<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 9, 1998
STAFFMARK, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20971 71-0788538
(State of other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
302 East Millsap Road
Fayetteville, Arkansas 72703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 973-6000
<PAGE> 2
Item 5. Other Information
On January 9, 1998, StaffMark, Inc. (the "Company") completed the
purchase of all of the outstanding membership interests of Strategic Legal
Resources, LLC, a New York limited liability company ("SLR"). SLR provides legal
professionals to law firms, corporations and financial institutions and is
headquartered in New York, New York. The total consideration paid for the
membership interests of SLR was approximately $13.8 million, consisting of
approximately $12.3 million in cash and 46,320 shares of the Company's common
stock, plus a contingent earnout based upon the future performance of SLR. The
purchase price was determined as a result of direct negotiations with SLR and
its members.
On June 5, 1998, the Company completed the purchase of substantially all
of the assets of Progressive Resources, Inc., a New York corporation,
Progressive Personnel Resources, Inc., a New York corporation, Strategic
Computer Resources, LLC, a New York limited liability company, and Progressive
Personnel Resources of New Jersey, Inc., a New Jersey corporation (collectively
"Progressive"). Progressive provides staffing services and is headquartered in
the New York City metropolitan area. The total consideration paid for the assets
was approximately $22.0 million, consisting of approximately $14.3 million in
cash and 211, 496 shares of the Company's common stock, plus a contingent
earnout based upon the future performance of Progressive. The purchase price was
determined as a result of direct negotiations with Progressive.
As StaffMark's acquisitions of SLR and Progressive were both considered
to be individually insignificant at the time of their acquisition based on the
significant subsidiary test provisions of Regulation S-X, no audited financial
statements or pro forma financial statements were required to be filed. With the
completion of StaffMark's acquisition of Brady & Company on July 31, 1998, the
aggregate consideration of StaffMark's individually insignificant 1998
acquisitions represented 51.1% of StaffMark's 1997 total assets. As a result,
financial statements covering at least the substantial majority of the business
acquired must be furnished pursuant to Rule 3-05 of Regulation S-X. Total
consideration paid in conjunction with the acquisitions of SLR and Progressive
as a percentage of StaffMark's 1997 total assets was 14.7% and 12.9%
respectively, which, in the aggregate, represented 54.0% of the total
consideration paid in conjunction with the individually insignificant
acquisitions.
Item 7. Financial Statements and Exhibits
(a) Strategic Legal Resources, LLC Audited Financial Statements
for the Twelve Months Ended December 31, 1997.
(b) Progressive Personnel Resources, Inc. and Affiliates Audited
Financial Statements for the Twelve Months Ended December 31,
1997 and Compiled Financial Statements for the Four Months
Ended April 30, 1998.
(c) Pro Forma Statements of Income for the Twelve Months Ended
December 31, 1997 and Six Months Ended June 30, 1998.
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Members of
Strategic Legal Resources, LLC
We have audited the accompanying balance sheet of Strategic Legal Resources, LLC
as of December 31, 1997 and the related statements of income, members' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Strategic Legal Resources, LLC
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supporting schedules are
presented for purposes of additional analysis and are not a required part of the
basic financial statements. Such information has not been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
accordingly, we express no opinion on them.
Povol and Feldman, CPA, PC
Lake Success, New York
March 18, 1998
<PAGE> 4
STRATEGIC LEGAL RESOURCES, LLC
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
ASSETS
<S> <C>
Current Assets:
Note receivable $ 502,760
Accounts receivable, net of allowance
for doubtful accounts of $107,200 3,163,905
Prepaid expenses and other 27,223
----------
Total Current Assets 3,693,888
Fixed assets, net 82,913
Security deposit 6,300
----------
Total Assets $3,783,101
==========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Cash overdraft $ 31,495
Loans payable 825,000
Accounts and accrued expenses payable 331,677
Deferred compensation payable 625,000
----------
Total Current Liabilities 1,813,172
Members' Equity 1,969,929
----------
Total Liabilities and Members' Equity $3,783,101
==========
</TABLE>
See the accompanying notes and auditors' report.
<PAGE> 5
STRATEGIC LEGAL RESOURCES, LLC
STATEMENTS OF INCOME AND MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues $11,781,534
Cost of Revenues 7,496,763
-----------
Gross Profit 4,284,771
Operating Expenses 2,902,249
-----------
Net Income 1,382,522
Members' Equity - Beginning of Year 87,407
Contributed Equity 500,000
-----------
Members' Equity - End of Year $ 1,969,929
===========
</TABLE>
See the accompanying notes and auditors' report.
<PAGE> 6
STRATEGIC LEGAL RESOURCES, LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
---------------------------
<S> <C>
Cash Flows From Operating Activities:
Net Income $ 1,382,522
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 19,399
Provision for doubtful accounts 117,598
Accounts receivable (2,556,134)
Prepaid expenses and other (15,451)
Accrued interest income (2,760)
Accrued expenses and payables 286,633
Deferred compensation payable 625,000
-----------
Net Cash Used in Operating Activities (143,193)
===========
Cash Flows From Investing Activities:
Capital expenditures (40,487)
Loans and exchanges (9,334)
-----------
Net Cash Used in Investing Activities (49,821)
===========
Cash Flows Used in Financing Activities:
Loans payable (50,000)
-----------
Net Decrease in Cash (243,014)
-----------
Cash - Beginning of Year 243,014
-----------
Cash - End of Year $ --
===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest expense $ 662
===========
LLC fee $ 325
===========
Noncash Investing and Financing Transactions:
Equity issued for note receivable $ 500,000
===========
</TABLE>
See the accompanying notes and auditors' report.
<PAGE> 7
STRATEGIC LEGAL RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Business description
Strategic Legal Resources, LLC (the Company) was organized under the limited
liability laws of New York State, and was formed July 20, 1995. The Company is
engaged in temporary legal personnel placement in the metropolitan New York
area. The Company will cease operations no later than December 31, 2020.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Doubtful accounts
The Company reviews individual customer's credit histories before extending
credit, and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical and economic
trends, and other pertinent data.
Advertising
Advertising costs are deducted as incurred, with substantially all costs
representing current expenses for media placements.
Depreciation
Depreciation is provided for on a straight-line basis over the estimated useful
lives of the assets.
Income taxes
The members operate as a partnership for income tax purposes. Taxes are borne
directly by the Company members on all profits, with an annual filing fee paid
to New York State, and an unincorporated business tax paid to New York City.
Concentration of credit risk
Financial instruments that subject the Company to concentration of credit risk
consist principally of cash and revenues. Periodically, temporary cash exceeds
federally insured limitations. Concentration of credit risk with respect to
revenues are due to two customers representing approximately 24% of total
revenues during the year ended December 31, 1997.
NOTE 2 - FIXED ASSETS, NET:
Fixed assets are stated at cost. Major renewals and betterments are capitalized,
whereas replacements, maintenance and repairs are expensed as incurred. Fixed
assets as of December 31, 1997, are comprised of the following:
<TABLE>
<CAPTION>
Estimated Useful
Category Amount Asset Lives
--------------------------------- ----------- -----------
<S> <C> <C>
Furniture and fixtures $ 12,392 7 years
Machinery and equipment 108,394 5 years
----------
120,786
Accumulated depreciation 37,873
----------
$ 82,913
===========
</TABLE>
<PAGE> 8
STRATEGIC LEGAL RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - LOANS PAYABLE:
Under the terms of an inter-affiliate loan agreement, the 50% member has
advanced funds to the Company for capitalization and operations. The
bank-financed portion of member loans bears interest at prime plus 0.50%, and is
due upon demand. During the year ended December 31, 1997, interest expense
amounted to $68,057, and was unpaid. All Company assets collateralize the member
loan to the bank. Under the bank-financed member loan agreement, certain
financial covenants are required to be maintained. During 1998, the loan was
liquidated.
NOTE 4 - NOTE RECEIVABLE:
Under the terms of a 1997 deferred compensation agreement amounting to $625,000,
management awarded an employee for past services rendered. In connection with
that agreement, an equity interest was issued amounting to $500,000, secured by
a note receivable. Interest accrues at the rate of 6.5% per annum, with payments
due as follows:
<TABLE>
<CAPTION>
Note Principal Deferred Benefit
--------------- ----------------
(including accrued interest)
<S> <C> <C>
January 9, 1998 $ 300,000 $ 303,473
September 1, 1998 200,000 208,370
January 9, 1999 - 125,000
--------------- --------------
$ 500,000 $ 636,843
=============== ==============
</TABLE>
The right of offset is permitted, and the employee must maintain certain
conditions, under the terms of both agreements. As at December 31, 1997, accrued
interest income amounted to $2,760.
NOTE 5 - COMMITMENTS:
A. The Company is obligated under the terms of a three-year non-cancelable
operating lease for office space, with annual minimum rental payments of
$27,000, expiring July 30, 1998. Standard annual escalation clauses exist
for rent, taxes and utilities. Effective October 1, 1996, additional
space was taken with terms of annual minimum lease payments of $48,600
running concurrently with the original lease. The landlord holds a
security deposit amounting to $6,300. During the year ended December 31,
1997, rent expense amounted to $73,063.
B. Consulting and employment agreements
Consulting agreement - August 1, 1997 through July 31, 1999, a 50%
Company member is engaged to consult at the rate of $40,000 per annum,
increasing to $50,000 from August 1, 1999 through termination of the
Company. Certain early termination provisions, as well as reimbursement
for out of pocket expenses, exist. During 1997, the terms of this
agreement were waived.
<PAGE> 9
STRATEGIC LEGAL RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS: (continued)
B. Consulting and employment agreements (continued)
Employment agreements - The Company employs a management team comprised
of two members, under the terms of an agreement guaranteeing annual base
salaries of $70,000 each, with certain escalation clauses based upon
operational results. Termination and non-competition provisions exist
under specific circumstances.
C. Commission agreements
The Company pays commissions to its sales force at varying rates
depending upon the resulting gross profits of each contract.
NOTE 6 - SUBSEQUENT EVENTS:
Effective January 1, 1998, the members sold their equity interests. All
liabilities were paid in the normal course of business and the member-financed
loan was liquidated.
<PAGE> 10
STRATEGIC LEGAL RESOURCES, LLC
SUPPORTING SCHEDULES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues
Temporary placements fees $10,851,685
Permanent placement fees 734,051
Other fees 191,732
Interest income 4,066
-----------
$11,781,534
===========
Cost of Revenues
Placement salaries $ 6,884,281
Placement payroll taxes 612,482
-----------
$ 7,496,763
===========
Operating Expenses
Advertising $ 163,975
Commissions 255,914
Contributions 210
Depreciation 19,399
Dues and subscriptions 6,824
Entertainment and gifts 27,009
Guaranteed payments to management 306,255
Insurances 82,357
Interest and bank charges 72,807
Licenses and fees 646
Office and postage 49,697
Office salaries 1,438,917
Outside services 34,218
Payroll processing 11,324
Payroll tax expense - administration 75,574
Professional fees 43,210
Provision for doubtful accounts 117,597
Reimbursed expenses 13,458
Rent and related costs 85,502
Repairs and maintenance 10,181
Seminars and conventions 10,476
Taxes 3,969
Telephone and fax 40,554
Travel and lodging 32,176
-----------
$ 2,902,249
===========
</TABLE>
See auditors' report.
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Progressive Personnel Resources, Inc. and Affiliates
We have audited the accompanying combined balance sheet of Progressive Personnel
Resources, Inc. and Affiliates as of December 31, 1997 and the related combined
statements of income, changes in equity and cash flows for the year then ended.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Progressive
Personnel Resources, Inc. and Affiliates as of December 31, 1997, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The accompanying combined
supporting schedules are presented for purposes of additional analysis and are
not a required part of the basic combined financial statements. Such information
has not been subjected to the auditing procedures applied in the audit of the
basic combined financial statements and, accordingly, we express no opinion on
them.
Povol and Feldman, CPA, PC
Lake Success, New York
July 31, 1998
<PAGE> 12
ACCOUNTANTS' REPORT
To the Board of Directors and Members
Progressive Personnel Resources, Inc. and Affiliates
We have compiled the accompanying combined balance sheet of Progressive
Personnel Resources, Inc. and Affiliates as of April 30, 1998, and the related
combined statements of income, changes in equity and cash flows for the four
months then ended, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying combined April 30, 1998 financial statements and,
accordingly, we do not express an opinion or any other form of assurance on
them.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles relating to the compiled financial
statements of April 30, 1998. If the omitted disclosures were included in the
financial statements, they might influence the user's conclusions about the
Company's financial position, results of operations, and cash flows.
Accordingly, these combined financial statements are not designed for those who
are not informed about such matters.
The combined financial statements for the year ended December 31, 1997, were
audited by us, and we expressed an unqualified opinion on them in our report
dated July 31, 1998, but we have not performed any auditing procedures since
that date. These combined financial statements are presented for comparative
purposes only. Our audit was conducted for the purpose of forming an opinion on
the basic combined financial statements taken as a whole. The accompanying
combined supporting schedules are presented for purposes of additional analysis
and are not a required part of the basic combined financial statements. Such
information has not been subjected to the auditing procedures applied in the
audit of the basic combined financial statements and, accordingly, we express no
opinion on them.
Povol and Feldman, CPA, PC
Lake Success, New York
July 31, 1998
<PAGE> 13
PROGRESSIVE PERSONNEL RESOURCES, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
APRIL 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 832,339 $ 135,499
Accounts receivable, net of allowance for doubtful
accounts of $220,498 5,256,602 4,460,509
Prepaid expenses and other 235,343 72,736
---------- ----------
Total Current Assets 6,324,284 4,668,744
Fixed assets, net of accumulated depreciation of
$185,166 and $160,244, respectively 254,420 264,360
Security deposits 33,730 32,773
---------- ----------
Total Assets $6,612,434 $4,965,877
========== ==========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts and accrued expenses payable $1,215,882 $1,014,542
---------- ----------
Rent concession, net of current portion 4,673 8,411
---------- ----------
Officer and/or member loans 2,602,823 2,380,929
---------- ----------
Equity:
Common stock 20,200 20,200
Paid in capital 167,500 167,500
Retained earnings and members' equity 2,601,356 1,374,295
---------- ----------
2,789,056 1,561,995
---------- ----------
Total Liabilities and Equity $6,612,434 $4,965,877
========== ==========
</TABLE>
See the accompanying notes and accountants' report.
<PAGE> 14
PROGRESSIVE PERSONNEL RESOURCES, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND CHANGES IN EQUITY
FOR THE FOUR MONTHS ENDED APRIL 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues $11,283,734 $26,578,545
Cost of Revenues 7,931,981 19,172,567
----------- -----------
Gross Profit 3,351,753 7,405,978
Operating Expenses 2,123,310 6,546,182
----------- -----------
Income Before Taxes 1,228,443 859,796
Provision for Income Taxes 1,382 16,731
----------- -----------
Net Income 1,227,061 843,065
Equity - Beginning of Year 1,374,295 531,230
----------- -----------
Equity - End of year $ 2,601,356 $ 1,374,295
=========== ===========
</TABLE>
See the accompanying notes and accountants' report.
<PAGE> 15
PROGRESSIVE PERSONNEL RESOURCES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Increase (Decrease) in
Cash and Cash Equivalents
--------------------------
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,227,061 $ 843,065
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 24,922 73,960
Provision for doubtful accounts 22,266 125,795
Rent concession (3,738) (11,215)
Accounts receivable (818,359) (2,002,308)
Prepaid expenses and other (162,607) 20,873
Security deposits (957) 1,761
Accounts and accrued expenses payable 201,340 699,497
----------- -----------
Net Cash Provided by (Used in) Operating Activities 489,928 (248,572)
----------- -----------
Cash Flows Used in Investing Activities:
Capital expenditures (14,982) (47,835)
----------- -----------
Cash Flows From Financing Activities:
Repayment of officer loans (636,439) (886,080)
Officer loans 858,333 1,153,014
----------- -----------
Net Cash Provided by Financing Activities 221,894 266,934
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 696,840 (29,473)
Cash and Cash Equivalents - Beginning of Year 135,499 164,972
----------- -----------
Cash and Cash Equivalents - End of Year $ 832,339 $ 135,499
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest expense $ 65,538 $ 300,487
----------- -----------
Income taxes $ 1,123 $ 9,950
----------- -----------
</TABLE>
See the accompanying notes and accountants' report.
<PAGE> 16
PROGRESSIVE PERSONNEL RESOURCES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - PRINCIPLES OF COMBINATION:
The accompanying combined financial statements include the accounts of
Progressive Resources, Inc., Progressive Personnel Resources, Inc., Progressive
Personnel Resources of New Jersey, Inc., and Strategic Computer Resources, LLC
(collectively the Company). Affiliate transactions and balances have been
eliminated in combination.
NOTE 2 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business description
Progressive Resources, Inc. (PRI) was incorporated in New York on September 14,
1992, and is engaged in permanent personnel placement in the metropolitan New
York area.
Progressive Personnel Resources, Inc. (PPRI) was incorporated in New York on
September 9, 1992, and is engaged in temporary office personnel placement in the
metropolitan New York area.
Progressive Personnel Resources of New Jersey, Inc. (PPRINJ), was incorporated
in New Jersey on November 25, 1992, and is engaged in temporary office personnel
placement in New Jersey.
Strategic Computer Resources, LLC (SCR), was organized under the limited
liability laws of New York State, and was formed March 1, 1996 and is engaged in
temporary computer personnel placement in the metropolitan New York area.
Operations will cease no later than December 31, 2050.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash and cash equivalents are
considered to be all unrestricted liquid investments with a maturity of three
months or less. At December 31, 1997, cash equivalents amounted to approximately
$9,600.
Doubtful accounts
The Company reviews individual customer's credit histories before extending
credit, and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical and economic
trends and other pertinent data.
<PAGE> 17
PROGRESSIVE PERSONNEL RESOURCES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES: (continued)
Advertising
Advertising costs are deducted as incurred, with substantially all costs
representing current expenses of media placements.
Depreciation
Depreciation is provided for on the straight-line basis over the estimated
useful lives of the assets.
Income taxes
At inception, PRI, PPRI and PPRINJ elected Subchapter "S" status of the Internal
Revenue and New York State tax codes. State and local taxes are provided for as
incurred. The tax returns are filed on a cash basis and considers any additional
income taxes to be non-material for deferred purposes.
SCR operates as a partnership for income tax purposes. Taxes on income are borne
directly by the members on all profits, with an annual filing fee paid to New
York State, and an unincorporated business tax paid to New York City.
Concentration of credit risk
Financial instruments that subject the Company to concentration of credit risk
consist principally of cash and revenues. Periodically, temporary cash exceeds
federally insured limitations. Concentration of credit risk with respect to
revenues is due to two customers representing approximately 17% of total
revenues during the year ended December 31, 1997. Concentration of credit with
respect to trade receivables is due to seven customers representing
approximately 20% of trade receivables at December 31, 1997.
NOTE 3 - FIXED ASSETS, NET:
Fixed assets are stated at cost. Major renewals and betterments are capitalized,
whereas replacements, maintenance and repairs are expensed as incurred. Fixed
assets as of December 31, 1997, are comprised of the following:
<TABLE>
<CAPTION>
Estimated Useful
Amount Asset Lives
----------- -----------
<S> <C> <C>
Leasehold improvements $ 48,000 39 years
Machinery and equipment 365,611 5 years
Furniture and fixtures 10,993 7 years
-----------
424,604
Less: Accumulated depreciation 160,244
-----------
$ 264,360
===========
</TABLE>
<PAGE> 18
PROGRESSIVE PERSONNEL RESOURCES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - RELATED PARTY TRANSACTIONS:
The majority shareholder and member has advanced funds to the Company for
capitalization and operations. Interest is incurred at 10% per annum, and paid
during the year. Portions of the amounts are bank-financed, and therefore
$850,000 is subordinated to the bank. At December 31, 1997, interest expense
amounted to $297,669. All Company assets collateralize the member and
shareholder loans to the bank. Under the bank-financed loan agreement, certain
financial covenants are required to be maintained. During 1998, the
bank-financed portion was liquidated.
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
The Company is obligated under the terms of several operating leases for office
space. The leases include minimum lease and escalation clauses relating to real
estate taxes. For the year ended December 31, 1997, rent expense amounted to
$240,847.
The annual minimum lease rentals under the leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1998 $ 267,072
December 31, 1999 195,493
December 31, 2000 110,739
December 31, 2001 69,210
----------
$ 642,514
==========
</TABLE>
A rent concession was received pertaining to the lease of $33,643, which is
being amortized over a 36-month lease term. At December 31, 1997, the
unamortized rent concession amounted to $19,625.
NOTE 6 - SUBSEQUENT EVENTS:
During 1998, substantially all of the Company's assets were sold with related
liabilities assumed, exclusive of shareholder and member debt.
<PAGE> 19
PROGRESSIVE PERSONNEL RESOURCES, INC. AND AFFILIATES
COMBINED SUPPORTING SCHEDULES
FOR THE FOUR MONTHS ENDED APRIL 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues
Temporary and placement fees $ 11,280,060 $ 26,562,557
Other fees 3,674 15,988
------------ ------------
$ 11,283,734 $ 26,578,545
============ ============
Cost of Revenues
Placement salaries $ 5,499,125 $ 15,867,105
Placement payroll taxes 612,912 2,008,631
Sub-contract labor 1,819,944 1,296,831
------------ ------------
$ 7,931,981 $ 19,172,567
============ ============
Operating Expenses
Advertising $ 79,092 $ 290,040
Auto 5,002 40,716
Bank charges 18,851 55,535
Commissions 547,692 1,125,055
Computer expenses 12,265 16,617
Consulting fees -- 20,360
Contributions 75 7,749
Depreciation 24,922 73,960
Dues and licenses 2,596 18,244
Executive search 5,000 37,900
Expense reimbursement 26,932 82,258
Financing costs 105,189 300,487
Holiday expense -- 28,926
Insurances 98,820 502,305
Miscellaneous 4,630 17,381
Office expenses 56,153 149,610
Outside services 100,034 127,277
Payroll processing 27,281 56,623
Professional fees 16,853 163,840
Provision for doubtful accounts 22,266 125,795
Rent and occupancy costs 86,253 240,847
Repairs and maintenance 14,722 41,824
Salaries 673,117 2,416,565
Seminars and conventions 2,024 8,898
Taxes - commercial rent 245 734
Taxes - payroll 98,879 250,298
Telephone and fax 58,277 174,220
Transportation 12,327 43,034
Travel and entertainment 23,813 129,084
------------ ------------
$ 2,123,310 $ 6,546,182
============ ============
</TABLE>
See accountants' report.
<PAGE> 20
STAFFMARK, INC. - FORM 8-K
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION
StaffMark, Inc. ("StaffMark" or the "Company") provides diversified
staffing, professional and consulting services to businesses, professional and
service organizations, governmental agencies and medical niches. The Company
recognizes revenues upon the performance of services. The Company generally
compensates its temporary associates and consultants only for hours actually
worked; therefore, wages of the temporary associates and consultants are a
variable cost that increase or decrease as revenues increase or decrease.
However, certain of the Company's professional and information technology
consultants are full-time, salaried employees. Cost of services primarily
consists of wages paid to temporary associates, payroll taxes, workers'
compensation and other related employee benefits. Selling, general and
administrative expenses are comprised primarily of administrative salaries,
benefits, marketing, rent and recruitment expenses.
Effective March 1, 1997, StaffMark acquired Flexible Personnel, Inc.,
Great Lakes Search Associates, Inc., and HR America, Inc. (collectively,
"Flexible"). Located in Fort Wayne, Indiana, Flexible operates offices in
Indiana, Michigan and Ohio and provides clerical, light industrial,
professional/information technology, accounting and staff leasing services.
Flexible operates in the Commercial and Professional/Information Technology
divisions. Effective April 1, 1997, StaffMark acquired Global Dynamics, Inc.
("Global"). Global, located in Walnut Creek, California, provides information
technology staffing services to several Fortune 500 companies. Global operates
in the Professional/Information Technology division. Effective July 1, 1997,
StaffMark acquired Expert Business Systems, Inc. ("EBS"). EBS, located in
Hurst, Texas, provides information technology services, specialized help desk
support, distributed services and application developments. EBS operates in the
Professional/Information Technology division. Effective October 1, 1997,
StaffMark acquired Structured Logic Company, Inc. ("SLC"). Headquartered in New
York, New York, SLC is a full-service information technology recruiting firm
providing services for client/server, mainframe programming and development,
web site development, internet consultation, network implementation, and SAP
development and implementation. SLC operates in the Professional/Information
Technology division. These acquisitions are collectively referred to as the
"Other Significant Acquisitions."
Effective January 1, 1998, StaffMark acquired Strategic Legal Resources,
LLC ("SLR"). Located in New York City, New York, SLR provides legal
professionals to law firms, corporations and financial institutions. SLR had
1997 revenues of approximately $11.8 million and operates in the
Professional/Information Technology division. The total consideration paid for
SLR was approximately $13.8 million, consisting of approximately $12.3 million
in cash and 46,320 restricted shares of StaffMark Common Stock, plus a
contingent earnout based upon the future performance of SLR.
Effective May 1, 1998, StaffMark acquired Progressive Resources, Inc.,
Progressive Personnel Resources, Inc., Progressive Personnel Resources of New
Jersey, Inc., and Strategic Computer Resources, LLC (collectively referred to as
"Progressive"). Progressive, located in the New York City metropolitan area,
provides staffing services. Progressive had 1997 revenues of approximately $26.6
million and operates in the Commercial division. The total consideration paid
for Progressive was approximately $22.0 million, consisting of approximately
$14.3 million in cash and 211,496 restricted shares of StaffMark Common Stock,
plus a contingent earnout based upon the future performance of Progressive.
The following unaudited pro forma financial statements present the
historical results of StaffMark and give effect to the following pro forma
adjustments: (i) the effect of the Other Significant Acquisitions; (ii) the
effect of the January 1998 acquisition of the SLR; (iii) the effect of the May
1998 acquisition of Progressive; (iv) the adjustment to compensation expense for
the difference between the historical compensation paid to certain previous
owners of the Other Significant Acquisitions, SLR and Progressive and the
employment contract compensation negotiated in conjunction with the respective
mergers and acquisitions ("Compensation Differential"); and (v) the incremental
provision for income taxes attributable to the income of subchapter S
Corporations, net of the income tax provision related to the Compensation
Differential and adjusted for nondeductible goodwill amortization. Note that no
pro forma balance sheet is provided as of June 30, 1998 as the June 30, 1998
StaffMark balance sheet already includes the effect of the acquisitions of SLR
and Progressive. Also note that no pro forma amounts are included for SLR for
the six months ended June 30, 1998 as the SLR acquisition was effective January
1, 1998 and therefore is already included in StaffMark's results for the six
months ended June 30, 1998.
The pro forma financial data do not purport to represent what the
Company's financial position or results of operations would actually have been
if such transactions in fact had occurred at the beginning of 1997 or to project
the Company's financial position or results of operations for any future period.
<PAGE> 21
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
------------------------------------------
Pro Forma Total
StaffMark Progressive(a) Adjustments Adjustments Pro Forma
--------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES $ 325,859 $ 11,284 $ 11,284 $ 337,143
COST OF SERVICES 244,116 7,932 7,932 252,048
--------- --------- --------- --------- ---------
Gross profit 81,743 3,352 -- 3,352 85,095
OPERATING EXPENSES:
Selling, general and administrative 51,630 1,994 (90)(b) 1,904 53,534
Depreciation and amortization 5,032 25 177(c) 202 5,234
--------- --------- --------- --------- ---------
Operating income 25,081 1,333 (87) 1,246 26,327
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (1,777) (105) (324)(d) (429) (2,206)
Other, net (49) -- -- (49)
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 23,255 1,228 (411) 817 24,072
INCOME TAX PROVISION 9,534 1 334(e) 335 9,869
--------- --------- --------- --------- ---------
Net income (loss) $ 13,721 $ 1,227 $ (745) $ 482 $ 14,203
========= ========= ========= ========= =========
PRO FORMA NET INCOME PER COMMON SHARE
BASIC $ 0.70
=========
DILUTED $ 0.66
=========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 20,415(f)
=========
DILUTED 21,365(g)
=========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 22
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(a) Records the unaudited financial results of Progressive for the period
from January 1, 1998 through the effective date of the acquisition.
(b) Adjusts compensation to the level the owner has agreed to receive from
StaffMark subsequent to the acquisition.
(c) Adjustment to reflect the amortization expense relating to the intangible
assets recorded in conjunction with the acquisition of Progressive for
the six months ended June 30, 1998. Intangible assets recorded in
conjunction with this acquisition include goodwill of approximately $16.0
million which is being amortized over thirty years.
(d) Adjustment to reflect the increase in interest expense relating to debt
incurred in conjunction with the acquisition of Progressive. This pro
forma expense calculation is based on approximately $14.3 million
borrowed by StaffMark under its credit facility. Pro forma interest
expense is computed based upon the applicable rate in effect on the
credit facility which, based upon the terms of the agreement, would
have approximated 6.8% during the pro forma period.
(e) Records the incremental provision to reflect federal and state income
taxes as if Progressive had been a subchapter C Corporation. This
adjustment records income tax expense at an effective combined tax rate
of 41%.
(f) Represents the actual weighted average basic shares outstanding for the
six months ended June 30, 1998 of 20,275,185 adjusted to reflect the
issuance as of January 1, 1998 of the 211,496 shares issued in
conjunction with the May 1998 acquisition of Progressive.
(g) Pro forma diluted weighted average shares outstanding for the six months
ended June 30, 1998 include the shares discussed in Note (f) above and
949,189 shares representing the incremental dilutive effect of the
Company's outstanding stock options.
<PAGE> 23
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
---------------------------------------------------------------
Other
Significant Pro Forma Total
StaffMark Acquisition(a) SLR(b) Progressive(c) Adjustments Adjustments Pro Forma
--------- -------------- -------- --------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES $426,496 $ 44,127 $ 11,781 $ 26,579 $ -- $ 82,487 $508,983
COST OF SERVICES 329,728 31,898 7,497 19,173 -- 58,568 388,296
-------- -------- -------- -------- -------- -------- --------
Gross profit 96,768 12,229 4,284 7,406 -- 23,919 120,687
OPERATING EXPENSES:
Selling, general and administrative 63,013 8,434 2,809 6,172 (1,050)(d) 16,365 79,378
Depreciation and amortization 5,317 805 19 74 953(e) 1,851 7,168
-------- -------- -------- -------- -------- -------- --------
Operating income 28,438 2,990 1,456 1,160 97 5,703 34,141
-------- -------- -------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (1,256) (710) (73) (300) (1,774)(f) (2,857) (4,113)
Other, net 732 13 -- -- -- 13 745
-------- -------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 27,914 2,293 1,383 860 (1,677) 2,859 30,773
INCOME TAX PROVISION 11,445 943 -- 17 212 1,172 12,617
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 16,469 $ 1,350 $ 1,383 $ 843 $ (1,889) $ 1,687 $ 18,156
======== ======== ======== ======== ======== ======== ========
PRO FORMA NET INCOME PER COMMON SHARE
BASIC $ 1.12
========
DILUTED $ 1.08
========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 16,272(h)
========
DILUTED 16,778(i)
========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 24
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(a) Represents the unaudited financial results and pro forma effects related
to the acquisitions of: (i) Flexible, which was purchased by StaffMark
effective March 1, 1997; (ii) Global, which was purchased by StaffMark
effective April 1, 1997; (iii) EBS, which was purchased by StaffMark
effective July 1, 1997; and (iv) SLC, which was purchased by StaffMark
effective October 1, 1997.
(b) Records the audited financial results of SLR, which was purchased by
StaffMark effective January 1, 1998.
(c) Records the audited financial results of Progressive, which was purchased
by StaffMark effective May 1, 1998.
(d) Adjusts compensation to the level the owners have agreed to receive from
StaffMark subsequent to the acquisition.
(e) Adjustment to reflect the amortization expense relating to the intangible
assets recorded in conjunction with the acquisitions of SLR and
Progressive for fiscal year 1997. Intangible assets recorded in
conjunction with these acquisitions include goodwill of approximately
$12.6 million for SLR and $16.0 million for Progressive which are being
amortized over thirty years.
(f) Adjustment to reflect the increase in interest expense relating to debt
incurred in conjunction with the acquisitions of SLR and Progressive.
This pro forma expense calculation is based on approximately $11.8
million and $14.3 million borrowed by StaffMark under its credit facility
in conjunction with the acquisitions of SLR and Progressive,
respectively. Pro forma interest expense is computed based upon the
applicable rate in effect on the credit facility which, based upon the
terms of the agreement, would have approximated 6.8% during the pro forma
period.
(g) Records the incremental provision to reflect federal and state income
taxes as if SLR and Progressive had been subchapter C Corporations. This
adjustment records income tax expense at an effective combined tax rate
of 41%.
(h) Represents the actual weighted average basic shares outstanding for the
twelve months ended December 31, 1997 of 16,015,601 adjusted to reflect
the issuance as of January 1, 1997 of: (i) the 189,557 shares issued in
conjunction with the March 1997 acquisition of Flexible; (ii) the 690,855
shares issued in conjunction with the April 1997 acquisition of Global;
(iii) the 129,500 shares issued in conjunction with the July 1997
acquisition of EBS; (iv) the 276,846 shares issued in conjunction with
the October 1997 acquisition of SLC; (v) the 46,320 shares issued in
conjunction with the January 1998 acquisition of SLR; and (vi) the
211,496 shares issued in conjunction with the May 1998 acquisition of
Progressive.
(i) Pro forma diluted weighted average shares outstanding for the twelve
months ended December 31, 1997 include the shares discussed in Note (h)
above and 505,908 shares representing the incremental dilutive effect of
the Company's outstanding stock options.
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STAFFMARK, INC.
(Registrant)
Dated: August 18, 1998 By: /s/ Terry C. Bellora
--------------------
Terry C. Bellora
Chief Financial Officer
EXHIBIT INDEX
Item 7. Financial Statements and Exhibits
(a) Strategic Legal Resources, LLC Audited Financial Statements for
the Twelve Months Ended December 31, 1997.
(b) Progressive Personnel Resources, Inc. and Affiliates Audited
Financial Statements for the Twelve Months Ended December 31,
1997 and Compiled Financial Statements for the Four Months Ended
April 30, 1998.
(c) Pro Forma Statements of Income for the Twelve Months Ended
December 31, 1997 and Six Months Ended June 30, 1998.
