<PAGE>
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): AUGUST 13, 1999
METRO INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 000-22035 54-1112301
(State of incorporation) (Commission File No.) (I.R.S. Employer Identification
Number)
POST OFFICE BOX 8888, VIRGINIA BEACH, VIRGINIA 23450
(Address of principal executive office) (Zip Code)
(757) 486-1900
(Registrant's telephone number, including area code)
<PAGE>
This Report on Form 8-K/A amends and restates Item 7 of the Registrant's Report
on 8-K dated August 13, 1999 and filed on August 30, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired:
Unaudited Consolidated Interim Financial Statements of Acuity
Technology Services, LLC and subsidiary as of and for the six months
ended June 30, 1998 and 1999.
Audited Consolidated Financial Statements of Acuity Technology
Services, LLC and subsidiary for the year ended December 31, 1998.
Audited Financial Statements of Acuity Technology Services, LLC for the
year ended December 31, 1997.
(b) Pro forma financial information:
Unaudited Pro Forma Condensed Consolidated Financial Statements of
Metro Information Services, Inc. and Subsidiaries as of and for the six
months ended June 30, 1999.
Unaudited Pro Forma Condensed Consolidated Statement of Income of Metro
Information Services, Inc. and Subsidiaries for the year ended December
31, 1998.
(c) Exhibits required by Item 601 of Regulation S-K:
(i) 2 Membership Interest Purchase Agreement, dated as of
August 13, 1999, by and among Acuity Technology
Services, LLC and Acuity Technology Services of
Dallas, LLC and Michael Berkman, W. Braun Jones, Jr.,
Mark Scofield, Mark H. Brahms, and Rod Rohrer and
Metro Information Services - ATS, Inc. and Metro
Information Services, Inc.*
(ii) 23.1 Consent of PricewaterhouseCoopers LLP.
(iii) 23.2 Consent of Aronson, Fetridge & Weigle.
(iv) 99 Press release of Metro Information Services, Inc.,
dated August 19, 1999.*
* Previously filed as an exhibit to the Registrant's Report on Form 8-K
dated August 13, 1999 and filed on August 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Metro Information Services, Inc. has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Metro Information Services, Inc.
Date Signed: OCTOBER 26, 1999 By /s/ Robert J. Eveleigh
-------------------------------------
Robert J. Eveleigh
PRINCIPAL FINANCIAL OFFICER
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Unaudited Consolidated Interim Financial Statements of Acuity Technology Services, LLC
and subsidiary:
Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999..................... 1
Consolidated Statements of Income for the six months ended June 30, 1998 and 1999......... 2
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1999..... 3
Notes to Consolidated Financial Statements as of June 30, 1999............................ 4
Audited Consolidated Financial Statements of Acuity Technology Services, LLC and
subsidiary as of and for the year ended December 31, 1998:
Report of Independent Accountants ........................................................... 5
Consolidated Financial Statements:
Consolidated Balance Sheet as of December 31, 1998........................................ 6
Consolidated Statement of Income for the year ended December 31, 1998..................... 7
Consolidated Statement of Members' Equity for the year ended December 31, 1998............ 8
Consolidated Statement of Cash Flows for the year ended December 31, 1998................. 9
Notes to Consolidated Financial Statements................................................ 10
Audited Financial Statements of Acuity Technology Services, LLC as of and for
the year ended December 31, 1997:
Independent Auditor's Report ................................................................ 14
Financial Statements:
Balance Sheet as of December 31, 1997..................................................... 15
Statement of Income for the year ended December 31, 1997.................................. 16
Statement of Members' Capital (Deficiency) for the year ended December 31, 1997........... 17
Statement of Cash Flows for the year ended December 31, 1997.............................. 18
Notes to Financial Statements............................................................. 19
Unaudited Pro Forma Condensed Consolidated Financial Statements of Metro Information
Services, Inc. and subsidiaries:
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements.............. 22
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999................. 23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999........ 24
Unaudited Pro Forma Condensed Consolidated Statement of Income for the six months ended
June 30, 1999............................................................................. 26
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income for the six months
ended June 30, 1999....................................................................... 27
Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended
December 31, 1998......................................................................... 29
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended
December 31, 1998......................................................................... 30
</TABLE>
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
DECEMBER 31, JUNE 30,
Current assets: 1998 1999
-------------- --------------
Cash and cash equivalents $ 46,200 $ 385,987
Accounts receivable 7,221,480 7,989,985
Other accounts receivable 87,803 63,449
Prepaid expenses 41,701 86,956
-------------- --------------
Total current assets 7,397,184 8,526,377
Property and equipment, net 215,947 261,598
Other assets 47,012 43,607
-------------- --------------
Total assets $ 7,660,143 $ 8,831,582
-------------- --------------
-------------- --------------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Line of credit $ 2,730,310 $ 1,222,900
Accounts payable and accrued expenses 527,595 830,338
Accrued compensation 1,136,183 1,548,518
Accrued payroll taxes and employee withholdings 140,254 433,765
Pension contribution payable 45,580 73,622
-------------- --------------
Total current liabilities 4,579,922 4,109,143
-------------- --------------
Minority interest in consolidated subsidiary 44,169 29,298
Members' equity 3,036,052 4,693,141
-------------- --------------
Total liabilities and members' equity $ 7,660,143 $ 8,831,582
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------- ---------------
1998 1999
--------------- ---------------
<S> <C> <C>
Revenues $ 13,423,582 $ 20,276,642
--------------- ---------------
Cost of contract revenue:
Salaries 9,490,621 12,798,681
Consultant expenses 99,817 369,850
Payroll taxes 310,020 678,366
Other 4,678 1,865
--------------- ---------------
Total cost of contract revenue 9,905,136 13,848,762
--------------- ---------------
Gross profit 3,518,446 6,427,880
--------------- ---------------
Operating expenses:
Salaries and payroll taxes 1,656,736 3,333,851
Advertising and recruiting 160,276 294,614
Occupancy 87,191 174,611
Other general and administrative expenses 399,176 924,922
Depreciation and amortization 19,546 34,770
--------------- ---------------
Total operating expenses 2,322,925 4,762,768
--------------- ---------------
Income before interest and minority interest 1,195,521 1,665,112
Interest expense, net (27,657) (22,894)
Minority interest in loss of consolidated subsidiary 33,026 14,871
--------------- ---------------
Net income $ 1,200,890 $ 1,657,089
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------- -------------
1998 1999
---------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,200,890 $ 1,657,089
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest of subsidiary income (33,026) (14,871)
Depreciation and amortization 19,546 34,770
Gain on sale or disposal of equipment - (487)
Changes in operating assets and liabilities increasing (decreasing)
cash used in operating activities:
Accounts receivable (1,396,436) (768,505)
Other receivables (34,526) 24,354
Prepaid expenses 1 (45,255)
Other assets 7,763 2,835
Accounts payable and accrued expenses 432,528 302,743
Accrued compensation 720,465 412,335
Accrued payroll taxes and employee withholdings 46,822 293,511
Deferred revenue (136,732) -
Pension contribution payable 28,130 28,042
---------------- -------------
Total adjustments (345,465) 269,472
---------------- -------------
Net cash provided by operating activities 855,425 1,926,561
---------------- -------------
Cash flows from investing activity -
Acquisition of property and equipment (110,973) (79,364)
---------------- -------------
Cash flows from financing activities:
Net repayments on line of credit (859,003) (1,507,410)
Contributions from minority interest 150,000 -
---------------- -------------
Net cash used in financing activities (709,003) (1,507,410)
---------------- -------------
Net increase in cash and cash equivalents 35,449 339,787
Cash and cash equivalents at beginning of period 28,820 46,200
---------------- -------------
Cash and cash equivalents at end of period $ 64,269 $ 385,987
---------------- -------------
---------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. Basis of Presentation
The information presented for June 30, 1998 and 1999 and for the
six-month periods then ended, is unaudited, but, in the opinion of the Company's
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring adjustments) which the
Company considers necessary for the fair presentation of the Company's financial
position as of June 30, 1999 and the results of its operations and its cash
flows for the six-month periods ended June 30, 1998 and 1999. The consolidated
financial statements included herein have been prepared in accordance with
generally accepted accounting principles and Rule 10-01 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1998.
Results for the interim periods presented are not necessarily
indicative of results that may be expected for the entire year.
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiary, Acuity Technology Services of Dallas,
LLC. All significant intercompany accounts and transactions have been eliminated
in consolidation.
2. Line of Credit
During 1999, the Company entered into a line of credit agreement with a
financial institution in the amount of $2,000,000 limited to 80% of eligible
accounts receivable, as defined in the line of credit agreement. The credit line
bears interest at the rate of One-Month LIBOR plus 1.5% to 2.00% (6.7% at June
30, 1999). The Company is subject to certain financial covenants requiring a
minimum net tangible worth ratio and a minimum funded ratio of debt to earnings
before interest, taxes, depreciation and amortization. The line of credit is
collateralized by all of the assets of the Company and is guaranteed by two
members of the Company. The line of credit expires on May 31, 2000. At June 30,
1999, $1,222,900 was outstanding under the line of credit. There are no
commitment fees on unused portions of the line.
4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and
Members of Acuity Technology Services, LLC
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of members' equity and of cash flows present
fairly, in all material respects, the financial position of Acuity Technology
Services, LLC and its subsidiary at December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. 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
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
McLean, Virginia
February 5, 1999
5
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
--------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 46,200
Accounts receivable 7,221,480
Other accounts receivable 87,803
Prepaid expenses 41,701
------------
Total current assets 7,397,184
Property and equipment, net 215,947
Other assets 47,012
------------
Total assets $ 7,660,143
------------
------------
LIABILITES AND MEMBERS' EQUITY
Current liabilities:
Line of credit $ 2,730,310
Accounts payable and accrued expenses 527,595
Accrued compensation 1,136,183
Accrued payroll taxes and employee withholdings 140,254
Pension contribution payable 45,580
------------
Total current liabilities 4,579,922
Commitments and contingencies (Note 6)
Minority interest in consolidated subsidiary 44,169
Members' equity 3,036,052
------------
Total liabilities, minority interest and members' equity $ 7,660,143
------------
------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
6
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
--------
<TABLE>
<S> <C>
Revenue $ 32,257,468
-------------
Cost of revenue:
Salaries 22,252,148
Consultant expenses 356,357
Payroll taxes 838,605
Other 30,958
-------------
Total cost of revenue 23,478,068
-------------
Gross profit 8,779,400
-------------
Operating expenses:
Salaries and payroll taxes 4,407,468
Advertising and recruiting 365,406
Occupancy 204,497
Other general and administrative expenses 948,415
Depreciation and amortization 71,027
-------------
Total operating expenses 5,996,813
-------------
Income before interest and minority interest 2,782,587
Interest expense, net (63,602)
Minority interest in loss of consolidated subsidiary 56,744
-------------
Net income $ 2,775,729
-------------
-------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
7
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
--------
<TABLE>
<CAPTION>
Members' Members' Retained
Contributions Distributions Earnings Total
------------------ ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $ 52,000 $ (23,846) $ 232,169 $ 260,323
Net income - - 2,775,729 2,775,729
----------------- ----------------- ------------- --------------
Balance, December 31, 1998 $ 52,000 $ (23,846) $ 3,007,898 $ 3,036,052
----------------- ----------------- ------------- --------------
----------------- ----------------- ------------- --------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
8
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
--------
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 2,775,729
Adjustments to reconcile net income to net cash used
in operating activities:
Minority interest share of subsidiary loss (56,744)
Depreciation and amortization 71,027
Changes in assets and liabilities:
Accounts receivable (5,024,210)
Other accounts receivable (72,074)
Prepaid expenses (19,631)
Other assets (20,271)
Accounts payable and accrued expenses 59,725
Accrued compensation 644,345
Accrued payroll taxes and employee withholding 94,116
Deferred revenue (136,732)
Pension contribution payable 29,080
-------------
Net cash used in operating activities (1,655,640)
-------------
Cash flows from investing activities:
Proceeds from sale of asset 1,000
Acquisition of additional interest in
Acuity Technology Services of Dallas, LLC (36,000)
Purchase of property and equipment (197,290)
-------------
Net cash used in investing activities (232,290)
-------------
Cash flows from financing activities:
Net proceeds from line of credit 1,755,310
Contributions from minority interest 150,000
-------------
Net cash provided by financing activities 1,905,310
-------------
Net increase in cash and cash equivalents 17,380
Cash and cash equivalents, beginning of year 28,820
-------------
Cash and cash equivalents, end of year $ 46,200
-------------
-------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
9
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATION AND ORGANIZATION
In 1996, Acuity Technology Services, LLC (the Company) was
established as a limited liability company under the laws of the
Commonwealth of Virginia. The Company provides information
technology consulting services to commercial organizations.
The rights and obligations of the equityholders of the Company
(the Members) are governed by the Operating Agreement of Acuity
Technology Services, LLC dated June 6, 1996, and as amended on
April 7, 1997 (the Operating Agreement). Each Member's profit and
loss interest in the Company is stated in the Operating Agreement
and does not necessarily agree with the Member's percentage of
contributed capital.
In January 1998, the Company entered into an agreement to form a
limited liability company, Acuity Technology Services of Dallas,
LLC (Acuity-Dallas) with two individuals, one of whom is related
to one of the Company's members. Acuity-Dallas was formed to
provide information technology consulting services to various
organizations. In exchange for a 60% ownership right in
Acuity-Dallas, the Company made an initial capital contribution of
$10,000. The other individuals contributed an aggregate of
$150,000 in exchange for an aggregate 40% ownership percentage in
Acuity-Dallas. In September 1998, the Company purchased a 20%
ownership interest in Acuity-Dallas from the unrelated minority
member for $36,000. At December 31, 1998, the Company owned an 80%
interest in Acuity-Dallas.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiary, Acuity-Dallas. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with
an original maturity of ninety days or less to be cash
equivalents. The Company maintains cash balances which may exceed
federally insured limits. The Company does not believe that this
results in significant risks.
10
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate their fair value due
to the short maturity of those instruments.
REVENUE
Revenue from time and materials contracts is recognized as costs
are incurred at agreed-upon billing rates. Billings in advance of
earnings are treated as deferred revenue until the completion of
the earnings process. Revenue includes reimbursable expenses
charged to clients of $140,000.
Revenue from permanent employment placement is recognized upon
placement of the individual or at the period when such fees become
nonrefundable.
The Company's clients are located principally throughout the
United States. Its revenue and accounts receivable are
concentrated with large companies in several industries. The
Company's four largest clients accounted for, in the aggregate,
approximately 80% of the Company's total revenues for the year
ended December 31, 1998. The Company's accounts receivable
generally are not secured and are subject to normal credit risks.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are computed on the straight-line method over the
estimated useful lives of related assets ranging from three to
seven years. Long-lived assets held and used by the Company are
reviewed for impairment whenever changes in circumstances indicate
the carrying value of an asset may not be recoverable.
ADVERTISING AND MARKETING COSTS
Advertising and marketing costs are expensed as incurred.
Advertising and marketing expense for the year ended December 31,
1998 was $365,406.
INCOME TAXES
As a limited liability company, the Company is treated in a manner
comparable to a partnership for income tax purposes. Income or
loss from the Company is included by the members in their
individual returns. Accordingly, no income tax expense has been
recorded in the financial statements.
11
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Billed $ 5,828,552
Unbilled 1,392,928
---------------
Total $ 7,221,480
---------------
---------------
</TABLE>
Substantially all the Company's receivables at December 31, 1998 were
from well established companies. The Company considers its accounts
receivable to be fully collectible.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Computer and office equipment $ 163,035
Furniture and fixtures 102,228
Software 52,698
-------------
Total 317,961
Less: Accumulated depreciation 102,014
-------------
Net property and equipment $ 215,947
-------------
-------------
</TABLE>
4. LINE OF CREDIT
During 1998, the Company entered into a line of credit agreement with a
financial institution in the amount of $3,000,000. The credit line
bears interest at the rate of One-Month LIBOR plus 1.5% to 2.00% (6.5%
at December 31, 1998). The Company is subject to certain financial
covenants requiring a minimum net tangible worth ratio and a minimum
funded ratio of debt to earnings before interest, taxes, depreciation
and amortization. The Company is in compliance with the financial
covenants at December 31, 1998. The line of credit is collateralized by
all of the assets of the Company and is guaranteed by two members of
the Company. The line of credit expires on May 31, 1999. At December
31, 1998, $2,730,310 was outstanding under the line of credit. There
are no commitment fees on unused portions of the line.
Cash interest expense paid for the year ended December 31, 1998 was
$63,602.
5. RETIREMENT PLAN
In 1997, Acuity Technology adopted a defined contribution retirement
plan under Section 401(k) of the Internal Revenue Code. Substantially,
all full-time employees are eligible to participate in
12
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
the program after ninety days of employment. Employees can contribute
up to 15% of their pre-tax compensation during the year up to a maximum
as allowed by the Internal Revenue Code ($10,000 in 1998). The Company
may make discretionary annual profit sharing contributions to the plan
which vest ratably over three years. Acuity contributed approximately
$45,580 to the plan, or 25% of the first 6% of employee contributions,
for the year ended December 31, 1998.
6. LEASE COMMITMENTS
The Company is obligated under several noncancelable operating lease
agreements for office space and equipment. Future minimum rental
payments for operating leases with noncancelable terms in excess of one
year consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
Year Ending December 31:
<S> <C>
1999 $ 303,742
2000 5,224
2001 2,463
--------------
Total minimum payments $ 311,429
--------------
--------------
</TABLE>
Total rental expense for all operating leases was $206,565 for the year
ended December 31, 1998.
7. SUBSEQUENT EVENTS (UNAUDITED)
Pursuant to the terms of a Membership Interest Purchase Agreement,
dated as of August 13, 1999 (the "Agreement"), by and among Acuity
Technology Services, LLC and Acuity Technology Services of Dallas, LLC
(collectively, the "Company") and Metro Information Services, Inc.
("Metro"), Metro acquired from the Company one hundred percent (100%)
of all the membership and equity interests in the Company for a
purchase price of $40,000,000 plus or minus a net worth adjustment
based on the Company's closing balance sheet and an earnout based on
future earnings of the Company. The net worth adjustment is the amount
by which the closing book value of the Company is greater than or less
than $4,000,000. The period for which the earnout amount shall be
calculated is the twelve-month period commencing on September 1, 1999
and ending August 31, 2000, and will be based on the earnings of the
Company before interest, income taxes and amortization of goodwill for
that time period.
13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
ACUITY TECHNOLOGY SERVICES, LLC
McLean, Virginia
We have audited the accompanying Balance Sheet of ACUITY TECHNOLOGY SERVICES,
LLC as of December 31, 1997, and the related Statements of Income, Members'
Capital (Deficiency) and Cash Flows for the year ended December 31, 1997. 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 ACUITY TECHNOLOGY SERVICES, LLC
as of December 31, 1997, and the results of its operations and its cash flows
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARONSON, FETRIDGE & WEIGLE
Rockville, Maryland
January 15, 1998
14
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 28,820
Accounts receivable (Note 2) 2,197,270
Employee advances 15,729
Prepaid expenses 22,070
------------
Total current assets 2,263,889
PROPERTY AND EQUIPMENT, NET (NOTES 1 AND 3) 102,734
OTHER ASSETS 27,778
------------
TOTAL ASSETS $ 2,394,401
------------
------------
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES
Line of credit (Note 4) $ 975,000
Accounts payable and accrued expenses 467,870
Accrued compensation 491,838
Payroll taxes accrued and employee withholdings 46,138
Deferred revenue (Note 1) 136,732
Pension contribution payable (Note 5) 16,500
------------
Total current liabilities 2,134,078
------------
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 6)
MEMBERS' CAPITAL 260,323
------------
TOTAL LIABILITIES AND MEMBERS' CAPITAL $ 2,394,401
------------
------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
15
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
REVENUE (NOTE 1) $ 8,419,922
-------------
CONTRACT COSTS
Direct and indirect labor 5,960,502
Consultant expenses 13,308
Payroll taxes 269,706
System integration 9,127
Other 24,321
-------------
Total contract and placement costs 6,276,964
-------------
GROSS PROFIT 2,142,958
-------------
OPERATING EXPENSES
Salaries and payroll taxes 1,169,844
Advertising and recruiting 107,877
Occupancy 126,954
Other general and administrative expenses 310,956
-------------
Total operating expenses 1,715,631
-------------
INCOME FROM OPERATIONS 427,327
-------------
OTHER EXPENSE (INCOME)
Interest expense 54,279
Gain on sale of property and equipment (36)
-------------
Total other expense 54,243
-------------
NET INCOME $ 373,084
-------------
-------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
16
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC
STATEMENT OF MEMBERS' CAPITAL (DEFICIENCY)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
MEMBERS' DEFICIENCY, JANUARY 1, 1997 $ (89,916)
NET INCOME 373,084
MEMBERS' CAPITAL CONTRIBUTION 2,000
REDEMPTION OF MEMBERS' CAPITAL (24,845)
----------
MEMBERS' CAPITAL, DECEMBER 31, 1997 $ 260,323
----------
----------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
17
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 373,084
Adjustments to reconcile net income to net cash used by operating
activities
Depreciation and amortization 27,484
Gain on sale of property and equipment (36)
Redemption of members' capital (24,845)
(Increase) decrease in
Accounts receivable (2,088,880)
Employee advances 3,013
Prepaid expenses (17,450)
Deposits (21,070)
Increase (decrease) in
Accounts payable and accrued expenses 400,682
Accrued compensation 441,995
Payroll taxes accrued and withheld 35,379
Deferred revenue 135,517
Pension payable 16,500
-------------
Net cash used by operating activities (718,627)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of asset 275
Purchase of property and equipment (106,275)
-------------
Net cash used by investing activities (106,000)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit 824,726
Members' capital contribution 2,000
-------------
Net cash provided by financing activities 826,726
-------------
NET INCREASE IN CASH 2,099
CASH, BEGINNING OF YEAR 26,721
-------------
CASH, END OF YEAR $ 28,820
-------------
-------------
SUPPLEMENTAL CASH FLOW INFORMATION
Actual cash payments for:
Interest $ 54,279
-------------
-------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
18
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) Organization
Acuity Technology Services, LLC was established as a Limited
Liability Company on June 6, 1996 under the laws of the Commonwealth
of Virginia. The Company provides information technology consulting
services to commercial organizations.
(B) Use of accounting 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.
(C) Cash and cash equivalents
For financial statement purposes, the Company considers all
highly liquid debt instruments with initial maturities of ninety days
or less to be cash equivalents. The Company maintains cash balances
which may exceed federally insured limits. The Company does not
believe that this results in any significant credit risk.
(D) Revenue
Revenue from time and materials contracts is recognized as costs
are incurred at amounts represented by the agreed-upon billing amounts.
Billings in advance of earnings are treated as deferred revenue until
the completion of the earnings process.
Revenue from permanent employment placement is recognized upon
placement of the individual or at the period when such fees become
nonrefundable.
The Company's clients are located principally throughout the
United States. Its revenue and accounts receivable are concentrated
with large companies in several industries. For 1997, three clients
accounted for approximately 76% of total revenue. The Company's
accounts receivable are generally not collateralized and are subject to
normal credit risks.
(E) Property and equipment
Property and equipment are recorded at the original cost to the
Company and are being depreciated using the straight-line method over
predetermined lives of three to seven years.
19
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) Income taxes
As a Limited Liability Company, the members recognize their
respective share of income or loss on their separate income tax
returns. Accordingly, income taxes have not been reflected in the
accompanying financial statements.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Billed $ 2,042,873
Unbilled 154,397
---------------
$ 2,197,270
---------------
---------------
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
Amount
---------------
<S> <C>
Computer and office equipment $ 83,309
Furniture and fixtures 31,798
Software 20,138
---------------
Total 135,245
Less: Accumulated depreciation 32,511
---------------
Net property and equipment $ 102,734
---------------
---------------
</TABLE>
NOTE 4 - NOTE PAYABLE - LINE OF CREDIT
The Company has a line of credit agreement with First Union Bank in
the amount of $1,000,000. The arrangement provides interest at the One-Month
Libor Market Index rate plus 2.25%, which was a rate to the Company of
approximately 8.2% at December 31, 1997, with additional fees as specified in
the agreement. The line is collateralized by all of the assets of the Company
and is guaranteed by two members of the Company. The balance on the line of
credit at December 31, 1997 was $975,000.
NOTE 5 - RETIREMENT PLAN
In 1997, Acuity Technology adopted a defined contribution retirement
plan under Section 401(k) of the Internal Revenue Code. Substantially all
full-time employees are eligible to participate in the program after three
months of employment. Employees can contribute up to 15% of their pre-tax
compensation during the year up to a maximum as allowed by the Code, which for
1997 was $9,500. In 1997, Acuity contributed 25% of the first 6% of employee
contributions to the plan. The Company's contribution to this plan was
approximately $16,500 for the year ended December 31, 1997.
20
<PAGE>
ACUITY TECHNOLOGY SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - LEASE COMMITMENTS
The Company is obligated, as lessee, under a lease agreement for
office space which expires November 30, 1999. The lease, which was entered into
on April 1, 1997, provides for monthly payments of $11,785 for the first twelve
months, increasing by two and one-half percent every twelve months, thereafter.
Future minimum rental payments under the lease are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
--------------- ---------------
<S> <C>
1998 $ 144,075
1999 135,296
---------------
Total $ 279,371
---------------
---------------
</TABLE>
Rent expense was $126,954 for 1997.
21
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet has been
prepared as if the acquisition of Acuity Technology Services, LLC ("Acuity") by
Metro Information Services, Inc. ("Metro") occurred as of June 30, 1999. The
unaudited pro forma condensed consolidated statements of income for the year
ended December 31, 1998 and for the six months ended June 30, 1999 have been
prepared to reflect the acquisitions by Metro of Acuity on August 13, 1999,
Solution Technologies, Inc. ("STI") on March 1, 1999, and The Professionals -
Computer Management & Consulting, Inc. and Krystal Solutions, Inc. (collectively
"Professionals and Krystal") on February 1, 1999, as if such acquisitions
occurred as of January 1, 1998. The unaudited pro forma condensed consolidated
balance sheet and statements of income are collectively referred to as "the pro
forma financial statements." The pro forma financial statements do not purport
to represent the financial position or results of operations of Metro and
subsidiaries as if such transactions had occurred on such dates or to project
Metro's financial position or results of operations as of any future date or for
any future period. The pro forma financial statements contain adjustments which
are based on available information and certain assumptions to the historical
financial statements of Metro, Acuity, STI and Professionals and Krystal.
The acquisitions of Acuity, STI and Professionals and Krystal are accounted for
under the purchase method of accounting. The preliminary allocations of purchase
prices are based upon the estimated fair value of assets acquired and
liabilities assumed in accordance with Accounting Principles Board Opinion No.
16. The purchase price allocations reflected in the accompanying pro forma
financial statements may be different from the final allocations of the purchase
prices and such differences may be material.
The pro forma financial statements and accompanying notes should be read in
conjunction with the historical financial statements and the notes thereto of
Metro, STI and Professionals and Krystal and the historical financial
statements and the notes thereto of Acuity included elsewhere in this
document.
22
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
STI,
Professionals
and Krystal
Metro Pro Forma
Historical Adjustments
----------------- ----------------
(1) (2)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,219,900 -
Accounts receivable, net 49,510,189 -
Prepaid expenses 1,530,816 -
Deferred income taxes 1,013,863 -
---------------- ----------------
Total current assets 56,274,768 -
Property and equipment, net 11,365,990 -
Goodwill, net 63,935,415 (1,103,101)
Other assets 765,122 1,103,101
---------------- ----------------
$ 132,341,295 -
---------------- ----------------
---------------- ----------------
LIABILITIES AND EQUITY
Current liabilities:
Line of credit $ - -
Accounts payable 3,590,289 -
Accrued compensation and benefits 15,498,096 -
Notes payable - -
---------------- ----------------
Total current liabilities 19,088,385 -
---------------- ----------------
Line of credit facilities 41,453,764 -
Deferred income taxes 1,093,372 -
---------------- ----------------
Total liabilities 61,635,521 -
---------------- ----------------
Minority Interest - -
Equity:
Members' Equity - -
Shareholders' equity:
Common stock 149,390 -
Paid-in capital 38,402,300 -
Retained earnings 32,154,084 -
---------------- ----------------
Total equity 70,705,774 -
---------------- ----------------
$ 132,341,295 -
---------------- ----------------
---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Acquisition
--------------------------------------------------------
Acuity
Acuity Pro Forma Acuity Metro
Historical Adjustments Pro Forma Pro Forma
-------------- -------------- -------------- --------------
(1) (3)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 385,987 (385,987) - 4,219,900
Accounts receivable, net 8,053,434 - 8,053,434 57,563,623
Prepaid expenses 86,956 - 86,956 1,617,772
Deferred income taxes - - - 1,013,863
-------------- -------------- -------------- --------------
Total current assets 8,526,377 (385,987) 8,140,390 64,415,158
Property and equipment, net 261,598 - 261,598 11,627,588
Goodwill, net - 33,508,744 33,508,744 96,341,058
Other assets 43,607 2,580,292 2,623,899 4,492,122
-------------- -------------- -------------- --------------
8,831,582 35,703,049 44,534,631 176,875,926
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
LIABILITIES AND EQUITY
Current liabilities:
Line of credit 1,222,900 - 1,222,900 1,222,900
Accounts payable 830,338 - 830,338 4,420,627
Accrued compensation and benefits 2,055,905 - 2,055,905 17,554,001
Notes payable - 1,000,000 1,000,000 1,000,000
-------------- -------------- -------------- --------------
Total current liabilities 4,109,143 1,000,000 5,109,143 24,197,528
-------------- -------------- -------------- --------------
Line of credit facilities - 39,425,488 39,425,488 80,879,252
Deferred income taxes - - - 1,093,372
-------------- -------------- -------------- --------------
Total liabilities 4,109,143 40,425,488 44,534,631 106,170,152
-------------- -------------- -------------- --------------
Minority Interest 29,298 (29,298) - -
Equity:
Members' Equity 4,693,141 (4,693,141) - -
Shareholders' equity:
Common stock - - - 149,390
Paid-in capital - - - 38,402,300
Retained earnings - - - 32,154,084
-------------- -------------- -------------- --------------
Total equity 4,693,141 (4,693,141) - 70,705,774
-------------- -------------- -------------- --------------
8,831,582 35,703,049 44,534,631 176,875,926
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
23
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
JUNE 30, 1999
(1) HISTORICAL FINANCIAL STATEMENTS
The amounts presented under the heading "Metro Historical" are taken from
the Metro Information Services, Inc. and subsidiaries (herein referred to
as "Metro") historical consolidated balance sheet as of June 30, 1999.
The amounts presented under the heading "Acuity Historical" are taken from
the unaudited Acuity Technology Services, LLC (herein referred to as
"Acuity") historical consolidated balance sheet as of June 30, 1999,
included herein.
(2) STI, PROFESSIONALS AND KRYSTAL PRO FORMA ADJUSTMENTS
The amounts presented under the heading "STI, Professionals and Krystal
Pro Forma Adjustments" include adjustments to the purchase price
allocations of these companies subsequent to June 30, 1999.
(3) ACUITY PRO FORMA ADJUSTMENTS
On August 13, 1999, Metro acquired all of the membership and equity
interests of Acuity, for a purchase price of $40,000,000 plus or minus a
purchase price adjustment calculated based on the net assets of Acuity on
the closing date of the transaction. The purchase agreement also provides
for an additional purchase price payment if Acuity achieves certain
predetermined financial results in the succeeding year. The unaudited pro
forma consolidated balance sheet has been prepared as if the transaction
occurred on June 30,1999.
The following pro forma adjustments to the Metro consolidated historical
balance sheet give effect to the acquisition of Acuity including
adjustments for assets and liabilities excluded from the transaction,
primarily cash and cash equivalents.
(A) ACUITY PURCHASE ACCOUNTING
Metro acquired all of the membership interests in Acuity for
$40,425,488, including $92,362 in estimated direct costs of the
acquisition and a purchase price adjustment of $333,126. The
acquisition will be accounted for as a purchase. As a result, the
assets and liabilities will be adjusted to their fair values, with
the excess purchase price over the fair value assigned to goodwill
and other intangible assets. The following summarizes the preliminary
allocation of the purchase price based on June 30, 1999 asset and
liability balances.
<TABLE>
Assets purchased:
<S> <C>
Accounts receivable $ 8,053,434
Prepaid expenses 86,956
Property and equipment 261,598
Other assets 43,607
Goodwill 33,508,744
Other intangibles 2,580,292
------------
Total assets purchased $ 44,534,631
------------
</TABLE>
24
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
JUNE 30, 1999
(3) ACUITY PRO FORMA ADJUSTMENTS, CONTINUED
<TABLE>
Liabilities assumed:
<S> <C>
Line of credit $ 1,222,900
Accounts payable 830,338
Accrued compensation and benefits 2,055,905
---------
Total liabilities assumed 4,109,143
---------
Purchase price $ 40,425,488
---------
---------
</TABLE>
(B) FINANCING OF THE ACQUISITION
Metro financed the acquisition with borrowings under its existing
credit facilities and $1,000,000 in short-term borrowings payable to
the selling members when it acquired Acuity on August 13, 1999.
Interest accrues at a rate of 5% with principal and interest due on
November 20, 1999.
25
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Metro,
Professionals
Professionals and Krystal
Metro and Krystal STI and STI
Historical Pro Forma Pro Forma Pro Forma
------------------- ---------------- ---------------- ------------------
(1) (2) (3)
<S> <C> <C> <C> <C>
Revenue $ 150,782,111 1,859,020 3,860,192 156,501,323
Cost of revenue 106,788,457 1,480,072 2,775,543 111,044,072
------------------- ---------------- ---------------- ------------------
Gross profit 43,993,654 378,948 1,084,649 45,457,251
------------------- ---------------- ---------------- ------------------
Selling, general and
administrative expenses 26,612,251 153,168 728,481 27,493,900
Depreciation and amortization 2,080,036 58,830 223,550 2,362,416
------------------- ---------------- ---------------- ------------------
Total operating expenses 28,692,287 211,998 952,031 29,856,316
------------------- ---------------- ---------------- ------------------
Operating income 15,301,367 166,950 132,618 15,600,935
------------------- ---------------- ---------------- ------------------
Interest income 74,932 - - 74,932
Interest expense (849,723) (55,083) (275,316) (1,180,122)
------------------- ---------------- ---------------- ------------------
Net interest expense (774,791) (55,083) (275,316) (1,105,190)
------------------- ---------------- ---------------- ------------------
Income before income taxes
and minority interest 14,526,576 111,867 (142,698) 14,495,745
Minority interest in loss of
consolidated subsidiary - - - -
Income taxes (5,883,263) (45,306) 57,793 (5,870,776)
------------------- ---------------- ---------------- ------------------
Net income (loss) $ 8,643,313 66,561 (84,905) 8,624,969
------------------- ---------------- ---------------- ------------------
------------------- ---------------- ---------------- ------------------
</TABLE>
<TABLE>
<CAPTION>
Acuity
Acuity Pro Forma Acuity Metro
Historical Adjustments Pro Forma Pro Forma
----------------- ---------------- ----------------- -------------------
(1) (4)
<S> <C> <C> <C> <C>
Revenue 20,276,642 - 20,276,642 176,777,965
Cost of revenue 13,848,762 - 13,848,762 124,892,834
----------------- ---------------- ----------------- -------------------
Gross profit 6,427,880 - 6,427,880 51,885,131
----------------- ---------------- ----------------- -------------------
Selling, general and
administrative expenses 4,727,998 (349,848) 4,378,150 31,872,050
Depreciation and amortization 34,770 820,549 855,319 3,217,735
----------------- ---------------- ----------------- -------------------
Total operating expenses 4,762,768 470,701 5,233,469 35,089,785
----------------- ---------------- ----------------- -------------------
Operating income 1,665,112 (470,701) 1,194,411 16,795,346
----------------- ---------------- ----------------- -------------------
Interest income 11 (11) - 74,932
Interest expense (22,905) (1,063,359) (1,086,264) (2,266,386)
----------------- ---------------- ----------------- -------------------
Net interest expense (22,894) (1,063,370) (1,086,264) (2,191,454)
----------------- ---------------- ----------------- -------------------
Income before income taxes
and minority interest 1,642,218 (1,534,071) 108,147 14,603,892
Minority interest in loss of
consolidated subsidiary 14,871 (14,871) - -
Income taxes - (43,800) (43,800) (5,914,576)
----------------- ---------------- ----------------- -------------------
Net income (loss) 1,657,089 (1,592,742) 64,347 8,689,316
----------------- ---------------- ----------------- -------------------
----------------- ---------------- ----------------- -------------------
</TABLE>
26
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(1) HISTORICAL FINANCIAL STATEMENTS
The amounts presented under the heading "Metro Historical" are taken from
the Metro Information Services, Inc. and subsidiaries (herein referred to
as "Metro") historical consolidated statement of income for the six months
ended June 30, 1999.
The amounts presented under the heading "Acuity Historical" are taken from
the unaudited Acuity Technology Services, LLC and subsidiary (herein
referred to as "Acuity") historical consolidated statement of income for
the six months ended June 30, 1999, included herein.
(2) PROFESSIONALS AND KRYSTAL PRO FORMA
Metro purchased certain assets and assumed certain liabilities of
Professionals and Krystal on February 1, 1999.
The amounts presented under the heading "Professionals and Krystal Pro
Forma" include the historical statement of income for the month ended
January 31, 1999 together with the pro forma adjustments (including
subsequent adjustments to the purchase price allocation) for the
Professionals and Krystal and include adjustments to:
(a) Adjust selling, general and administrative expenses to reduce selling
shareholder salaries to the amounts contained in their employment
contracts signed in conjunction with the acquisition.
(b) Record amortization on goodwill of $15,374,541 and other intangible
assets of $284,130. Goodwill is amortized on a straight-line basis
over 30 years and other intangible assets over 3 - 7 years.
(c) Eliminate interest income since cash and cash equivalents were not
purchased.
(d) Record interest expense on line of credit borrowings of $12,000,000 at
an assumed average interest rate of 5.7% and note payable to sellers
of $500,000 at an interest rate of 5%.
(e) Record tax expense as if the Professionals and Krystal were C
Corporations for the entire period at an assumed effective tax rate of
40.5%.
(3) STI PRO FORMA
Metro purchased certain assets and assumed certain liabilities of STI on
March 1, 1999.
The amounts presented under the heading "STI Pro Forma" include the
historical statement of income for the two months ended February 28, 1999
together with the pro forma adjustments (including subsequent adjustments
to the purchase price allocation) for STI and include adjustments to:
(a) Adjust selling, general and administrative expenses to reduce selling
shareholder salaries to the amounts contained in their employment
contracts signed in conjunction with the acquisition.
(b) Record amortization on goodwill of $23,957,263 and other intangible
assets of $1,348,970. Goodwill is amortized on a straight-line basis
over 30 years and other intangible assets over 3 - 7 years.
27
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(3) STI PRO FORMA, CONTINUED
(c) Eliminate interest income since cash and cash equivalents were not
purchased.
(d) Record interest expense on line of credit borrowings of $28,717,469 at
an assumed average interest rate of 5.7% and note payable to sellers
of $300,000 at an interest rate of 5%.
(e) Record tax expense as if STI were a C Corporation for the entire
period at an assumed effective tax rate of 40.5%.
(4) ACUITY PRO FORMA
The amounts presented under the heading "Acuity Pro Forma" include the
historical statement of income together with the pro forma adjustments for
Acuity and include adjustments to:
(a) Adjust selling, general and administrative expenses to reduce selling
member salaries to the amounts contained in their employment
contracts.
(b) Record amortization of goodwill of $33,508,744 and other intangible
assets of $2,583,618. Goodwill is amortized on a straight-line basis
over 30 years and other intangible assets over 3 - 7 years.
(c) Eliminate interest income since cash and cash equivalents were not
purchased.
(d) Record interest expense on line of credit borrowings of $39,183,334
at an assumed average interest rate of 5.3% and note payable to
sellers of $1,000,000 at an interest rate of 5%.
(e) Record tax expense as if Acuity was a C Corporation for the entire
period at an assumed effective tax rate of 40.5%.
(5) VARIABLE INTEREST RATE SENSITIVITY
Metro's line of credit facilities contain variable interest rates based on
the London Interbank Borrowing Rates plus a spread. A 1/8% increase in the
assumed interest rates contained in the pro forma statement of income
would result in an increase in interest expense of approximately $50,000.
28
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Metro,
Professionals
Professionals and Krystal
Metro and Krystal STI and STI
Historical Pro Forma Pro Forma Pro Forma
------------------- ----------------- ----------------- ------------------
(1) (2) (3)
<S> <C> <C> <C> <C>
Revenue $ 213,891,637 21,856,402 23,183,253 258,931,292
Cost of revenue 148,321,681 16,842,269 15,549,348 180,713,298
------------------- ----------------- ----------------- ------------------
Gross profit 65,569,956 5,014,133 7,633,905 78,217,994
------------------- ----------------- ----------------- ------------------
Selling, general and
administrative expenses 40,349,100 2,230,616 4,432,643 47,012,359
Depreciation and amortization 1,850,529 555,278 1,174,296 3,580,103
------------------- ----------------- ----------------- ------------------
Total operating expenses 42,199,629 2,785,894 5,606,939 50,592,462
------------------- ----------------- ----------------- ------------------
Operating income 23,370,327 2,228,239 2,026,966 27,625,532
------------------- ----------------- ----------------- ------------------
Interest income 837,557 - 837,557
Interest expense (56,991) (719,705) (1,687,765) (2,464,461)
------------------- ----------------- ----------------- ------------------
Net interest income (expense) 780,566 (719,705) (1,687,765) (1,626,904)
------------------- ----------------- ----------------- ------------------
Income (loss) before income
taxes and minority interest 24,150,893 1,508,534 339,201 25,998,628
Minority interest in loss of
consolidated subsidiary - - - -
Income taxes (9,533,849) (610,956) (137,376) (10,282,181)
------------------- ----------------- ----------------- ------------------
Net income (loss) $ 14,617,044 897,578 201,825 15,716,447
------------------- ----------------- ----------------- ------------------
------------------- ----------------- ----------------- ------------------
</TABLE>
<TABLE>
<CAPTION>
Acuity
Acuity Pro Forma Acuity Metro
Historical Adjustments Pro Forma Pro Forma
----------------- ---------------- ----------------- -------------------
(1) (4)
<S> <C> <C> <C> <C>
Revenue 32,257,468 - 32,257,468 291,188,760
Cost of revenue 23,478,068 - 23,478,068 204,191,366
----------------- ---------------- ----------------- -------------------
Gross profit 8,779,400 - 8,779,400 86,997,394
----------------- ---------------- ----------------- -------------------
Selling, general and
administrative expenses 5,925,786 (438,436) 5,487,350 52,499,709
Depreciation and amortization 71,027 1,641,199 1,712,226 5,292,329
----------------- ---------------- ----------------- -------------------
Total operating expenses 5,996,813 1,202,763 7,199,576 57,792,038
----------------- ---------------- ----------------- -------------------
Operating income 2,782,587 (1,202,763) 1,579,824 29,205,356
----------------- ---------------- ----------------- -------------------
Interest income - - - 837,557
Interest expense (63,602) (2,126,717) (2,190,319) (4,654,780)
----------------- ---------------- ----------------- -------------------
Net interest
income (expense) (63,602) (2,126,717) (2,190,319) (3,817,223)
----------------- ---------------- ----------------- -------------------
Income (loss) before income
taxes and minority interest 2,718,985 (3,329,480) (610,495) 25,388,133
Minority interest in loss of
consolidated subsidiary 56,744 (56,744) - -
Income taxes - 247,250 247,250 (10,034,931)
----------------- ---------------- ----------------- -------------------
Net income (loss) 2,775,729 (3,138,974) (363,245) 15,353,202
----------------- ---------------- ----------------- -------------------
----------------- ---------------- ----------------- -------------------
</TABLE>
29
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(1) HISTORICAL FINANCIAL STATEMENTS
The amounts presented under the heading "Metro Historical" are taken from
the Metro Information Services, Inc. and subsidiaries (herein referred to
as "Metro") historical consolidated statement of income for the year ended
December 31, 1998.
The amounts presented under the heading "Acuity Historical" are taken from
the Acuity Technology Services, LLC and subsidiary (herein referred to as
"Acuity") historical consolidated statement of income for the year ended
December 31, 1998, included herein.
(2) PROFESSIONALS AND KRYSTAL PRO FORMA
The amounts presented under the heading "Professionals and Krystal Pro
Forma" include the historical statement of income together with the pro
forma adjustments for the Professionals and Krystal and include
adjustments to:
(a) Adjust selling, general and administrative expenses to reduce selling
shareholder salaries to the amounts contained in their employment
contracts signed in conjunction with the acquisition.
(b) Record amortization on goodwill of $15,374,541 and other intangible
assets of $284,130. Goodwill is amortized on a straight-line basis
over 30 years and other intangible assets over 3 - 7 years.
(c) Eliminate interest income since cash and cash equivalents were not
purchased.
(d) Record interest expense on line of credit borrowings of $12,000,000 at
an assumed average interest rate of 5.7% and note payable to sellers
of $500,000 at an interest rate of 5%.
(e) Record tax expense as if the Professionals and Krystal were a C
Corporation for the entire period at an assumed effective tax rate of
40.5%.
(3) STI PRO FORMA
The amounts presented under the heading "STI Pro Forma" include the
historical statement of income together with the pro forma adjustments for
STI and include adjustments to:
(a) Adjust selling, general and administrative expenses to reduce selling
shareholder salaries to the amounts contained in their employment
contracts signed in conjunction with the acquisition.
(b) Record amortization on goodwill of $23,957,263 and other intangible
assets of $1,348,970. Goodwill is amortized on a straight-line basis
over 30 years and other intangible assets over 3 - 7 years.
(c) Eliminate interest income since cash and cash equivalents were not
purchased.
(d) Record interest expense on line of credit borrowings of $28,717,469 at
an assumed average interest rate of 5.7% and note payable to sellers
of $300,000 at an interest rate of 5%.
(e) Record tax expense as if STI were a C Corporation for the entire
period at an assumed effective tax rate of 40.5%.
30
<PAGE>
METRO INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(4) ACUITY PRO FORMA
The amounts presented under the heading "Acuity Pro Forma" include the
historical statement of income together with the pro forma adjustments for
Acuity and include adjustments to:
(a) Adjust selling, general and administrative expenses to reduce selling
member salaries to the amounts contained in their employment
contracts.
(b) Record amortization on goodwill of $33,508,744 and other intangible
assets of $2,583,618. Goodwill is amortized on a straight-line basis
over 30 years and other intangible assets over 3 - 7 years.
(c) Record interest expense on line of credit borrowings of $39,183,334 at
an assumed average interest rate of 5.3% and note payable to sellers
of $1,000,000 at an interest rate of 5%.
(d) Record tax expense as if Acuity was a C Corporation for the entire
period at an assumed effective tax rate of 40.5%.
(5) VARIABLE INTEREST RATE SENSITIVITY
Metro's line of credit facilities contain variable interest rates based on
the London Interbank Borrowing Rates plus a spread. A 1/8% increase in the
assumed interest rates contained in the pro forma statement of income
would result in an increase in interest expense of approximately $100,000.
31
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-22751, 333-22753, 333-22777) of Metro
Information Services, Inc. of our report dated February 5, 1999 relating to the
consolidated financial statements of Acuity Technology Services, LLC, as of and
for the year ended December 31, 1998, which appears in the Current Report on
Form 8-K/A of Metro Information Services, Inc. dated October 26, 1999.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
McLean, Virginia
October 25, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF ARONSON, FETRIDGE & WEIGLE,
A PROFESSIONAL CORPORATION
We consent to the incorporation by reference in the Registration Statements on
Forms S-8 related to the 1997 Outside Director Stock Option Plan of Metro
Information Services, Inc. (No. 333-22751), Metro Information Services, Inc.
Employee Stock Purchase Plan (No. 333-22753) and the 1997 Incentive Stock Option
Plan (No. 333-22777) of our report dated January 15, 1998, on our audit of the
financial statements of Acuity Technology Services, LLC as of and for the year
ended December 31, 1997, which report is included in the Amended Current Report
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 on Form
8-K/A (No. 000-22035) of Metro Information Services, Inc., filed on October 26,
1999.
/s/ Aronson, Fetridge & Weigle
Aronson, Fetridge & Weigle
(a professional corporation)
Rockville, Maryland
October 26, 1999
