services performed
under U.S. government contracts, either directly or through subcontracts. The
majority of the Company's contracts are fixed-price contracts. Revenue on fixed
price contracts is recognized using the percentage of completion method based on
costs incurred in relation to total estimated costs. Revenue on
time-and-materials contracts is recognized to the extent of fixed billable rates
for hours delivered plus reimbursable costs. Revenue on cost-plus-fee contracts
is recognized based on reimbursable costs incurred plus estimated fees earned
thereon. At the time it is recognized that it is probable that a contract will
result in a loss and the loss can be reasonably estimated, the entire estimated
loss is included in the determination of net income. In accordance with industry
practice, amounts relating to long-term contracts are classified as current
assets although an indeterminable portion of these amounts is not expected to be
realized within one year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Company's accounts receivable consist principally of unsecured amounts
due from the U.S. Government.
Cash Equivalents
Cash equivalents are defined as highly liquid short-term investments whose
maturity dates do not extend past three months from the original date of
purchase. The Company has held no such instruments.
53
<PAGE> 54
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost and include additions and major
replacements or betterments. Depreciation and amortization are provided for in
amounts which amortize the cost of properties utilizing the straight-line method
over estimated useful lives of three to seven years. Maintenance, repairs and
minor renewals are expensed as incurred. Any gain or loss on disposition is
included in the determination of net income.
Goodwill
Goodwill represents the excess of the cost of business acquisitions,
accounted for by the purchase method, over the fair value of the net assets
thereof. Goodwill is being amortized on a straight-line basis principally over
14 years.
Fair Value of Financial Instruments
Financial instruments of the Company consist primarily of cash, accounts
receivable, note payable, bank, accounts payable and accrued expenses. The
carrying value of these financial instrument approximates their fair value
because of the short maturity of these instruments.
Income Taxes
Through December 31, 1995, the Company had elected to be taxed as an S
Corporation and, accordingly, the financial statements for 1995 do not reflect
any provision for income taxes since elements of income and deduction passed
through directly to the shareholders. Effective January 1, 1996, the Company
terminated its election to be taxed as an S Corporation.
Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial reporting and
tax bases of assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be settled. Future
tax benefits recognized as deferred tax assets must be reduced by a valuation
allowance where it is more likely than not that the benefits may not be
realized.
(3) ACQUISITIONS
On June 19, 1995, the Company acquired all of the assets of BZ Academy,
Inc. (BZ). The acquisition has been accounted for as a purchase and has operated
as the AIT division of the Company. Tangible assets were recorded at their book
value at the date of purchase, which approximated their fair value. The
difference between the purchase price and the assets' book value was recorded as
goodwill.
On August 1, 1996, the Company formed a new corporation, Star Digital,
Inc., to acquire the assets of Computer Visions, Inc. The acquisition has been
accounted for as a purchase. Computer Visions' tangible assets were recorded at
their fair value, which approximated the purchase price. No goodwill was
recorded.
On February 21, 1997, the Company acquired the outstanding stock of ORA.
The acquisition has been accounted for as a purchase. The excess of the purchase
price over the book value of the net assets of ORA at the purchase date has been
recorded as goodwill.
On September 30, 1997, the Company acquired certain assets of Simms
Industries. The acquisition has been accounted for as a purchase. The assets
acquired consisted primarily of accounts receivable and fixed assets.
On October 1, 1997, the Company acquired the net assets of the Systems
Effectiveness Division (SED) of Essex Corporation for a total price of $1.5
million. The net assets represent substantially all of the
54
<PAGE> 55
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating assets of the division. The excess of the purchase price over the book
value of the tangible assets acquired of approximately $930,000 has been
recorded as goodwill.
The following table sets forth the pro forma information assuming that all
acquisitions had occurred on January 1, 1995 (the earliest date information is
available). The pro forma information takes into account amortization of
goodwill and additional interest costs, net of tax benefits (Dollars in
thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Gross revenue......................................... $22,668 $24,818 $28,383
Operating income...................................... 1,081 1,524 1,298
Net income............................................ 723 529 627
Earnings per share.................................... $ 0.08 $ 0.06 $ 0.08
</TABLE>
(4) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (Dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Government contracts:
Billed.................................................... $3,333 $4,828
Unbilled.................................................. 698 926
Other....................................................... 364 337
------ ------
$4,395 $6,091
====== ======
</TABLE>
(5) NOTES RECEIVABLE
Notes receivable consist of the following (Dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Due from majority shareholder, unsecured, interest at
prime..................................................... $ 131 $ 349
Due from former employee, secured, interest at 10 percent... 317 317
------ ------
448 666
Less current portion........................................ 181 666
------ ------
$ 267 $ --
====== ======
</TABLE>
(6) NOTE PAYABLE, BANK
The Company maintains a bank line of credit arrangement that provides for
borrowings of 90% of billed accounts receivable less than 90 days old, not to
exceed $3.5 million in total. Advances bear interest at LIBOR plus 250 basis
points. The line is collateralized by substantially all of the Company's assets.
The agreement requires the Company to meet certain covenants including
limitations on dividends, and maintenance of adjusted tangible net worth, as
defined. The Company has been in compliance with the lender's covenants during
each of the periods presented. At December 31, 1996 and 1997, overdrafts in the
payroll and operating bank accounts amounting to $236,000 and $259,000,
respectively, have been included in the outstanding balance on the line since
such overdrafts are automatically covered by the bank as checks are presented
for payment.
55
<PAGE> 56
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LONG-TERM DEBT (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Note payable, shareholder, representing temporary advances
of working capital, interest at LIBOR plus 250 basis
points, due on demand. Unsecured.......................... $95 $ --
Note payable, purchase of subsidiary, ORA, interest at 9%,
payable in four annual installments of $127 beginning
February 1998............................................. -- 406
Note payable, purchase of net assets of SED, interest at 9%,
payable in monthly installments of $23 through December
1998...................................................... -- 284
Note payable, purchase of net assets of SIMMS Industries.... -- 24
Capital leases, payable in monthly installments of $2
including interest at 9% to 17.5% due July 2000........... -- 45
--- ----
Total....................................................... 95 759
--- ----
Less current portion........................................ 95 455
--- ----
Long-term portion........................................... $-- $304
=== ====
</TABLE>
(8) EMPLOYEE BENEFITS
The Company has a 401(k) plan in which it matches 50% of employee
contributions, up to a maximum of 3% of each employee's gross annual
compensation. In addition, the Company may contribute a discretionary amount
annually. Total expense under the plan for the years ended December 31, 1995,
1996 and 1997 and for the period ended May 4, 1998, was $121,000, $123,000,
$153,000 and $85,000, respectively.
(9) COMMITMENTS AND CONTINGENCIES
Substantially all of the Company's revenue and costs for all periods since
December 31, 1996, are subject to audit by agencies of the U.S. Government.
Management does not expect the results of these audits to have a material impact
on the financial position or future results of operations of the Company.
The Company leases equipment and office space under various noncancellable
operating leases. The office leases provide for future rental increases based on
the Company's pro-rata share of increases in building operating expenses and
real estate taxes, and for inflation adjustments based on increases in the
Consumer Price Index. Rent expense, including month-to-month leases, for the
years ended December 31, 1995, 1996 and 1997 and for the period ended May 4,
1998, totalled $557,000, $595,000, $868,000 and $396,000, respectively. Future
minimum lease commitments under non-cancellable operating leases for years
ending December 31, are as follows (Dollars in thousands):
<TABLE>
<CAPTION>
TOTAL
------
<S> <C>
1999........................................................ $1,046
2000........................................................ 918
2001........................................................ 732
2002........................................................ 553
2003........................................................ 92
------
$3,341
======
</TABLE>
56
<PAGE> 57
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMON STOCK
Common stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1996 1997
---------- --------- ----------
<S> <C> <C> <C>
Par value....................................... $ .01 .01 N/A
Shares:
Authorized.................................... 1,000,000 1,000,000 15,000,000
Issued........................................ 752,679 762,093 9,283,472
</TABLE>
Effective February 14, 1997, the Company's voting common stock was
increased from 800,000 shares of $.01 par value to 12,000,000 shares of no par
value, and the non-voting stock was increased from 200,000 shares of $.01 par
value to 3,000,000 shares of no par value.
(11) STOCK OPTIONS
The Company offers key employees the opportunity to purchase stock through
the Star Mountain Key Person Stock Option Plan (the "Plan"). Under the Plan, the
Company issues options to eligible employees who must have one year of service
with the Company. The exercise price for the options is at or above the current
market price of the Company's shares, as determined by management. Management
has applied a consistent formula which includes gross revenue and net income in
determining the Company's share price. Options are exercisable upon issuance for
periods of 3 to 5 years from the date of the grant.
The activity in the Plan since 1995 is presented below. All options and
option prices have been restated to reflect the 12:1 stock split in February
1997.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS WEIGHTED
OUTSTANDING AND AVERAGE
EXERCISABLE EXERCISE PRICE
----------------- --------------
<S> <C> <C>
Balance, December 31, 1994............................ 912,000 $0.31
Granted............................................. 384,000 0.47
Forfeited........................................... (360,000) 0.21
---------
Balance, December 31, 1995............................ 936,000 0.42
Granted............................................. 936,000 0.49
Forfeited........................................... (348,000) 0.46
---------
Balance, December 31, 1996............................ 1,524,000 0.45
Granted............................................. 331,000 1.00
Exercised........................................... (73,200) 0.24
Forfeited........................................... (120,000) 0.49
---------
Balance, December 31, 1997............................ 1,661,800 0.52
=========
</TABLE>
The weighted average price for options outstanding and exercisable at
December 31, 1997 was $.52. The weighted average remaining term of the
outstanding options is 3 years.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 defines a "fair value based method" of accounting
for an employee stock option. Under this method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period. The Company has historically accounted for employee stock
options under the "intrinsic value method" as defined by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the intrinsic value method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date over the amount
57
<PAGE> 58
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an employee must pay to acquire the stock. The Company's Plan, accounted for
under APB Opinion No. 25, does not result in any compensation cost.
SFAS No. 123 allows an entity to continue to use the intrinsic value method
and management has elected to do so. However, entities electing to remain on the
intrinsic value method must make pro forma disclosures of net income, as if the
fair value based method of accounting had been applied. Because the method of
accounting in SFAS No. 123 has not been applied to options granted prior to
January 1, 1994, the resulting pro forma compensation costs may not be
representative of the cost to be expected in future years.
Under SFAS No. 123, net income would have been as follows (Dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net income, as reported..................................... $ 992 $ 604 $ 728
Pro forma net income........................................ $ 984 $ 586 $ 675
Income per share, as reported............................... $0.11 $0.07 $0.09
Pro forma income per share.................................. $0.11 $0.06 $0.08
</TABLE>
The fair value of each option is estimated on the date of grant using the
following assumptions: no dividend yield, no volatility, risk-free interest
rates approximating 6% and expected lives of 3 to 5 years. The weighted average
grant date fair value of the options was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average fair value................... $.11 $.13 $.16
</TABLE>
(12) EARNINGS PER SHARE:
Earnings per share is computed based on the weighted average number of
common shares outstanding in each period. The dilutive effect of outstanding
stock options is computed using the treasury stock method. Since there is no
public market for the Company's stock, current market price has been assumed to
be the exercise price of the latest stock options issued. Basic and diluted
earnings per share have been computed as follows: (Dollars in thousands, except
per share data)
<TABLE>
<CAPTION>
EFFECT OF DILUTIVE DILUTED BASIC DILUTED
NET INCOME BASIC SHARES STOCK OPTIONS SHARES EPS EPS
----------- ------------- ------------------ ------------- ----- -------
(NUMERATOR) (DENOMINATOR) (DENOMINATOR)
<S> <C> <C> <C> <C> <C> <C>
Year ended:
December 31, 1995.......... $992 8,824,986 138,404 8,963,390 $0.11 $0.11
December 31, 1996.......... 604 8,422,206 143,176 8,565,382 0.07 0.07
December 31, 1997.......... 728 8,078,338 744,751 8,823,089 0.09 0.08
Period from January 1, 1998
to May 4, 1998............. 699 8,073,565 797,664 8,871,229 0.09 0.08
</TABLE>
58
<PAGE> 59
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) INCOME TAXES
Income tax expense consists of the following amounts (Dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, PERIOD FROM
------------ JANUARY 1, 1998
1996 1997 MAY 4, 1998
---- ---- ---------------
<S> <C> <C> <C>
Current:
Federal.............................................. $313 $426 $393
State................................................ 84 123 64
Deferred:
Federal.............................................. -- (3) --
---- ---- ----
$397 $546 $457
==== ==== ====
</TABLE>
The differences between the effective income tax rate and the statutory
federal income tax rates are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, PERIOD FROM
------------ JANUARY 1, 1998
1996 1997 MAY 4, 1998
---- ---- ---------------
<S> <C> <C> <C>
Computed "expected" tax on income....................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit..................... 4.1 4.1 4.1
Other, net.............................................. 1.6 4.7 1.4
---- ---- ----
Taxes on income......................................... 39.7% 42.8% 39.5%
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below (Dollars
in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C> <C>
Deferred tax assets result from
accrued employee benefits,
principally vacation.................................. $29 $ 90
Accrued expenses...................................... -- 27
--- ----
$29 $117
=== ====
Deferred tax liabilities result from:
Differences in depreciation methods................... $29 $135
Change in accounting method from cash to accrual for
ORA................................................ -- 63
--- ----
$29 $198
=== ====
</TABLE>
59
<PAGE> 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item and not provided in Item 4A will be
contained in the Company's Proxy Statement, which the Company intends to file
within 120 days following the end of its fiscal year ended June 30, 2000, and
such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item will be contained in the Company's
Proxy Statement, which the Company intends to file within 120 days following the
end of its fiscal year ended June 30, 2000, and such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item will be contained in the Company's
Proxy Statement, which the Company intends to file within 120 days following the
end of its fiscal year ended June 30, 2000, and such information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item will be contained in the Company's
Proxy Statement, which the Company intends to file within 120 days following the
end of its fiscal year ended June 30, 2000, and such information is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are included in Item 8.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROVANT, INC. AND SUBSIDIARIES:
Independent Auditors' Report.............................. 21
Consolidated Balance Sheets............................... 22
Consolidated Statements of Operations..................... 23
Consolidated Statements of Stockholders' Equity........... 24
Consolidated Statements of Cash Flows..................... 25
Notes to Consolidated Financial Statements................ 26
Quarterly Results (Unaudited)............................. 45
STAR MOUNTAIN, INC. AND SUBSIDIARIES:
Independent Auditors' Reports............................. 46
Consolidated Balance Sheets............................... 48
Consolidated Statements of Operations..................... 49
Consolidated Statements of Stockholders' Equity........... 50
Consolidated Statements of Cash Flows..................... 51
Notes to Consolidated Financial Statements................ 53
</TABLE>
(a)(2) The following consolidated financial statement schedule of PROVANT,
Inc. and subsidiaries for the years ended June 30, 1998, 1999, and 2000 is filed
as part of this Form 10-K and should be read in conjunction with the Company's
Consolidated Financial Statements included in Item 8 of this Form 10-K.
60
<PAGE> 61
<TABLE>
<CAPTION>
SEQUENTIAL
SCHEDULE PAGE NO.
-------- ----------
<S> <C>
II VALUATION AND QUALIFYING ACCOUNTS........................ 67
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
(a)(3) Exhibits
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
3.1 Certification of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
3.2 Form of Certificate of Designation (incorporated by
reference to Exhibit 4.3 to the Company's Current Report on
Form 8-K as filed with the Securities and Exchange
Commission on July 21, 2000)
3.3 Rights Agreement between Provant, Inc. and Fleet National
Bank, as Rights Agent (incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K as filed
with the Securities and Exchange Commission on July 21,
2000)
3.4 By-laws of the Company
4.1 Form of Specimen Stock Certificate (incorporated by
reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K as filed with the Securities and Exchange
Commission on July 21, 2000)
10.1 Form of Agreement and Plan of Merger by and among Provant,
Inc., Behavioral Acquisition Corp., Paul M. Verrochi,
Dominic J. Puopolo, Behavioral Technology, Inc. and Paul C.
Green, Ph.D. (incorporated by reference to Exhibit 2.1 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
10.2 Form of Agreement and Plan of Merger by and among Provant,
Inc., Decker Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, Decker Communications, Inc., Bert Decker and
Kenneth Taylor (incorporated by reference to Exhibit 2.2 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
10.3 Form of Agreement and Plan of Merger by and among Provant,
Inc., Howard Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, J. Howard & Associates, Inc., Jeffery P. Howard and
Marc S. Wallace (incorporated by reference to Exhibit 2.3 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
10.4 Form of Agreement and Plan of Merger by and among Provant,
Inc., LSS Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, Robert Steinmetz, Ph.D., and Associates, Inc.,
Edwin Bauch as Trustee of the Steinmetz Children's Trust,
u/d/t dated December 31, 1996, Edwin Bauch as Trustee of the
King Children's Trust u/t/d dated December 31, 1996, John F.
King and Robert A. Steinmetz, Ph.D. (incorporated by
reference to Exhibit 2.4 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
10.5 Form of Agreement and Plan of Merger by and among Provant,
Inc., MOHR Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, MOHR Retail Learning Systems, Inc., Herbert Cohen,
Judith Cohen and Michael Patrick (incorporated by reference
to Exhibit 2.5 to the Company's Registration Statement on
Form S-1 (File No. 333-46157))
10.6 Form of Agreement and Plan of Merger by and among Provant,
Inc., Paul M. Verrochi, Dominic J. Puopolo, Star Mountain,
Inc., Star Acquisition Corp. and Carl von Sternberg
(incorporated by reference to Exhibit 2.6 to the Company's
Registration Statement on Form S-1 (File No. 333-46157))
10.7 Form of Agreement and Plan of Merger by and among Provant,
Inc., Novations Acquisition Corp., Paul M. Verrochi, Dominic
J. Puopolo, Novations Group, Inc., Joseph Folkman, Joseph
Hanson, Kurt Sandholtz, Norman Smallwood, Randy Stott and
Jonathan Younger (incorporated by reference to Exhibit 2.7
to the Company's Registration Statement on Form S-1 (File
No. 333-46157))
</TABLE>
61
<PAGE> 62
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.8 Form of First Amendment to Agreement and Plan of Merger (J.
Howard) (incorporated by reference to Exhibit 2.8 to the
Company's Registration Statement on Form S-1 (File No.
333-46157))
10.9 1998 Equity Incentive Plan (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-8 (File No. 333-37472))
10.10 Form of 1998 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
10.11 Form of Stock Plan for Non-Employee Directors (incorporated
by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
10.12 1998 Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-8 (File No. 333-37472))
10.13 1998 Stock Option Plan for Outside Directors (incorporated
by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (File No. 333-72857))
10.14 Form of Warrants to Messrs. Verrochi and Puopolo
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (File No. 333-46157))
10.15 Form of Contingent Warrants to Messrs. Verrochi and Puopolo
(incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (File No. 333-46157))
10.16 Form of Employment Agreement between Rajiv Bhatt and
Provant, Inc. (incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
10.17 Form of Employment Agreement between MOHR Acquisition Corp.,
Herbert A. Cohen and Provant, Inc. (incorporated by
reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
10.18 Form of Employment Agreement between Decker Acquisition
Corp., Bert Decker and Provant, Inc. (incorporated by
reference to Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
10.19 Form of Employment Agreement between Philip Gardner and
Provant, Inc. (incorporated by reference to Exhibit 10.9 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
10.20 Form of Employment Agreement between Behavioral Acquisition
Corp., Paul C. Green and Provant, Inc. (incorporated by
reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
10.21 Form of Employment Agreement between Novations Acquisition
Corp., Joe Hanson and Provant, Inc. (incorporated by
reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
10.22 Form of Employment Agreement between LSS Acquisition Corp.,
John F. King and Provant, Inc. (incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement on
Form S-1 (File No. 333-46157))
10.23 Form of Employment Agreement between Dominic J. Puopolo and
Provant, Inc. (incorporated by reference to Exhibit 10.13 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
10.24 Form of Employment Agreement between A. Carl von Sternberg,
Star Acquisition Corp. and Provant, Inc. (incorporated by
reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
10.25 Form of Employment Agreement between Paul M. Verrochi and
Provant, Inc. (incorporated by reference to Exhibit 10.15 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
10.26 Form of Employment Agreement between Howard Acquisition
Corp., Marc S. Wallace and Provant, Inc. (incorporated by
reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-1 (File No. 333-46157))
10.27 Form of Employment Agreement between John H. Zenger and
Provant, Inc. (incorporated by reference to Exhibit 10.17 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
</TABLE>
62
<PAGE> 63
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.28 Form of Consulting Agreement between Michael J. Davies and
Provant, Inc. (incorporated by reference to Exhibit 10.18 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
10.29 Lease Agreement between Behavioral Technology, Inc. and Paul
C. Green, Ph.D. (incorporated by reference to Exhibit 10.19
to the Company's Registration Statement on Form S-1 (File
No. 333-46157))
10.30 Lease Agreement between Novations Group, Inc. and Novations
Partners, L.L.C. (incorporated by reference to Exhibit 10.20
to the Company's Registration Statement on Form S-1 (File
No. 333-46157))
10.31 Form of Consulting Agreement between Donald W. Glazer and
Provant, Inc. (incorporated by reference to Exhibit 10.21 to
the Company's Registration Statement on Form S-1 (File No.
333-46157))
10.32 Employment Agreement between Provant, Inc. and Curtis M.
Uehlein (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the three months
ended December 31, 1999)
10.33 Revolving Credit Agreement dated April 8, 1998 between
Provant, Inc. and Fleet National Bank (incorporated by
reference to Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1998)
10.34 Amendment No. 1 to Revolving Credit Agreement (incorporated
by reference to Exhibit 10.30 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1998)
10.35 Amendment No. 2 to Revolving Credit Agreement (incorporated
by reference to Exhibit 10.32 to the Company's Registration
Statement on Form S-4 (File No. 333-57733))
10.36 Amendment No. 3 to Revolving Credit Agreement (incorporated
by reference to Exhibit 10.32 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999)
10.37 Amendment No. 4 to Revolving Credit Agreement (incorporated
by reference to Exhibit 10.33 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999)
10.38 Amendment No. 5 to Revolving Credit Agreement (incorporated
by reference to Exhibit 10.34 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999)
10.39 Amendment No. 6 to Revolving Credit Agreement (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the three months ended December 31,
1999)
10.40 Amendment No. 7 to Revolving Credit Agreement (incorporated
by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the three months ended December 31,
1999)
10.41 Amendment No. 8 to Revolving Credit Agreement
10.42 Stock Option Agreement between Provant, Inc. and Curtis M.
Uehlein (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (File No.
333-37146))
10.43 Form of Senn-Delaney Leadership Consulting Group, Inc. Stock
Option Agreement (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-8 (File
No. 333-37146))
10.44 Form of Senn-Delaney Leadership Consulting UK, Ltd. Stock
Option Agreement (incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-8 (File
No. 333-37146))
10.45 Form of Roll-Over Stock Option Agreement (incorporated by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-8 (File No. 333-37146))
10.46 Separation Agreement between Paul M. Verrochi and Provant,
Inc.
10.47 Separation Agreement among Bert Decker, Decker
Communications, Inc. and Provant, Inc.
</TABLE>
63
<PAGE> 64
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.48 Separation Agreement among Paul C. Green, Ph.D., Behavioral
Technology, Inc. and Provant, Inc.
10.49 Separation Agreement among John F. King, MOHR Learning, Inc.
and Provant, Inc.
10.50 Separation Agreement among A. Carl von Sternberg, Star
Mountain, Inc. and Provant, Inc.
21 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
27 Financial Data Schedule
</TABLE>
(b) The Company filed a Current Report on Form 8-K dated July 21, 2000,
that disclosed under Item 5 that the Company had adopted a Shareholders Rights
Plan, pursuant to which a dividend of one preferred share purchase right for
each outstanding share of Common Stock of the Company was distributed to the
stockholders of record as of the close of business on July 28, 2000.
64
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PROVANT, INC.
By: /s/ CURTIS M. UEHLEIN
------------------------------------
CURTIS M. UEHLEIN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Date: September 27, 2000
--------------------------------------
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ CURTIS M. UEHLEIN President, Chief Executive September 27, 2000
----------------------------------------------------- Officer and Director
CURTIS M. UEHLEIN
/s/ JOHN R. MURPHY Chairman of the Board September 27, 2000
-----------------------------------------------------
JOHN R. MURPHY
/s/ DOMINIC J. PUOPOLO Vice Chairman and Director September 27, 2000
-----------------------------------------------------
DOMINIC J. PUOPOLO
/s/ JOHN H. ZENGER Vice Chairman and Director September 27, 2000
-----------------------------------------------------
JOHN H. ZENGER
/s/ RAJIV BHATT Executive Vice President, September 27, 2000
----------------------------------------------------- Treasurer, Chief
RAJIV BHATT Financial Officer and
Chief Accounting Officer
/s/ HERBERT A. COHEN Director September 27, 2000
-----------------------------------------------------
HERBERT A. COHEN
/s/ BERT DECKER Director September 27, 2000
-----------------------------------------------------
BERT DECKER
Director
-----------------------------------------------------
PAUL C. GREEN
Director
-----------------------------------------------------
MARC S. WALLACE
/s/ MICHAEL J. DAVIES Director September 27, 2000
-----------------------------------------------------
MICHAEL J. DAVIES
</TABLE>
65
<PAGE> 66
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID B. HAMMOND Director September 27, 2000
-----------------------------------------------------
DAVID B. HAMMOND
/s/ ESTHER T. SMITH Director September 27, 2000
-----------------------------------------------------
ESTHER T. SMITH
</TABLE>
66
<PAGE> 67
PROVANT, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------- ---------- ---------- ---------- -----------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------- ---------- ---------- ---------- -----------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1998:
Allowance for doubtful accounts.... $ -- $135 $605(a) $ -- $ 740
Year ended June 30, 1999:
Allowance for doubtful accounts.... $740 $260 -- $258 $ 742
Year ended June 30, 2000:
Allowance for doubtful accounts.... $742 $899 -- $483 $1,158
</TABLE>
---------------
(a) Amount established as component of accounts acquired in acquisition of the
Operating Companies.
67
<PAGE> 68
PRV-10K2-00
