0-30318 52-2181734 ------------------------------------- ------------------------------------ (Commission File Number) (I.R.S. Employer Identification No.) |
· | Audited consolidated financial statements of Smith Hanley as of and for the year ended December 31, 2003. |
· | Unaudited consolidated financial statements of Smith Hanley as of September 30, 2004 and for the nine months ended September 30, 2004 and 2003. |
· | Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2004 |
· | Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2004 |
· | Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2003 |
· | Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements |
Exhibit No. | Description |
**2.1 | ASSET PURCHASE AGREEMENT, dated as of September 21, 2004, by and among Smith Hanley Holding Corp., a Connecticut corporation (“SHHC”) |
*23.1 | Consent of KPMG LLP |
**99.1 | Press release dated October 15, 2004 |
Assets | December 31, 2003 | September 30, 2004 | |||||
(Unaudited) | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 383,145 | 2,106,472 | ||||
Trade accounts receivable, net of allowance for doubtful accounts of $0 and $90,000, respectively | 12,571,162 | 14,858,809 | |||||
Due from officers | 477,420 | 4,790,448 | |||||
Prepaid expenses | 190,336 | 338,248 | |||||
Total current assets | 13,622,063 | 22,093,977 | |||||
Property and equipment, net | 674,157 | 748,735 | |||||
Goodwill, net | 3,074,020 | 3,074,020 | |||||
Other noncurrent assets | 33,093 | 35,097 | |||||
Total assets | $ | 17,403,333 | 25,951,829 | ||||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 700,008 | 700,008 | ||||
Accounts payable and accrued expenses | 1,243,854 | 1,086,274 | |||||
Accrued payroll, bonuses and commissions | 4,462,504 | 6,939,335 | |||||
Due to officers | 1,951 | — | |||||
Total current liabilities | 6,408,317 | 8,725,617 | |||||
Long-term debt, excluding current portion | 1,983,316 | 1,458,310 | |||||
Line of credit | 2,750,000 | 6,250,000 | |||||
Deferred tax liability | 63,880 | 94,580 | |||||
Total liabilities | 11,205,513 | 16,528,507 | |||||
Shareholders’ equity: | |||||||
Common stock; no par value. Outstanding 5,100 shares | 90 | 90 | |||||
Additional paid-in capital | 884,721 | 884,721 | |||||
Stock subscriptions receivable | (634,941 | ) | (613,575 | ) | |||
Retained earnings | 5,947,950 | 9,152,086 | |||||
Total shareholders’ equity | 6,197,820 | 9,423,322 | |||||
Commitments and contingencies | |||||||
Total liabilities and shareholders’ equity | $ | 17,403,333 | 25,951,829 |
SMITH HANLEY HOLDING CORP. AND SUBSIDIARIES Consolidated Statements of Operations |
Year ended December 31, 2003 | Nine months ended | |||||||||||||
September 30, 2003 | September 30, 2004 | |||||||||||||
(Unaudited) | ||||||||||||||
Revenue from services: | ||||||||||||||
Permanent placement fees | $ | 11,063,060 | 8,560,674 | 9,882,605 | ||||||||||
Temporary services fees | 63,820,077 | 46,557,857 | 58,848,295 | |||||||||||
Revenue from services | 74,883,137 | 55,118,531 | 68,730,900 | |||||||||||
Cost of services | 48,643,442 | 35,487,029 | 44,900,044 | |||||||||||
Gross profit | 26,239,695 | 19,631,502 | 23,830,856 | |||||||||||
Selling, general, and administrative expenses | 20,645,603 | 15,174,762 | 17,144,104 | |||||||||||
Operating income | 5,594,092 | 4,456,740 | 6,686,752 | |||||||||||
Interest income (expense), net | (193,224 | ) | (121,469 | (118,686) | ||||||||||
Income before income taxes | 5,400,868 | 4,335,271 | 6,568,066 | |||||||||||
Provision for income taxes: | ||||||||||||||
Current | 276,543 | 221,981 | 390,226 | |||||||||||
Deferred | 63,880 | 51,276 | 30,700 | |||||||||||
Total provision for income taxes | 340,423 | 273,257 | 420,926 | |||||||||||
Net income | $ | 5,060,445 | 4,062,014 | 6,147,140 |
SMITH HANLEY HOLDING CORP. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Year Ended December 31, 2003 and nine months ended September 30, 2004 |
Common stock | Additional paid-in | Subscription | Retained | ||||||||||||||||
Shares | Amount | capital | receivable | earnings | Total | ||||||||||||||
Balances at December 31, 2002 | 5,100 | $ | 90 | 884,721 | (634,941 | ) | 4,457,673 | 4,707,543 | |||||||||||
Net income | — | — | — | — | 5,060,445 | 5,060,445 | |||||||||||||
Equity distribution | — | — | — | — | (3,570,168 | ) | (3,570,168 | ) | |||||||||||
Balances at December 31, 2003 | 5,100 | 90 | 884,721 | (634,941 | ) | 5,947,950 | 6,197,820 | ||||||||||||
Net income (unaudited) | — | — | — | — | 6,147,140 | 6,147,140 | |||||||||||||
Equity distribution (unaudited) | — | — | — | — | (2,943,004 | ) | (2,943,004 | ) | |||||||||||
Payment on stock subscription (unaudited) | — | — | — | 21,366 | — | 21,366 | |||||||||||||
Balances at September 30, 2004 (unaudited) | 5,100 | $ | 90 | 884,721 | (613,575 | ) | 9,152,086 | 9,423,322 |
SMITH HANLEY HOLDING CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows |
Year ended | Nine months ended | |||||||||||||
December 31, 2003 | September 30, 2003 | September 30, 2004 | ||||||||||||
(Unaudited) | ||||||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income | $ | 5,060,445 | 4,062,014 | 6,147,140 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Depreciation and amortization | 247,629 | 165,659 | 164,580 | |||||||||||
Provision for deferred income taxes | 63,880 | 51,276 | 30,700 | |||||||||||
Changes in assets and liabilities: | ||||||||||||||
Trade accounts receivable, net | (1,538,062 | ) | (3,163,853) | (2,287,647) | ||||||||||
Due from officers and employees | (320,892 | ) | (566,717) | (4,313,028) | ||||||||||
Prepaid expenses | (18,356 | ) | (59,016) | (147,912) | ||||||||||
Other noncurrent assets | 9,947 | — | (2,004) | |||||||||||
Accounts payable and accrued expenses | 132,428 | 1,157,891 | 2,319,251 | |||||||||||
Due to officers | (57,924 | ) | — | (1,951) | ||||||||||
Net cash provided by operating activities | 3,579,095 | 1,647,254 | 1,909,129 | |||||||||||
Cash flows from investing activities: | ||||||||||||||
Purchases of property and equipment | (175,774 | ) | (108,542 | (239,158) | ||||||||||
Net cash used in investing activities | (175,774 | ) | (108,542 | (239,158) | ||||||||||
Cash flows from financing activities: | ||||||||||||||
Payments on stock subscription | — | — | 21,366 | |||||||||||
Proceeds from line of credit and long-term debt | 8,250,000 | 7,425,002 | 9,000,000 | |||||||||||
Payments of line of credit and long-term debt | (7,700,008 | ) | (7,700,008) | (6,025,006) | ||||||||||
Distributions to shareholders | (3,570,168 | ) | (1,698,249) | (2,943,004) | ||||||||||
Bank overdrafts | — | 434,543 | — | |||||||||||
Net cash (used in) provided by financing activities | (3,020,176 | ) | (1,538,712) | 53,356 | ||||||||||
Net increase in cash and cash equivalents | 383,145 | — | 1,723,327 | |||||||||||
Cash and cash equivalents, beginning of period | — | — | 383,145 | |||||||||||
Cash and cash equivalents, end of period | $ | 383,145 | — | 2,106,472 |
SMITH HANLEY HOLDING CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows |
Year ended December 31, 2003 | Nine months ended | |||||||||||||||
September 30, 2003 | September 30, 2004 | |||||||||||||||
(Unaudited) | ||||||||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid for interest | $ | 194,000 | 113,903 | 250,421 | ||||||||||||
Cash paid for taxes | 340,023 | 133,093 | 355,342 |
SMITH HANLEY HOLDING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2003, September 30, 2004 and 2003 (Unaudited) |
December 31, 2003 | September 30, 2004 | ||||||
Furniture and fixtures | $ | 1,162,986 | 1,361,060 | ||||
Leasehold improvements | 147,896 | 159,942 | |||||
Software | 201,520 | 230,559 | |||||
1,512,402 | 1,751,561 | ||||||
Less accumulated depreciation | 838,245 | 1,002,826 | |||||
$ | 674,157 | 748,735 |
(i) | All loans under the Line of Credit at any time outstanding shall not exceed $6,500,000; |
(ii) | Loans, plus the amount outstanding in connection with the Term Note shall not exceed the Borrowing Base (as defined); |
(iii) | Working capital loans at any time outstanding shall not exceed $3,500,000; and |
(iv) | Acquisition loans at any time outstanding shall not exceed $3,000,000. |
December 31, 2003 | September 30, 2004 | ||||||
Term note bearing interest at LIBOR plus 2% (3.17% at December 31, 2003), principal repayable monthly starting November 2002 | $ | 2,683,324 | 2,158,318 | ||||
Less current portion | 700,008 | 700,008 | |||||
Total excluding current portion | $ | 1,983,316 | 1,458,310 |
Amount | ||||
Year ending December 31: | ||||
2004 | $ | 700,008 | ||
2005 | 700,008 | |||
2006 | 700,008 | |||
2007 | 583,300 | |||
Total | $ | 2,683,324 |
Amount | ||||
Year ending December 31: | ||||
2004 | $ | 904,641 | ||
2005 | 812,107 | |||
2006 | 636,063 | |||
2007 | 267,716 | |||
2008 | 31,250 | |||
Thereafter | — | |||
$ | 2,651,777 |
SMITH HANLEY HOLDING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2003, September 30, 2004 and 2003 (Unaudited) |
Ventiv | Smith Hanley | Pro Forma | Pro Forma | ||||||||||
Historical | Historical | Adjustments | Combined | ||||||||||
(seeNote2) | |||||||||||||
ASSETS | |||||||||||||
Current assets: | |||||||||||||
Cash and equivalents | $ | 87,779 | $ | 2,106 | $ | (31,330) | (a | ) | $ | 58,555 | |||
Restricted cash | 5,187 | -- | -- | 5,187 | |||||||||
Accounts receivable, net | 43,658 | 10,349 | -- | 54,007 | |||||||||
Unbilled services | 23,692 | 4,510 | -- | 28,202 | |||||||||
Employee receivables | -- | 4,791 | (4,791) | (c | ) | -- | |||||||
Prepaid expenses and other current assets | 4,247 | 338 | -- | 4,585 | |||||||||
Total current assets | 164,563 | 22,094 | (36,121) | 150,536 | |||||||||
Property and equipment, net | 32,171 | 749 | -- | 32,920 | |||||||||
Goodwill | 26,641 | 3,074 | (3,074) | (c | ) | 51,820 | |||||||
25,179 | (a | ) | |||||||||||
Other intangibles, net | 2,587 | -- | 17,400 | (a | ) | 19,987 | |||||||
Deferred taxes and other assets | 6,049 | 35 | -- | 6,084 | |||||||||
Total assets | $ | 232,011 | $ | 25,952 | $ | 3,384 | $ | 261,347 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
Current liabilities: | |||||||||||||
Current portion of capital lease obligations | $ | 10,302 | $ | -- | $ | -- | $ | 10,302 | |||||
Current portion of long-term debt | -- | 700 | (700) | (c | ) | -- | |||||||
Accrued payroll, accounts payable and accrued expenses | 45,609 | 8,026 | -- | 53,635 | |||||||||
Current income tax liabilities | 17,139 | -- | -- | 17,139 | |||||||||
Client advances and unearned revenue | 8,589 | -- | -- | 8,589 | |||||||||
Total current liabilities | 81,639 | 8,726 | (700) | 89,665 | |||||||||
Capital lease obligations | 19,540 | -- | -- | 19,540 | |||||||||
Long-term debt, excluding current portion | -- | 1,458 | (1,458 | (c | ) | -- | |||||||
Line of credit | -- | 6,250 | (6,250 | (c | ) | -- | |||||||
Other non-current liabilities | 384 | 95 | -- | 479 | |||||||||
Total liabilities | 101,563 | 16,529 | (8,408 | 109,684 | |||||||||
Commitments and contingencies | |||||||||||||
Stockholders' Equity: | |||||||||||||
Common stock, $.001 par value | 24 | -- | 1 | (a | ) | 25 | |||||||
Additional paid-in-capital | 165,008 | 885 | (885 | (b | ) | 186,222 | |||||||
21,214 | (a | ) | |||||||||||
Stock subscriptions receivable | -- | (614 | ) | 614 | (b | ) | -- | ||||||
Deferred compensation | (50 | ) | -- | -- | (50 | ||||||||
Accumulated other comprehensive earnings | 119 | -- | -- | 119 | |||||||||
(Accumulated deficit) Retained earnings | (34,653 | ) | 9,152 | (9,152 | (b | ) | (34,653 | ||||||
Total stockholders' equity | 130,448 | 9,423 | 11,792 | 151,663 | |||||||||
Total liabilities and stockholders' equity | $ | 232,011 | $ | 25,952 | $ | 3,384 | $ | 261,347 |
Ventiv | Smith Hanley | Pro Forma | Pro Forma | |||||||||||||
Historical | Historical | Adjustments | Combined | |||||||||||||
Revenues | $ | 234,735 | $ | 68,731 | -- | $ | 303,466 | |||||||||
Operating expenses: | ||||||||||||||||
Cost of services | 188,629 | 44,900 | -- | 233,529 | ||||||||||||
Selling, general and administrative expenses | 22,174 | 17,144 | 518 | (d | ) | 39,836 | ||||||||||
Restructuring | (264 | ) | -- | -- | (264 | ) | ||||||||||
Total operating expenses | 210,539 | 62,044 | 518 | 273,101 | ||||||||||||
Operating earnings (losses) | 24,196 | 6,687 | (518 | ) | 30,365 | |||||||||||
Interest expense, net | (179 | ) | (119 | ) | -- | (298 | ) | |||||||||
Earnings (losses) from continuing operations before income taxes | 24,017 | 6,568 | (518 | ) | 30,067 | |||||||||||
Income tax provision | 9,126 | 421 | 1,878 | (e | ) | 11,425 | ||||||||||
Earnings (losses) from continuing operations | $ | 14,891 | $ | 6,147 | $ | (2,396 | ) | $ | 18,642 | |||||||
Earnings per share from continuing operations: | ||||||||||||||||
Basic | $ | 0.63 | $ | 0.75 | ||||||||||||
Diluted | $ | 0.59 | $ | 0.71 | ||||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic | 23,520 | 1,335 | (f | ) | 24,855 | |||||||||||
Diluted | 25,056 | 1,335 | (f | ) | 26,391 |
Ventiv | Smith Hanley | Pro Forma | Pro Forma | |||||||||||||
Historical | Historical | Adjustments | Combined | |||||||||||||
Revenues | $ | 224,453 | $ | 74,883 | -- | $ | 299,336 | |||||||||
Operating expenses: | ||||||||||||||||
Cost of services | 182,658 | 48,643 | -- | 231,301 | ||||||||||||
Selling, general and administrative expenses | 26,223 | 20,646 | 690 | (d | ) | 47,559 | ||||||||||
Gain on sale of real estate | (392 | ) | -- | -- | (392 | ) | ||||||||||
Total operating expenses | 208,489 | 69,289 | 690 | 278,468 | ||||||||||||
Operating earnings (losses) | 15,964 | 5,594 | (690 | ) | 20,868 | |||||||||||
Interest expense, net | (136 | ) | (193 | ) | -- | (329 | ) | |||||||||
Earnings (losses) from continuing operations before income taxes | 15,828 | 5,401 | (690 | ) | 20,539 | |||||||||||
Income tax provision | 5,933 | 340 | 1,532 | (e | ) | 7,805 | ||||||||||
Earnings (losses) from continuing operations | 9,895 | 5,061 | (2,222 | ) | 12,734 | |||||||||||
Earnings per share from continuing operations: | ||||||||||||||||
Basic | $ | 0.43 | $ | 0.53 | ||||||||||||
Diluted | $ | 0.42 | $ | 0.51 | ||||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic | 22,919 | 1,335 | (f | ) | 24,254 | |||||||||||
Diluted | 23,801 | 1,335 | (f | ) | 25,136 |
Purchase price consideration | Amount (in thousands) | |||
Cash | $ | 30,000 | ||
Stock issued | 20,000 | |||
Direct acquisition costs and other post-closing adjustments | 2,545 | |||
Total | $ | 52,545 |
Preliminary allocation of purchase price | Amount (in thousands) | |||
Current assets | $ | 17,303 | ||
Property and equipment, and other noncurrent assets | 784 | |||
Goodwill | 25,179 | |||
Identifiable intangible assets | 17,400 | |||
Liabilities assumed | (8,121 | ) | ||
Total | $ | 52,545 |
(b) | Represents the elimination of the historical stockholders’ equity accounts of Smith Hanley. |
(c) | Represents the elimination of accounts pursuant to the acquisition. |
(d) | Represents the amortization of customer relationships associated with Ventiv’s acquisition of Smith Hanley. These intangible assets are amortized over their useful lives ranging from four to ten years. |
(e) | Represents pro-forma income tax expense as though Smith Hanley was taxed as a C-corporation for the periods presented using Ventiv’s effective tax rates. Prior to Ventiv’s acquisition, Smith Hanley was an S-corporation, in which case shareholders were taxed on their portion of Smith Hanley’s taxable income. |
(f) | Represents the issuance of Ventiv common stock pursuant to the acquisition. |
By: /s/ John R. Emery -------------------------------------------- Date: December 29, 2004 Name: John R. Emery Title: Chief Financial Officer (Principal Accounting and Financial Officer) |
Exhibit No. | Description |
**2.1 | ASSET PURCHASE AGREEMENT, dated as of September 21, 2004, by and among Smith Hanley Holding Corp., a Connecticut corporation (“SHHC”) |
*23.1 | Consent of KPMG LLP |
**99.1 | Press release dated October 15, 2004 |