##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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Form 10-K


(Mark One)


xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended June 30,
2002





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





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PROVANT, INC.


(Exact name of registrant as
specified in its charter)





DELAWARE

04-3395167(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification
Number)





67 Batterymarch Street, Suite 600, Boston, Massachusetts

02110(Address of principal executive offices)

(Zip Code)





(617) 261-1600


(Registrants telephone number, including area code)





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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)





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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 October 10, 2002, 21,500,796 shares of common stock were outstanding, of which 21,005,756 were beneficially
owned by non-affiliates. The aggregate market value of shares held by non-affiliates was approximately $2,520,691 based on the last sale price of the common stock on such date as reported by The Nasdaq SmallCap Market.








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##### Table of Contents




TABLE OF CONTENTS





Description



PagePART IItem 1.

Business

1Item 2.

Properties

5Item 3.

Legal Proceedings

5Item 4.

Submission of Matters to a Vote of Security Holders

5PART IIItem 5.

Market for Registrants Common Equity and Related Stockholder Matters

5Item 6.

Selected Consolidated Financial Data

6Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations

8Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

23Item 8.

Financial Statements and Supplementary Data

25Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

60PART IIIItem 10.

Directors and Executive Officers of Registrant

60Item 11.

Executive Compensation

63Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

67Item 13.

Certain Relationships and Related Transactions

71PART IVItem 14.

Exhibits, Financial Statements Schedules and Reports on Form 8-K

72






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PART I





Item 1.Business





Overview





We are one of the largest providers of performance improvement services and training products that help business and government
organizations improve their effectiveness and profitability by enhancing the capabilities of their people. We offer a vast array of performance skills training covering subjects from employee selection and retention to communication to diversity and
inclusion. We also provide leadership consulting and project management services. With over 1,500 corporate and government clients, we offer blended solutions that combine instructor-led and Web-based training in order to strengthen the performance
and productivity of both individual employees and organizations as a whole. The depth of our offerings and breadth of delivery methods allow our clients to provide training to their employees at virtually every level of their organizations. As of
June 30, 2002, our clients included 52% of the Fortune250 companies.





Provant was organized in May 1998
through the acquisition of seven companies providing performance improvement services and products. Subsequent to those initial acquisitions through September 2000, we acquired 16 additional businesses. In November 2001, we sold three of these
businesses, Sales Performance International, Inc., Solution Selling, Inc. and Resolution Software, Inc., which we had combined in our Sales Performance unit (SPI). During our 2001 fiscal year, we reorganized our acquired businesses into
six business groups to better serve our clients and operate more efficiently and effectively. During the last fiscal year, we continued to integrate the operations of these businesses and completed an internal corporate restructuring to achieve tax
savings and align our corporate and operational structures. In response to the weak economy, we have continued to implement cost containment measures. During the last fiscal year, we reduced our full-time staff by approximately 400 people.





Business Groups





Our objective is to enhance our position as a leading provider of performance improvement services and products to Fortune1000 companies and comparably-sized government entities. To help
achieve this objective, we operate through six business groups, each of which is built upon industry-leading people and content created through years of research and development. In addition to providing their specialized service and product
offerings to our clients, our six business groups work together to help our clients develop and implement an integrated human capital plan, or people strategy. With our services and training as part of this plan, an organization can
achieve measurable results as it improves its people and enterprise as a whole. Our six business groups are as follows:





Performance Solutions.    Our Performance Solutions group offers a wide range of services and products that are designed to provide or improve skills, change behavior and improve performance. Our experts
work closely with our clients to custom-design performance skills products, training courses and course materials. Clients of this group include Bell South, Procter & Gamble, State Farm Insurance, Home Depot, Gillette, Pfizer, Ford and America
Online. Our Performance Solutions group offers training in the following areas:





| |  |  | Selection and Retention: We help organizations lengthen employee tenure, broaden employee contribution and deepen employee commitment. In particular, we
help our clients understand the skills required of their employees and implement more effective recruitment and retention programs with the goal of maximizing employee productivity. For example, Behavioral Interviewing(R) teaches managers to
identify specific job skills required for a position and to interview effectively prospective candidates and evaluate their abilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Communications: We help improve employee communication skills in the areas of presentation, voicemail, email and writing. For example, Effective
Communicatingis a two-day workshop designed to
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | make a clients key personnel more effective in public speaking, sales presentation and other types of oral communication.
| | --------------------------------------------------------------------------------------------------------------------------




| |  |  | Diversity and Inclusion:    We provide consulting and training services to help our clients deal with issues presented by an
increasingly diverse and global workforce. In particular, we offer services and products designed to help managers and employees understand diversity issues, such as race and gender. For example, Managing Inclusionis a multi-day session
designed to help individual managers and organizations understand workplace diversity, build morale and employee satisfaction, and increase productivity through the establishment of effective team relationships.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Vertical Markets.    Our Vertical Markets group provides our clients with industry-focused service
and product offerings to better satisfy our clients specific performance improvement needs. By applying our industry-specific content and delivery methods, we customize performance improvement solutions for multiple clients in a cost-effective
manner. For example, we have developed a standard point-of-sale simulator to assist companies in the retail industry, which can be rapidly customized to address the specific needs of our retail clients who use point-of-sale devices. Clients of this
group include The New York Stock Exchange, Verizon, Citibank, Blockbuster, AXA and Sears. Our Vertical Markets group specializes in the following industry sectors:





| |  |  | Telecommunications:    We create leader-led and technology-based performance improvement services and products for clients in the
telecommunications industry.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Retail:    We develop training services, consulting services and computer-based training applications for the retail industry.
Several of our products, including Creating Loyal Customers, Customer Service at the Registerand Professional Selling, are designed to improve customer service in the retail workplace by simulating important retail situations and
environments through technology-based delivery formats.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Financial Services:    We offer consulting and training services specializing in integrating management processes and information
technology systems in the financial services industry.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Government.    Our Government group designs, develops and implements customized technology-based and paper-based training programs for government entities. We also provide human resources management
services to these organizations, including outplacement services to assist in workforce restructuring. For example, our Government group helped the Defense Commissary Agency become a performance-based organization by streamlining management
structures, increasing training effectiveness and conducting a customer satisfaction survey. Our Government group recently was awarded a contract by the U.S. Department of Transportation to be the exclusive provider of human resources management
services for the Federal Air Marshal program, which has a potential contract value of $6 million per year. Other clients of the Government group include the U.S. Army, Boeing and the Naval Air Warfare Center. Providing services under government
contracts entails risks discussed elsewhere herein, including the risk that many of our government contracts are subject to termination at the election of the government.





Project Management.    Our Project Management group, which is managed under our Government Group, provides our clients with the services,
training, tools and methodologies needed to complete complex strategic projects successfully. For example, this group assisted an airline in deploying multimedia equipment for the computer-based training of its customer service personnel. Our
responsibilities included developing parameters for the project, designing and managing the construction of the training facilities, and coordinating procurement, delivery and set-up. In addition, we trained our clients personnel to be more
effective project managers. Key clients of the Project Management group include Toyota, Bell South, AT&T and Sears.





Leadership Consulting.    Our Leadership Consulting group assists senior executives and their leadership teams in aligning the strategy, structure and culture of their organizations. We provide our clients
with expertise and processes to create the organizational effectiveness needed to ensure that a clients mergers, acquisitions and other ventures are successful. This group also provides needs assessment services to help
organizations determine where significant increases in overall performance can be accomplished through improvements in employee performance skills or in organizational culture. For example, we assisted a large mortgage bank in




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identifying critical areas for organizational change by administering an employee survey to more than 10,000 employees. Because of the extensive relationships between our experts in the
Leadership Consulting group and senior executives at our clients, we can promote the entire Provant line of services and products. Key clients of the Leadership Consulting group include McDonalds, RR Donnelly, United Utilities and Nationwide.





Technology and Development.    Our Technology and Development group helps clients use
Web-based technology to improve employee and organizational performance while reducing costs. Our Web-based training management systems provide clients with an automated approach to the enrollment, tracking and measurement of performance improvement
activities. We can install these systems at the clients site or operate them from our facility. For example, we developed a system for a manufacturing client which allows its 12,000 employees to access a course catalog, enroll in courses, take
tests, review transcripts and read company news and other information. This system will deliver performance improvement content through the clients intranet. In addition, we provide custom e-learning solutions for our clients and have
developed a library of over 70 e-learning product offerings through our strategic alliance with SmartForce. Key clients of the Technology and Development group include Ford, General Motors, Raytheon and Rockwell Collins.





For more information about our business segments, see Note 19 to our audited financial statements included elsewhere herein.





Delivery Methods





We offer multiple delivery methods for our performance improvement services and products to address the particular needs, cost concerns and cultures of our clients. Our primary delivery methods are
described below:





Instructor-Led Training.    We deliver our programs to clients
employees primarily through the use of certified instructors who are either salaried employees or contract instructors. Most of our instructor-led training is delivered at our clients facilities, although we also deliver certain programs at
our own training facilities. In some cases, our programs are delivered in a seminar format to a small group of individuals from multiple clients, or through video conferencing. We typically provide written materials as a part of our instructor-led
programs, and in some cases sell related supplemental materials. We also develop custom courseware that is delivered by instructors who are not affiliated with us. Our 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
our services and products, we train and certify qualified employees of clients in an instructor-led program. The certified client employees then are licensed to use our methodologies and materials to train other employees of the client in
instructor-led classes at client sites. We supply training materials for these classes and on going training for the certified trainers. We receive fees for the employee-led classes on either a per-participant or per-site basis.





Technology-based Formats.    We increasingly are delivering our products in technology-based
delivery formats, such as the Internet, and through other distance-based media. Because of the benefits of technology-based training, we have converted a number of our products to technology-based formats.





Books and Tapes.    We also deliver some of our training through books and video and audio tapes. We offer over
500 titles of specialized books, tapes and other written materials.





Sales and Marketing





We market and sell our services and products through over 200 sales people in our six business groups. We offer integrated
solutions to clients, including clients that are outsourcing their entire training needs to us, such as Weyerhaeuser.




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We have developed a broad client base of over 1,500 corporate and government
clients. Our clients are spread across a wide range of industries. Other than the Cooperative Administrative Service Unit, a customer of the Government group that accounted for 13% of our total revenue in 2002, no single customer accounted for more
than 10% of our total revenue in fiscal 2000, 2001 or 2002. Our sales to U.S. government entities accounted for approximately 15%, 17% and 27% of our total revenue in fiscal 2000, 2001 and 2002, respectively. Our clients during fiscal 2002 included:





| |  |  | 52% of the Fortune250 companies;
| | - |  | --------------------------------




| |  |  | 9 of the top 10 Fortune1000 financial institutions;
| | - |  | ---------------------------------------------------




| |  |  | 6 of the top 10 Fortune1000 insurance companies;
| | - |  | ------------------------------------------------




| |  |  | 9 of the top 10 Fortune1000 telecommunications companies; and
| | - |  | -------------------------------------------------------------




| |  |  | 9 of the top 10 Fortune1000 retail companies.
| | - |  | ---------------------------------------------




We market and sell our services and products through seminars, client referrals, direct marketing, our Web site and trade publications. Through our corporate branding campaign, we seek to establish
national brand identification for the Provant name, while leveraging the value of the established names of many of our businesses, such as J. Howard and Associates, Senn-Delaney Leadership Consulting, MOHR Retail Learning Systems, Decker
Communications and Star Mountain. Today, Provant is recognized as a leader in providing integrated performance improvement to our clients.





Our sales of services and products to government entities require a different marketing and sales approach and strategy. We have a group of associates dedicated to our government marketing and sales who understand and have
considerable experience in the sales process needed to support the federal government. Typically, these sales occur through a competitive bidding process started by the government entitys issuance of a request for proposal for a contemplated
project. We may submit a proposal on our 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 or under Office of Personnel Management/Training Management Assistance (OPM). We benefit from our status as a preferred provider under certain funding mechanisms, including the GSA and OPM
vehicles, which allows us to negotiate contracts without a request for proposal.





Competition





The performance improvement industry is highly fragmented and competitive. We believe the principal competitive factors in our
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.





We compete with many 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 and ESI International (subsidiaries of IIR), Development
Dimensions International, EPS Solutions, The Forum Corporation (a subsidiary of Pearson Plc) and several large publishers of professional reference materials who recently have entered the industry. We also occasionally compete 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 our clients and potential clients have internal training departments.





Our competitors for government contracts include consulting firms such as Booz-Allen & Hamilton, as well as
contract suppliers of equipment to the government such as Raytheon Company and Lockheed Martin Corporation.




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Intellectual Property





We regard many of our performance improvement services and products as proprietary and rely 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 our proprietary rights.





Employees





As of June 30, 2002, we employed 1,393 full-time and part-time employees. We regard our relationship with our employees as generally satisfactory. In addition, we provide certain of our services and products through independent
contractors, which as of June 30, 2002, numbered approximately 100.





Item 2.Properties





We lease our principal executive office located in Boston,
Massachusetts, and as of June 30, 2002, maintained 25 additional leased office locations in 15 states, and one in the United Kingdom. The remaining terms of our leases are less than ten years. Our principal offices are located in: Alexandria,
Virginia; Atlanta, Georgia; Columbia, Maryland; Urbandale, Iowa; Lansing, Michigan; Brighton, Massachusetts; Long Beach and San Francisco, California; Provo, Utah; and Ridgewood, New Jersey. We believe that our facilities are adequate to serve our
current level of operations. If additional facilities are required, we believe that suitable additional or alternative space will be available as needed on commercially reasonable terms.





Item 3.Legal Proceedings





We are, 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 our business, financial condition or results of operations.





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 Provants fiscal year ended June 30, 2002.





PART II





Item 5.Market for Registrants Common Equity and Related Stockholder Matters





Price Range of Common Stock





Provants common stock is quoted on The Nasdaq SmallCap
Market (Nasdaq) under the symbol POVT. On August 15, 2002, Provants common stock was transferred from The Nasdaq National Market to The Nasdaq SmallCap Market subject to Nasdaqs approval of Provants
application. On August 29, 2002, Nasdaq notified Provant that as a result of the potential issuance of an aggregate of 5,750,794 shares of common stock to the former stockholders of Strategic Interactive, Inc. (SI), a company acquired by
Provant in October 1998, Provant is not in compliance with Nasdaqs shareholder approval requirements, as set forth in Nasdaq Marketplace Rule 4350(i)(1), and that Provants non-compliance would be considered by the Nasdaq Listing
Qualifications Panel when deciding whether to proceed with Provants application for its common stock to be traded on The Nasdaq SmallCap Market. Provant expects to issue 5.8 million shares in late October or early November 2002 to the former
stockholders of SI. The issuance of these shares will most likely result in the delisting of Provants common stock from the Nasdaq SmallCap Market.




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##### Table of Contents




The following table sets forth the high and low sale prices for the common stock
for each quarter for the years ended June 30, 2002 and 2001, as reported by Nasdaq.





High

LowYear Ended June 30, 2002First Quarter

$
2.01

$
0.32Second Quarter


0.96


0.32Third Quarter


0.80


0.46Fourth Quarter


0.59


0.20





High

LowYear Ended June 30, 2001First Quarter

$
9.00

$
4.88Second Quarter


7.94


2.53Third Quarter


6.94


4.12Fourth Quarter


6.06


1.72





On October 10, 2002, the last sale price of Provants common
stock was $0.12 as reported by Nasdaq and there were 230 holders of record of common stock.





Dividend Policy





Provant intends to retain all of its earnings to finance its operations 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, Provants future
earnings, operating and financial condition and capital requirements, as well as general business conditions and any other factors the Board of Directors may consider. Provants credit facility currently restricts our ability to pay dividends
without the consent of the lenders.





Item 6.Selected Consolidated Financial Data





The following table presents selected
historical consolidated financial data for Provant as of and for the five years ended June 30, 2002. 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). In November 2001, we consummated the sale of SPI.





The selected data should be read in conjunction with the consolidated financial statements for the year ended June 30, 2002, the related notes, and the independent auditors report which contains an explanatory paragraph
appearing elsewhere in this document and stating that the current terms of the amount outstanding under Provants credit facility, along with the fact that Provant has a working capital deficit and has incurred losses from operations in 2002,
raises substantial doubt about the entitys ability to continue as a going concern. The consolidated financial statements and the selected data do not include any adjustments that might result from the outcome of that uncertainty.




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For the year ended June 30,2002


2001


2000

1999

1998(Dollars in thousands)Statement of Operations Data:Total revenue

$
161,156


$
206,869


$
217,359

$
165,615

$
36,911Cost of revenue


76,564



82,774



86,754


65,793


13,001Gross profit


84,592



124,095



130,605


99,822


23,910Selling, general and administrative expenses


83,704



114,037



105,689


81,743


32,970Reorganization charge










8,287





Pooling costs










1,215





Impairment loss


5,609













Goodwill amortization






6,003



5,383


2,622


245Income (loss) from operations


(4,721
)


4,055



10,031


15,457


(9,305
)Other income (expense)


27



(34
)


72


884


(21
)Interest expense


4,853



4,911



2,408


131


42Income (loss) before income taxes, extraordinary items and cumulative effect of a change in accounting
principle


(9,547
)


(890
)


7,695


16,210


(9,368
)Provision (benefit) for income taxes(1)


(1,750
)


2,045



5,922


8,832


271Net income (loss) before extraordinary items and cumulative effect of a change in accounting principle


(7,797
)


(2,935
)


1,773


7,378


(9,639
)Extraordinary items:Loss on sale of operations, net of taxes


(14,345
)












Early extinguishments of debt, net of taxes


315













Income (loss) before cumulative effect of a change in accounting principle


(21,827
)


(2,935
)


1,773


7,378


(9,639
)Cumulative effect of a chang in accounting principle, net of taxes


(165,447
)












Net income (loss)

$
(187,274
)

$
(2,935
)

$
1,773

$
7,378

$
(9,639
)Income (loss) per common share:Income (loss) before extraordinary items and cumulative effect of a change in accounting principleBasic

$
(0.36
)

$
(0.14
)

$
0.08

$
0.48

$
(1.48
)Diluted

$
(0.36
)

$
(0.14
)

$
0.08

$
0.44

$
(1.48
)Extraordinary item (loss on sale of operations, net of taxes)Basic and diluted

$
(0.66
)

$



$


$


$
Extraordinary item (early extinguishments of debt, net of taxes)Basic and diluted

$
0.01


$



$


$


$
Cumulative effect of a change in accounting principle, net of taxesBasic and diluted

$
(7.69
)

$



$


$


$
Net income (loss)Basic

$
(8.70
)

$
(0.14
)

$
0.08

$
0.48

$
(1.48
)Diluted

$
(8.70
)

$
(0.14
)

$
0.08

$
0.44

$
(1.48
)Weighted average common shares outstanding:Basic


21,530,449



21,397,672



20,897,579


15,376,145


6,518,455Diluted


21,530,449



21,397,672



21,793,771


16,656,475


6,518,455


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|(1) |  | Through December 12, 1999, Senn-Delaney Leadership had elected to be treated as an S corporation and, accordingly, no income taxes have been provided on income
of Senn-Delaney Leadership for periods ending on or prior to that date.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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At June 30,2002


2001

2000

1999

1998(Dollars in thousands)Balance Sheet data:Working capital (deficit)

$
(27,398
)

$
16,658

$
10,173

$
9,585

$
11,437Total assets


98,797



324,809


301,461


298,695


93,148Long-term debt, net of current portion


800



58,358


41,699


9,242


874Stockholders equity


20,950



211,967


205,038


201,584


66,207





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. Our actual results could differ significantly from the results discussed in the forward-looking
statements as a result of any number of factors, including those presented below under Factors that May Affect Future Results. All references to years, unless otherwise noted, refer to our fiscal year, which ends on June 30. For example,
a reference to 2002 means the 12-month period that ended on June 30, 2002. All references to quarters, unless otherwise noted, refer to the quarters of our fiscal year.





Overview





We are one of the
largest providers of performance improvement services and training products that help business and government organizations improve their effectiveness and profitability by enhancing the capabilities of their people. We offer a vast array of
performance skills training covering subjects ranging from employee selection and retention to communication to diversity and inclusion. We also provide leadership consulting and project management services. With over 1,500 corporate and government
clients, we offer blended solutions that combine instructor-led and Web-based training in order to strengthen the performance and productivity of both individual employees and organizations as a whole. The depth of our offerings and breadth of
delivery methods allow our clients to provide training to their employees at virtually every level of their organizations.





Provant was organized in May 1998 through the acquisition of seven companies providing performance improvement services and products. Subsequent to those initial acquisitions through September 2000, we acquired 16 additional
businesses. In November 2001, we sold SPI.





Segments





Operating segments are defined as components of an enterprise for which separate financial information is regularly available and evaluated by the chief operating
decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is the Chief Executive Officer.





To leverage the assets of our people and our service offerings and to provide operational efficiency, in 2001 we integrated our businesses into six operating groups or
segments. The segments are Performance Solutions, Vertical Markets, Government, Leadership Consulting, Project Management and Technology and Development. Each operating segment is managed separately (although the Project Management Group is
currently managed under the Government Group) and represents a strategic business unit that serves different markets or provides different services and products. Revenues of each operating group vary based on the results of the economic conditions
in the particular industries that they serve or the demand for services and products that they provide





Revenues





The Company recognizes revenue from five main sources: (i) instructor-led and
train-the-trainer seminars, (ii) licensing its intellectual property, (iii) custom services and products, (iv) consulting and training management services, and (v) standardized products.




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Cost of Revenue





Cost of revenue primarily consists of (i) salaries and benefits for our instructors, consultants and course designers and costs of independent contractors; and (ii) the
cost of developing, designing and producing training courses and materials, including costs of materials and amortization of product development costs. As a result, our gross margins are affected by the number of instructors, consultants and course
designers employed and their utilization rate during any given period.





Results of Operations





The following historical consolidated financial information represents the operations of Provant and its subsidiaries. For
acquisitions accounted for under the purchase method of accounting, the operating results have been included from the date of acquisition. For the Senn-Delaney Leadership acquisition accounted for under the pooling-of-interests method of accounting,
the operating results of Senn-Delaney Leadership are included for all periods presented.





Results of Operations for the Three Years
Ended June 30, 2002





This historical consolidated information has been derived from our audited financial
statements included elsewhere herein.





Year Ended June 30,2002


2001


2000(dollars in thousands)Total revenue

$
161,156


100.0
%

$
206,869


100.0
%

$
217,359

100.0
%Cost of revenue


76,564


47.5



82,774


40.0



86,754

39.9Gross profit


84,592


52.5



124,095


60.0



130,605

60.1Selling, general and administrative expenses


83,704


51.9



114,037


55.1



105,689

48.6Reorganization charge
















8,287

3.8Pooling costs
















1,215

0.6Impairment loss


5,609


3.5












Goodwill amortization









6,003


2.9



5,383

2.5Income (loss) from operations


(4,721
)

(2.9
)


4,055


2.0



10,031

4.6Other income (expense)


27






(34
)





72

Interest expense


4,853


3.0



4,911


2.4



2,408

1.1Provision (benefit) for income taxes


(1,750
)

(1.1
)


2,045


1.0



5,922

2.7Net income (loss) before extraordinary items and cumulative effect of a change in accounting principle


(7,797
)

(4.8
)


(2,935
)

(1.4
)


1,773

0.8Extraordinary item (loss on sale of operations, net of taxes)


(14,345
)

(8.9
)











Extraordinary item (early extinguishment of debt, net of taxes)


315


0.2












Income (loss) before cumulative effect of a change in accounting principle


(21,827
)

(13.5
)


(2,935
)

(1.4
)


1,773

0.8Cumulative effect of a change in accounting principle, net of taxes


(165,447
)

(102.7
)











Net income (loss)

$
(187,274
)

(116.2
)%

$
(2,935
)

(1.4
)%

$
1,773

0.8
%




9




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##### Table of Contents




Year Ended June 30, 2002 Compared to Year Ended June 30, 2001





Revenue





Year Ended June 30,2002

2001

Percent Change(dollars in thousands)Performance Solutions

$
30,583

$
56,741

(46.1
)%Government


49,220


41,383

18.9Leadership Consulting


28,229


31,860

(11.4
)Project Management


14,435


28,671

(49.7
)Vertical Markets


21,065


27,901

(24.5
)Technology and Development


17,624


20,313

(13.2
)Total Revenue

$
161,156

$
206,869

(22.1
)%





Revenues for 2002 were $161.2 million, a decrease of $45.7 million,
or 22.1%, from the $206.9 million reported in 2001. A significant portion of the decrease was due to the loss of revenue from SPI, which was sold in November 2001. Revenues from this unit were $6.6 million for 2002 compared to $20.1 million for
2001, a decrease of $13.5 million. The remaining revenue decrease, which is spread across all of our operating groups except the Government group, resulted primarily from the difficult economic conditions that many of our clients industries
are experiencing, which led many of our clients to decrease spending on workplace improvement solutions.





The
Performance Solution groups revenues decreased by $26.2 million, or 46.1%, for fiscal 2002 primarily due to the decrease in industry spending on workplace training due to current economic conditions and the sale in the second quarter of 2002
of SPI, which accounted for approximately $13.5 million of the decrease.





The Government groups revenues
increased by $7.8 million, or 18.9%, for fiscal 2002 primarily from the addition of a few significant contracts, which were obtained, in part, as a result of the increased training efforts mandated by government entities during the year.





The Leadership Consulting groups revenues decreased by $3.6 million, or 11.4%, for fiscal 2002 primarily
due to client delays in commencing new projects.





The Project Management groups revenues decreased by $14.2
million, or 49.7%, for fiscal 2002 primarily due to continued weakness in the airline, telecommunication and technology segments of the national economy, which segments have been the principal users of our project management services.





The Vertical Market groups revenues decreased by $6.8 million, or 24.5%, for fiscal 2002 primarily due to contracts being
cancelled or deferred in the telecommunication and retail segments of our customer base.





The Technology and
Development groups revenues decreased by $2.7 million, or 13.2%, for fiscal 2002, primarily as a result of our decision in 2001 to outsource the distribution portion of our media business to a third party in exchange for royalties on products
sold.





Gross Profit





Year Ended June 30,2002

Gross Margin


2001

Gross Margin


Percent Change(dollars in thousands)Performance Solutions

$
23,178

75.8
%

$
43,643

76.9
%

(46.9
)%Government


16,693

33.9



15,516

37.5


7.6Leadership Consulting


17,564

62.2



22,018

69.1


(20.2
)Project Management


6,006

41.6



13,537

47.2


(55.6
)Vertical Markets


10,350

49.1



15,079

54.0


(31.4
)Technology and Development


10,801

61.3



14,302

70.4


(24.5
)Total Gross Profit

$
84,592

52.5
%

$
124,095

60.0
%

(31.8
)%




10




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##### Table of Contents




Overall our gross profit in 2002 was $84.6 million, a decrease of $39.5 million,
or 31.8%, from the $124.1 million reported in 2001. The reduction in gross profit resulted from the revenue reduction associated with the difficult economic conditions that many of our clients industries are experiencing, coupled with our lag
in reducing certain fixed costs. Gross margin decreased to 52.5% in 2002 compared to 60% in 2001 primarily due to the combination of lower revenues and largely fixed costs as well as the increase in the Government groups lower margin revenues
as a percentage of our total revenues from 20.0 % of total revenues in 2001 to 30.5 % of total revenues in 2002. Gross margins also decreased due to a $4.2 million reduction in higher margin licensing fees from all operating groups.





The Performance Solutions groups gross profit decreased by $20.5 million, or 46.9%, and gross margin decreased slightly
to 75.8% in 2002 from 76.9% in 2001. The reduction in both gross profit and gross margin is due principally to the decrease in revenue and the sale in the second quarter of 2002 of SPI.





The Government groups gross profit increased by $1.2 million, or 7.6%, and gross margin decreased to 33.9% in 2002 from 37.5% in 2001. The increase in gross profit is
attributable to the increase in revenues and the decrease in margins is attributable to the lower margin contracts that were awarded during 2002.





The Leadership Consulting groups gross profit decreased by $4.5 million, or 20.2%, and gross margin decreased to 62.2% in 2002 from 69.1% in 2001. The reduction in both gross profit and gross
margin is due principally to the decrease in revenue and delay in reducing certain fixed costs.





The Project
Management groups gross profit decreased by $7.5 million, or 55.6%, and gross margin decreased to 41.6% in 2002 from 47.2% for 2001. The decline in gross profit and gross margin was a result of lower revenues due to continued weakness in the
airline, telecommunication and technology segments of the national economy, which segments have been the principal users of our project management services. The Project Management group uses primarily full-time service providers. Changes in demand
for project management services can result in fluctuations in our gross margins due to time required to adjust staffing levels. Persistent weakness in the airline, telecommunication and technology sectors of the national economy has decreased demand
for our project management services and resulted in overcapacity in our staffing for project management services. We continue to monitor and adjust our staffing levels.





The Vertical Markets groups gross profit decreased by $4.7 million, or 31.4%, for 2002 and the groups gross margin decreased to 49.1% in 2002 from the 54.0%
reported for 2001. The reduction in gross margin and gross profit was primarily due to continued weakness in the telecommunication and retail segments of the national economy, which led many of our clients to decrease spending on workplace
improvement solutions.





The Technology and Development groups gross profit decreased by $3.5 million, or
24.5%, and the groups gross margin decreased from 70.4% in 2001 to 61.3% for 2002, primarily as a result of the outsourcing of the distribution portion of our media business to a third party in exchange for royalties on products sold.





Selling, General and Administrative Expenses





Year Ended June 30,2002

Percent of Segment
Revenue


2001

Percent of Segment
Revenue


Percent Change(dollars in thousands)Performance Solutions

$
18,017

58.9
%

$
30,995

54.6
%

(41.9
)%Government


13,748

27.9



13,145

31.8


4.6Leadership Consulting


12,574

44.5



17,606

55.3


(28.6
)Project Management


8,139

56.4



14,273

49.8


(43.0
)Vertical Markets


11,481

54.5



13,554

48.6


(15.3
)Technology and Development


9,820

55.7



12,042

59.3


(18.5
)Corporate Office


9,925

N/A



12,422

N/A


(20.1
)Total

$
83,704

51.9
%

$
114,037

55.1
%

(26.6
)%




11




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##### Table of Contents




Total selling, general and administrative (SG&A) expenses
decreased by $30.3 million, or 26.6%, to $83.7 million in 2002, from $114.0 million in 2001. SG&A as a percentage of revenue decreased from 55.1% in 2001 to 51.9% in 2002. The decrease in SG&A expenses was primarily due to reductions in
general and administrative (G&A) personnel, other cost containment activities and lower selling expenses.





The Performance Solutions groups SG&A expenses decreased by $13.0 million, or 41.9%, for 2002, and as a percent of revenue increased to 58.9%, from 54.6% for 2001. The reduction in SG&A expenses was primarily due to
reductions in G&A personnel, other cost containment activities and lower selling expenses as well as the sale in the second quarter of 2002 of SPI. During 2002, we reduced our full-time staff in the Performance Solutions group by 77 people. As a
percentage of revenue, SG&A expenses increased over 2001 due to delays in the implementation of fixed costs reduction coupled with decreased revenue.





The Government groups SG&A expenses increased by $0.6 million, or 4.6%, for 2002, and as a percent of revenue decreased to 27.9%, from 31.8% for 2001. Overall expenses increased as a result
of the overall increase in revenues. The decrease as a percentage of revenue resulted from various cost containment activities that we have undertaken.





The Leadership Consulting groups SG&A expenses decreased by $5.0 million, or 28.6%, for 2002, and as a percent of revenue decreased to 44.6%, from 55.3% for 2001. The reduction in SG&A
expenses was primarily due to G&A personnel reductions and other cost containment activities that we have undertaken. During 2002, we reduced our full-time staff in the Leadership group by 38 people.





The Project Management groups SG&A expenses decreased by $6.1 million, or 43.0 %, for 2002, and as a percent of revenue
increased to 56.4% from 49.8% in 2001. The decrease in SG&A expenses is primarily due to reductions in G&A personnel, other cost containment activities and lower selling expenses, partially offset by the severance and other expenses
associated with our work force reductions. During 2002, we reduced our full-time staff in the Project Management group by 100 people. As a percentage of revenue, SG&A expenses increased over 2001 due to various fixed costs which were not reduced
through cost containment activities coupled with the decreased revenue.





The Vertical Markets groups
SG&A expenses decreased by $2.1 million, or 15.3%, for 2002, and as a percent of revenue increased to 54.5%, from 48.6% for 2001. The decrease in SG&A expenses is primarily due to reductions in G&A personnel, other cost containment
activities and lower selling expenses partially offset by the severance and other expenses associated with our work force reductions. During 2002, we reduced our full-time staff in the Vertical Markets group by 100 people. As a percentage of
revenue, SG&A expenses increased over 2001 due to various fixed costs which were not reduced through cost containment activities coupled with the decreased revenue.





The Technology and Development groups SG&A expenses decreased by $2.2 million, or 18.5%, for 2002, and as a percent of revenue decreased to 55.7% from 59.3% in
2001. The decrease in SG&A expenses is predominately due to the decrease in personnel as a result of the outsourcing of the distribution portion of our media business to a third party in exchange for royalties on products sold. During 2002, we
reduced our full-time staff in the Technology & Development group by 60 people.





The corporate offices
SG&A expenses decreased by $2.5 million, or 20.1%, to $9.9 million for 2002, primarily due to a reduction of discretionary spending and the effects of staffing reductions, partially offset by the increase in expenses related to the review of our
strategic alternatives and our efforts to renegotiate our existing credit facility. In connection with the credit facility, we paid approximately $1.2 million in fees.




12




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##### Table of Contents




Impairment Loss.








We completed our annual goodwill impairment review as of April 30, 2002 and have recorded an
additional impairment loss of $5.6 million for the year ended June 30, 2002.





Goodwill Amortization.





Goodwill amortization decreased by $6.0 million in 2002. The decrease in amortization is directly related
to our early adoption on July 1, 2001 of SFAS 142, Goodwill and Other Intangible Assets.SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least
annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.We have completed our transitional goodwill impairment evaluation. The evaluation resulted in the
identification of a transitional impairment loss of $165.4 million, net of taxes. In accordance with SFAS 142, the transitional impairment loss has been recorded as a cumulative effect of a change in accounting principle, net of tax, on the face of
the statement of operations.





The basis for setting value under the new SFAS 142 is current fair market value,
which differs from the historical treatment of goodwill. The historical treatment allowed companies to value the goodwill using a non-discounted cash flow over a 40-year period. The combination of the change in the method of determining goodwill and
the current state of the economy caused the significant impairment to our current carrying value.





Income
(loss) from operations.





Loss from operations was $4.7 million in 2002, compared to income from operations
of $4.1 million in 2001 as a result of the factors previously discussed.





Interest Expense.





Interest expense decreased slightly by $0.06 million to $4.85 million in 2002 from $4.91 million in 2001.





Income Taxes.





Income taxes decreased from a provision of $2.0 million in 2001 to a benefit of $1.8 million in 2002 due to a decrease in pre-tax income to a net loss in 2002.
Historically, the effective tax rate has been higher than the statutory tax rate primarily due to the nondeductibility of our goodwill amortization for tax purposes.





Extraordinary Items.





On November 6, 2001, we consummated the sale of SPI to a company controlled by the former majority stockholder of Sales Performance International, Inc., which former stockholder was an officer, director and employee of Sales
Performance International, Inc. at the time of the sale. The decision to sell SPI was based, in part, upon the determination that the niche high-end sales training provided by SPI through the Solution Selling methodology did not fit well with our
long-term strategic plan. In addition, in connection with the sale, we eliminated our obligation to pay $10.5 million of cash and stock contingent consideration. The purchaser paid us approximately $19.5 million in cash and returned 517,325 shares
of our common stock originally received by the former majority stockholder when Sales Performance International, Inc. was acquired. Included in the assets of SPI was $1.2 million in cash. As a result of the sale of SPI, we recognized in the second
quarter of fiscal 2002 an extraordinary loss of approximately $14.4 million, net of taxes, primarily due to the elimination of related




13




---

##### Table of Contents

goodwill. In accordance with Accounting Principles Board Opinion No. 16, the loss was presented as an extraordinary item in the accompanying financial statements as the sale of SPI occurred
within two years of a business combination accounted for as a pooling-of-interests.





In April 2002, we agreed with
the holders of several promissory notes issued in connection with the acquisition of their businesses to discharge our obligations under those notes by paying $1.9 million of the $2.4 million outstanding principle balance. We made payments totaling
$1.9 million in April 2002 and recorded an extraordinary gain on the early extinguishment of debt of approximately $0.3 million, net of taxes.





Year Ended June 30, 2001 Compared to Year Ended June 30, 2000





Revenue





Year Ended June 30,2001

2000

Percent Change(dollars in thousands)Performance Solutions

$
56,741

$
54,391

4.3
%Government


41,383


41,765

(0.9
)Leadership Consulting


31,860


38,674

(17.6
)Project Management


28,671


28,858

(0.6
)Vertical Markets


27,901


29,663

(5.9
)Technology and Development


20,313


24,008

(15.4
)Total Revenue

$
206,869

$
217,359

(4.8
)%





Revenues for 2001 were $206.9 million, a decrease of $10.5 million,
or 4.8%, from revenues 2000. Our revenue decrease resulted primarily from the difficult economic conditions that many of our clients industries are experiencing, which led many of our clients to decrease spending on workplace improvement
solutions, and our ongoing operational transformation.





This decrease in revenue was concentrated in our
Leadership Consulting, Technology and Development, and Vertical Markets groups. The Leadership Consulting groups revenues in 2001 decreased by $6.8 million, or 17.6%, primarily due to contract implementation delays.





The Technology and Development groups revenues decreased by $3.7 million, or 15.4%, in 2001, primarily as a result of the
elimination of certain services and products as part of our fiscal 2000 reorganization program and our decision in 2001 to outsource the distribution portion of our media business to a third party in exchange for royalties on products sold. These
revenue decreases were partially offset by continued strong sales of our custom e-learning and Learning Management Systems products.





The Vertical Markets groups revenues decreased by $1.8 million, or 5.9%, in 2001, reflecting the elimination of certain telecommunication services and products in connection with our fiscal 2000 reorganization program
and softness in our retail consulting services. These revenue decreases were partially offset by our acquisition in 2001 of a business dedicated to training in the financial services industry.




14




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##### Table of Contents




Gross Profit





Year Ended June 30,2001

Gross Margin


2000

Gross Margin


Percent Change(dollars in thousands)Performance Solutions

$
43,643

76.9
%

$
42,300

77.8
%

3.2
%Government


15,516

37.5



16,071

38.5


(3.5
)Leadership Consulting


22,018

69.1



26,935

69.6


(18.3
)Project Management


13,537

47.2



15,252

52.9


(11.2
)Vertical Markets


15,079

54.0



15,027

50.7


0.3Technology and Development


14,302

70.4



15,020

62.6


(4.8
)Total Gross Profit

$
124,095

60.0
%

$
130,605

60.1
%

(5.0
)%





Overall our gross profit in 2001 was $124.1 million, a decrease of
$6.5 million, or 5.0%, from the $130.6 million reported in 2000. The reduction in gross profit resulted from the revenue reduction associated with the difficult economic conditions that many of our clients industries are experiencing and our
ongoing operational transformation. Gross margin held steady at approximately 60.0% for both periods.





The
decrease in overall gross profit was caused primarily by our Leadership Consulting and Project Management groups. The Leadership Consulting groups gross profit decreased by $4.9 million, or 18.3%, in 2001, and gross margin decreased to 69.1%,
from 69.6% in 2000. The reduction in both gross profit and gross margin is due principally to contract implementation delays. This segment of our business uses primarily full-time service providers.





The Project Management groups gross profit decreased by $1.7 million, or 11.2%, in 2001, and gross margin decreased to 47.2%, from
52.9% in 2000. The decline in gross profit and gross margin was a result of lower revenues due to weakness in the telecommunication and technology segments of the national economy. These two industry segments have been large users of our project
management services.





The Leadership Consulting and Project Management groups are the two segments of our business
that use primarily full-time service providers. Changes in demand for the services of these groups can result in fluctuations in our gross margins if we do not promptly adjust staffing levels. We had increased our staffing levels in the Project
Management business in 2001 in anticipation of continued strong demand for these services. However, weakness in the telecommunication and technology sectors of the national economy caused decreased demand for our project management services and,
correspondingly, some overcapacity in our staffing for project management services. We reduced this overcapacity by lowering staffing levels in the first quarter of 2002.





The Vertical Markets groups gross margin increased by $0.1 million, or 0.3%, in 2001 and the groups gross margin increased to 54.0% from the 50.7% reported in
2000. The Technology and Development groups 2001 gross margin increased to 70.4% from 62.6% in 2000. The increase in gross margin in these two groups reflects the elimination of certain lower margin telecommunication and technology services
and products as part of our fiscal 2000 reorganization program and our decision in 2001 to outsource the distribution portion of our media business to a third party in exchange for royalties on product sales.




15




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##### Table of Contents




Selling, General and Administrative Expenses





Year Ended June 30,2001

Percent of Segment
Revenue


2000

Percent of Segment
Revenue


Percent Change(dollars in thousands)Performance Solutions

$
30,995

54.6
%

$
25,116

46.2
%

23.4
%Government


13,145

31.8



14,653

35.1


(10.3
)Leadership Consulting


17,606

55.3



22,358

57.8


(21.3
)Project Management


14,273

49.8



9,735

33.7


46.6Vertical Markets


13,554

48.6



10,522

35.5


28.8Technology and Development


12,042

59.3



14,372

59.9


(16.2
)Corporate Office


12,422

N/A



8,933

N/A


39.1Total

$
114,037

55.1
%

$
105,689

48.6
%

7.9
%





Total SG&A expenses increased by $8.3 million, or 7.9%, to
$114.0 million in 2001, from $105.7 million in 2000. SG&A as a percentage of revenue increased from 48.6% in 2000 to 55.1% in 2001.





The increase in SG&A expenses and its increase as a percentage of revenue was primarily due to an increase of $3.0 million in charges relating to notes and accounts receivable deemed uncollectible, $1.4 million in
severance for certain executives, our continuing investment in the Strategic Account Management program and our ongoing investments to integrate our businesses. The increased charges primarily impacted the Performance Solutions and Project
Management groups and our corporate office and were recorded in the fourth quarter of 2001.





The Performance
Solutions groups SG&A expenses increased by $5.9 million, or 23.4%, to $31.0 million in 2001, primarily due to a $1.4 million charge recorded in the fourth quarter for accounts receivable deemed uncollectible and resulting from higher
commissions due to stronger demand for our diversity training solutions.





The Government groups SG&A
expenses decreased by $1.5 million, or 10.3%, in 2001. As a percentage of revenue, the Government groups SG&A expenses declined from 35.1% to 31.8% in 2001. The decrease in these expenses was primarily due to the elimination of certain
executive and administrative positions and redundant facilities in connection with our fiscal 2000 reorganization program.





The Leadership Consulting groups SG&A expenses decreased by $4.7 million, or 21.3%, and as a percentage of revenue decreased from 57.8% in 2000 to 55.3% in 2001. Included in the Leadership Consulting groups SG&A
expenses is $3.3 million of Senn-Delaney Leaderships compensation differential for 2000. The compensation differential represents adjustments to salary, bonus and benefits historically paid to certain employee owners of Senn-Delaney Leadership
in excess of compensation levels to which they have contractually agreed prospectively. Excluding this compensation differential, SG&A expenses for the Leadership group as a percentage of revenue would have been 49.3% in 2000 and 55.3% for 2001.





The Project Management groups SG&A expenses increased by $4.5 million, or 46.6%, in 2001, primarily due
to necessary post-acquisition investments and $1.5 million of charges recorded in 2001 for accounts receivable deemed uncollectable.





The Vertical Markets groups SG&A expenses increased by $3.0 million, or 28.8%, in 2001, primarily due to an acquisition in 2001. SG&A expenses for the Vertical Markets group as a percentage of revenue were
35.5% in 2000 and 48.6% in 2001.




16




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##### Table of Contents




The Technology and Development groups SG&A expenses decreased by $2.3
million, or 16.2%, in 2001. The decrease in SG&A expenses was primarily the result of the elimination of certain executive and administrative positions and redundant facilities in connection with our fiscal 2000 reorganization program.





The corporate offices SG&A expenses increased by $3.5 million, or 39.1%, to $12.4 million in 2001,
primarily due to a $1.0 million charge recorded in 2001 related to notes receivable deemed uncollectable, additional investment banking fees and legal costs associated with our review of strategic alternatives and increased corporate headcount due
to our integration efforts.





Goodwill Amortization.





Goodwill amortization increased by $0.6 million, or 11.5%, to $6.0 million in 2001, from $5.4 million in 2000, due to additional goodwill
recorded in connection with the two acquisitions which we completed during each of 2000 and 2001 and contingent consideration payments recorded during 2000.





Income from operations.





Income from operations was
$4.1 million in 2001, compared to $10.0 million in 2000, a decrease of 59.6%.





Interest Expense net.





Interest expense, net increased by $2.5 million to $4.9 million in 2001 from $2.4 million in 2000, due to
increased average borrowings under the line of credit as a result of cash and notes paid for acquisitions completed during 2000 and 2001 and contingent consideration paid during 2001.





Income Taxes.





Provision for income taxes decreased from $5.9 million in 2000 to $2.0 million in 2001, due to a decrease in pre-tax income in 2001. The effective tax rate was higher than the statutory tax rate primarily due to the nondeductibility
of our goodwill amortization for tax purposes.





Liquidity and Capital Resources





We generated net cash from operating activities of approximately $0.7 million, $2.6 million and $9.5 million in 2000, 2001 and 2002,
respectively. 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, and $14.8 million in 2001, primarily for product
development expenditures, purchases of property and equipment, acquisitions of businesses and the payment of contingent consideration. Net cash provided by investing activities was $12.0 million in 2002, primarily from proceeds from the sale of SPI,
offset by product development expenditures, purchases of property and equipment and the payment of acquisition related costs.





As of June 30, 2002, we had cash of approximately $3.6 million and outstanding indebtedness of $45.5 million under our credit facility that was due to expire on July 31, 2002. The credit facility provides a revolving line of credit
for working capital and general corporate purposes, with certain limitations. The credit facility (i) generally prohibits us from paying dividends and other distributions, (ii) generally does not permit us to incur or assume other indebtedness,
(iii) requires us to comply with certain financial covenants and (iv) requires us to obtain approval to draw on the facility to pay contingent consideration. The credit facility is guaranteed by all of Provants subsidiaries and secured by a
pledge of all of the assets of Provant and the assets of each of its subsidiaries. As of June 30, 2002, we were in default under the credit facility and were paying a default rate of interest of prime plus 8.5% per annum.




17




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##### Table of Contents




During fiscal 2002, we had difficulty maintaining compliance with several
financial covenants under the credit facility agreement. As a result, we executed a series of amendments to the credit facility agreement that, among other things, reduced our availability under the agreement from $65 million to $48 million,
increased the interest rate from prime plus .5% to prime plus 8.5% and required us to pay more than $1 million in waiver and amendment fees. In addition, the banks required us to take certain actions that would result in the repayment of the credit
facility in advance of the July 31, 2002 expiration date. Our efforts to do so proved unsuccessful.





Since July 1,
2002, we have executed amendments to the credit facility agreement that, among other things, extended the facility expiration date to October 11, 2002, reduced availability under the facility from $48 million to $45.5 million, and required us to pay
$50,000 in waiver and amendment fees. We are currently in default on amounts outstanding under the credit facility. We have received a term sheet from, and are currently negotiating with the banks to amend the credit facility agreement to, among
other things, extend the expiration date to July 1, 2003 and reduce the interest rate, subject to our continued obligation to take actions, including the sale of certain of our assets that would result in the repayment of our indebtedness to the
banks.





As of June 30, 2002, we were obligated to pay $6.0 million as contingent consideration pursuant to the
October 1998 acquisition agreement relating to our acquisition of SI. Under the October 1998 acquisition agreement, as amended, we were required to pay to the former SI stockholders contingent consideration of $2.4 million in cash and $3.6 million
in cash or 5.8 million shares of common stock on or before September 16, 2002. We are currently in discussions with the former SI stockholders to extend the payment due date for the $2.4 million in cash owed to them until the earlier to occur of
July 1, 2003 or our receipt of net proceeds from certain sales of our assets should any such sales occur. Upon effectiveness of a registration statement we intend to file by October 28, 2002, we anticipate issuing 5.8 million shares of common stock
to the former SI stockholders in satisfaction of our obligation to pay them $3.6 million of contingent consideration.





On September 29, 2001, we paid $3.3 million to Executive Education Institute, Inc. (EEI), which is owned by Flory Netsch Hiatrides, a Vice President of Provant, under the terms of a promissory note issued by us in
connection with our September 2000 acquisition of the EEI business (which is a part of our Vertical Markets group). As of June 30, 2002, we owed EEI an additional $3.3 million under the terms of a second promissory note payable on September 29,
2002 that was issued by us in connection with the EEI acquisition. We are currently in discussions with EEI to extend the payment due date for the second note until the earlier to occur of July 1, 2003 or our receipt of net proceeds from certain
sales of our assets should any such sales occur.





As of June 30, 2002, we owed the former stockholders of Hughes
Research Corporation an aggregate of $0.3 million under promissory notes due on September 28, 2002 that were issued two years earlier in connection with our acquisition of that company. We are currently in discussions with these stockholders to
extend the payment due date for the notes until the earlier to occur of July 1, 2003 or our receipt of net proceeds from certain sales of our assets should any such sales occur.





We have retained Jefferies & Co., an investment banking firm, to assist us in reviewing our strategic alternatives, including a possible sale of Provant or certain of
our assets. We have also retained Quarterdeck Investment Partners, an investment banking firm, to assist us in the possible sale of our Government group. We have been in discussions with various potential strategic and financial buyers and are
pursuing those discussions aggressively.





We have 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, 3,942,430 shares have been issued through June 30, 2002. By October 28, 2002, we plan to file an additional
registration




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statement registering additional shares sufficient to fulfill our obligation to issue 5,750,794 shares of common stock to the former
stockholders of SI.





Contractual Obligations





The Company leases facilities and certain other machinery and equipment under various non-cancelable operating leases expiring through
2011 and has other contractual obligations at June 30, 2002. Future payments as of June 30, 2002 are as follows:





Year ending June
30,

Capital Leases

Operating Leases

Line of Credit

Notes Payable

Contingent Consideration2003

$
242

$
6,061

$
45,484

$
3,704

$
2,4002004


222


5,327





87


2005





3,900





94


2007





3,038





101


2007





2,404





109


After 2007





3,513





187


Total

$
464

$
24,243

$
45,484

$
4,282

$
2,400





Summary of Critical Accounting Policies and Significant Judgments and Estimates





Revenue Recognition





Provant recognizes revenue from five main sources: (i) instructor-led and train-the-trainer seminars,  (ii) licensing its intellectual property, (iii) custom services
and products, (iv) consulting and training management services, and (v) standardized products. Provant recognizes revenue from instructor-led training and train-the-trainer seminars, usually on a per-participant basis, when the training is
delivered. Provant recognizes revenue from site and user licenses when: (1) there is persuasive evidence that an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable, and (4) collectibility is probable. Amounts
received in advance of delivery are reported as deferred revenue and recognized as revenue upon meeting the aforementioned criteria.





Provant generally recognizes revenue from sales of its custom services and products under long-term contracts in one of three ways. Revenue on fixed price contracts is recognized using the percentage of completion method
based on costs incurred in relation to total estimated costs. Provants failure to estimate accurately the resources required for a project, or Provants failure to complete its contractual obligations in a manner consistent with the
project plan upon which our fixed-price contract was based, could adversely affect our overall profitability and could have a material adverse effect on our business, financial condition and results of operations. Provants business unit
finance personnel continually review costs incurred and total estimated costs for fixed price contracts, resulting in revisions to the amount of recognized revenue for a contract. If Provant does not accurately estimate the resources required or the
scope of work to be performed for a contract or Provant does not manage the project properly within the planned time period, then Provant may recognize a loss on the contract. Provisions for estimated losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in which such losses are determined. Revenue on time-and-materials contracts is recognized to the extent of fixed billable rates for hours delivered. 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. Provant recognizes revenue from fees for its consulting services on a time
and materials basis, and monies received in excess of time and materials earned is recorded as billings in excess of costs. Provant recognizes maintenance fees on training management services ratably over the life of the contract. Provant recognizes
revenue for standardized products, such as books or videotapes, when the products are delivered. We also incur out-of-pocket expenses which are reimbursable by the client. Through June 30, 2002 these expenses were accounted for as a
reduction of the related costs. Effective July 1, 2002, reimbursements received for out-of-pocket expenses incurred will be characterized as revenue in our statement of operations.




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For multiple element arrangements involving products, services and support
elements, we recognize revenue in accordance with the residual method, when objective evidence of fair value does not exist for the delivered element. Under the residual method, the fair value of the undelivered elements are deferred and
subsequently recognized. We have established sufficient objective evidence of fair value for the applicable services and support elements based on the price charged when these elements are sold separately. Accordingly, product license revenue sold
as part of a multiple element arrangement is recognized under the residual method in arrangements in which the product is sold with one or both of the other elements. Revenue from license agreements that require significant customizations and
modifications to the product is deferred and recognized using the percentage of completion method. For license arrangements involving customizations for which the amount of customization effort cannot be reasonably estimated or when product license
arrangements provide for customer acceptance, we recognize revenue under the completed contract method of accounting.





Impairment of Intangible Assets





In July 2001, the Financial Accounting Standards Board
(the FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141,Business Combinations, and SFAS No. 142,Goodwill and Other Intangible Assets. Provant adopted SFAS 141 immediately and SFAS 142 as
of July 1, 2001. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that
intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-SFAS 142 accounting literature. SFAS 141 required, upon adoption of SFAS 142, that Provant evaluate its existing intangible assets and goodwill that
were acquired in a prior purchase business combination, and make any necessary reclassifications in order to conform with the new criteria in SFAS 141 for recognition apart from goodwill. Upon adoption of SFAS 142, Provant was required to reassess
the useful lives of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset was
identified as having an indefinite useful life, Provant was required to test the intangible asset for impairment in accordance with the provisions of SFAS 142 within the first interim period. Impairment loss was measured as of the date of adoption
and recognized as the cumulative effect of a change in accounting principle in the first interim period.





In
connection with the transitional goodwill impairment evaluation, SFAS 142 required Provant to perform an assessment of whether there was an indication that goodwill was impaired on July 1, 2001. This assessment involved the identification of
Provants reporting units and the determination of the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption.
Provant has 14 reporting units. Provant then had up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting units carrying amount. The calculation of the fair value of each
reporting unit involves estimates that are typical of valuation procedures and include the selection of both qualitative and quantitative valuation measures. Management determines fair value based on a combination of the discounted cash flow
methodology, which is based upon converting expected future cash flows to present value, and the market approach, which includes analysis of market price multiples of companies engaged in lines of business similar to the company being evaluated. The
market price multiples are selected and applied to the company based on the relative performance, future prospects and risk profile of the company in comparison to the guideline companies. Management predominately utilizes third-party valuation
reports in its determination of fair value. The impairment policy will be consistently applied in evaluating impairment for each of Provants reporting units in the fourth quarter of each fiscal year, at a minimum.




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To the extent a reporting units carrying amount exceeds its fair value, an
indication exists that the reporting units goodwill may be impaired and Provant must perform the second step of the transitional impairment test. In the second step of the analysis, Provant must compare the implied fair value of the reporting
units goodwill, determined by allocating the reporting units fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with SFAS 141, to its carrying
amount, both of which are measured as of the date of adoption.





Provant has completed the analysis and determined
that due to the continued weakness in the economy, operating results and cash flows were lower than expected in fiscal 2001 which resulted in an impairment in the carrying amount of its goodwill in the amount of $165.4 million, net of $0.8 million
of taxes, which spread across all operating segments. The transitional impairment loss is recognized as the cumulative effect of a change in accounting principle in the accompanying statement of operations. Provants annual impairment analysis,
performed on April 30, 2002, resulted in an additional reduction in goodwill of $5.6 million. It is reasonably possible that the impairment factors evaluated by management will change in subsequent periods, given that Provant operates in a volatile
business environment. This could result in material impairment charges in future periods.





As of the date of
adoption (July 1, 2001) and June 30, 2002, Provant had unamortized goodwill in the amount of $242.8 million and $36.1 million, respectively, and at each date had no unamortized identifiable intangible assets which were subject to the transition
provisions of SFAS 141 and SFAS 142. Provants policy will be to test impairment annually in the fourth quarter of each fiscal year.





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 SFAS No. 86, Accounting for the Costs of Computer Software to
Be Sold, Leased or Otherwise Marketed. Capitalized educational and computer software development costs are amortized over the economic lives of the related products, typically three to five years, beginning at their initial shipment date. The
straight-line method approximates the units of production methodology for these products.





Internet web site
development costs are capitalized in accordance with Emerging Issues Task Force Issue No. 00-02, Accounting for Web Site Development Costs.





Recent Accounting Pronouncements





In October 2001, the FASB issued SFAS 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, the criteria required for classifying an asset as held-for-sale have been changed. Assets held-for-sale are stated at
the lower of their fair values less estimated selling costs or carrying amounts, and depreciation is no longer recognized. In addition, the expected future operating losses from discontinued operations will be displayed in discontinued operations in
the period in which the losses are incurred rather than as of the measurement date. More dispositions will qualify for discontinued operations treatment in the income statement under the new rules. Provant does not expect the effect of SFAS 144 to
have a material effect on the financial statements.





In November 2001, the FASB issued Topic Number D-103
regarding Income Statement Characterization of Reimbursements Received for Out-Of-Pocket Expenses Incurred. This announcement requires that




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reimbursements received for out-of-pocket expenses incurred be characterized as revenue in the statement of operations. We incur expenses in the delivery of services to our clients that are
commonly referred to as out-of-pocket expenses. These expenses include, but are not limited to, travel and related charges. Comparative financial statements for prior periods should be reclassified to comply with the guidance of this
staff announcement. The provisions of this announcement are effective for fiscal years beginning after December 15, 2001, and were therefore adopted by us, as required, on July 1, 2002. Provant does not know at this time the dollar value that will
need to be reclassified.





In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The standard rescinds Statement 4 which required all gains and loses from extinguishment of debt to be aggregated and, when material, classified as an extraordinary item net
of related income tax effect. Provant adopted the provisions of the standard related to the rescission of Statement 4 on July 1, 2002. Provant does not expect this Statement will have a material effect on its financial position or results of
operations.





In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activitieswhich addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. The provisions
of this Statement are required to be applied to exit or disposal activities that are initiated after December 31, 2002. Provant does not expect this Statement will have a material effect on its financial position or results of operations.





Factors that May Affect Future Results





This Annual Report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results of
operations and future financial conditions may differ materially from those expressed in any such forward-looking statements as a result of many factors that may be beyond our control. Factors that might cause such differences include, but are not
limited to, those discussed below.





We may not be able to generate sufficient cash flow from operations.





We have no remaining borrowing capacity under our revolving credit facility. Therefore, we must finance our
payroll, rent, other operating expenses, and interest on our credit facility and other debt obligations from cash flow from operations. A deterioration in our revenues or cash flow could leave us without sufficient liquidity to fund our operations.





We may not be able to satisfy the requirements of our lenders.





We are currently in discussions with our banks to extend the expiration date of our credit facility to July 1, 2003. As a condition to an
earlier extension, we agreed to sell certain of our assets and to use the net proceeds to pay down the credit facility. In the event that we are unable to reach an agreement with the banks for an extension of our credit agreement or are unable to
satisfy its conditions, the banks could declare an event of default and foreclose on our assets.





We may not be
able to satisfy the requirements of our junior creditors.





We are currently in discussions with several of our
junior creditors to extend the payment terms on notes issued and contingent consideration obligations incurred in connection with the acquisition of their businesses.




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In the event that we are unable to reach an agreement with these junior creditors or satisfy our obligations to them, the junior creditors could pursue legal remedies.





A continuation of the current economic downturn could have a material adverse effect on us.





Our results of operations have been adversely affected by the level of business activity of our clients, which in turn has been adversely
affected by the level of economic activity in the industries and markets that they serve. A further decline in the level of business activity of our clients could have a material adverse effect on our revenues, results of operations and financial
position.





We may not be successful in integrating our different businesses.





In 2001, we reorganized our businesses into six operating groups. Before the reorganization, each of our businesses offered different
services and products, used different technologies, targeted different clients and had different corporate cultures. Since the reorganization many of these differences have persisted. If our efforts to integrate the operations of our businesses are
not successful, our revenues, financial condition and results of operations could be adversely affected.





If we
are unable to retain key employees we will not be able to compete effectively.





Our ability to sustain our
business and compete effectively depends, in part, on our ability to retain key employees. Our ability to retain key employees is made more difficult by our financial position and relationship with our banks. If we fail to retain key employees, our
revenues, financial conditions and results of operations could be negatively affected.





The level of our
business with the U.S. federal government subjects us to additional risks related to government business.





We
derived approximately 27% of our revenue for the year ended June 30, 2002 from services and products provided to numerous U.S. federal government entities. Our operations could suffer due to a general reduction in federal government spending for
external training and development, a congressional budget impasse or an inability to maintain our relationship with particular federal government entities. In addition, the U.S. federal government typically shares equally in the ownership of
courseware and materials that we develop with government funds, and is able to share this courseware or materials with other parties, including our competitors. Many of our government contracts are subject to termination at the election of the
government. Contracts with the U.S. federal government entail other risks including potential government audits and retroactive downward repricing of sales. Any of these risks, if realized, could have an adverse effect on our results of operations.





We have only a limited ability to protect our intellectual property rights, which are important to our
success.





Our success depends, in part, upon our ability to protect our proprietary methodologies and other
intellectual property. We rely upon a combination of trade secrets, confidentiality policies, nondisclosure and other contractual arrangements, and copyright and trademark laws to protect our intellectual property rights. The steps we take in this
regard may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.





Item 7A.Quantitative and Qualitative Disclosures about Market Risk





We invest our
cash in money market instruments. These investments are denominated in U.S. dollars. Due to the conservative nature of these instruments, we do not believe that we have a material exposure to interest rate, foreign exchange rate, or market risk. The
investment portfolio is used to preserve our capital until it is




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required to fund operations or acquisitions. None of these instruments are held for trading purposes. We do not own derivative financial instruments.





We are 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 point increase in interest rates would
have a material effect on our future earnings or cash flow. Based on our borrowings of $45.5 million under the credit facility as of June 30, 2002, a one-percent increase in interest rates would decrease cash flow and earnings, net of taxes, by
approximately $0.3 million.




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Item 8.Financial Statements and Supplementary Data





INDEX TO FINANCIAL STATEMENTS





PagePROVANT, INC. AND SUBSIDIARIES:Independent Auditors Report

26Consolidated Balance Sheets

27Consolidated Statements of Operations

28Consolidated Statements of Stockholders Equity

29Consolidated Statements of Cash Flows

30Notes to Consolidated Financial Statements

31




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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, 2002 and 2001 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, 2002. In connection with our audits of the
consolidated financial statements, we have also audited the consolidated financial statement schedule as listed in Item 14(a)(2) of this report. These consolidated financial statements 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 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 Provant, Inc. and subsidiaries
as of June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three year period ended June 30, 2002, 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.





The accompanying consolidated financial statements have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is in default on amounts outstanding under its credit facility, has a working capital deficit, and has incurred losses from operations in fiscal 2002,
which raises substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.





KPMG LLP





Boston, Massachusetts


October 14, 2002




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PROVANT, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


( In thousands, except share data)





June 30,2002


2001ASSETSCurrent assets:Cash and cash equivalents

$
3,558


$
767Accounts receivable, net of allowance for doubtful accounts of $932 and $2,248, respectively


22,453



33,369Contract receivables


11,854



8,758Inventory


3,897



4,558Deferred taxes






4,053Costs in excess of billings


4,165



4,506Prepaid expenses and other current assets


3,022



9,475Total current assets


48,949



65,486Property and equipment, net


6,108



9,301Other assets


350



975Capitalized computer and educational software development costs


7,315



6,206Goodwill, net of accumulated amortization of $0 and $12,979, respectively


36,075



242,841Total assets

$
98,797


$
324,809LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Line of credit

$
45,484


$
Current portion of long term debt and capital lease obligations


3,946



10,507Accounts payable


5,107



4,729Accrued expenses


8,154



15,697Accrued compensation


5,638



7,986Billings in excess of costs


4,207



4,156Deferred revenue


1,370



1,957Income taxes payable






1,930Accrued reorganization costs


41



1,866Accrued contingent consideration


2,400



Total current liabilities


76,347



48,828Other long term liabilities


700



863Accrued contingent consideration






4,793Long term debt and capital lease obligations, net of current portion


800



58,358Total liabilities


77,847



112,842Commitments and contingenciesStockholders 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; 21,500,796 and 21,804,635 shares issued and outstanding at June 30, 2002 and 2001,
respectively


215



218Additional paid-in capital


201,736



201,887Shares issuable as contingent consideration


3,600



7,189Retained earnings (deficit)


(184,601
)


2,673Total stockholders equity


20,950



211,967Total liabilities and stockholders equity

$
98,797


$
324,809





See accompanying notes to consolidated financial statements.




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PROVANT, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except share and per share data)





Year Ended June 30,2002


2001


2000Total revenue

$
161,156


$
206,869


$
217,359Cost of revenue


76,564



82,774



86,754Gross profit


84,592



124,095



130,605Selling, general and administrative expenses


83,704



114,037



105,689Reorganization charge










8,287Pooling costs










1,215Impairment Loss


5,609







Goodwill amortization






6,003



5,383Income (loss) from operations


(4,721
)


4,055



10,031Other income (expense), net


27



(34
)


72Interest expense


4,853



4,911



2,408Income (loss) before income taxes, extraordinary items and cumulative effect of a change in accounting
principle


(9,547
)


(890
)


7,695Provision (benefit) for income taxes


(1,750
)


2,045



5,922Income (loss) before extraordinary items and cumulative effect of a change in accounting principle


(7,797
)


(2,935
)


1,773Extraordinary items:Loss on sale of business (net of tax benefit of $197)


(14,345
)






Gain on extinguishment of debt (net of taxes of $170)


315







Net income (loss) before cumulative effect of a change in accounting principle


(21,827
)


(2,935
)


1,773Cumulative effect of a change in accounting principle (net of tax benefit of $778)


(165,447
)






Net income (loss)

$
(187,274
)

$
(2,935
)

$
1,773Earnings (loss) per common share:Earnings (loss) before extraordinary items and cumulative effect of a change in accounting principleBasic and Diluted

$
(0.36
)

$
(0.14
)

$
0.08Extraordinary item: Loss on sale of business, netBasic and Diluted

$
(0.66
)

$



$
Extraordinary item: Gain on extinguishment of debt, netBasic and Diluted

$
0.01


$



$
Cumulative effect of a change in accounting principleBasic and Diluted

$
(7.69
)

$



$
Net earnings (loss)Basic and Diluted

$
(8.70
)

$
(0.14
)

$
0.08Weighted average common shares outstanding:Basic


21,530,449



21,397,672



20,897,579Diluted


21,530,449



21,397,672



21,793,771





See accompanying notes to consolidated financial statements.




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PROVANT, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(In thousands)





Common stock


Additional Paid-In Capital


Shares Issuable as Contingent Consideration


Retained Earnings (Deficit)


TotalShares


AmountBalance at June 30, 1999

19,325,893


$
193


$
178,675


$
18,881


$
3,835


$
201,584Issuance of stock:Issuance of shares for acquisitions

58,139



1



598











599Issuance 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











784Exercise of stock options

82,808



1



873











874Shares issuable as contingent consideration













1,283







1,283Warrants issued for acquisition









400











400Tax benefit from disqualifying dispositions









209











209Net income

















1,773



1,773Balance at June 30, 2000

20,975,985


$
210


$
197,937


$
1,283


$
5,608


$
205,038Issuance of stock:Issuance of shares for contingent consideration

183,542



2



1,281



(1,283
)






Issuance of shares under employee benefit plans

492,727



5



1,503











1,508Issuance of shares and warrants issued for acquisition

152,381



1



1,166











1,167Shares issuable as contingent consideration













7,189







7,189Net loss

















(2,935
)


(2,935
)Balance at June 30, 2001

21,804,635


$
218


$
201,887


$
7,189


$
2,673


$
211,967Issuance of shares under employee benefit plans

213,486



2



86











88Shares issuable as contingent consideration













2,700







2,700Shares returned from sale of business

(517,325
)


(5
)


(237
)


(6,289
)






(6,531
)Net loss

















(187,274
)


(187,274
)Balance at June 30, 2002

21,500,796


$
215


$
201,736


$
3,600


$
(184,601
)

$
20,950








See accompanying notes to
consolidated financial statements.




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##### Table of Contents

PROVANT, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)





Year Ended June 30,2002


2001


2000Cash flows from operating activities:Net income (loss)

$
(187,274
)

$
(2,935
)

$
1,773Adjustments to reconcile net income (loss) to net cash provided by operating activitiesDepreciation and amortization


8,660



11,443



8,873Allowance for doubtful accounts


(1,214
)


600



314Non-cash reorganization charge










3,252(Gain) loss on sales of businesses


14,542







(362
)Gain on extinguishment of debt


(485
)






Impairment of goodwill


171,834







Deferred taxes


3,357







Changes in operating assets and liabilities, net of impact of acquisitions and disposals of businesses:Accounts receivable


10,481



5,012



(4,623
)Contract receivables


(3,096
)


(2,203
)


(452
)Inventory


661



(105
)


(1,541
)Costs in excess of billings


341



1,328



309Prepaid expenses and other current assets


1,393



(922
)


231Other assets


(106
)


1,387



131Accounts payable and accrued expenses


(2,169
)


(1,586
)


(7,944
)Accrued compensation


(2,227
)


(1,173
)


303Billings in excess of costs


51



(1,430
)


(1,888
)Deferred revenue


(1,618
)


961



(824
)Accrued reorganization costs


(1,684
)


(2,500
)


4,366Income taxes payable


(1,930
)


(5,281
)


(1,233
)Total adjustments


196,791



5,531



(1,088
)Net cash provided by operating activities


9,517



2,596



685Cash flows from investing activities:Payment of contingent consideration






(969
)


(33,342
)Proceeds from sales of businesses


18,350







833Acquisitions of businesses, net of cash acquired






(3,488
)


(3,740
)Payment of acquisition related costs


(2,141
)






Additions to capitalized computer and educational software development costs


(3,461
)


(5,622
)


(1,426
)Additions to property and equipment


(761
)


(4,754
)


(5,840
)Net cash provided by (used in) investing activities


11,987



(14,833
)


(43,515
)Cash flows from financing activities:Issuance of common stock


85



1,506



1,658(Repayments)/Borrowings under line of credit


(8,516
)


16,000



36,500Repayment of long-term debt


(10,282
)


(6,734
)


(712
)Net cash provided by (used in) financing activities


(18,713
)


10,772



37,446Net increase (decrease) in cash and cash equivalents


2,791



(1,465
)


(5,384
)Cash and cash equivalents, beginning of year


767



2,232



7,616Cash and cash equivalents, end of year

$
3,558


$
767


$
2,232





See accompanying notes to consolidated financial statements.




30




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##### Table of Contents



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 enhance its position as a leading 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 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 16 additional businesses (the Subsequent Acquisitions) engaged in
providing performance improvement training services and products (collectively, such companies are referred to with the Founding Companies as the Operating Companies). In November 2001, the Company sold three businesses included above
under Subsequent Acquisitions (see Note 13).





On December 14, 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 of accounting, the
results for all periods presented include the combined results of Provant and Senn-Delaney Leadership.





(2)    Liquidity and Plan of Operation





As of June 30, 2002, the
Company had approximately $3.6 million of cash and cash equivalents, $45.5 million outstanding under a credit facility agreement with a group of banks, $2.4 million outstanding under a contingent consideration arrangement related to a
Subsequent Acquisition, and $3.6 million outstanding under promissory notes issued in connection with certain other Subsequent Acquisitions. Additionally, the Company reported a working capital deficit of $27.4 million at June 30, 2002. During
October 2002, the Company executed an amendment to the credit facility agreement that, among other things, extended to October 11, 2002 the date by which the credit facility must be repaid, and continued to require the Company to take certain
actions to facilitate repayment of the credit facility by that date, including the sale of certain of the Companys assets. The Company is currently in default on amounts outstanding under the credit facility but is in continuing discussions
with the group of banks to extend the payment due date of the credit facility to July 1, 2003 and has received a term sheet from the banks. Additionally, the Company is in discussions with the Subsequent Acquisition junior debt holders to extend
their payment due dates.





These factors raise substantial doubt about the Companys ability to continue as a
going concern. The ultimate success of the Company is dependent on restructuring the outstanding debt or obtaining adequate financing from another source. The Company anticipates that if the renegotiation of the terms of the credit facility and its
obligations to its junior debt holders are not completed in a timely manner or to the Companys satisfaction, existing resources will not be sufficient to satisfy its obligations to its debt holders over the next twelve months. The Company has
retained Jefferies & Co., an investment banking firm, to assist it in reviewing its strategic alternatives, including a possible sale of the Company or certain of its assets. The Company has also retained Quarterdeck Investment Partners, an
investment banking firm, to assist it in the possible sale of its Government group. The Company has been in discussions with various potential strategic and financial buyers and is pursuing those discussions aggressively. There is no guarantee that
any of these initiatives will be successful.




31




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern and, as such, do not include any adjustments that may result from the outcome of these uncertainties.





(3)    Summary of Significant and Critical Accounting Policies and Significant Judgments and Estimates


and Recent Accounting Pronouncements





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 for all periods presented and the accounts of the Operating Companies since their respective dates of
acquisition for those accounted for using the purchase method.





Principles of Consolidation





The accompanying consolidated financial statements include the accounts of Provant and its wholly-owned
subsidiaries. All significant inter-company accounts and transactions have been eliminated.





Allowance for
Doubtful Accounts





The allowance for doubtful accounts is based on our assessment of the collectibility of
specific customer accounts and the aging of our accounts receivable balances. If there is a deterioration of a major customers credit worthiness or actual defaults are higher than our historical experience, our estimates of the recoverability
of amounts due to us and our anticipated cash collections could be adversely affected.





Accounting for
Income Taxes





The Company accounts for income taxes using the asset and liability method. Under this
method, deferred income 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 income tax bases,
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which these temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date (see note 12).





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 2002, 2001 and 2000 was $3.7 million, $3.3 million, and $2.0 million, respectively. Cash paid for taxes in fiscal 2002, 2001 and 2000 was $0.7 million, $7.4 million and $7.6 million, respectively.




32




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The Company recorded the following non-cash investing activities
(Dollars in thousands):





Year Ended June
30,2001

2000Issuance of notes payable for acquired businesses

$
6,789

$
5,175Issuance of shares and warrants for acquired businesses

$
1,167

$
999Issuance of contingent shares for acquired businesses

$
1,283

$
16,413





The following is a reconciliation of net cash paid for acquisitions
(Dollars in thousands):





Year Ended June 30,2001


2000Fair value of assets acquired

$
24,347


$
12,871Liabilities assumed


(1,446
)


(883
)Additional purchase price accrued but not yet paid


(11,982
)


(2,250
)Notes payable issued


(6,789
)


(5,175
)Fair value of stock and warrant consideration


(360
)


(400
)Cash paid


3,770



4,163Less cash acquired


(282
)


(423
)Net cash paid for acquisitions

$
3,488


$
3,740





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 values of the line of credit and the long-term debt approximates
fair value based on current rates available to the Company for debt of similar maturity and terms.





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.




33




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##### Table of Contents



PROVANT, 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 is computed using the
straight-line method 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.





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 SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.





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 27%, 17% and 15% of the Companys total revenue in fiscal 2002, 2001 and 2000, respectively. The Company had contract receivables as of June 30,
2002 and 2001 of approximately $11.9 million and $8.8 million from U.S Government entities.





Accounting for Stock-Based Compensation





The Company applies
the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25 issued in March 2000, to account for its fixed plan stock options. Under this method, compensation expense is recorded over the vesting
period if, on the date of grant, the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method
of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of 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.




34




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Use of Estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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.





Summary of Critical Accounting Policies and Significant Judgments and Estimates





Revenue Recognition





The Company recognizes revenue from five main sources: (i) instructor-led and train-the-trainer seminars, (ii) licensing its intellectual property, (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 seminars, usually on a per-participant basis, when the training is delivered. The Company recognizes revenue from site and
user licenses when: (1) there is persuasive evidence that an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable, and (4) collectibility is probable. Amounts received in advance of delivery are reported as deferred
revenue and recognized as revenue upon meeting the aforementioned criteria.





The Company generally recognizes
revenue from sales of its custom services and products under long-term contracts in one of three ways. Revenue on fixed price contracts is recognized using the percentage of completion method based on costs incurred in relation to total estimated
costs. The Companys failure to estimate accurately the resources required for a project, or the Companys failure to complete its contractual obligations in a manner consistent with the project plan upon which our fixed-price contract was
based, could adversely affect our overall profitability and could have a material adverse effect on our business, financial condition and results of operations. The Companys business unit finance personnel continually review costs incurred and
total estimated costs for fixed price contracts, resulting in revisions to the amount of recognized revenue for a contract. If the Company does not accurately estimate the resources required or the scope of work to be performed for a contract or the
Company does not manage the project properly within the planned time period, then the Company may recognize a loss on the contract. Provisions for estimated losses on uncompleted contracts are made on a contract-by-contract basis and are recognized
in the period in which such losses are determined. Revenue on time-and-materials contracts is recognized to the extent of fixed billable rates for hours delivered. 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 Company recognizes revenue from fees for its consulting services on a time and materials basis, and monies received in
excess of time and materials earned is recorded as billings in excess of costs. The Company recognizes maintenance fees on training management services ratably over the life of the contract. The Company recognizes revenue for standardized products,
such as books or videotapes, when the products are delivered. We also incur out-of-pocket expenses which are reimbursable by the client. Through June 30, 2002 these expenses were accounted for as a reduction of the related costs.
Effective July 1, 2002, reimbursements received for out-of-pocket expenses incurred will be characterized as revenue in our statement of operations.





For multiple element arrangements involving products, services and support elements, we recognize revenue in accordance with the residual method when objective evidence of fair value does not exist for
the delivered element. Under the residual method, the fair value of the undelivered elements are deferred and subsequently recognized. We have established sufficient objective evidence of fair value for the applicable services and support elements
based on the price charged when these elements are sold separately. Accordingly, product license revenue sold as part of a multiple element arrangement is recognized under the residual method in




35




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




arrangements in which the product is sold with one or both of the other elements. Revenue from license agreements that require significant customizations and modifications to the product is
deferred and recognized using the percentage of completion method. For license arrangements involving customizations for which the amount of customization effort cannot be reasonably estimated or when product license arrangements provide for
customer acceptance, we recognize revenue under the completed contract method of accounting.





Impairment of
Intangible Assets





In July 2001, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141,Business Combinations, and SFAS No. 142,Goodwill and Other Intangible Assets. The Company adopted SFAS 141 immediately and SFAS 142 as of July 1, 2001. SFAS 142
requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with
definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue
to be evaluated for impairment in accordance with the appropriate pre-SFAS 142 accounting literature. SFAS 141 required, upon adoption of SFAS 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior
purchase business combination, and make any necessary reclassifications in order to conform with the new criteria in SFAS 141 for recognition apart from goodwill. Upon adoption of SFAS 142, the Company was required to reassess the useful lives of
all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset was identified as having
an indefinite useful life, the Company was required to test the intangible asset for impairment in accordance with the provisions of SFAS 142 within the first interim period. Impairment loss was measured as of the date of adoption and recognized as
the cumulative effect of a change in accounting principle in the first interim period.





In connection with the
transitional goodwill impairment evaluation, SFAS 142 required the Company to perform an assessment of whether there was an indication that goodwill was impaired on July 1, 2001. This assessment involved the identification of the Companys
reporting units and the determination of the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company has
14 reporting units. The Company then had up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting units carrying amount. The calculation of the fair value of each reporting
unit involves estimates that are typical of valuation procedures and include the selection of both qualitative and quantitative valuation measures. Management determines fair value based on a combination of the discounted cash flow methodology,
which is based upon converting expected future cash flows to present value, and the market approach, which includes analysis of market price multiples of companies engaged in lines of business similar to the company being evaluated. The market price
multiples are selected and applied to the company based on the relative performance, future prospects and risk profile of the company in comparison to the guideline companies. Management predominately utilizes third-party valuation reports in its
determination of fair value. The impairment policy will be consistently applied in evaluating impairment for each of the Companys reporting units in the fourth quarter of each fiscal year, at a minimum.





To the extent a reporting units carrying amount exceeds its fair value, an indication exists that the reporting units goodwill
may be impaired and the Company must perform the second step of the transitional impairment




36




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




test. In the second step of the analysis, the Company must compare the implied fair value of the reporting units goodwill, determined by allocating the reporting units fair value to
all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with SFAS 141, to its carrying amount, both of which are measured as of the date of adoption.





The Company has completed the analysis and determined that due to the continued weakness in the economy, operating results and cash flows
were lower than expected in fiscal 2001 which resulted in an impairment in the carrying amount of its goodwill in the amount of $165.4 million, net of $0.8 million of taxes, which spread across all operating segments. The transitional impairment
loss is recognized as the cumulative effect of a change in accounting principle in the accompanying statement of operations. The Companys annual impairment analysis, performed on April 30, 2002, resulted in an additional reduction in goodwill
of $5.6 million. It is reasonably possible that the impairment factors evaluated by management will change in subsequent periods, given that the Company operates in a volatile business environment. This could result in material impairment charges in
future periods.





As of the date of adoption (July 1, 2001) and June 30, 2002, the Company had unamortized goodwill
in the amount of $242.8 million and $36.1 million, respectively, and at each date had no unamortized identifiable intangible assets which were subject to the transition provisions of SFAS 141 and SFAS 142. The Companys policy will be to test
impairment annually in the fourth quarter of each fiscal year.





The following table reflects the changes in the
carrying value of goodwill by reporting segment during year ended June 30, 2002 (in millions):





Performance Solutions


Government


Leadership


Project Management


Technology & Development


Vertical Markets


TotalBalance as of July 1, 2001

$
74.6


$
51.0


$
4.5


$
45.6


$
26.5


$
40.6


$
242.8Additional contingent consideration


















4.5







4.5Goodwill written off related to the sale of SPI


(36.5
)






















(36.5
)Transitional impairment loss


(23.7
)


(45.3
)


(2.6
)


(43.9
)


(20.7
)


(30.0
)


(166.2
)Impairment loss










(0.6
)






(3.0
)


(2.0
)


(5.6
)Other


(1.3
)














(1.6
)






(2.9
)Balance as of June 30, 2002

$
13.1


$
5.7


$
1.3


$
1.7


$
5.7


$
8.6


$
36.1




37




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Excluding the effects of goodwill amortization recognized in prior
period, the following amounts would have been reported (in thousands, except per share data):





Year Ended June
30,2001


2000Reported net income (loss) before extraordinary items and cumulative effect of change in accounting
principle

$
(2,935
)

$
1,773Add back: Goodwill amortization, net of tax


5,703



5,383Adjusted net income

$
2,768



7,156Basic earnings per share:Reported net income (loss)

$
(0.14
)

$
.08Goodwill amortization, net of tax

$
.27


$
.26Adjusted net earnings per basic share

$
.13


$
.34Diluted earnings per share:Reported net income (loss)

$
(0.14
)

$
.08Goodwill amortization, net of tax

$
.24


$
.25Adjusted net earnings per diluted share

$
.10


$
.33





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 SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed. Capitalized educational and computer software
development costs are amortized over the economic lives of the related products, typically three to five years, beginning at their initial shipment date. The straight-line method approximates the units of production methodology for these products





Internet web site development costs are capitalized in accordance with Emerging Issues Task Force Issue No.
00-02, Accounting for Web Site Development Costs.





Recent Accounting Pronouncements





In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, the criteria required for classifying an asset as held-for-sale have been changed. Assets held-for-sale are stated at the lower of their fair values less estimated selling costs or carrying
amounts, and depreciation is no longer recognized. In addition, the expected future operating losses from discontinued operations will be displayed in discontinued operations in the period in which the losses are incurred rather than as of the
measurement date. More dispositions will qualify for discontinued operations treatment in the income statement under the new rules. Provant does not expect the effect of SFAS 144 to have a material effect on the financial statements.




38




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







In November 2001, the FASB issued Topic Number D-103 regarding Income
Statement Characterization of Reimbursements Received for Out-Of-Pocket Expenses Incurred. This announcement requires that reimbursements received for out-of-pocket expenses incurred be characterized as revenue in the statement of
operations. We incur expenses in the delivery of services to our clients that are commonly referred to as out-of-pocket expenses. These expenses include, but are not limited to, travel and related charges. Comparative financial
statements for prior periods should be reclassified to comply with the guidance of this staff announcement. The provisions of this announcement are effective for fiscal years beginning after December 15, 2001, and were therefore adopted by us, as
required, on July 1, 2002. The Company does not know at this time the dollar value that will need to be reclassified.





In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The standard rescinds Statement 4 which required all gains and loses
from extinguishment of debt to be aggregated and, when material, classified as an extraordinary item net of related income tax effect. The Company adopted the provisions of the standard related to the rescission of Statement 4 on July 1, 2002. The
Company does not expect this Statement will have a material effect on its financial position or results of operations.





In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activitieswhich addresses financial accounting and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. The provisions of this Statement are required to be applied to exit or disposal activities that are initiated after December 31,
2002. The Company does not expect this Statement will have a material effect on its financial position or results of operations.





(4)    Business Combinations





Concurrently with the completion of its
IPO on May 4, 1998, Provant acquired the seven Founding Companies. During fiscal 1999, the Company acquired in separate transactions, which were accounted for as purchases, 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, which 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 accounted for as a pooling-of-interests. During fiscal 2001, the Company acquired in separate transactions, which 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 2001 Acquisitions).





Purchase Method of Accounting





The acquisition of each of the Founding Companies, the
Fiscal 1999 Acquisitions, the Fiscal 2000 Purchase Acquisitions, and the Fiscal 2001 Acquisitions were accounted for using the purchase method of accounting. Accordingly, the results of operations for the acquired businesses have been
included in the Companys consolidated financial statements since their respective dates of acquisition. The purchase agreements between




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




Provant and all but five 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 when the contingency is met (See Note 14).





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 $139.6 million, consisting of $57.6 million in initial cash
consideration, $10.0 million in cash Contingent Consideration, $7.3 million of convertible notes payable, 3,436,187 shares of common stock issued as initial consideration valued at $45.1 million, 766,348 shares of common stock issued as Contingent
Consideration valued at $7.6 million, and $12.0 million accrued at June 30, 2001 as Contingent Consideration to be paid in cash and shares of common stock. Of the $12.0 million accrued at June 30, 2001, $10.5 million was forgiven in connection with
the sale of the SPI unit in November 2001.





The aggregate purchase price for the Fiscal 2000 Purchase Acquisitions
was $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 were exercisable at a per
share exercise price of $14.00 per share. The warrants terminated effective April 25, 2002. In April 2002, the Company agreed with the holders of several of the promissory notes that the Company could fully satisfy its obligations under the notes by
paying $1.9 million of the $2.4 million outstanding principal balance. The Company made payments totaling $1.9 million in April 2002 and recorded an extraordinary pretax gain on the early extinguishments of debt of approximately $0.5 million in the
fourth quarter of fiscal 2002.





The aggregate purchase price for the Fiscal 2001 Acquisitions was $11.3 million,
consisting of $3.3 million in cash, $6.8 million of notes payable, 152,381 shares of common stock issued as initial consideration valued at $0.8 million, and warrants to purchase 180,000 shares of common stock valued at $0.4 million. In addition,
the Company issued warrants which entitle the holders to purchase 180,000 shares of common stock, and an additional 64,278 shares if certain business performance measures for the two year period ended June 30, 2002 are attained, at a per share
exercise price equal to $14.00. The performance criteria for the additional 64,278 shares were not attained. The warrants expire on September 28, 2005 and September 30, 2005.





The consolidated balance sheets as of June 30, 2001 and 2000 includes allocations of the respective purchase prices of the Founding Companies, the Fiscal 1999 Acquisitions,
the Fiscal 2000 Purchase Acquisitions and the Fiscal 2001 Acquisitions to the assets acquired and liabilities assumed based on estimates of fair value.




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




The allocations resulted in $23.6 million and $7.2 of goodwill recorded during fiscal 2001 and 2000, respectively, which represents the excess of purchase price over the estimated fair value of
the net assets acquired. In conjunction with these acquisitions, goodwill was determined as follows (Dollars in thousands):





Year ended June 30,2001


2000Cash paid, net of cash acquired

$
3,488


$
2,160Additional purchase price accrued but not yet paid


11,982



2,250Cash paid as contingent consideration


969



1,520Fair value of stock consideration issued


2,089



598Fair value of warrants issued


360



400Notes payable issued


6,789



5,175Liabilities assumed


1,446



883Less fair value of tangible assets acquired, net of cash acquired


(3,507
)


(5,774
)Goodwill

$
23,616


$
7,212





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 Fiscal 2000 Purchase Acquisitions and Fiscal 2001 Acquisitions as if they were acquired effective July 1, 1999 (Dollars in
thousands, except per share data):





Year ended June 30,2001


2000Revenue

$
208,572


$
230,495Net income (loss)

$
(2,820
)

$
5,763Basic Earnings per common share

$
(0.13
)

$
0.27Diluted Earnings per common share

$
(0.13
)

$
0.26





The unaudited pro forma combined financial data gives effect to (i)
the acquisition of the Operating Companies, (ii) acquisitions completed by one of the Founding Companies, (iii) a provision for income tax for the Operating Companies that were taxed as S corporations during the relevant periods, (iv) the
compensation differential and (v) the elimination of pooling related costs incurred in connection with the acquisition of Senn-Delaney Leadership. The compensation differential represents adjustments to salary, bonuses and benefits paid to certain
owners of the Operating Companies to certain levels to which they agreed.





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.




41




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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):





Year Ended June 30,2000Revenue:Provant

$
185,103Senn-Delaney Leadership


32,256Combined

$
217,359





Year Ended June 30,2000Net Income:Provant

$
(286
)Senn-Delaney Leadership


2,059Combined

$
1,773





(5)    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 2002, 2001 and 2000 (Dollars in thousands, except share data):





2002


2001


2000Numerator:Net income (loss) before extraordinary items and cumulative effect of a change in accounting principle

$
(7,797
)

$
(2,935
)

$
1,773Extraordinary items:Loss on sale of business, net


(14,345
)






Gain on early extinguishment of debt, net


315







Cumulative effect of a change in accounting principle


(165,447
)






Net income (loss)

$
(187,274
)

$
(2,935
)

$
1,773Denominator:Basic weighted average common shares outstanding


21,530,449



21,397,672



20,897,579Effect of dilutive securities: stock options, warrants and convertible notes










671,237Effect of securities under contingent consideration arrangements










224,955Diluted weighted average common shares outstanding


21,530,449



21,397,672



21,793,771





The number of shares to be issued as Contingent Consideration are
included as outstanding in the calculation of diluted weighted average common shares if the related performance criteria have been met, the number of shares have been determined, and the effect on basic earnings per common share is dilutive. (See
Note 14).




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







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:





June 30,2002

2001

2000Stock options

3,841,089

3,266,020

1,131,807Convertible notes payable



272,558

Warrants

569,686

877,262

632,984Estimated contingent shares to be issued

5,750,799

1,797,086

Total

10,161,574

6,212,926

1,764,791





In connection with an acquisition, the Company also issued two
promissory notes, each in the original principal amount of $3.3 million. Under certain circumstances, the promissory notes are convertible into shares of common stock at the election of the Company or the holder. The conversion price is equal to the
closing price of the Companys shares on The Nasdaq SmallCap Market on the conversion date. On September 30, 2001, one of the $3.3 million notes was paid. (See Note 12)





(6)    Contract Accounting





Contract
receivables are summarized as follows (Dollars in thousands):





June 30,2002

2001U.S. Government customers:Amounts due currentlyprime contractor

$
8,210

$
5,282Amounts due currentlysubcontractor


752


1,654Recoverable costs and accrued profit on progress completednot billed


2,779


1,653Retainage


113


169Total

$
11,854

$
8,758





Amounts relating to long-term contracts are classified as current
assets. 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. The Company expects the retention balance to be collected in the next
twelve months.





All unbilled contract receivables, net of retainage, are expected to be billed and collected
within one year.




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







(7)    Inventories





Inventories consist of the following (Dollars in thousands):





June 30,2002


2001Released film costs

$
9,676


$
9,589Accumulated amortization on released film costs


(7,443
)


(6,443
)Film in progress






545Other inventory


1,664



867Total inventory

$
3,897


$
4,558





(8)    Non-Current Assets





Property and equipment consist of the following (Dollars in thousands):





June 30,Useful Life

2002


2001Equipment

37 years

$
8,456


$
9,726Software

3 years


3,632



3,839Furniture and fixtures

37 years


2,850



3,447Leasehold improvements

37 years


1,692



1,034Property and equipment




16,630



18,046Less accumulated depreciation and amortization




(10,522
)


(8,745
)Property and equipment, net



$
6,108


$
9,301





Depreciation expense was $2.4 million, $4.6 million and $3.3
million for fiscal 2002, 2001, and 2000, respectively.





Goodwill amortization expense was $0, $6.0 million and
$5.4 million for fiscal 2002, 2001 and 2000, respectively. Accumulated amortization was $0 and $14.3 million as of June 30, 2002 and 2001, respectively.





Gross capitalized computer and educational software development cost of $10.6 million and $7.5 million is included in the balance sheet as of June 30, 2002 and 2001, respectively. Accumulated
amortization was $3.3 million and $1.3 million as of June 30, 2002 and 2001, respectively. Amortization expense was $2.0 million, $0.8 million and $0.2 million for fiscal years 2002, 2001 and 2000, respectively.




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







(9)    Accrued Expenses





Accrued expenses consist of the following (Dollars in thousands):





June 30,2002

2001Accrued lease abandonment costs

$
603

$
755Accrued taxes


1,196


4,148Other accrued liabilities


6,355


10,794Total

$
8,154

$
15,697





(10)    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 as cost of revenue, $2.0 million was recorded as selling, general and administrative expenses and $8.3 million was recorded as a reorganization charge.





The reorganization program included 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 were not material to the Companys business. As part of the reorganization
program, the Company planned to terminate approximately 190 employees, of which 178 employees were terminated as of June 30, 2001 and the remaining were terminated in fiscal 2002.





The amounts recorded related to the reorganization program were as follows (Dollars in thousands):





Reorganization charge

Cost of revenue

Selling, general
and administrative expenses

Total chargesExecutive severance

$
3,884

$


$


$
3,884Employee severance


813








813Employee retention








444


444Lease termination costs


2,361








2,361Inventory and contract termination costs





1,385





1,385Abandonment of property and equipment


629





1,378


2,007Other costs related to eliminated activities


600





214


814Total

$
8,287

$
1,385

$
2,036

$
11,708




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The following table summarizes the activity related to the
reorganization program costs at June 30, 2002 (Dollars in thousands):





June 30, 2001 Balance

Cash Payments

Adjustments


June 30, 2002 BalanceSeverance

$
680

$
513

$
(167
)

$
0Exit costs


1,186


874


(271
)


41Total

$
1,866

$
1,387

$
(438
)

$
41





In March 2002, the Company reduced the reserves by $0.4 million for
amounts deemed in excess of requirements. The adjustment was recorded as a reduction of selling, general and administrative expenses in the accompanying financial statements and related primarily to lease obligations under the reorganization program
that were settled for less than originally anticipated.





(11)    Debt and Credit Arrangements





Borrowings are summarized as follows (Dollars in thousands):





June 30,2002


2001Notes payable to former stockholders

$
4,282


$
10,041Convertible notes payable






4,395Line of credit


45,484



54,000Capital lease obligations


464



429$
50,230


$
68,865Less current portion of debt and capital lease obligations


(49,430
)


(10,507
)Long-term debt and capital lease obligations

$
800


$
58,358





In April 2002, the Company agreed with the holders of several
acquisition promissory notes that the Company could fully satisfy its obligations under the notes by paying $1.9 million of the $2.4 million outstanding principal balance. The Company made payments totaling $1.9 million in April 2002 and recorded an
extraordinary pretax gain on the early extinguishment of debt of approximately $0.5 million in the fourth quarter of fiscal 2002.





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 7.5% to 14%.





As of June 30, 2002 the Company owed EEI and Hughes Resources $3.3 million and $0.3 million, respectively, under promissory notes issued in connection with the acquisition
of those businesses. The Company is currently renegotiating these notes that were due on September 29, 2002.





Convertible Notes Payable





In connection with an acquisition, the Company issued an
aggregate of $7.1 million of convertible non-interest bearing promissory notes (promissory notes). The promissory notes were convertible at the election of the holders at a conversion price of $16.125 per share into an aggregate of
approximately 442,295 shares of common stock. The promissory notes were recorded at $6.3 million, the net present value, based on a 6% interest




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




rate. During fiscal 2001, the Company repaid $2.7 million of the promissory notes, including interest, which matured on June 4, 2001. The balance of the notes was eliminated in November 2001 with
the sale of SPI (see note 13).





Revolving Credit Arrangement





As of June 30, 2002, the Company had outstanding indebtedness of $45.5 million under the credit facility that was due to expire on July
31, 2002. The credit facility provides a revolving line of credit for working capital and general corporate purposes, with certain limitations. The credit facility (i) generally prohibits us from paying dividends and other distributions, (ii)
generally does not permit us to incur or assume other indebtedness,  (iii) requires us to comply with certain financial covenants and (iv) requires us to obtain approval to draw on the facility to pay contingent consideration. The credit
facility is guaranteed by all of the Companys subsidiaries and secured by a pledge of all of the assets of the Company and the assets of each of its subsidiaries. As of June 30, 2002, the Company was in default under the credit facility and
was paying a default rate of interest of prime plus 8.5% per annum.





At June 30, 2001, future minimum payments on
debt and capital lease obligations were as follows (Dollars in thousands):





Year ending June 30,

Debt

Capital Leases2003

$
49,188

$
2422004


87


2222005


94


2007


101


2007


109


After 2007


187


Total

$
49,766

$
464





Accrued Contingent Consideration





As of June 30, 2000, the Company had accrued $968,000 of Contingent Consideration, which was paid in cash in the second quarter of fiscal
2001 to the former stockholder of an acquired business. As of June 30, 2001, the Company had accrued $4.8 million of Contingent Consideration. As of June 30, 2002, the Company has accrued $6.0 million of Contingent Consideration, of which $2.4
million will be paid in cash and $3.6 million will be paid by the issuance of 5.8 million shares of common stock.




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







(12)    Income Taxes





Income tax expense (benefit) consists of (Dollars in thousands):





Year Ended June 30,2002


2001


2000Current:Federal

$
(6,028
)

$
1,290


$
3,599State


(159
)


1,376



1,412Foreign


534







314Total current

$
(5,653
)

$
2,666



5,325Deferred:Federal


3,521



(384
)


420State


382



(237
)


177Foreign










Total deferred


3,903



(621
)


597Income tax expense (benefit)

$
(1,750
)

$
2,045


$
5,922





Total income tax expense (benefit) for the years ended June 30,
2002, 2001 and 2000 were allocated as follows (Dollars in thousands):





Year Ended June 30,2002


2001

2000Income (loss) from continuing operations

$
(1,750
)

$
2,045

$
5,922Extraordinary items


(27
)Cumulative effect of change in accounting method


(778
)Items recorded directly to goodwill or other noncurrent intangible assets









(2,452
)Other items charged directly to equity









(209
)Total

$
(2,555
)

$
2,045

$
3,261




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The income tax expense (benefit) differed from the amounts computed
by applying the U.S. federal income tax rate of 34 percent to pretax income as a result of the following (Dollars in thousands):





Year Ended June 30,2002


2001


2000Current:Income tax expense (benefit) at the statutory rate

$
(3,246
)

$
(303
)

$
2,620Increase in income tax expense or decrease in income taxbenefit resulting from:Goodwill impairment and amortization


1,436



1,644



1,634Senn Delaney Leadership S corporation losses and reserves


(266
)






550Non-deductible pooling costs










413Deferred taxes booked in pooling-of-interests










(337
)State income taxes, net of federal income tax benefit


147



752



1,049Non-deductible interest


104



138



Other, net


75



(186
)


(7
)Income tax expense (benefit) at effective rate

$
(1,750
)

$
2,045


$
5,922





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):





June 30,2002


2001Deferred tax assets:Accrued liabilities

$



$
6,061Allowance for doubtful accounts


376



905Start-up costs capitalized for tax purposes


500



814Intangibles


4,488



Abandoned lease reserves


232



309Foreign tax credit


800



Other


1,532



2,095Total gross deferred tax assets


7,928



10,184Less valuation allowance


(6,391
)


(2,311
)Net deferred tax assets


1,537



7,873Deferred tax liabilities:Accrued liabilities


486



Change from cash to accrual method for acquired companies


828



2,176Change of inventory method for acquired companies


223



445Intangibles






894Other






305Total gross deferred liabilities


1,537



3,820Net deferred tax asset

$



$
4,053





The valuation allowance for deferred tax assets was $6.4 million
and $2.3 million as of June 30, 2002 and 2001, respectively. The valuation allowance for deferred income taxes increased by $4.1 million from June 30, 2001 to June 30, 2002. The increase in the valuation allowance results primarily from an increase
in deferred tax




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




assets related to tax deductible goodwill recorded in connection with the acquisition of certain companies where goodwill impairment occurred for financial reporting purposes. Reductions of the
valuation allowance to the extent a benefit is realized will be recorded as a reduction to the following:





Goodwill

$
1,141Income from continuing operations

$
5,250Total

$
6,391





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 to
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. 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 that the Company will not realize the
benefits of these deductible differences.





(13)    Dispositions





On November 6, 2001, the Company consummated the sale of the Sales Performance unit (including Sales Performance International, Inc,
Resolution Software, Inc. and Solution Selling, Inc.) (SPI) to a company controlled by the former majority stockholder of Sales Performance International, Inc., which former stockholder was an officer, director and employee of Sales
Performance International, Inc. at the time of the sale. The decision to sell SPI was based, in part, upon the determination that the niche high-end sales training provided by these operating companies through the Solution Selling methodology does
not fit well with the Companys long-term strategic plan. The purchaser paid the Company approximately $19.5 million in cash and returned 517,325 shares of Provants common stock originally received by the former majority stockholder when
Sales Performance International, Inc. was acquired. Included in the assets of SPI was $1.2 million in cash. The Companys obligation to pay any contingent consideration, either cash or stock, pursuant to the June 1999 Sales Performance
International, Inc. acquisition agreement has been terminated. The Company used $4.4 million of the proceeds of the sale to prepay a seller note to the former owner of the Solution Selling, Inc. business and used $2.0 million of the proceeds to
satisfy in full all remaining obligations to pay contingent consideration, whether cash or stock, under the June 1999 Solution Selling, Inc. acquisition agreement. The remaining $12 million of the net proceeds from the sale were used to pay down the
Companys credit facility. As a result of the sale of SPI, the Company recognized in the second quarter of fiscal 2002 an extraordinary loss, net of taxes, of approximately $14.3 million, primarily due to the elimination of related goodwill. In
accordance with Accounting Principles Board Opinion No. 16, the loss was presented as an extraordinary item in the accompanying financial statements as the sale of SPI occurred within two years of a business combination accounted for as a
pooling-of-interests.




50




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The following table shows the pro forma unaudited results of the
Company as if the sale of SPI occurred at the beginning of each period (in thousands, except per share data):





Year ended June 30,2002


2001Total revenue

$
154,594


$
186,744Net loss from operations

$
(7,646
)

$
(3,377
)Net loss before extraordinary items and cumulative effect of a change in accounting principles

$
(10,882
)

$
(10,168
)Loss per common share before extraordinary items and cumulative effect of a change in accounting principle:Basic

$
(0.51
)

$
(0.49
)Diluted

$
(0.51
)

$
(0.49
)





(14)    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 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):





Year Ending June 30,2003

$
6,0612004


5,3272005


3,9002006


3,0382007


2,404Thereafter


3,513Total

$
24,243





Rent expense for fiscal 2002, 2001, and 2000 was $6.3 million, $6.6
million, and, $7.4 million respectively. Sublease income for fiscal 2000, 2001, and 2002 was $0.9 million, $0.7 million, and $0.6 million, respectively.





U.S. Government Contracts





The Companys sales to U.S.
government entities accounted for approximately 27%, 17% and 15% of the Companys total revenue in fiscal 2002, 2001 and 2000, respectively. The Companys revenue and costs related to sales to U.S. government entities 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.





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.




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Contingent Payments to Former Stockholders of the Operating
Companies





The acquisition agreements between Provant and each of the Founding Companies provided for the
payment of Contingent Consideration (Note 4). 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 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 shares 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, Contingent Consideration was paid in fiscal 2001 through the issuance of 183,542 shares of common stock
valued at $1.3 million and cash payments of $968,000. For two of the Fiscal 1999 Acquisitions with Contingent Consideration based on performance criteria associated with the two years ended June 30, 2001, $10.5 million of Contingent Consideration
has been accrued consisting of $4.2 million in cash and 3,475,200 shares of common stock valued at $6.3 million. For the remaining Fiscal 1999 Acquisition, Contingent Consideration of cash and/or shares of common stock of at least $1.5 million
and up to a maximum amount of $6.0 million could be payable based on performance criteria associated with the three years ended December 31, 2001. The Company has accrued $6.0 million, at June 30, 2002, the actual amount payable.





For the three businesses acquired in fiscal 2000, the acquisition agreements did not provide for the payment of any Contingent
Consideration.





For the two business acquired in fiscal 2001, one of the acquisition agreements provided for the
payment of Contingent Consideration of cash and notes valued at a maximum amount of $650,000 and/or the ability to exercise warrants to purchase up to 64,278 shares of common stock based on performance criteria associated with the two years ended
June 30, 2002. The criteria was not met at June 30, 2002 and, therefore, no accrual was made at June 30, 2002.





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.





(15)    Stockholders Equity





Common and Preferred Stock





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.




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







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, 3,942,430 shares have been issued through June 30, 2002. The Company intends to file a registration
statement on Form S-4 by October 28, 2002 with respect to the 5.8 million shares that may be issued to the former stockholders of Strategic Interactive, Inc. (SI) under the terms of the merger agreement entered into in connection with
the Companys acquisition of SI.





As of June 30, 2002, 12.4 million shares of common stock have been reserved
for issuance upon payment of Contingent Consideration, the exercise of options or warrants, or purchase under 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, 2002, the Company had not issued any shares of preferred stock.





As of June 30, 2002,
the Company has recorded $3.4 million of Contingent Consideration to be issued in the form of stock to the former stockholders of a certain acquired business. (See Note 14) During fiscal 2000, 1,450,139 shares of common stock valued at $16.4 million
were issued as Contingent Consideration. During fiscal 2001, 183,542 shares of common stock valued at $1.3 million were issued as Contingent Consideration.





Stock Purchase Warrants





The Company issued two warrants to
each of two former 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 IPO 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 warrants in connection with the acquisition of a business. 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
terminated effective April 25, 2002. During fiscal 2001, the Company issued warrants in connection with the acquisition of two businesses. The warrants entitle the holders to purchase 180,000 shares of common stock and an additional 64,278 shares if
certain business performance measures for the two year period




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PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




ended June 30, 2002 are attained at a per share exercise price equal to $14.00. The performance criteria for the additional 64,278 shares was not attained. The warrants expire on September 28,
2005 and September 30, 2005.





Shareholder Rights Plan





In fiscal 2001, 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 a share of Series A Preferred Stock of the Company at an exercise price of $25 per
one one-hundredth of a share of Series A Preferred Stock. Until the rights become exercisable, they will trade with the common stock as a unit.





(16)    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 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 2,900,000 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, 2001 and 2002, options to purchase 15,000 and 7,500 shares of common stock, respectively, were outstanding 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




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




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. As of June 30, 2002, options to purchase 95,000 shares of common stock were outstanding under this plan.





Employee 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 1,000,000 shares have been reserved for issuance under the Employee Stock Purchase Plan.
During the fiscal years 2002, 2001 and 2000, 216,838, 492,727 and 59,006 shares of common stock were issued, respectively at a weighted average price of $0.44, $3.04 and $13.28, respectively.





Stock option activity under all plans during the periods indicated is as follows:





Number of Options


Weighted Average Exercise PriceBalance at June 30, 1999

1,985,543



11.35Granted

2,459,876



14.13Exercised

(72,808
)


12.89Forfeited

(821,639
)


16.54Balance at June 30, 2000

3,550,972



12.04Granted

1,347,888



5.04Forfeited

(1,251,810
)


13.54Balance at June 30, 2001

3,647,050



12.04Granted

1,257,447



0.58Forfeited

(1,063,408
)


11.11Balance at June 30, 2002

3,841,089


$
5.66




55




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The Company applies APB Opinion No. 25 in accounting for its
stock-based compensation plans and, since all stock options were granted with exercise prices equaling the then fair market value of the Companys common stock, no compensation cost has been recognized in the financial statements. 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):





Year Ended June 30,2002


2001


2000Net income (loss):As reported

$
(187,274
)

$
(2,935
)

$
1,773Pro forma for SFAS No. 123

$
(189,109
)

$
(7,539
)

$
(3,560
)Basic earnings (loss) per common share:As reported

$
(8.70
)

$
(0.14
)

$
0.08Pro forma for SFAS No. 123

$
(8.78
)

$
(0.35
)

$
(0.17
)Diluted earnings (loss) per common share:As reported

$
(8.70
)

$
(0.14
)

$
0.08Pro forma for SFAS No. 123

$
(8.78
)

$
(0.35
)

$
(0.17
)





At June 30, 2002, there were 1,913,688 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 2002, 2001, and 2000 was $0.19, $1.82 and $4.73, respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted average assumptions: volatility of 180% for fiscal 2002 and 33% for fiscal 2001 and 2000, expected dividend yield of 0%, risk-free interest rate of 4.7% for fiscal 2002 and 6.0% for fiscal 2001 and
2000, and an expected life of four years.





The following is a summary of stock options outstanding at June 30,
2002:





Options outstanding

Options exercisableRange of exercise prices

Number outstanding

Weighted- average remaining years of contractual life

Weighted- Average Exercise Price

Number Exercisable

Weighted- average exercise price$  0.00$  5.00

1,845,576

5.60

$
1.00

457,938

$
1.22$  5.01$10.00

1,283,429

5.09

$
6.15

615,448

$
6.28$10.01$15.00

379,614

3.34

$
13.04

360,408

$
13.02$15.01$20.00

113,120

4.03

$
16.83

105,623

$
16.91Above $20.00

219,350

4.46

$
23.38

156,506

$
23.283,841,089






1,695,923





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.




56




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##### Table of Contents



PROVANT, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







During fiscal 2001, the Company granted options to purchase 100,000
shares of common stock outside of the existing stock-based compensation plans, which were granted at fair market value in connection with the recruitment of executives to the Company.





(17)    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 $0.9 million, $1.5 million and $1.3
million for fiscal 2002, 2001, and 2000, respectively.





(18)    Related Party Transactions





Prior to their acquisition by the Company, certain of the 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 $243,000, $331,000, and $471,000 for fiscal 2002, 2001, and 2000, respectively. Future commitments with respect to
these leases are considered immaterial and have been included in the schedule of minimum lease payments in Note 14.





(19)    Segment Reporting





During fiscal 2001, the Company organized
its operating entities into six operating segments. All prior year information has been restated to conform to the current year corporate organization. Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and assessing performance.





The Companys six reportable segments are Performance Solutions group, Government group, Leadership group, Project Management group, Technology & Development
group, and Vertical Markets group. The Corporate Office column includes the Companys corporate expenses which are not allocated to the operating segments as they are not utilized by the chief operating decision maker as a measure
of performance.





The Performance Solutions group offers to organizations a wide range of services and products
that are designed to provide or improve skills, change behavior and improve performance. Typically, the Companys experts work closely with clients to custom-design performance skills products, training courses and course materials. The
Performance Solutions group includes offerings in the areas of Selection and Retention, Communication, Diversity and Inclusion, and Sales Performance.





The Government group designs, develops and implements customized technology-based and paper-based training programs for government entities. The Government group also provides human resources
management services to these organizations, including outplacement services to assist in workplace restructuring.





The Leadership group assists senior executives and their leadership teams in aligning the strategy, structure and culture of their organization. In particular, the leadership consulting services provide clients with expertise and
processes to create organizational effectiveness needed to ensure that a clients mergers, acquisitions and other ventures are successful. The Leadership group also provides needs assessment services to help organizations determine
where significant increases in overall performance can be accomplished through improvement in employee performance skills or in organizational culture.




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##### Table of Contents




The Project Management group helps organizations improve performance by providing
services, training, tools and methodologies needed to complete successfully complex strategic projects. In addition, the Project Management group trains clients personnel to be more effective project managers.





The Technology and Development group helps clients use web-based technology to improve employee and organizational performance while
reducing costs. The web-based training management systems provide clients with an automated approach to the enrollment, tracking and measurement of performance improvement activities. These systems can be installed at the clients site or
operated from the Companys facility. In addition, the Technology and Development group provides custom e-learning solutions for clients and has developed a library of e-learning product offerings with the Companys strategic alliance
partner, Smart Force.





The Vertical Markets group provides clients with industry-focused service and product
offerings to better satisfy the clients specific performance improvement needs. By applying the Companys industry-specific content and delivery methods, the Vertical Markets group can customize performance improvement solutions to each
client in a cost-effective manner. The Vertical Markets group specializes in the following industry sectors: Telecommunications, Retail and Financial Services.





The Companys reportable segments are organized in separate business units with different management, customers, and services. The respective segments account for
their respective businesses using the same accounting policies as described in Note 3 to consolidated financial statements. Summarized financial information concerning the Companys reportable segments net of inter-company transactions, is
shown in the following tables:





For the year ended June 30, 2002Performance Solutions

Government

Leadership

Project Management


Technology & Development


Vertical Markets


Corporate Office


TotalExternal revenue

$
30,583

$
49,220

$
28,229

$
14,435


$
17,624


$
21,065


$



$
161,156Cost of revenue


7,405


32,527


10,665


8,429



6,823



10,715







76,564Gross profit


23,178


16,693


17,564


6,006



10,801



10,350







84,592Operating expenses


18,017


13,748


13,193


8,139



12,807



13,484



9,925



89,313Income (loss) from operations

$
5,161

$
2,945

$
4,371

$
(2,133
)

$
(2,006
)

$
(3,134
)

$
(9,925
)

$
(4,721
)Total assets

$
19,541

$
20,060

$
10,675

$
7,122


$
16,222


$
15,961


$
9,216


$
98,797





For the year ended June 30, 2001Performance Solutions

Government

Leadership

Project Management


Technology & Development

Vertical Markets

Corporate Office


TotalExternal revenue

$
56,741

$
41,383

$
31,860

$
28,671


$
20,313

$
27,901

$



$
206,869Cost of revenue


13,098


25,867


9,842


15,134



6,011


12,822






82,774Gross profit


43,643


15,516


22,018


13,537



14,302


15,079






124,095Operating expenses


30,995


13,145


17,606


14,273



12,042


13,554


12,422



114,037Goodwill amortization


1,668


1,378


137


1,140



684


996






6,003Income (loss) from operations

$
10,980

$
993

$
4,275

$
(1,876
)

$
1,576

$
529

$
(12,422
)

$
4,055Total assets

$
89,307

$
61,888

$
14,198

$
56,772


$
40,048

$
49,180

$
13,416


$
324,809




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##### Table of Contents




For the year ended June 30, 2000Performance Solutions

Government


Leadership

Project Management

Technology & Development


Vertical Markets

Corporate Office


TotalExternal revenue

$
54,391

$
41,765


$
38,674

$
28,858

$
24,008


$
29,663

$



$
217,359Cost of revenue


12,091


25,694



11,739


13,606


8,988



14,636






86,754Gross profit


42,300


16,071



26,935


15,252


15,020



15,027






130,605Operating expenses


25,116


14,653



22,358


9,735


14,372



10,522


8,933



105,689Reorganization charges


1,218


1,533



345





1,261



1,528


2,402



8,287Pooling costs









1,215
















1,215Goodwill amortization


1,580


1,152



81


1,061


693



816






5,383Income (loss) from operations

$
14,386

$
(1,267
)

$
2,936

$
4,456

$
(1,306
)

$
2,161

$
(11,335
)

$
10,031Total assets

$
80,141

$
62,630


$
14,212

$
58,201

$
35,930


$
43,263

$
7,084


$
301,461





(20)    Quarterly Results (Unaudited)





The following table presents the unaudited quarterly results of operations for fiscal 2002, 2001 and 2000:





First

Second


Third


FourthYear Ended June 30, 2002Revenue

$
44,596

$
40,186


$
35,825


$
40,549Gross profit

$
24,057

$
21,899


$
17,418


$
21,218Net income (loss)

$
615

$
(14,361
)

$
(2,407
)

$
(171,121
)Earnings (loss) per common share:Basic

$
0.03

$
(0.67
)

$
(0.11
)

$
(7.95
)Diluted

$
0.02

$
(0.51
)

$
(0.11
)

$
(7.95
)Year Ended June 30, 2001Revenue

$
53,690

$
56,192


$
50,837


$
46,150Gross profit

$
32,899

$
36,630


$
30,973


$
23,593Net income (loss)

$
2,330

$
3,122


$
703


$
(9,090
)Earnings (loss) per common share:Basic

$
0.11

$
0.15


$
0.03


$
(0.42
)Diluted

$
0.11

$
0.14


$
0.03


$
(0.42
)Year Ended June 30, 2000Revenue

$
55,397

$
56,869


$
51,317


$
53,776Gross profit

$
32,945

$
34,690


$
29,827


$
33,143Net income (loss)

$
2,608

$
2,225


$
(4,558
)

$
1,498Earnings (loss) per common share:Basic

$
0.13

$
0.11


$
(0.22
)

$
0.07Diluted

$
0.12

$
0.10


$
(0.22
)

$
0.07




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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 following table
lists the names, ages and positions of Provants directors and executive officers:





Name

Age

PositionJohn E. Tyson

59

Director and Chairman of the BoardJohn H. Zenger

70

President, Chief Executive Officer and DirectorDonald W. Glazer

58

Director and Vice ChairmanWayne F. Hall

58

DirectorJanet M. Hoey

39

Vice President, Chief Financial Officer and Chief Accounting OfficerThomas A. Carter

42

Vice PresidentJames H. Hart

49

Vice PresidentFlory Netsch Hiatrides

41

Vice PresidentAdam D. Senter

45

Vice PresidentMarc S. Wallace

55

Vice President





Set forth below is a description of the backgrounds of each of the
directors and executive officers of Provant.





John E. Tyson has been a director of Provant since November
2000 and has served as Chairman since May 2001. Mr. Tyson is retired. From 1999 to 2002, Mr. Tyson was Chairman and Chief Executive Officer of etNetworks, Inc., a business education broadcasting company that he founded. etNetworks, Inc. filed for
bankruptcy protection in 2002. From 1981 to 1986, Mr. Tyson served as Chairman, Chief Executive Officer and President of Compression Labs, Inc. (CLI). CLI pioneered the development of compressed digital video, interactive video
conferencing and digital broadcast television. In addition to his experience with CLI, Mr. Tyson has held executive management positions at AT&T, General Electric and General Telephone & Electronics. Mr. Tyson is a member of the Board of
Directors of the Wright Company and Corporate Visions, Inc., a member of the Advisory Board to the University of Nevada Reno School of Engineering, and a Trustee of Sierra Nevada College. Mr. Tyson earned a BBA degree in Finance and Accounting from
the University of Cincinnati.





John H. Zenger has been President and Chief Executive Officer of Provant
since August 2002 and has served as a director since May 1998. From November 2000 to August 2002, he served as Executive Vice President of Provant. From November 1999 to November 2000, Mr. Zenger was Vice Chairman of Provant. From May 1998 to
November 1999, Mr. Zenger served as President of Provant. Before Provants initial public offering, from May 1997 to May 1998, Mr. Zenger was a consultant to Provant. 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.




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Donald W. Glazer has been a director and Vice Chairman of Provant since
August 2002. Since May 1997, Mr. Glazer has been a consultant to Provant. Mr. Glazer is an independent consultant and an author of legal publications. Since 1997, he has served as advisory counsel to Goodwin Proctor LLP, a law firm. Until December
1997, Mr. Glazer was a principal of American Business Partners LLC, a business development company. Mr. Glazer serves as a trustee of GMO Trust, a registered investment company, and has served on the boards of directors of several other public and
private companies. Mr. Glazer received an AB from Dartmouth College, a law degree from Harvard Law School and a masters in law from the University of Pennsylvania Law School.





Wayne F. Hall has been a director of Provant since August 2002. Mr. Hall is Vice Chairman of Black & Veatch Holding Company, a global engineering, construction
and consulting company, and is a member of Black & Veatchs board of directors. From 1991 to 1999, Mr. Hall served as Chief Financial Officer of Black & Veatch. He was President and Chief Executive Officer of Black


& Veatch Pritchard, Inc. from 2000 to 2001. Additionally, Mr. Hall serves on the board or as an officer of all other Black & Veatch affiliated companies. Mr. Hall is a director of
RailWorks Corp. and EPT DownREIT II, Inc., Megaplex Four, Inc. and Theater Sub, Inc. (all subsidiaries of Entertainment Properties Trust). Mr. Hall is a certified public accountant. He holds a BS in Accounting from California State Polytechnic
University, and completed the Executive Program at the Columbia University Graduate School of Business in 1997. He serves on the Business Administration Advisory Committee of Johnson County Community College and on the Council of Advisors of Emporia
State University School of Business.





Janet M. Hoey has been Vice President, Chief Financial Officer and
Chief Accounting Officer of Provant since September 2002. From October 2001 to September 2002, she served as controller of Provant. From December 1997 to November 2000, Ms. Hoey served as Chief Financial Officer and Treasurer of Metro Global Media,
Inc., a publicly traded production and distribution company. At Metro Global Media, she was responsible for the oversight of all accounting, finance and treasury functions. From January 1996 to December 1997, Ms. Hoey served as controller of
Barnstable County Supply. Ms. Hoey, a certified public accountant, received her BS in Business Administration from Providence College.





Thomas A. Carter has been a Vice President of Provant since January 2002 and has served as President of the Government Group and the Project Management Group since November 2001. From March 2000 to April 2001, Mr.
Carter was President of PD Solutions, Inc., a project management training company. From April 1999 to March 2000, he was President, Chief Executive Officer and owner of PDI International, a training and services company. From December 1996 to March
1999, Mr. Carter was President and Managing Director of ESI Europe, Ltd., a subsidiary of ESI International, a training company. Previously, Mr. Carter held various management positions with ESI. At ESI Europe, he was instrumental in developing
ESIs Pan-European operations and delivering training and consulting solutions to a wide range of global 500 clientele.





James H. Hart has been a Vice President of Provant since January 2002 and has served as Leadership Group President since January 2002. From 1995 to January 2002, he was employed in various capacities by Senn-Delaney Leadership
Consulting Group, an executive leadership, team-building and culture-shaping firm that was acquired by Provant in 1999, most recently as President and Chief Executive Officer. Before joining Senn-Delaney, Mr. Hart was employed by Western National
Group, Californias largest multi-family real estate development and management firm. Before joining Western National Group, Mr. Hart founded a leading business software publishing firm in 1980 and led its growth for ten years, twice earning
positions on Inc. Magazines 500 list of the Fastest Growing Companies. Mr. Hart received a BA in Psychology and an MBA from the University of Southern California.





Flory Netsch Hiatrides has been a Vice President of Provant since October 2002 and has served as Vertical Markets Group President since April 2002. From 1986 until
April 2002, Mrs. Hiatrides served as President of Executive Education Institute (EEI), a business that she co-founded and that Provant acquired in September 2000. Mrs. Hiatrides is a member of the Board of Directors of Preston High School and has
served as the




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Director of the Iona College Institute for Computer Studies since 1983. She has also been adjunct assistant professor of management science and systems in the Hagan School of Business and adjunct
assistant professor of computer information science in the School of Arts and Science, both at Iona College, from which she graduated with a BA in Mathematics and Computer Science and an MBA in Management Information Systems. Mrs. Hiatrides has
completed post-graduate work in Communications and Human Factors at The Stevens Institute of Technology and is presently pursuing her Doctoral Degree in Education from Fordham University.





Adam D. Senter is a Vice President of Provant and has served as Technology and Development Group President since 2001. From April 2000 to 2001, he served as
Provants Vice President, Sales and Marketing. From 1981 to April 2000, Mr. Senter was employed in various capacities by IBM Corporation, most recently as Sales and Marketing Executive, Learning Services of IBM Global Services. At IBM, he was
involved in business development and services with responsibility for both strategy and implementation, and he was responsible for sales and marketing strategy and implementation.





Marc S. Wallace has been a Vice President of Provant since January 2002 and has served as Performance Solutions Group President since July 2001. From 1983 to June
2001 he served as President of J. Howard & Associates, Inc., a provider of diversity and human resource development solutions that was acquired by Provant in 1998. Mr. Wallace has served on the board of the Efficiency Institute, a non-profit
organization providing consulting services to public school systems and community-based organizations, Boards of Directors of Belmont Hill School and the Berklee College of Music, the Board of Advisors of First Community Bank in Boston and as a
member of the Northeastern University Corporation. Mr. Wallace received a Masters in Business Administration degree with a concentration in Finance from Central Michigan University and a Bachelor of Arts degree from Adams State College.





Section 16(a) Beneficial Ownership Reporting Compliance





Section 16(a) of the Securities Exchange Act of 1934 requires Provants directors, executive officers and persons who own more than ten percent of a registered class
of Provants equity securities to file statements with the Securities and Exchange Commission reporting initial ownership and changes in ownership of common stock and other equity securities of Provant. Reporting persons are required to send
Provant copies of all Section 16(a) forms.





To Provants knowledge, based solely on a review of the forms
furnished to Provant, each person who, at any time during the fiscal year, was subject to Section 16 with respect to Provant filed on a timely basis all reports required by Section 16(a) during the most recent fiscal year, except that (i) Joseph F.
Alibrandi filed a late Form 3 on November 27, 2001 reporting his initial ownership of shares of Provant common stock upon becoming a director of Provant on September 17, 2001, (ii) James A. Perkins filed a late Form 3 on November 13, 2001 reporting
his initial ownership of shares of Provant common stock upon becoming a director of Provant on September 17, 2001, (iii) on November 15, 2001 Robert T. Puopolo filed a late Form 3 reporting his initial ownership of shares of Provant common stock
upon becoming a director of Provant on September 17, 2001 and a late Form 4 reporting the acquisition of indirect beneficial ownership of shares of common stock on September 17, 2001, and (iv) on February 8, 2002 Lawrence G. Heaney filed a late Form
3 reporting his initial ownership upon becoming an executive officer of Provant on November 15, 2000 and a late Form 5 reporting his acquisition of shares by gift on January 22, 2001 and his acquisition of stock options on November 15, 2000.




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Item 11.Executive Compensation





Summary Compensation Table





The following table contains a summary of the compensation paid or accrued during the fiscal years ended June 20, 2002, 2001
and 2000 to Provants Chief Executive Officer during the last completed fiscal year and Provants four most highly compensated executive officers other than the Chief Executive Officer who were serving as executive officers of Provant at
the end of the last completed fiscal year (the Named Executive Officers).





Annual Compensation


Securities Underlying Options

All Other CompensationName and Principal Position

Year

Salary

Bonus

Other Annual CompensationCurtis M. Uehlein(1)

2002

$
466,667

$


$
84,120
(2)



$
6,177
(3)former President and Chief

2001


500,000


200,000


71,500
(2)

300,000


54,943Executive Officer

2000


336,538


250,000





325,000


5,250Norman G. Fornella(4)

2002


250,000


50,000


26,819
(2)

100,000


6,536
(5)former Executive Vice President,

2001


31,250


50,000


4,520
(2)

100,000


Chief Financial Officer and TreasurerJames H. Hart(6)

2002


330,552


140,000





110,000


4,503
(5)Vice PresidentMark S. Wallace(6)

2002


233,333


20,000





50,000


6,620
(7)Vice PresidentAdam D. Senter(6)

2002


225,000


10,000





50,000


4,313
(5)Vice President


---

|(1) |  | Mr. Uehleins employment with Provant terminated in August 2002.
|--- |  | ----------------------------------------------------------------

|(2) |  | Consists of housing costs that were paid or reimbursed by Provant.
|--- |  | ------------------------------------------------------------------

|(3) |  | Includes a matching award under Provants 401(k) retirement plan of $5,500 and the premium payment on a life insurance policy for Mr. Uehlein of $677.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Mr. Fornella joined Provant in May 2001. Mr. Fornellas employment with Provant terminated in September 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------

|(5) |  | Consists of a matching award under Provants 401(k) retirement plan.
|--- |  | --------------------------------------------------------------------

|(6) |  | Messrs. Hart, Wallace and Senter became executive officers of Provant in January 2002.
|--- |  | --------------------------------------------------------------------------------------

|(7) |  | Includes a matching award under Provants 401(k) retirement plan of $4,420 and a disability insurance payment of $2,200.
|--- |  | ------------------------------------------------------------------------------------------------------------------------



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Option Grants in Last Fiscal Year





The following table provides certain information concerning individual grants of stock options made during the fiscal year ended June 30, 2002 to each of the Named
Executive Officers.





Individual Grants

Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option TermsNumber of Securities Underlying Options Granted(1)

Percent of Total Options Granted To Employees in Fiscal
Year


Exercise Price ($/Share)

Expiration Date5%

10%Curtis M. Uehlein



0.0
%

$




$


$
Norman G. Fornella

100,000

8.0



.58

1/18/09


23,612


55,026James H. Hart

110,000

8.7



.58

1/18/09


25,973


60,528Marc S. Wallace

50,000

4.0



.58

1/18/09


11,806


27,513Adam D. Senter

50,000

4.0



.58

1/18/09


11,806


27,513


---

|(1) |  | Represents options granted under the 1998 Equity Incentive Plan (the 1998 Plan). Each of the options becomes exercisable with respect to one-third
of the shares subject to the option on each of the first three anniversaries of the date of grant. If a transaction occurs that results or will result in Provants common stock not being registered under Section 12 of the Securities Exchange
Act of 1934, as amended, then options granted under the 1998 Plan will terminate upon the completion of the transaction, and the Board of Directors may arrange for replacement options, accelerate exercisability of the options or terminate the
options in exchange for a cash payment.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values





There were no options exercised by any of the Named Executive Officers during the fiscal year ended
June 30, 2002. The following table provides the total number of securities underlying unexercised options held by each of the Named Executive Officers at June 30, 2002. None of these options were in-the-money at June 30, 2002.





Number of Securities Underlying Unexercised Options at June 30, 2002Exercisable

UnexercisableCurtis M. Uehlein

166,668

233,332Norman G. Fornella

33,334

166,666James H. Hart

138,123

193,333Marc S. Wallace

20,001

59,999Adam D. Senter

50,000

75,000





Compensation of Directors





Directors who are employees or full-time consultants of Provant or its subsidiaries do not receive compensation for serving on the Board. During the fiscal year ended
June 30, 2002, each other member of the Board of Directors received a fee of $3,000 for each Board of Directors meeting attended in person and an additional fee of $500 for each Board of Directors meeting attended by telephone and each committee
meeting attended in person or by telephone. All directors receive reimbursement of reasonable expenses incurred in attending board and committee meetings and otherwise performing their duties.




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In August 2002, we revised our compensation structure for directors who do not
otherwise serve as employees of or full-time consultants to Provant (Outside Directors), in view of the increased responsibility and time commitment required of these directors. Under the compensation structure, Outside Directors receive
a quarterly retainer fee of $2,500. The Chairman of the Board, Mr. Tyson, receives an additional quarterly fee of $5,000. The Audit Committee Chairman, Mr. Hall, receives an additional quarterly fee of $2,500. The Compensation Committee Chairman,
Mr. Tyson, receives an additional quarterly fee of $1,250. Outside Directors also receive a fee of $2,500 for each meeting attended in person or a fee of $1,000 for each meeting attended by telephone.





Certain of our directors are compensated through the 1998 Stock Option Plan for Outside Directors (the Directors Plan).
Only Outside Directors are eligible to participate in the Directors Plan. Messrs. Tyson and Hall currently are the only directors entitled to participate. On the date of their initial election, Outside Directors are each granted an option to
purchase 7,500 shares of common stock. On the date of each annual meeting of stockholders at which they are re-elected, Outside Directors are each granted an option to purchase a number of shares of common stock to be determined by the Board of
Directors on that date. The exercise price of each option granted under the Directors Plan is the last sale price of a share of common stock on the grant date. Each option granted under the Directors Plan becomes fully exercisable six
months after the grant date. If a transaction occurs that results or will result in Provants common stock not being registered under Section 12 of the Securities Exchange Act of 1934, as amended, then options granted under the Directors Plan
will terminate upon the completion of the transaction, and the Board of Directors may arrange for replacement options, accelerate the exercisability of the options or terminate the options in exchange for a cash payment.





On September 6, 2001, each of Joseph F. Alibrandi, James A Perkins and Robert T. Puopolo received an option to purchase 7,500 shares of
Provants common stock under the Directors Plan in connection with his election to the board. On October 15, 2001, each of David B. Hammond and Esther T. Smith received an option to purchase 7,500 shares of Provants common stock
under the Directors Plan in connection with his or her reelection to the board. Also on October 15, 2001, because there were insufficient shares under the Directors Plan to satisfy grants of stock options to all Outside Directors, John
E. Tyson received an option to purchase 7,500 shares of Provants common stock under the 1998 Plan in connection with his reelection to the board, which option had the same terms as the grants under the Directors Plan.





In connection with his election as Vice Chairman of Provant, Mr. Glazers consulting agreement with Provant was extended
until June 30, 2003. Under the agreement, Provant has agreed to pay Mr. Glazer a consulting fee of $125,000 per year for services in the areas of financial restructuring and strategic planning. Upon the termination of Mr. Glazers services as a
consultant to Provant for any reason following the expiration of his consulting agreement, Mr. Glazer is entitled to receive as a severance benefit his consulting fee for a period of six months. On August 12, 2002, in connection with his election as
a director and Vice-Chairman of Provant, Provant granted Mr. Glazer an option to purchase 200,000 shares of Provants common stock at an exercise price of $.14 per share. This option becomes exercisable in three equal installments on December
13, 2002, April 13, 2003 and June 29, 2003. The option becomes exercisable in full upon a change of control or the termination of Mr. Glazers consulting relationship in violation of the terms of his consulting agreement. The option expires on
August 12, 2009.





On August 26, 2002, in connection with his election as President and Chief Executive Officer of
Provant, Provant granted Mr. Zenger an option under the 1998 Plan to purchase 500,000 shares of Provants common stock at an exercise price of $.15 per share. This option becomes exercisable with respect to one-third of the option shares
granted on each of the first three anniversaries of the date of grant. In the event that a transaction occurs that results or will result in the common stock not being registered under Section 12 of the Securities Exchange Act of 1934, as amended,
all options held under the 1998 Plan will terminate upon the completion of the transaction and the Board of Directors may either arrange for replacement options (subject to completion of the transaction), accelerate the exercisability of all
outstanding options or terminate all options in exchange for a cash payment.




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For their efforts on behalf of Provant since becoming President and Chief
Executive Officer, and Vice Chairman, respectively, on October 8, 2002 Provant awarded Messrs. Zenger and Glazer each a bonus of $100,000 payable on October 8, 2003 or, if earlier, a change in control of Provant.





Employment and Severance Agreements





Effective October 8, 1999, Provant entered into a three-year employment agreement with Mr. Uehlein that provided for a base salary of $500,000 per year. In May 2001, the term of the employment agreement was extended to May
1, 2004. Uehlein was eligible for bonuses of up to 50% of his base salary upon the achievement of goals to be agreed upon by Mr. Uehlein and the Compensation Committee of the Board. Under the agreement, Provant agreed to recommend to the
Compensation Committee that for fiscal years beginning on or after July 1, 2000, Mr. Uehlein receive stock options to purchase at least 100,000 shares of common stock contingent upon continued satisfactory job performance. Provant agreed to
reimburse Mr. Uehlein for certain relocation costs, including, among others, reimbursement of living expenses and closing costs in connection with the sale of Mr. Uehleins home. Mr. Uehleins employment agreement also provided that, in
the event that he was terminated prior to the expiration of his employment agreement other than for cause, as a severance benefit he was entitled to continue to receive his base salary in effect at the time of his termination for a period equal to
the term of his covenant not to compete (which is three years after termination).





Mr. Uehleins employment
with Provant terminated in August 2002. In connection with the termination of his employment, Provant entered into a separation agreement with Mr. Uehlein, which provides that Provant will pay Mr. Uehlein $125,000 on or before August 12, 2002 and
$625,000 in 30 equal bi-monthly installments thereafter. The separation agreement also provides that Provant will pay the premiums for health care insurance under the federal COBRA law for Mr. Uehlein. Effective October 1, 2002, Mr. Uehlein assumed
all of the liabilities and obligations under a lease agreement entered into by Provant as lessee of an apartment for Mr. Uehleins use.





Effective May 1, 2001, Provant entered into a three-year employment agreement with Mr. Fornella that provided for a base salary of $250,000 per year. Mr. Fornella was eligible for bonuses equal to 40%
of his base salary upon the achievement of goals to be agreed upon by Mr. Fornella and the Compensation Committee of the Board. Mr. Fornellas employment agreement also provided that, in the event that he was terminated prior to the expiration
of his employment agreement other than for cause, as a severance benefit he was entitled to continue to receive his base salary in effect at the date of termination for a period of 12 months. Mr. Fornellas employment with Provant terminated in
September 2002. In connection with the termination of his employment, Provant has agreed to pay to Mr. Fornella as a severance benefit $10,000 per month for a period of three months. Mr. Fornella has agreed to be available during this period to
assist Provant with transition issues and other matters.





Effective May 14, 2000, Provant entered into a
three-year employment agreement with Mr. Senter that provides for a base salary of $225,000 per year. Mr. Senter is eligible for bonuses equal to 40% of his base salary upon the achievement of goals to be agreed upon by Mr. Senter and the
Compensation Committee of the Board. In the event that Provant terminates Mr. Senters employment other than for cause, or if within six months of a change of control Mr. Senter terminates his employment for good reason, then he is entitled to
continue to receive his base salary in effect at the termination for the longer of 12 months or the remainder of the term of the agreement. Mr. Senter is also entitled to exercise any stock options held by him to the extent they would have be
exercisable if he had continued to be employed by Provant for an additional 12 months following the date of such termination. In the event of a change of control, any stock options held by him that are not fully exercisable will become exercisable
in full.





Effective May 4, 2001, Provant entered into severance agreements with Messrs. Zenger and Wallace, which
provide that in the event that the executives employment is terminated by Provant other than for cause, death or disability, then the executive is entitled to receive as a severance benefit his base salary in effect at the date of termination
for a period of six months. In January 2002 in consideration for Mr. Zengers agreement to reduce his annual base salary, Provant extended the period of Mr. Zengers severance benefit from six to twelve months.





Under an Employee Agreement dated June 12, 1995, James Hart is entitled to receive at least one months salary as a severance benefit
in the event that his employment is terminated other than for cause.




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Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder


Matters





The following table sets forth information, as of October 11, 2002, with respect to the beneficial ownership of common stock by (i) each director, (ii) each of the Named Executive Officers, (iii) all
of the directors and executive officers of the Provant as a group, and (iv) each person who is known to Provant to be the beneficial owner of more than five percent of the common stock. This information has been furnished by the persons listed in
the table or in statements filed with the Securities and Exchange Commission.





Shares Beneficially Owned(1)Name of Beneficial Owner

Number

PercentDirectors and Named Executive OfficersJohn E. Tyson(2)

16,667

*
%Curtis M. Uehlein

40,905

*John H. Zenger(3)

282,717

1.3Norman G. Fornella(4)

66,954

*James H. Hart(5)

163,808

*Marc S. Wallace(6)

239,919

1.1Adam D. Senter(7)

69,320

*Donald W. Glazer(8)

299,573

1.4Wayne F. Hall

0

*Directors and executive officers as a group(9 persons)(9)

1,072,004

4.9More Than 5% StockholdersThe Senn Family Trust(10)

1,240,640

5.7


---

|* |  | Less than 1%
|- |  | ------------

|(1) |  | Percentages in the table are based upon 21,804,635 shares of common stock outstanding as of October 11, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------

|(2) |  | Consists of shares issuable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Shares are held jointly with Mr. Zengers wife. Includes 16,667 shares issuable upon the exercise of options that are currently exercisable or will become
exercisable within 60 days. Excludes 98,881 shares held by a trust for the benefit of Mr. Zengers grandchildren, as to which Mr. Zenger disclaims beneficial ownership.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes 33,334 shares issuable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes 163,123 shares issuable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Includes 20,001 shares issuable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Includes 50,000 shares issuable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Includes 6,667 shares issuable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Includes 273,125 shares issuable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | This information is based on the Schedule 13G dated February 13, 2001 filed by Larry E. Senn individually and together with Bernadette Senn, as trustees, donors
and beneficiaries of The Senn Family Trust u/t/d September 26, 1998, as amended. The address of The Senn Family Trust is 16741 South Pacific Coast Highway, Sunset Beach, CA 90742.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Provant currently intends to issue an aggregate of 5,750,794 shares of common stock to the former stockholders of SI under the terms of an
October 1998 acquisition agreement, as amended, after a registration




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statement that Provant currently intends to file with respect to the shares by October 28, 2002 becomes effective. When these shares are issued, MaxCo, Inc. would beneficially own at least
2,837,089 shares of common stock, representing 10.3% of the then outstanding shares.





Securities Authorized for Issuance Under Equity
Compensation Plans





Equity securities of Provant have been authorized for issuance under the 1998 Equity
Incentive Plan, the 1998 Non-Qualified Stock Option Plan, the Stock Plan for Non-Employee Directors, the 1998 Stock Option Plan for Outside Directors, the 1998 Employee Stock Purchase Plan and individual compensation arrangements with its former
Chief Executive Officer, Curtis M. Uehlein, its former Chief Financial Officer, Norman G. Fornella, and its Vice President, Adam D. Senter.





The following table provides information with respect to these compensation plans as of June 30, 2002.





Equity Compensation Plan Information





Plan Category

Number of securities to be
issued upon exercise of outstanding options,
warrants and rights


Weighted-average exercise
price of outstanding options, warrants and
rights

Number of securities remaining available
for future issuance under equity compensation
plans (excluding securities reflected in column
(a))(a)


(b)

(c)Equity compensation plans approved by security holders

974,458


$
8.71

1,597,589
(1)Equity compensation plans not approved by security holders

2,572,545
(2)


11.33

490,186Total

3,547,003



10.61

2,087,775


---

|(1) |  | Includes 181,587 shares available for purchase under the 1998 Employee Stock Purchase Plan.
|--- |  | -------------------------------------------------------------------------------------------

|(2) |  | Excludes 294,086 shares to be issued upon exercise of outstanding options that Provant assumed in connection with the acquisition of Senn-Delaney Leadership.
The weighted-average exercise price of these options is $.59.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




1998 Equity Incentive Plan





Provant has adopted, and the stockholders have approved, 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. To date Provant has not awarded stock
appreciation rights, performance shares, restricted stock or stock units. The number of shares to be issued upon exercise of outstanding options and remaining available for future issuance issuance under the plan is subject to adjustment for stock
dividends, splits, mergers, liquidations or recapitalizations, as described in the plan. All directors, employees, consultants and advisors of Provant or its subsidiaries are eligible to participate.





The exercise price of stock options granted under the plan may not be less than 85% of the fair market value of our common stock on the
date of grant, unless the option is granted in lieu of compensation. The exercise price of incentive stock options granted under the plan may not be less than the fair market value of our common stock on the date of grant. The expiration date of
stock options under the plan may not be more than ten years after the date of grant.




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The following are the standard terms of options granted under the plan, but these
terms are subject to modification by Provants Compensation Committee. Options generally become exercisable in three equal annual installments beginning one year after the date of grant and expire seven years after the date of grant. If the
grantee ceases to be employed or retained by Provant for reasons other than cause or death, options generally terminate immediately to the extent that they are not exercisable, but to the extent that they are exercisable, options generally continue
to be exercisable during the 30 days following termination of employment or retention by Provant.





If a
transaction occurs that results or will result in Provants common stock not being registered under Section 12 of the Securities Exchange Act of 1934, as amended, then options granted under the plan will terminate upon the completion of the
transaction, and the Board of Directors may arrange for replacement options, accelerate exercisability of the options or terminate the options in exchange for a cash payment.





As of June 30, 2002, there were options to issue an aggregate of 871,958 shares of common stock outstanding, and an aggregate of 1,411,002 shares of common stock available
for future issuance, under the 1998 Equity Incentive Plan.





1998 Non-Qualified Stock Option Plan





Provant has adopted the 1998 Non-Qualified Stock Option Plan, which provides for the award of up to 2,900,000
shares of common stock in the form of non-qualified stock options. This plan has not been approved by the stockholders. The number of shares to be issued upon exercise of outstanding options and remaining available for future issuance under the plan
is subject to adjustment for stock dividends, splits, mergers, liquidations or recapitalizations, as described in the plan. All employees, consultants and advisors of Provant 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 Provant are not eligible to participate.





The exercise price of stock options granted under the plan may not be less than the par value of our common stock. The expiration date of stock options under the plan may not be more than ten years after the date of grant.





The following are the standard terms of options granted under the plan, but these terms are subject to
modification by Provants Compensation Committee. Options generally have an exercise price equal to the fair market value of our common stock on the date of grant. Options generally become exercisable in three equal annual installments
beginning one year after the date of grant and expire seven years after the date of grant. If the grantee ceases to be employed or retained by Provant for reasons other than cause or death, options generally terminate immediately to the extent that
they are not exercisable, but to the extent that they are exercisable, options generally continue to be exercisable during the 30 days following termination of employment or retention by Provant.





If a transaction occurs that results or will result in Provants common stock not being registered under Section 12 of the Securities Exchange Act of 1934, as
amended, then options granted under the plan will terminate upon the completion of the transaction, and the board of directors may arrange for replacement options, accelerate exercisability of the options or terminate the options in exchange for a
cash payment.





As of June 30, 2002, there were options to issue an aggregate of 2,397,545 shares of common stock
outstanding, and an aggregate of 490,186 shares of common stock available for future issuance, under the 1998 Non-Qualified Stock Option Plan.





Stock Plan for Non-Employee Directors





Provant has adopted,
and the stockholders have approved, the Stock Plan for Non-Employee Directors under which non-qualified options to purchase an aggregate of 15,000 shares of common stock were awarded to two




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non-employee directors of Provant who were not stockholders as of Provants initial public offering. The exercise price of these options was $13.00 per share, and they became fully
exercisable six months after the date of grant. As of June 30, 2002, there were options to issue an aggregate of 7,500 shares of common stock outstanding under the Stock Plan for Non-Employee Directors. The number of shares to be issued upon
exercise of outstanding options is subject to adjustment for stock dividends, splits, mergers, liquidations or recapitalizations, as described in the plan. The Stock Plan for Non-Employee Directors was terminated in November 1998 with respect to
additional grants of options.





1998 Stock Option Plan for Outside Directors





Provant has adopted, and the stockholders have approved, 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 number of shares to be issued upon exercise of outstanding options and remaining available for future issuance under the plan is subject to adjustment for stock
dividends, splits, mergers, liquidations or recapitalizations, as described in the plan. The 1998 Stock Option Plan for Outside Directors replaced the Stock Plan for Non-Employee Directors, except with respect to outstanding options. All directors
who are not employees or full-time consultants of Provant are eligible to participate.





The exercise price of
stock options granted under the plan must equal the fair market value of our common stock on the date of grant. The expiration date of stock options under the plan may not be more than ten years after the date of grant.





On the date of their initial election, eligible directors are each granted an option to purchase 7,500 shares of common stock. On the date
of each annual meeting of stockholders at which they are re-elected, eligible directors are each granted an option to purchase a number of shares of common stock to be determined by the Board of Directors on that date. Each option granted under the
plan becomes fully exercisable six months after the grant date. Options usually expire ten years after the date of grant. If the grantee ceases to serve as director for reasons other than death, options terminate immediately to the extent that they
are not exercisable, but to the extent that they are exercisable, options continue to be exercisable during the three months following cessation or service as a director.





If a transaction occurs that results or will result in Provants common stock not being registered under Section 12 of the Securities Exchange Act of 1934, as amended,
then options granted under the plan will terminate upon the completion of the transaction, and the board of directors may arrange for replacement options, accelerate exercisability of the options or terminate the options in exchange for a cash
payment.





As of June 30, 2002, there were options to issue an aggregate of 95,000 shares of common stock
outstanding, and an aggregate of 5,000 shares of common stock available for future issuance, under the 1998 Stock Option Plan for Outside Directors.





1998 Employee Stock Purchase Plan





Provant has adopted, and
the stockholders have approved, the 1998 Employee Stock Purchase Plan, which allows all employees who work more than 20 hours per week, other than employees owning 5% or more of the total combined voting power of all classes of stock of Provant, to
purchase shares of common stock at a discount. A total of 1,000,000 shares have been made available for purchase under the Employee Stock Purchase Plan.





Purchases can occur at the end of six-month offering periods, ending on November 30 and May 31. 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 before the beginning of an offering period and the last sale price of the common stock on the day before the end of the offering period. Participants may contribute a lump sum or may elect to have from
2% to 10% of their base pay applied to the purchase of shares at the end of the offering period. Participants may withdraw lump sum contributions or payroll deductions by giving written notice to Provant at any time before the end of the offering
period.




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As of June 30, 2002, an aggregate of 818,413 shares of common stock have been
purchased, and an aggregate of 181,587 shares of common stock are available for purchase, under the 1998 Employee Stock Purchase Plan.





Individual Compensation Arrangements





The following individual compensation
arrangements have not been approved by the stockholders.





On October 8, 1999, Provant granted Mr. Uehlein an
option to purchase 225,000 shares of common stock at an exercise price of $16.375 per share. This option was to become exercisable in three equal annual installments beginning on October 8, 2000. This option was forfeited by Mr. Uehlein in November
2001.





On May 2, 2001, Provant granted Mr. Fornella an option to purchase 100,000 shares of common stock at an
exercise price of $3.08 per share. This option, was to become exercisable in three equal annual installments beginning on May 2, 2002. As of September 27, 2002, the date that Mr. Fornellas employment with Provant terminated, the option
terminated with respect to all option shares other than the 33,334 option shares that had already vested. The option terminates with respect to these vested option shares on October 27, 2002.





On May 17, 2000, Provant granted Mr. Senter an option to purchase 75,000 shares of common stock at an exercise price of $5.188 per share. This option becomes
exercisable in three equal annual installments beginning on May 17, 2001. This option expires on May 17, 2007.





The exercise price of the stock options granted to Messrs. Uehlein, Fornella and Senter was the fair market value of our common stock on the date of grant. While these stock options were not granted under any of Provants equity
incentive plans, they were granted subject to the terms of the 1998 Equity Incentive Plan.





Item 13.Certain Relationships and Related Transactions





On August 31, 2001, Provant
and the stockholder group known as the Provant Committee to Restore Shareholder Value (the Stockholder Committee) reached an agreement to end the Stockholder Committees efforts to replace all of Provants directors at the time
with a new slate of directors. The members of the Stockholder Committee were Robert M. and Sheila Baker, Arthur R. Bauer, Michael J. Davies, Philip Gardner, Paul C. Green, Kara Cross Kunitz, Ralf Leszinski, Dominic J. Puopolo, Avram Saunders and
Carl von Sternberg. As of September 20, 2001, the date of the Stockholder Committees Schedule 13D, as amended, the members of the Stockholder Committee beneficially owned 3,252,680 shares of Provants common stock.





Under the terms of the agreement with the Stockholder Committee, Provant added three new directors nominated by the Stockholder
Committee, Joseph F. Alibrandi, James A. Perkins and Robert T. Puopolo. Each of these directors subsequently resigned as directors of Provant. Until December 31, 2002, the Stockholder Committee agreed generally not to participate in the solicitation
of proxies or an election contest with respect to Provant, engage in similar activities or form a group similar to the Stockholder Committee. Provant reimbursed the Stockholder Committee $350,000 for its documented out-of-pocket expenses incurred in
connection with the Stockholder Committees proxy contest. Provant estimates that approximately $200,000 of the expenses reimbursed by Provant were paid to Epic Partners, a merchant banking firm that acted as financial advisor to the
Stockholder Committee. Robert T. Puopolo is a co-founder and Partner of Epic Partners.





On September 29, 2001, we
paid $3.3 million to Executive Education Institute, Inc. (EEI), which is owned by Flory Netsch Hiatrides, under the terms of a promissory note issued by us in connection with our September 2000 acquisition of the assets of EEI (which are
now a part of our Vertical Markets group). We owe EEI an additional $3.3 million under the terms of a second promissory note issued by us in connection with the EEI acquisition. We are currently in discussions with EEI to extend the payment due date
for the second note until the earlier to occur of July 1, 2003 or our receipt of net proceeds from certain sales of our assets should any such sales occur.




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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.





PagePROVANT, INC. AND SUBSIDIARIES:Independent Auditors Report

26Consolidated Balance Sheets

27Consolidated Statements of Operations

28Consolidated Statements of Stockholders Equity

29Consolidated Statements of Cash Flows

30Notes to Consolidated Financial Statements

31





(a)(2)  The following consolidated financial statement
schedule of Provant, Inc. and subsidiaries for the years ended June 30, 2002, 2001, and 2000 is filed as part of this Form 10-K and should be read in conjunction with the Provants Consolidated Financial Statements included in Item 8 of this
Form 10-K.





Schedule

Sequential Page No.II Valuation and Qualifying Accounts

77





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





Exhibit

Description

Sequential Page No.3.1

Certification of Incorporation of Provant (incorporated by reference to Exhibit 3.1 to Provant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 Provant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 Provants Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 21, 2000)3.4

By-laws of Provant (incorporated by reference to Exhibit 3.1 to Provants Current Report on Form 8-K as filed
with the Securities and Exchange Commission on August 1, 2001)4.1

Form of Specimen Stock Certificate (incorporated by reference to Exhibit 4.2 to Provants Current Report on Form
8-K as filed with the Securities and Exchange Commission on July 21, 2000)10.1

1998 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to Provants Registration Statement on Form
S-8 (File No. 333-37472))10.2

Form of 1998 Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to Provants Registration
Statement on Form S-8 (File No. 333-58952))10.3

Form of Stock Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.2 to Provants
Registration Statement on Form S-1 (File No. 333-46157))




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Exhibit

Description

Sequential Page No.10.4

1998 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 4.1 to Provants Registration
Statement on Form S-8 (File No. 333-83020))10.5

1998 Stock Option Plan for Outside Directors (incorporated by reference to Exhibit 4.1 to Provants Registration
Statement on Form S-8 (File No. 333-72857))10.6

Form of Warrants to Messrs. Verrochi and Puopolo(incorporated by reference to Exhibit 10.4 to Provants
Registration Statement on Form S-1 (File No. 333-46157))10.7

Form of Contingent Warrants to Messrs. Verrochi and Puopolo(incorporated by reference to Exhibit 10.5 to
Provants Registration Statement on Form S-1 (File No. 333-46157))10.8

Stock Option Agreement between Provant, Inc. and Curtis M. Uehlein (incorporated by reference to Exhibit 4.1 to
Provants Registration Statement on Form S-8 (File No. 333-37146))10.9

Form of Senn-Delaney Leadership Consulting Group, Inc. Stock Option Agreement (incorporated by reference to Exhibit
4.2 to Provants Registration Statement on Form S-8 (File No. 333-37146))10.10

Form of Senn-Delaney Leadership Consulting UK, Ltd. Stock Option Agreement (incorporated by reference to Exhibit 4.3
to Provants Registration Statement on Form S-8 (File No. 333-37146))10.11

Form of Roll-Over Stock Option Agreement (incorporated by reference to Exhibit 4.4 to Provants Registration
Statement on Form S-8 (File No. 333-37146))10.12

Stock Option Agreement between Provant, Inc. and Norman G. Fornella (incorporated by reference to Exhibit 4.1 to
Provants Registration Statement on Form S-8 (File No. 333-83018))10.13

Stock Option Agreement between Provant, Inc. and Adam Senter (incorporated by reference to Exhibit 4.1 to
Provants Registration Statement on Form S-8 (File No. 333-58950))10.14

Form of Consulting Agreement between Donald W. Glazer and Provant, Inc. (incorporated by reference to Exhibit 10.21
to Provants Registration Statement on Form S-1 (File No. 333-46157))10.15

Amendments to Consulting Agreement between Provant, Inc. and Donald W. Glazer10.16

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)10.17

Amendment to Employment Agreement between Provant, Inc. and Curtis M. Uehlein (incorporated by reference to Exhibit
10.16 to Provants Annual Report on Form 10-K for the fiscal year ended June 30, 2001)10.18

Severance Agreement between Provant, Inc. and Curtis M. Uehlein10.19

Employment Agreement between Provant, Inc. and Norman G. Fornella (incorporated by reference to Exhibit 10.17 to
Provants Annual Report on Form 10-K for the fiscal year ended June 30, 2001)10.20

Severance Agreement between Provant, Inc. and John H. Zenger (incorporated by reference to Exhibit 10.18 to
Provants Annual Report on Form 10-K for the fiscal year ended June 30, 2001)10.21

Severance Agreement between Provant, Inc. and Marc S. Wallace10.22

Severance Agreement between Provant, Inc. and Thomas Carter, as amended




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Exhibit

Description

Sequential Page No.10.23

Revolving Credit Agreement dated April 8, 1998 between Provant, Inc. and Fleet National Bank (incorporated by
reference to Exhibit 10 to Provants Quarterly Report on Form 10-Q for the three months ended March 31, 1998)10.24

Amendment No. 1 to Revolving Credit Agreement (incorporated by reference to Exhibit 10.30 to Provants Annual
Report on Form 10-K for the fiscal year ended June 30, 1998)10.25

Amendment No. 2 to Revolving Credit Agreement (incorporated by reference to Exhibit 10.32 to Provants
Registration Statement on Form S-4 (File No. 333-57733))10.26

Amendment No. 3 to Revolving Credit Agreement (incorporated by reference to Exhibit 10.32 to Provants Annual
Report on Form 10-K for the fiscal year ended June 30, 1999)10.27

Amendment No. 4 to Revolving Credit Agreement (incorporated by reference to Exhibit 10.33 to Provants Annual
Report on Form 10-K for the fiscal year ended June 30, 1999)10.28

Amendment No. 5 to Revolving Credit Agreement (incorporated by reference to Exhibit 10.34 to Provants Annual
Report on Form 10-K for the fiscal year ended June 30, 1999)10.29

Amendment No. 6 to Revolving Credit Agreement (incorporated by reference to Exhibit 10.1 to Provants Quarterly
Report on Form 10-Q for the three months ended December 31, 1999)10.30

Amendment No. 7 to Revolving Credit Agreement (incorporated by reference to Exhibit 10.2 to Provants Quarterly
Report on Form 10-Q for the three months ended December 31, 1999)10.31

Amendment No. 8 to Revolving Credit Agreement (incorporated by reference to Exhibit 10.41 to Provants Annual
Report on Form 10-K for the fiscal year ended June 30, 2000)10.32

Amendment No. 9 to Revolving Credit Agreement (incorporated by reference to Exhibit 10.1 to Provants Quarterly
Report on Form 10-Q for the three months ended September 30, 2001)10.33

Agreement with Stockholder Group (incorporated by reference to Exhibit 10.31 to the Companys Annual Report on
Form 10-K for the fiscal year ended June 30, 2001)10.34

Severance Agreement between Provant, Inc. and Janet Hoey10.35

Amendment to Severance Agreement between Provant, Inc. and John H. Zenger10.36

Employee Agreement dated June 12, 1995 between Senn-Delaney Leadership Consulting Group and James Hart10.37

Statement Under Section 906 of the Sarbanes-Oxley Act of 200221

Subsidiaries of the Registrant23.1

Consent of KPMG LLP




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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/    JOHN H.
ZENGERJohn H. Zenger President and
Chief Executive Officer





Date: October 14, 2002





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.





Signatures

Title

Date/s/    JOHN H. ZENGER John H. Zenger

President and Chief Executive Officer and Director

October 14, 2002/S/    JOHN E.
TYSON John E. Tyson

Chairman of the Board

October 14, 2002/S/    DONALD W. GLAZER Donald W. Glazer

Vice Chairman and Director

October 14, 2002/S/    WAYNE F.
HALL Wayne F. Hall

Director

October 14, 2002/S/    JANET HOEY Janet Hoey

Vice President and Chief Financial Officer and Chief Accounting Officer

October 14, 2002




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CERTIFICATIONS





I, John H. Zenger, certify that:





1.  I
have reviewed this Annual Report on Form 10-K of Provant, Inc;





2.  Based on my
knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report; and





3.  Based on my knowledge, the
financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this annual report.





Date: October 15, 2002





/s/ JOHN H. ZENGERJohn H. Zenger President and
Chief Executive Officer





I, Janet Hoey, certify that:





1.  I have reviewed this Annual Report on Form 10-K of Provant, Inc;





2.  Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and





3.  Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.





Date: October 15, 2002





/s/ JANET M. HOEYJanet M. Hoey Vice President,
Chief Financial Officer and Chief Accounting Officer




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PROVANT, INC. AND SUBSIDIARIES





SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS


(Dollars in thousands)





Column A

Column B

Column C

Column D

Column EDescription

Balance at Beginning of Year

Charged to Costs and Expenses

Charged to Other Accounts

Deductions

Balance at End of YearYear ended June 30, 2002:Allowance for doubtful accounts

$
2,248

$
521



$
1,837

$
932Year ended June 30, 2001:Allowance for doubtful accounts

$
1,158

$
3,821



$
2,731

$
2,248Year ended June 30, 2000:Allowance for doubtful accounts

$
742

$
899



$
483

$
1,158




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