<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 10, 1997
STAFFMARK, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20971 71-0788538
--------------------- -------------- ------------------
(State or other jurisdiction of (Commission File Number) ( I.R.S. Employer
incorporation or organization) 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
---------------------------------------------------------------------
Not Applicable
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On November 10, 1997, StaffMark, Inc. (the "Company") completed the
purchase of substantially all of the assets of Structured Logic Company, Inc.,
a Delaware corporation ("SLC"), and Structured Logic Systems, Inc., a New York
corporation affiliated with SLC (collectively such entities are referred to
herein as "SLC"), through the Company's wholly-owned subsidiary, StaffMark
Acquisition Corporation Sixteen, a Delaware corporation. SLC provides
information technology outsourcing services and is headquartered in New York
City.
The assets purchased primarily consist of cash, accounts receivable,
general corporate assets, trademarks, trade names, and customer contracts.
The Company also assumed certain liabilities of SLC. The total consideration
paid for the net assets was approximately $15.3 million, consisting of
approximately $11.4 million in cash and 122,782 shares of the Company's common
stock, plus a contingent earnout based upon the future performance of SLC.
The purchase price was determined as a result of direct negotiations with SLC.
Item 7. Financial Statements and Exhibits
(a) Audited Financial Statements of Business Acquired.
(b) Unaudited Interim Financial Statements of Business Acquired.
(c) Pro-Forma Financial Information.
(d) Exhibits. The following exhibit is filed with this Form 8-K/A:
2.1 Asset Purchase Agreement, dated as of November 10,
1997, by and among StaffMark, Inc., StaffMark
Acquisition Corporation Sixteen, Structured Logic
Company, Inc. and Structured Logic Systems, Inc.,
incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K, filed with the
Commission on November 21, 1997, to which this
amendment relates.
2
<PAGE> 3
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)
Date: January 16, 1998 By: /s/ Terry C. Bellora
----------------------------
Terry C. Bellora
Chief Financial Officer
EXHIBIT INDEX
2.1 Asset Purchase Agreement, dated as of November 10, 1997, by and
among StaffMark, Inc., StaffMark Acquisition Corporation
Sixteen, Structured Logic Company, Inc. and Structured Logic
Systems, Inc., incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K, filed with the Commission
on November 21, 1997, to which this amendment relates.
3
<PAGE> 4
[ANCHIN, BLOCK & ANCHIN LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND DIRECTORS OF
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE:
We have audited the accompanying combined balance sheets of
Structured Logic Systems, Inc. and Affiliate as of December 31, 1996 and 1995
and the related combined statements of income and retained earnings and cash
flows for the years then ended. These combined financial statements are the
responsibility of the companies' management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audits provide 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
Structured Logic Systems, Inc. and Affiliate at December 31, 1996 and 1995 and
the results of their combined operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ ANCHIN, BLOCK & ANCHIN LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
March 11, 1997
<PAGE> 5
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash - Note 5 $ 16,173 $ 221,127
Accounts receivable, net of allowance for doubtful
accounts of $110,000 and $40,630, respectively - Note 3 5,633,588 2,764,766
Unbilled receivables - Note 1 157,741 93,994
Tax refunds receivable 39,654 39,654
Deferred financing fees, net - Note 1 10,172 8,147
Prepaid expenses and other current assets 174,119 109,703
Certificate of deposit - Note 3 53,827 53,000
---------- ----------
Total Current Assets 6,085,274 3,290,391
PROPERTY AND EQUIPMENT, NET -
NOTES 1 AND 2 317,651 178,439
SECURITY DEPOSITS 33,364 25,405
---------- ----------
TOTAL ASSETS $6,436,289 $3,494,235
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 292,911 $ 0
Note payable, bank - Note 3 3,041,564 0
Accounts payable and accrued expenses 1,073,599 712,011
Deferred income taxes payable, net - Note 7 64,000 28,000
---------- ----------
Total Current Liabilities 4,472,074 740,011
---------- ----------
LONG-TERM LIABILITIES:
Note payable, bank - Note 3 0 1,223,067
---------- ----------
STOCKHOLDERS' EQUITY:
Capital stock - Note 6 1,002 1,002
Paid-in capital - Note 6 156,000 156,000
Retained earnings - Statement No. 2 1,807,213 1,374,155
---------- ----------
Total Stockholders' Equity 1,964,215 1,531,157
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,436,289 $3,494,235
========== ==========
</TABLE>
See the accompanying Notes to the Combined Financial Statements.
<PAGE> 6
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
CONSULTING FEE INCOME - NOTE 8 $25,236,103 $19,586,694
COST OF OPERATIONS 18,032,543 14,366,962
----------- -----------
GROSS PROFIT 7,203,560 5,219,732
----------- -----------
EXPENSES
Selling 3,804,444 2,672,256
General and administrative 2,704,522 2,241,505
----------- -----------
Total Expenses 6,508,966 4,913,761
----------- -----------
INCOME FROM OPERATIONS 694,594 305,971
----------- -----------
OTHER EXPENSES
Interest expense 218,793 151,745
Loss on disposal of equipment 3,743 9,816
----------- -----------
Total Other Expenses 222,536 161,561
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 472,058 144,410
----------- -----------
PROVISION FOR INCOME TAXES - NOTES 1 AND 7:
Current 3,000 5,921
Deferred 36,000 5,000
----------- -----------
39,000 10,921
----------- -----------
NET INCOME 433,058 133,489
RETAINED EARNINGS:
Balance, beginning of year 1,374,155 1,240,666
----------- -----------
Balance, end of year $ 1,807,213 $ 1,374,155
=========== ===========
</TABLE>
See the accompanying Notes to the Combined Financial Statements.
<PAGE> 7
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 433,058 $ 133,489
---------- ----------
Adjustments to reconcile net income to net cash used in
operating activities:
Bad debt expense 65,533 0
Depreciation and amortization 77,932 66,900
Deferred income taxes 36,000 5,000
Loss on disposal of equipment 3,743 9,816
(Increase) decrease in:
Accounts receivable (2,934,355) (637,948)
Unbilled receivables (63,747) 29,120
Tax refunds receivable 0 12,945
Prepaid expenses and other current assets (64,417) (48,820)
Security deposits (7,959) (7,898)
Increase in:
Accounts payable and accrued expenses 361,588 216,007
---------- ----------
Total adjustments (2,525,682) (354,878)
---------- ----------
Net Cash Used in Operating Activities (2,092,624) (221,389)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (210,894) (129,097)
Increase in certificate of deposit (827) (3,000)
---------- ----------
Net Cash Used in Investing Activities (211,721) (132,097)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Paid-in capital 0 156,000
Repayment of loans to officers 0 (50,000)
Increase in cash overdraft 292,911 0
Payment of loan financing costs (12,017) (1,500)
Proceeds from bank borrowings, net 1,818,497 376,415
Repayments of capital lease obligations 0 (13,426)
---------- ----------
Net Cash Provided by Financing Activities 2,099,391 467,489
---------- ----------
NET INCREASE (DECREASE) IN CASH (204,954) 114,003
CASH:
Beginning of year 221,127 107,124
---------- ----------
End of year $ 16,173 $ 221,127
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 235,500 $ 152,037
Income taxes paid $ 4,669 $ 5,256
</TABLE>
See the accompanying Notes to the Combined Financial Statements.
<PAGE> 8
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination:
The combined financial statements include the accounts of
Structured Logic Systems, Inc. ("SLS") and its affiliate,
Structured Logic Company, Inc. ("SLC"), collectively known as
"The Company". The companies are related by common ownership in
which three individuals own all of the shares of the
corporations. All significant intercompany accounts have been
eliminated in the combined financial statements.
Description of Business:
The Company is a domestic computer consulting firm providing
large corporations throughout the United States with a full range
of technical support services.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue and Cost Recognition:
Revenue is recognized as the work progresses and costs are
recognized when incurred. Unbilled receivables represent amounts
earned on jobs in progress but not billed as of the balance sheet
date.
Depreciation and Amortization:
Property and equipment are stated at cost. Depreciation is
computed by the straight-line method over the estimated useful
lives of the assets which are generally five years.
Leasehold improvements are amortized over the lesser of the
term of the related lease or the estimated useful lives of the
assets.
<PAGE> 9
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Deferred Financing Fees:
Deferred financing fees consist of costs associated with
negotiating a revolving credit agreement with a bank. These fees
are being amortized over the term of the credit facility.
Income Taxes:
The companies are taxed as S corporations for Federal and
New York State tax purposes, whereby the companies' income is
reported by the stockholders. Accordingly, no provision has been
made for Federal income taxes. The companies remain liable for
New York City income taxes and New York State income taxes on S
corporations.
NOTE 2 - PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Automobiles $ 32,577 $ 51,296
Computer equipment 336,510 188,302
Furniture and fixtures 114,079 53,285
Leasehold improvements 9,774 7,880
--------- ---------
492,940 300,763
Less: Accumulated depreciation 175,289 122,324
--------- ---------
$ 317,651 $ 178,439
========= =========
</TABLE>
Depreciation expense amounted to $67,940 and $42,516 for the
years ended December 31, 1996 and 1995, respectively.
<PAGE> 10
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 3 - NOTE PAYABLE, BANK:
The Company maintains a $4,500,000 revolving credit agreement
with a bank expiring May 1997. Interest on the outstanding
balance was payable monthly at 1.25% above the bank's prime rate
through April 30, 1996, after which the rate was reduced to 1%
above prime. The covenants under the revolving credit agreement
require the Company to meet certain ratios and place certain
restrictions on the Company.
Repayment of this loan has been guaranteed by the officers of the
Company. The bank has been granted a security interest in
accounts receivable as collateral for this obligation. The
Company also has been required to maintain a $50,000 certificate
of deposit with the bank through May 1997.
NOTE 4 - PENSION PLAN:
In 1995 the Company adopted a 401(k) plan covering all eligible
employees. The plan is fully funded by employee contributions.
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
Leases:
The Company is committed under various non-cancellable
operating leases for sales offices and administrative facilities.
These leases are subject to escalations for the Company's pro
rata share of real estate taxes and operating expenses. Future
minimum rental payments under these leases exclusive of
escalation payments for taxes and utilities, are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1997 $291,995
1998 161,317
1999 48,084
--------
$501,396
========
</TABLE>
Rent expense charged to operations amounted to $264,182 and
$163,272 for the years ended December 31, 1996 and 1995,
respectively.
<PAGE> 11
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
Leases (Continued):
Future minimum lease payments under non-cancellable
operating leases for various equipment are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1997 $ 68,336
1998 44,100
1999 21,492
2000 1,016
---------
$ 134,944
=========
</TABLE>
Equipment rent expense amounted to $86,436 and $61,717 for
the years ended December 31, 1996 and 1995, respectively.
Cash Credit Risk Concentrations:
The Company maintains accounts in a bank located in the New
York metropolitan area. The excess of deposit balances reported
by the bank over amounts that would have been covered by Federal
insurance was $91,000 and $428,000 at December 31, 1996 and 1995,
respectively.
NOTE 6 - STOCKHOLDERS' EQUITY:
The Company's capital structure consists of the following:
<TABLE>
<CAPTION>
Common Stock Paid in Capital
------------ ---------------
<S> <C> <C>
Structured Logic Systems, Inc. common stock, no par
value; 200 shares authorized, issued and
outstanding $1,000 $ -
Structured Logic Company, Inc. common stock, .01
par value; 200 shares authorized, issued and
outstanding 2 156,000
------ --------
$1,002 $156,000
====== ========
</TABLE>
The stockholders of SLC made a capital contribution of $156,000
during the year ended December 31, 1995.
<PAGE> 12
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES:
At December 31, 1996, the Company has deferred income tax assets
of $149,000 and deferred income tax liabilities of $213,000.
Deferred income taxes result from the tax effect of operating
loss carryforwards and temporary differences arising as a result
of SLC's policy of reporting on the cash basis for New York City
income tax purposes and on the accrual basis for financial
reporting. The Company has approximately $3,500,000 of net
operating loss carryforwards available to offset future New York
City taxable income, which expire in 2008 through 2010. The tax
benefit of the net operating loss carryforward arising in 1996
used to offset the deferred tax liability was $99,000.
NOTE 8 - MAJOR CUSTOMERS:
The Company had two clients who accounted for 20% and 18% of its
consulting fee income in 1996 and 28% and 12% in 1995.
<PAGE> 13
[ANCHIN, BLOCK & ANCHIN LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
ON
ADDITIONAL INFORMATION
TO THE STOCKHOLDERS AND DIRECTORS OF
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE:
Our audits were made for the purpose of forming an opinion on the
basic combined financial statements taken as a whole. The information in the
following section is presented for purposes of additional analysis and is not a
required part of the basic combined financial statements. Such information has
not been subjected to the auditing procedures applied in the audits of the
basic combined financial statements and, accordingly, we express no opinion on
it.
/s/ ANCHIN, BLOCK & ANCHIN LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
March 11, 1997
<PAGE> 14
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
COMBINED SCHEDULES OF EXPENSES
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
COST OF OPERATIONS
Consultants' services $10,900,940 $10,030,796
Payroll taxes and fringe benefits 894,548 856,530
Outside labor 5,608,329 3,173,587
Other direct costs 628,726 306,049
----------- -----------
TOTAL COST OF OPERATIONS $18,032,543 $14,366,962
=========== ===========
SELLING EXPENSES
Salaries $ 1,429,456 $ 926,373
Payroll taxes and fringe benefits 210,003 142,770
Commissions 1,148,375 895,555
Staff recruiting and sales promotion 455,271 276,444
Telephone 176,082 130,708
Meetings and conferences 92,817 23,695
Rent 144,252 87,298
Miscellaneous 38,226 46,949
Travel 109,962 142,464
----------- -----------
TOTAL SELLING EXPENSES $ 3,804,444 $ 2,672,256
=========== ===========
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries
Officers $ 429,000 $ 719,419
Administrative 882,192 571,839
Payroll taxes and fringe benefits 229,973 130,956
Bad debt expense 65,533 -
Meetings and conferences 111,749 65,836
Outside labor 76,547 83,865
Professional fees 136,220 48,134
Insurance 62,463 78,438
Rent 119,930 75,974
Office expense 104,091 54,456
Postage 49,956 35,105
Bank charges 18,512 20,871
Telephone 91,462 63,447
Depreciation 67,940 42,516
Travel 78,717 77,787
Auto 62,857 40,303
Equipment rental 33,781 27,664
Repairs and maintenance 13,742 20,853
Dues and subscriptions 17,837 6,861
Amortization of deferred financing fees 9,992 24,384
Miscellaneous 42,028 52,797
----------- -----------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES $ 2,704,522 $ 2,241,505
=========== ===========
</TABLE>
See Independent Auditors' Report on Additional Information.
<PAGE> 15
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
COMBINED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1997
-----------------
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,680,656
Accounts receivable, net of allowance
for doubtful accounts of $152,418 6,998,177
Deferred financing fees 12,998
Prepaid expenses and other current assets 405,685
Prepaid taxes 7,706
Certificate of deposit 53,727
----------
Total current assets 9,158,949
PROPERTY AND EQUIPMENT, NET 324,245
SECURITY DEPOSITS 37,406
----------
TOTAL ASSETS $9,520,600
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank $4,899,499
Current portion of long term debt 17,802
Accounts payable and accrued expenses 1,931,439
Taxes payable 28,421
Deferred income taxes payable, net 102,000
----------
Total current liabilities 6,979,161
----------
LONG TERM LIABILITIES:
Note payable - computer lease 24,353
----------
STOCKHOLDERS' EQUITY:
Capital stock 1,002
Paid-in capital 1,006,000
Retained earnings 1,510,084
----------
Total stockholders' equity 2,517,086
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,520,600
==========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this balance sheet.
<PAGE> 16
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CONSULTING FEE INCOME $ 27,406,707 $ 17,699,700
COST OF OPERATIONS 19,489,711 12,703,184
------------ ------------
GROSS PROFIT 7,916,996 4,996,516
------------ ------------
OPERATING EXPENSES
Selling 3,753,333 2,756,192
General and Administrative 4,158,161 1,887,534
------------ ------------
Total expenses 7,911,494 4,643,726
------------ ------------
INCOME FROM OPERATIONS 5,502 352,790
------------ ------------
OTHER INCOME & EXPENSES
Interest income 12,436 --
Miscellaneous other 919 (3,224)
Interest expense (248,802) (133,786)
------------ ------------
Total other income & expense (235,447) (137,010)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES (229,945) 215,780
------------ ------------
PROVISION FOR INCOME TAXES 67,184 1,771
------------ ------------
NET INCOME $ (297,129) $ 214,009
============ ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
<PAGE> 17
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (297,129) $ 214,009
----------- -----------
Adjustments to reconcile net income to net cash used in
operating activities:
Bad debt expense 40,630 --
Depreciation and amortization 76,258 5,794
Deferred income taxes 38,000 (28,000)
(Increase) decrease in:
Accounts receivable (1,247,478) (2,495,085)
Tax refund receivable 39,654 --
Prepaid expenses and other assets (231,566) (21,409)
Prepaid taxes (7,706) (2,071)
Security deposits (4,042) (8,309)
Increase in:
Accounts payable and accrued expenses 886,261 291,939
Taxes payable -- 26,697
----------- -----------
Total adjustments (409,989) (2,230,442)
----------- -----------
Net cash provided by operating activities (707,118) (2,016,434)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (82,852) (83,971)
Increase in certificate of deposit 100 53,000
----------- -----------
Net cash used in investing activities (82,752) (30,971)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in cash overdraft (292,911) --
Payment of loan financing costs (2,826) 8,147
Proceeds from computer lease 56,310 --
Payments on computer lease (14,155) --
Increase in paid in capital 850,000 --
Proceeds from bank borrowings, net 1,857,935 1,375,275
----------- -----------
Net cash provided by financing activities 2,454,353 1,383,422
----------- -----------
NET INCREASE IN CASH 1,664,483 (663,983)
CASH:
Beginning of year 16,173 221,127
----------- -----------
End of nine months $ 1,680,656 $ (442,856)
=========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
<PAGE> 18
STRUCTURED LOGIC SYSTEMS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF COMBINATION:
The combined financial statements include the accounts of Structured
Logic Systems, Inc. ("SLS") and its affiliate Structured Logic Company,
Inc. ("SLC") (collectively known as "the Company"). The companies are
related by common ownership in which three individuals own all of the
shares of the corporations. All significant intercompany accounts have
been eliminated in the combined financial statements.
2. DESCRIPTION OF BUSINESS:
The Company is a domestic computer consulting firm providing large
corporations throughout the United States with a full range of
technical support services.
3. INTERIM FINANCIAL INFORMATION:
The interim financial statements as of September 30, 1997 and for the
nine months ended September 30, 1997 and 1996, are unaudited, and
certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the financial position of the Company and
the results of operations and cash flows with respect to the interim
financial statements, have been included. The operating results for the
interim period are not necessarily indicative of results for the full
year.
4. EQUITY TRANSACTIONS:
Effective January 1, 1997, the Company's President and majority
stockholder transferred twenty (20) shares or approximately ten percent
(10%) of the Company's then outstanding common stock that he
beneficially owned to the Company's Chief Operating Officer who was a
minority stockholder of the Company. This transaction resulted in a
non-recurring compensation expense charge to operations of
approximately $1.6 million for the nine months ended September 30,
1997. The Company has agreed to pay the tax benefits of this
transaction, amounting to approximately $773,000. The non-cash portion
of such charge, $850,000 representing the fair value of such stock as
determined by management, has been reflected as credit to additional
paid-in capital.
<PAGE> 19
STAFFMARK, INC. - FORM 8-K/A
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION
StaffMark, Inc. (the "Company" or "StaffMark") was founded in March 1996 to
create a leading provider of diversified staffing and professional and
consulting services to businesses, professional and service organizations,
medical niches and governmental agencies. On October 2, 1996, StaffMark and six
staffing service businesses, Brewer Personnel Services, Inc. ("Brewer"),
Prostaff Personnel, Inc. and its related entities ("Prostaff"), Maxwell
Staffing, Inc. and its related entities ("Maxwell"), HRA, Inc. ("HRA"), First
Choice Staffing, Inc. ("First Choice") and Blethen Temporaries, Inc. and its
related entities ("Blethen"), (each a "Founding Company" and collectively, the
"Founding Companies"), merged through a series of separate transactions (the
"Merger") simultaneously with the closing of the Company's initial public
offering (the "Offering").
Between March 1996 and the consummation of the Offering, the Company did
not conduct any operations and all activities prior to the Offering related to
the Merger and the Offering. Pursuant to the requirements of the Securities and
Exchange Commission's ("SEC") Staff Accounting Bulletin No. 97 ("SAB 97"), which
was issued and became effective July 31, 1996, Brewer was designated as the
acquirer, for financial reporting purposes, of Prostaff, Maxwell, HRA, First
Choice, and Blethen (collectively, the "Other Founding Companies"). Based upon
the applicable provisions of SAB 97, these acquisitions were accounted for as
combinations at historical cost.
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 a total of 40
offices in Indiana, Michigan and Ohio and provides clerical, light industrial,
professional/information technology, accounting and staff leasing services.
Flexible had 1996 revenues of approximately $49.3 million and 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 had 1996
revenues of approximately $17.2 million and 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 had 1996 revenues of approximately $3.3 million and operates
in the Professional/Information Technology division. The total consideration
paid for EBS was approximately $8.0 million, consisting of approximately $5.4
million in cash and 123,500 restricted shares of StaffMark Common Stock, plus a
contingent earnout based upon the future performance of EBS.
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 had 1996 revenues of approximately $25.2 million and operates in the
Professional/Information Technology division. The total consideration paid for
SLC was approximately $15.3 million, consisting of approximately $11.4 million
in cash and 122,782 shares of StaffMark Common Stock, plus a contingent earnout
based upon the future performance of SLC.
The following unaudited pro forma financial statements present the
historical results of Brewer and StaffMark and give effect to the following pro
forma adjustments: (i) the acquisition of the Other Founding Companies at
historical cost in accordance with the applicable provisions of SAB 97; (ii) the
effect of Brewer's February 1996 acquisition of On Call Employment Services,
Inc. ("On Call"); (iii) the effect of StaffMark's March 1997 acquisition of
Flexible; (iv) the effect of StaffMark's April 1997 acquisition of Global; (v)
the effect of StaffMark's July 1997 acquisition of EBS; (vi) the effect of
StaffMark's October 1997 acquisition of SLC; (vii) the adjustment to
compensation expense for the difference between the historical compensation paid
to certain previous owners of the Founding Companies, Flexible, Global, EBS and
SLC and the employment contract compensation negotiated in conjunction with the
Merger and respective acquisitions ("Compensation Differential"); and (viii) 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.
<PAGE> 20
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 1996 or to project
the Company's financial position or results of operations for any future period.
<PAGE> 21
STAFFMARK, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
-------------------------------
Pro Forma
Merger
StaffMark SLC(a) Adjustments Pro Forma
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
- -----------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 31,205 $ 1,681 $ (11,448)(b) $ 21,438
Accounts receivable, net of allowance
for doubtful accounts 47,632 6,998 54,630
Advances to stockholders 382 -- 382
Prepaid expenses and other 1,823 480 2,303
Deferred income taxes 1,117 -- 1,117
--------- ------- ---------- ---------
Total current assets 82,159 9,159 (11,448) 79,870
PROPERTY AND EQUIPMENT, net 7,679 324 8,003
INTANGIBLE ASSETS, net 114,721 -- 14,293 (c) 129,014
ADVANCES TO SHAREHOLDERS 984 -- 984
OTHER ASSETS 1,040 38 1,078
--------- ------- ---------- ---------
$ 206,583 $ 9,521 $ 2,845 $ 218,949
========= ======= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 3,636 $ 1,931 $ 5,567
Payroll and related liabilities 12,869 -- 12,869
Deferred payments for acquired companies -- -- 2,500 (d) 2,500
Reserve for workers' compensation claims 6,818 -- 6,818
Current portion of long-term debt -- 4,918 4,918
Income taxes payable 3,005 29 3,034
Deferred income taxes -- 102 102
--------- ------- ---------- ---------
Total current liabilities 26,328 6,980 2,500 35,808
LONG-TERM DEBT -- -- --
OTHER LONG TERM LIABILITIES 60 24 84
DEFERRED INCOME TAXES 380 -- 380
--------- ------- ---------- ---------
Total liabilities 26,768 7,004 2,500 36,272
STOCKHOLDERS' EQUITY:
Common stock 187 1 1 (e) 188
(1)(f)
Paid-in capital 166,503 1,006 2,861 (e) 169,364
(1,006)(f)
Retained earnings 13,125 1,510 (1,510)(f) 13,125
--------- ------- ---------- ---------
Total stockholders' equity 179,815 2,517 345 182,677
--------- ------- ---------- ---------
$ 206,583 $ 9,521 $ 2,845 $ 218,948
========= ======= ========== =========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE> 22
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(a) Represents the unaudited September 30, 1997 balance sheet of SLC,
which was purchased by StaffMark effective October 1, 1997.
(b) Records the distribution of the cash portion of the consideration due
to the stockholders of SLC in connection with the acquisition.
(c) Records the net intangible assets recorded by StaffMark in conjunction
with its acquisition of SLC.
(d) Records a liability for a deferred payment due to the owners of SLC.
(e) Records the issuance of 122,782 shares of restricted StaffMark Common
Stock to the stockholders of SLC in connection with the acquisition.
(f) Records the adjustment to remove the equity of SLC in conjunction with the
acquisition by StaffMark.
<PAGE> 23
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
------------------------------------------------------------
Other
Significant Pro Forma Total
StaffMark Acquisitions(a) SLC(b) Adjustments Adjustments Pro Forma
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES $ 287,263 $ 16,720 $ 27,407 $ 44,127 $ 331,390
COST OF SERVICES 223,384 12,408 19,490 31,898 255,282
--------- --------- --------- --------- --------- ---------
Gross profit 63,879 4,312 7,917 -- 12,229 76,108
OPERATING EXPENSES:
Selling, general and administrative 41,962 2,484 7,830 (1,880)(c) 8,434 50,396
Depreciation and amortization 3,217 366 82 357 (d) 805 4,022
--------- --------- --------- --------- --------- ---------
Operating income 18,700 1,462 5 1,523 2,990 21,690
--------- --------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (978) (462) (248) (710) (1,688)
Other, net 407 -- 13 13 420
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 18,129 1,000 (230) 1,523 2,293 20,422
INCOME TAX PROVISION 7,433 439 67 437 (e) 943 8,376
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 10,696 $ 561 $ (297) $ 1,086 $ 1,350 $ 12,046
========= ========= ========= ========= ========= =========
PRO FORMA NET INCOME PER COMMON SHARE
PRIMARY $ 0.75
=========
FULLY DILUTED $ 0.74
=========
WEIGHTED AVERAGE SHARES OUTSTANDING
PRIMARY 15,960(f)
=========
FULLY DILUTED 16,268(g)
=========
</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 NINE MONTHS ENDED SEPTEMBER 30, 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; and (iii) EBS, which was purchased by
StaffMark effective July 1, 1997.
(b) Records the unaudited financial results of SLC, which was purchased by
StaffMark effective October 1, 1997.
(c) Adjusts compensation to the level the owners have agreed to receive from
StaffMark subsequent to the acquisition.
(d) Adjustment to reflect the amortization expense relating to the
intangible assets recorded in conjunction with the acquisition of SLC
for the nine months ended September 30, 1997. Intangible assets
recorded in conjunction with this acquisition include goodwill of
approximately $14.3 million which is being amortized over thirty years.
(e) Records the incremental provision to reflect federal and state income
taxes as if SLC had been a subchapter C Corporation. This adjustment
records income tax expense at an effective combined tax rate of 39%.
(f) Represents the actual weighted average primary shares outstanding for
the nine months ended September 30, 1997 of 15,487,588 adjusted to
reflect the issuance as of January 1, 1997 of: (i) the 183,823 shares
issued in conjunction with the March 1997 acquisition of Flexible; (ii)
690,855 shares issued in conjunction with the April 1997 acquisition of
Global; (iii) 123,500 shares issued in conjunction with the July 1997
acquisition of EBS; and (iv) 122,782 shares issued in conjunction with
the October 1997 acquisition of SLC.
(g) Pro forma fully diluted weighted average shares outstanding for the
nine months ended September 30, 1997 include the shares discussed in
Note (f) above and 307,227 shares representing the incremental fully
dilutive effect of the Company's outstanding stock options.
<PAGE> 25
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
----------------------------------------------------
Other
Significant Pro Forma Total
StaffMark Acquisitions(a) SLC(b) Adjustments Adjustments Pro Forma
--------- --------------- ------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES $ 104,476 $ 164,896 $ 25,236 $ $ 190,132 $ 294,608
COST OF SERVICES 81,607 128,834 18,032 146,866 228,473
--------- --------- --------- ------- ---------- ---------
Gross profit 22,869 36,062 7,204 43,266 66,135
OPERATING EXPENSES:
Selling, general and administrative 14,623 26,608 6,441 (229)(c) 32,820 47,443
Depreciation and amortization 1,374 1,958 68 476 (d) 2,502 3,876
--------- --------- --------- ------- ---------- ---------
Operating income 6,872 7,496 695 (247) 7,944 14,816
--------- --------- --------- ------- ---------- ---------
OTHER INCOME (EXPENSE):
Interest expense (1,376) (1,906) (219) (2,125) (3,501)
Other, net 301 497 (4) 493 794
--------- --------- --------- ------- ---------- ---------
INCOME BEFORE INCOME TAXES 5,797 6,087 472 (247) 6,312 12,109
INCOME TAX PROVISION 1,774 3,329 39 88 (e) 3,456 5,230
--------- --------- --------- ------- ---------- ---------
Net income (loss) $ 4,023 $ 2,758 $ 433 $ (335) $ 2,856 $ 6,879
========= ========= ========= ======= ========== =========
PRO FORMA NET INCOME PER COMMON SHARE
PRIMARY $ 0.64
=========
FULLY DILUTED $ 0.64
=========
WEIGHTED AVERAGE SHARES OUTSTANDING
PRIMARY 10,691 (f)
=========
FULLY DILUTED 10,691
=========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 26
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(a) Represents the audited financial results and pro forma effects related
to the acquisitions of: (i) the Other Founding Companies, which were
acquired by Brewer on October 2, 1996; (ii) On Call, which was
purchased by Brewer on February 2, 1996; (iii) Flexible, which was
purchased by StaffMark effective March 1, 1997; (iv) Global, which was
purchased by StaffMark effective April 1, 1997; and (v) EBS, which was
purchased by StaffMark effective July 1, 1997.
(b) Records the audited financial results of SLC, which was purchased by
StaffMark effective October 1, 1997.
(c) Adjusts compensation to the level the owners have agreed to receive from
StaffMark subsequent to the acquisition.
(d) Adjustment to reflect the amortization expense relating to the
intangible assets recorded in conjunction with the acquisition of SLC
for fiscal year 1996. Intangible assets recorded in conjunction with
this acquisition include goodwill of approximately $14.3 million which
is being amortized over thirty years.
(e) Records the incremental provision to reflect federal and state income
taxes as if SLC had been a subchapter C Corporation. This adjustment
records income tax expense at an effective combined tax rate of 39%.
(f) Includes: (i) 1,355,000 shares issued by StaffMark prior to the Offering;
(ii) 5,618,249 shares issued to the stockholders of the Founding Companies
in connection with the Merger; (iii) the weighted average of 1,326,459
shares issued in connection with the Offering to pay the cash portion of
the consideration for the Founding Companies for the period from January 1,
1996 through the date of the Offering and 6,325,000 shares issued in
connection with the Offering for the period from October 2, 1996 through
December 31, 1996; (iv) 19,794 shares representing the weighted average
shares issued in conjunction with the November 1996 acquisition of The
Technology Source L.L.C.; (v) 183,823 shares issued in conjunction with the
March 1997 acquisition of Flexible; (vi) 690,855 shares issued in
conjunction with the April 1997 acquisition of Global; (vii) 123,500 shares
issued in conjunction with the July 1997 acquisition of EBS; and (viii)
122,782 shares issued in conjunction with the October 1997 acquisition of
SLC.
