AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1997.
REGISTRATION NO. 333-35459
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NATIONWIDE STAFFING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
7363
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
DELAWARE 76-0526381
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
LARRY E. DARST
CHIEF EXECUTIVE OFFICER
NATIONWIDE STAFFING, INC.
600 TRAVIS, SUITE 6200
HOUSTON, TEXAS 77002
(713) 223-7742
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------------
COPIES TO:
GEOFFREY A. LONG
BRACEWELL & PATTERSON, L.L.P. ROBERT F. GRAY, JR.
SOUTH TOWER PENNZOIL PLACE FULBRIGHT & JAWORSKI L.L.P.
711 LOUISIANA STREET, SUITE 2900 1301 MCKINNEY, SUITE 5100
HOUSTON, TEXAS 77002-2781 HOUSTON, TEXAS 77010-3095
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION AND AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1997
PROSPECTUS
, 1997
3,800,000 SHARES
[LOGO NATIONWIDE STAFFING, INC.]
NATIONWIDE STAFFING, INC.
COMMON STOCK
------------------
All of the 3,800,000 shares of common stock, $0.01 par value ("Common
Stock"), offered hereby are being offered by Nationwide Staffing, Inc. (the
"Company"). Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price for the Common Stock will be between $11.50 and $13.50 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "STF."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS
THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total(3)............................. $ $ $
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE SEVERAL UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY ESTIMATED
AT $4,000,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
570,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO THE PUBLIC, LESS
UNDERWRITING DISCOUNTS AND COMMISSIONS, SOLELY TO COVER OVER-ALLOTMENTS, IF
ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC,
UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO THE COMPANY WILL BE
$ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITING."
------------------
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in New
York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER
INCORPORATED
LADENBURG THALMANN & CO. INC.
<PAGE>
NATIONWIDE STAFFING WAS ORGANIZED IN FEBRUARY 1997 TO BECOME A LEADING
NATIONAL PROVIDER OF COMPREHENSIVE STAFFING SOLUTIONS TO BUSINESSES,
PROFESSIONAL AND SERVICE ORGANIZATIONS AND GOVERNMENTAL AGENCIES. NATIONWIDE
STAFFING HAS ENTERED INTO AGREEMENTS TO ACQUIRE SIMULTANEOUSLY WITH THE CLOSING
OF THIS OFFERING EIGHT FOUNDING COMPANIES, WHICH HAVE BEEN IN BUSINESS FOR AN
AVERAGE OF 15 YEARS AND CURRENTLY HAVE 29 OFFICES SERVING CLIENTS IN 42 STATES
AND THE DISTRICT OF COLUMBIA.
[MAP SHOWING THE STATES IN WHICH THE FOUNDING COMPANIES DO BUSINESS, THE
CITIES IN WHICH THEY ARE HEADQUARTERED AND THE COMPANY'S HEADQUARTERS.]
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
SIMULTANEOUSLY WITH AND AS A CONDITION TO THE CONSUMMATION OF THE OFFERING
MADE BY THIS PROSPECTUS (THE "OFFERING"), NATIONWIDE STAFFING, INC. WILL
ACQUIRE, IN SEPARATE MERGER OR EXCHANGE TRANSACTIONS (COLLECTIVELY, THE
"MERGERS"), IN EXCHANGE FOR CASH AND SHARES OF COMMON STOCK, ALL OF THE
CAPITAL STOCK OF EIGHT BUSINESSES ENGAGED IN PROVIDING TEMPORARY STAFFING, STAFF
LEASING, RECRUITING, PERMANENT PLACEMENT, PAYROLL PROCESSING AND HUMAN RESOURCE
CONSULTING SERVICES (EACH, A "FOUNDING COMPANY" AND, COLLECTIVELY, THE
"FOUNDING COMPANIES"). UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN TO
THE "COMPANY" INCLUDE THE FOUNDING COMPANIES AND NATIONWIDE STAFFING, INC. AND
REFERENCES TO "NATIONWIDE STAFFING" MEAN NATIONWIDE STAFFING, INC. PRIOR TO
THE CONSUMMATION OF THE MERGERS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE COMBINED, PRO FORMA
COMBINED AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
SHARE, PER SHARE AND FINANCIAL INFORMATION (I) HAS BEEN ADJUSTED TO GIVE EFFECT
TO THE MERGERS; (II) ASSUMES AN INITIAL PUBLIC OFFERING PRICE OF $12.50 PER
SHARE (THE "OFFERING PRICE"), WHICH IS THE MIDPOINT OF THE RANGE OF THE
ESTIMATED PUBLIC OFFERING PRICE; (III) HAS BEEN ADJUSTED TO REFLECT A
1,084-FOR-ONE STOCK SPLIT IN THE FORM OF A DIVIDEND; AND (IV) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS OTHERWISE INDICATED,
ALL REFERENCES TO COMMON STOCK INCLUDE BOTH COMMON STOCK, $0.01 PAR VALUE, AND
RESTRICTED VOTING COMMON STOCK, $0.01 PAR VALUE (THE "RESTRICTED COMMON
STOCK"), OF THE COMPANY.
THE COMPANY
Nationwide Staffing was organized in February 1997 to become a leading
national provider of comprehensive staffing solutions to businesses,
professional and service organizations and governmental agencies. The Company
provides professional, skilled industrial and commercial (clerical and light
industrial) employees to over 2,400 clients in a wide variety of industries,
including aerospace, petrochemicals, petroleum refining, insurance, food
processing, legal and high technology, and to the government sector. The
Company's pro forma revenues for the year ended December 31, 1996 of $133.8
million were derived approximately 70% from temporary staffing and approximately
30% from staff leasing or professional employer organization ("PEO") services.
In a PEO arrangement, the Company enters into a contract to transfer the client
company's existing workforce, or a portion thereof, to the Company and assumes
responsibility for all or a portion of personnel-related matters. Upon
consummation of the Offering, Nationwide Staffing will acquire through the
Mergers the eight Founding Companies, which have been in business for an average
of 15 years and currently have 29 offices and operations in 42 states and the
District of Columbia.
The Company believes that as businesses increasingly outsource a wider
range of human resource functions in order to focus on their core operations,
they will require more sophisticated and diverse services from their staffing
providers. In order to serve these needs, the Company offers significantly
broader services than those provided by traditional staffing companies. In
addition to supplying temporary workers for short-term needs, the Company also
provides extended-term temporary employees, including staff leasing or PEO
services, temporary-to-permanent placements, recruiting, permanent placements,
payroll processing, vendor-on-premises and human resource consulting. In
addition, the Company is pursuing strategic alliances with selected human
resource consulting firms that will enable the Company to expand its range of
staffing services to include additional human resource department outsourcing
services and executive compensation and employee benefits consulting.
The Company's emphasis on providing comprehensive staffing solutions
affords it a competitive advantage by appealing to a broader universe of
potential clients, including regional and national companies, while also
creating cross-marketing opportunities within its existing client base. The
Company intends to provide companies with single-source solutions to their
staffing needs by combining and integrating the extensive services already being
provided by the Founding Companies, along with additional services that
3
<PAGE>
may become available through acquisitions and strategic alliances. This
comprehensive service offering will allow the Company to offer cost-effective
service to companies who can select those staffing services that best satisfy
their particular needs. In addition, the Company will be able to cross market
services to existing and new clients, thereby reducing the Company's business
development costs, and will be able to serve larger companies seeking
comprehensive staffing services on a regional or national basis. Finally, the
Company believes that a comprehensive service offering will assist the Company
in establishing multiple contacts within existing and new clients that should
contribute to more extensive and longer-term relationships.
INDUSTRY OVERVIEW
The staffing industry encompasses a wide range of services to businesses,
professional and service organizations and governmental agencies. The U.S.
staffing industry has grown rapidly in recent years as organizations have sought
to reduce costs and improve operating efficiency by outsourcing more of their
human resource functions. Staffing Industry Analysts, Inc. ("SIA"), an
independent industry research firm, estimates that gross revenues in the U.S.
staffing industry have grown since 1991 at a compound annual growth rate of
18.8%, from approximately $31.4 billion in 1991 to approximately $74.4 billion
in 1996.
According to SIA, temporary staffing and PEO services represented
approximately 63.3% and 23.3%, respectively, of total staffing industry gross
revenues in 1996. The use of temporary staffing services has grown rapidly in
recent years as competitive pressures have caused businesses to focus on
reducing overhead, including converting fixed labor costs to variable costs. The
use of temporary employees also enables companies to improve flexibility in
employee hiring and scheduling and to focus on their core business operations.
According to SIA, the U.S. market for temporary staffing services has grown
since 1991 at a compound annual rate of 17.0%, from approximately $21.5 billion
in revenue in 1991 to approximately $47.1 billion in revenue in 1996. PEO
services have also grown substantially in recent years, driven in large part by
the increasingly complex legal and regulatory burdens placed on employers, as
well as trends relating to the growth of small businesses in the United States
and their efforts at improving productivity and competitiveness. SIA estimates
that gross revenues in PEO services have grown since 1991 at a compound annual
rate of 28.2%, from approximately $5.0 billion in 1991 to approximately $17.3
billion in 1996. With its broad offering of staffing solutions, the Company
provides services typically associated with temporary staffing companies, such
as recruiting, screening and training employees, while also providing services
typically associated with PEO companies, such as risk management, employee
benefits administration, payroll processing and other human resource
administration functions.
The Company believes that the U.S. staffing industry is highly fragmented
and has begun to experience consolidation, particularly with respect to
temporary staffing and PEO companies. Based on data available from Dun &
Bradstreet and the National Association of Professional Employer Organizations
("NAPEO"), in the United States over 9,300 companies provide temporary
staffing services and more than 1,800 companies provide PEO services. Many of
these companies are small, owner-operated businesses with limited access to
capital for development and expansion. The Company believes that temporary
staffing and, to a lesser extent, PEO companies are consolidating in response to
(i) the increased demands of local, regional and national companies for a single
supplier of a full range of staffing and human resource services, (ii) increased
competition from larger, better capitalized competitors and (iii) owners'
desires for liquidity. Although some consolidation activity has already
occurred, the Company believes that consolidation in the U.S. staffing industry
will continue and that there will be numerous available acquisition candidates.
4
<PAGE>
BUSINESS STRATEGY
The Company plans to achieve its objective of becoming a leading national
provider of comprehensive staffing solutions through the implementation of a
cohesive business strategy consisting of the following elements:
o OFFER A DIVERSIFIED RANGE OF STAFFING SERVICES. The Company offers
a wide range of staffing services, including short and extended-term
temporaries, PEO services, temporary-to-permanent placements, recruiting,
permanent placements, payroll processing, vendor-on-premises and human
resource consulting. Each of the Company's services is available on a
stand-alone basis or as part of a comprehensive staffing solution,
thereby affording the Company the flexibility to provide customized
services based on individual client requirements. By offering a broad
range of staffing services, the Company believes that it will be able (i)
to offer its services on a more cost-effective basis, (ii) to cross
market services to existing and new clients, (iii) to capitalize on new
marketing opportunities with clients demanding comprehensive staffing
services, particularly regional and national companies, and (iv) to
solidify long-term relationships with clients.
o CONTINUE TO DEVELOP NICHE MARKETS. As U.S. corporations have
become more accustomed to using specialized employees on a temporary
basis, the Company has developed a strong reputation in certain markets
either by focusing on specific industries, such as aerospace,
petrochemical and insurance, or by providing temporary employees with
specialized skills, such as engineers, computer technicians and health
care specialists. These "niche" markets tend to yield longer-term
staffing placements and, in many instances, higher margins. The Company
intends to continue to expand its services in these speciality markets by
leveraging the Founding Companies' expertise on a company-wide basis and
to pursue additional niche market opportunities.
o CONTINUE TO DEVELOP LONG-TERM CLIENT RELATIONSHIPS. The Company's
emphasis on providing high quality, value-added staffing solutions has
enabled it to establish long-term relationships with a number of clients.
The Company's 25 largest clients have utilized its services on average
for approximately eight years. By continuing to focus on providing
superior client service and by continuing to expand its range of
services, the Company intends to further its relationships with
long-standing clients and to establish long-term relationships with new
clients. The Company believes that long-standing client relationships
provide it with the in-depth knowledge necessary to continue to provide
focused and customized service, affording the Company with an advantage
over competitors.
o INCREASE OPERATING EFFICIENCIES. The Company believes that it can
provide significant opportunities to achieve cost savings and greater
operating efficiencies that are not available to the Founding Companies
on an individual basis. The Company intends to support its subsidiaries
and branch offices by combining a number of general and administrative
functions at the corporate level, such as risk management, certain
purchasing (including workers' compensation and health insurance), cash
management, human resource and other systems and administrative support
services. The Company will also implement a program to identify "best
practices" among the Founding Companies to enhance operating
efficiencies that can be implemented successfully throughout its
operations. However, while maintaining strong operating and financial
controls at the corporate level, the Company will also maintain a
decentralized operating structure at the local level that will retain the
entrepreneurial spirit present in each of the Founding Companies and will
allow the Company to capitalize on the considerable local and regional
market knowledge and customer relationships possessed by the Founding
Companies.
o FOCUS ON INTERNAL GROWTH OPPORTUNITIES. A key component of the
Company's strategy is to build on the Founding Companies' history of
internal growth. By combining the Founding Companies, Nationwide Staffing
will be able to significantly expand the available service offering of
each individual Founding Company, thereby allowing them to present a
wider variety of
5
<PAGE>
services to both existing clients and potential clients. This wider
service offering will also appeal to regional or national companies
searching for a one-stop source of staffing solutions who previously may
not have considered utilizing a Founding Company on a stand alone basis.
Furthermore, the Company's assumption of many administrative functions
formerly carried out by the Founding Companies will allow them to devote
increased management efforts towards the cultivation of new clients.
o EXPAND THROUGH ACQUISITIONS. The Company believes that providers
of temporary staffing and PEO services in the United States are highly
fragmented and consolidating, thereby offering significant opportunities
for the Company to complement its internal growth by aggressively
pursuing strategic acquisitions. The key objectives of the Company's
acquisition program are (i) to enhance the Company's position in its
existing niche markets and to establish a position in new niche markets,
(ii) to broaden further the Company's range of staffing services, (iii)
to enter new geographic markets, and (iv) to expand the Company's
presence within its existing geographic markets. The Company's focus will
be to acquire companies that have a history of growth and profitability,
a strong management team, a reputation for quality services and the
infrastructure necessary to be a core business into which other
operations may be consolidated. The Company believes that there are
significant opportunities to expand by acquiring companies that satisfy
the Company's acquisition criteria. Once the Company has entered a
geographic market, the Company will also pursue "tuck-in" acquisitions
of smaller companies whose operations can be assimilated into an existing
operation thereby leveraging the Company's established infrastructure.
THE OFFERING
Common Stock offered by the Company................... 3,800,000 Shares
Common Stock to be outstanding after the Offering..... 8,671,433 Shares(1)
Use of Proceeds....................................... To pay the cash portion
of the purchase prices
for the Founding
Companies, to repay the
debt of the Founding
Companies assumed by the
Company in the Mergers,
to pay the expenses
incurred in connection
with the organization of
Nationwide Staffing and
the Offering, and for
working capital and
general corporate
purposes, including
future acquisitions. See
"Use of Proceeds."
NYSE symbol........................................... STF
- ------------
(1) Includes (i) 1,300,715 shares of Common Stock previously issued and now held
by WJG Capital, L.L.C. ("WJG Capital") and management of Nationwide
Staffing (1,083,929 shares of which will be exchanged for Restricted Common
Stock prior to the consummation of this Offering) and (ii) 3,570,718 shares
of Common Stock to be issued to the stockholders of the Founding Companies
in connection with the Mergers and excludes (a) 50,000 shares of Common
Stock reserved for issuance upon exercise of outstanding warrants, (b) up to
850,000 shares available for issuance under the Company's 1997 Stock Awards
Plan, 325,000 of which have been granted to date, 60,000 of which will be
issued upon consummation of the Offering and (c) up to 100,000 shares
available for issuance under the Company's 1997 Nonqualified Stock Option
Plan for Non-Employee Directors (the "1997 Directors Stock Option Plan"),
20,000 of which have been granted to date and 10,000 of which will be issued
upon the consummation of the Offering. Each share of Restricted Common Stock
is entitled to 0.35 of one vote held on all matters submitted to
stockholders. See "Management -- 1997 Stock Awards Plan", "-- Director
Compensation", "Certain Transactions" and "Description of Capital
Stock."
RISK FACTORS
Prospective investors should carefully consider the factors discussed in
detail elsewhere in this Prospectus under the caption "Risk Factors."
6
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
Nationwide Staffing will acquire the Founding Companies simultaneously with
and as a condition to the consummation of this Offering. The following summary
presents unaudited pro forma combined financial data for the Company, adjusted
for (i) the effects of the Mergers on a historical basis, (ii) the effects of
certain pro forma adjustments to the historical financial statements described
below and (iii) the consummation of the Offering and the application of the net
proceeds therefrom. See "Selected Financial Data," the Unaudited Pro Forma
Combined Financial Statements and the historical Financial Statements of
Nationwide Staffing and the Founding Companies and the Notes thereto included
elsewhere in this Prospectus.
PRO FORMA COMBINED(1)
-------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1996 1996 1997
(IN THOUSANDS)
Income statement data:
Revenues........................ $ 133,768 $ 96,558 $ 120,984
Cost of services................ 116,626 84,372 104,600
------------- --------- ----------
Gross profit.................... 17,142 12,186 16,384
Operating costs and
expenses(2)................... 10,670 7,782 10,345
Depreciation and
amortization(3)............... 1,835 1,110 1,174
------------- --------- ----------
Operating income................ 4,637 3,294 4,865
Interest and other income,
net(4)........................ 95 97 124
------------- --------- ----------
Income before income tax........ 4,732 3,391 4,989
Income tax(5)................... 2,291 1,539 2,339
------------- --------- ----------
Net income...................... $ 2,441 $ 1,852 $ 2,650
============= ========= ==========
Net income per share............ $ 0.32 $ 0.25 $ 0.35
Shares used in computing pro
forma net income per
share(6)...................... 7,523 7,523 7,523
AS OF
SEPTEMBER 30, 1997
--------------------------
PRO FORMA AS
COMBINED(7) ADJUSTED(8)
(IN THOUSANDS)
Balance sheet data:
Working capital................. $ 76 $20,351
Total assets.................... 64,668 77,478
Long-term debt, net of current
portion........................ 518 --
Stockholders' equity(9)......... 27,188 67,363
- ------------
(1) During the periods presented above, the Founding Companies were not under
common control or management. The unaudited pro forma combined income
statement data assume that the Mergers and the Offering were consummated on
January 1, 1996 and are not indicative of the results the Company would have
achieved had these events actually occurred on such date or of the Company's
future performance. Neither the potential cost savings from consolidating
certain operational and administrative functions nor the costs of corporate
overhead have been included in the pro forma combined financial information.
(2) The unaudited pro forma combined income statement data include an aggregate
of approximately $2.7 million, $1.4 million and $1.5 million for the year
ended December 31, 1996 and the nine months ended September 30, 1996 and
1997, respectively, in pro forma reductions in salary, bonuses and
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
7
<PAGE>
benefits paid to the owners of the Founding Companies to which they have
agreed prospectively (collectively, the "Compensation Differential").
(3) Includes amortization of goodwill over a 40-year period.
(4) Adjusted to repay $3.9 million of debt assumed by the Company in the Mergers
and to eliminate the related interest expense.
(5) Assumes a corporate income tax rate of 39% and the non-deductibility of
goodwill amortization for federal income tax purposes.
(6) The number of outstanding shares used in computing net income per share
includes (i) 1,300,715 shares outstanding prior to the Mergers and Offering,
(ii) 3,570,718 shares issued to owners of the Founding Companies, (iii)
32,000 net shares that would be outstanding if the warrants and options were
exercised and the proceeds used to repurchase shares at the Offering Price
and (iv) 2,619,256 of the 3,800,000 shares sold in the Offering necessary to
pay the cash portion of the purchase prices for the Founding Companies, to
repay indebtedness and to pay estimated Offering expenses. The remaining
1,180,744 shares have been excluded from shares outstanding in computing net
income per share and represent the net cash proceeds to be used for working
capital and general corporate purposes.
(7) The unaudited pro forma combined balance sheet data assume that the Mergers
were closed on September 30, 1997.
(8) Adjusted for the sale of the 3,800,000 shares of Common Stock offered hereby
and the application of the net proceeds therefrom. See "Use of Proceeds"
and "Certain Transactions."
(9) Several of the Founding Companies are S corporations. Prior to the Mergers,
these Founding Companies will distribute an aggregate of $0.5 million to
their former stockholders (the "S Corporation Distributions").
Additionally, several of the Founding Companies which are C corporations
have elected to withdraw retained earnings prior to the Mergers in an
aggregate of $1.3 million (the "C Corporation Distributions").
8
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents summary income statement data for each of the
individual Founding Companies' three most recent fiscal years. Operating income
has not been adjusted for the Compensation Differential, potential cost savings
from consolidating certain operational and administrative functions or the costs
of corporate overhead. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Introduction" and the historical
Financial Statements of the Founding Companies and the Notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED(1) ENDED SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALTERNATIVE SOLUTIONS
Revenues........................ $ 11,461 $ 12,381 $ 13,681 $ 9,659 $ 11,219
Operating income................ 159 90 162 101 475
ASAP
Revenues........................ 3,370 4,099 6,132 4,379 7,275
Operating income................ 356 380 579 492 664
CARDINAL
Revenues........................ 14,136 17,531 20,292 14,097 14,861
Operating income................ 155 103 5 285 101
EMPLOYMENT ENTERPRISES
Revenues........................ 29,252 33,172 36,675 26,957 33,071
Operating income................ 161 226 241 153 858
EVINS GROUP
Revenues........................ 5,954 6,743 7,833 5,346 7,000
Operating income (loss)......... (140) (64) 379 160 207
GTS
Revenues........................ 25,162 23,167 28,661 20,824 31,892
Operating income................ 437 336 853 717 1,197
HP SERVICES
Revenues........................ 5,868 6,488 9,063 6,755 6,676
Operating income................ 310 410 479 456 584
TECHNOLOGY PLUS
Revenues........................ 6,580 9,828 12,256 8,541 8,990
Operating income................ 172 379 490 396 367
</TABLE>
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(1) The fiscal years presented are as follows: Alternative Solutions -- the
fiscal years ended April 30, 1995, 1996 and 1997; Cardinal -- the fiscal
years ended June 30, 1995, 1996 and 1997; Employment Enterprises -- the
fiscal years ended November 30, 1994 and 1995 and the year ended December
31, 1996; and ASAP, Evins Group, GTS, HP Services and Technology Plus -- the
years ended December 31, 1994, 1995 and 1996.
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RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK.
ABSENCE OF COMBINED OPERATING HISTORY. Nationwide Staffing was organized
in February 1997 but has conducted no operations and generated no revenues to
date. Nationwide Staffing has entered into definitive agreements to acquire the
Founding Companies simultaneously with and as a condition to the closing of this
Offering. The Founding Companies have been operating as separate, independent
entities and there can be no assurance that the Company will be able to
integrate the operations of these businesses successfully or to institute the
necessary systems and procedures to manage the combined enterprise on a
profitable basis, including accounting and financial reporting systems. The
Company's management group has been assembled only recently and there can be no
assurance that the management group will be able to manage effectively the
combined entity or to implement effectively the Company's business strategy. The
pro forma combined historical financial results of the Founding Companies cover
periods when the Founding Companies and Nationwide Staffing were not under
common control or management and, therefore, may not be indicative of the
Company's future financial or operating results. The inability of the Company to
integrate the Founding Companies successfully will have a material adverse
effect on the Company's business, financial condition and results of operations
and will make it unlikely that the Company's acquisition program will be
successful. See "Business -- Business Strategy" and "Management."
ABILITY TO MANAGE INTERNAL GROWTH. The Company intends to seek to improve
the profitability of the Founding Companies by various means, including
introducing a broader range of staffing services to the Founding Companies and
achieving economies of scale, purchasing savings and operating efficiencies. The
Company's ability to increase the revenues of the Founding Companies will be
affected by various factors, including client acceptance of the expanded
services, changes in the unemployment rates in the United States and in the
local markets in which the Founding Companies operate and the Company's ability
to negotiate lower insurance premiums. Many of these factors are beyond the
control of the Company and there can be no assurance that the Company's
operating and internal growth strategies will be successful or that it will be
able to generate cash flow adequate for its operation and to support internal
growth. See "Business -- Business Strategy."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company also
intends to grow significantly through the acquisition of additional temporary
staffing, staff leasing and complementary businesses. The Company expects to
face competition for acquisition candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition prices. There can
be no assurance that the Company will be able to identify, acquire or manage
profitably additional businesses or to integrate successfully any acquired
businesses into the Company without substantial costs, delays or other
operational or financial problems. Further, acquisitions involve a number of
special risks, including possible adverse effects on the Company's operating
results, diversion of management's attention, failure to retain key personnel of
the acquired businesses and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
may consider acquiring complementary businesses involved in permanent placements
and human resource consulting and there can be no assurance that these
complementary businesses can be successfully integrated. In addition, there can
be no assurance that businesses acquired in the future will achieve anticipated
revenues and earnings. See "Business -- Business Strategy."
RISKS RELATED TO ACQUISITION FINANCING. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be readily predicted. The Company currently intends to finance future
acquisitions by using shares of its Common Stock for a portion of the
consideration to be paid. In the event that the Common Stock does not maintain a
sufficient market value, or potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. Upon completion of this Offering, the Company will
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have approximately $14.8 million of net proceeds remaining for future
acquisitions and working capital after payment of expenses of the Mergers and
this Offering, outstanding Founding Company indebtedness and the cash portion of
the purchase prices for the Founding Companies. If the Company does not have
sufficient cash resources, its growth could be limited unless it is able to
obtain additional capital through debt or equity financing. The Company intends
to obtain a bank line of credit to fund its working capital and acquisition
needs upon consummation of this Offering. However, there can be no assurance
that the Company will be able to obtain the line of credit or other financing it
will need for its acquisition program on terms that the Company deems
acceptable. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY. Demand for the Company's
temporary staffing and permanent placement services is significantly affected by
the general level of economic activity and unemployment in the United States.
When economic activity increases, temporary employees are often added before
full-time employees are hired. However, as economic activity slows, many
companies reduce their utilization of temporary employees prior to undertaking
layoffs of full-time employees. The Company may experience more competitive
pricing pressure during periods of economic downturn. Additionally, decreased
economic activity also leads to a decreased need for permanent placement
services. Therefore, any significant economic downturn could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE OF EACH FOUNDING COMPANY ON CERTAIN CLIENTS. Certain of the
Founding Companies have derived greater than 10% of their revenues for their
most recent fiscal year from certain of their clients. The loss of any such
client would have an adverse impact on the affected Founding Company's
profitability. To the extent any of such clients make up a material portion of
the revenues of Nationwide Staffing after the consummation of the Mergers, the
loss of any such client could have a material adverse effect on the Company's
business, financial condition and results of operations. See "The Company."
DEPENDENCE ON AVAILABILITY OF QUALIFIED TEMPORARY PERSONNEL. In providing
temporary staffing services, the Company depends on its ability to attract,
train and retain personnel who possess the skills and experience necessary to
meet the staffing requirements of its clients. Competition for individuals with
proven skills in certain areas, particularly engineering, medical and technical,
is intense. The Company competes in several markets in which unemployment is
relatively low thereby increasing competition for employees. The Company must
continually evaluate, train and upgrade its base of available personnel to keep
pace with the needs of its clients. There can be no assurance that qualified
personnel will continue to be available to the Company in sufficient numbers and
on terms of employment acceptable to the Company. The inability to attract and
retain qualified personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Industry Overview."
SUBSTANTIAL COMPETITION AND NEW MARKET ENTRANTS. The provision of
temporary staffing services is highly competitive and highly fragmented,
consisting of more than 9,300 firms. There are limited barriers to entry and new
competition frequently enters the market. Principal competitors in the Company's
markets are generally national temporary personnel companies with substantially
greater financial and marketing resources than those of the Company. Due to the
limited barriers to entry and as the temporary staffing industry grows, the
Company expects additional well-organized competitors to enter markets serviced
by the Company, some of which may have greater resources than the Company. Such
competition could limit the Company's ability to maintain or increase its market
share in the temporary staffing industry or maintain or increase gross margins
on temporary staffing services, any one of which could have a material adverse
effect on the financial condition and results of operations of the Company.
The provision of PEO services is also highly fragmented, with approximately
1,800 companies performing PEO services to some extent. The Company believes
that many of the PEO companies have limited operations; however, several leading
participants are significantly larger than the Company's PEO operations. The
Company encounters competition from "fee for service" companies, such as
payroll processing firms, insurance companies and human resource consultants.
Moreover, the Company expects that, as the provision of PEO services grows and
its regulatory framework becomes better established, well-organized competitors
with greater resources than the Company may enter the PEO market, possibly
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<PAGE>
including large "fee for service" companies currently providing a more limited
range of services. See "Business -- Industry Overview" and
" -- Competition."
WORKERS' COMPENSATION INSURANCE AND BENEFIT PLANS; UNEMPLOYMENT TAXES AND
WORKERS COMPENSATION RATES. The maintenance of workers' compensation and health
insurance plans that cover worksite employees will be a significant part of the
Company's business. The health and workers' compensation contracts used by the
Founding Companies are provided by vendors with whom such Founding Companies
have established relationships and on terms that the Company believes to be
favorable. While the Company believes that replacement contracts could be
secured on competitive terms without causing significant disruption to the
Company's business, there can be no assurance in this regard. The Company is
evaluating various forms of workers' compensation insurance and will implement a
new program at such time as, in management's judgment, a more cost-effective
program is identified. The Company's future workers' compensation insurance
premiums are subject to adjustment based upon audits of the Company's employee
classification practices and other data provided to the insurance carrier.
Health insurance premiums, state unemployment taxes and workers'
compensation rates will be determined, in part, by the Company's (including the
Founding Companies) claims experience and will comprise a significant portion of
the Company's direct costs. The Company will employ extensive risk management
procedures in an attempt to control its claims incidence. However, should the
Company experience a large increase in claim activity, its unemployment taxes,
health insurance premiums or workers' compensation insurance rates may increase.
The Company's ability to incorporate such increases into its service fees to
clients could be constrained by contractual arrangements with clients, which
could result in a delay before such increases can be reflected in service fees.
As a result, such increases could have a material adverse effect on the
Company's financial condition or results of operations.
LIABILITY FOR WORKSITE EMPLOYEE PAYROLL. In both the temporary staffing
and PEO situations, the Company is obligated to pay the salaries, wages and
related benefit costs and payroll taxes of worksite employees. This obligation
will be as a principal, not merely as an agent of the client company and must be
fulfilled even if the client company does not make timely payment to the
Company. No assurance can be given whether the Company's ultimate liability for
worksite employee payroll and benefits costs will have a material adverse effect
on its financial condition or results of operations.
LIABILITIES FOR CLIENT AND EMPLOYEE ACTIONS. By providing temporary
staffing and PEO services, the Company will be exposed to the risk of claims
under employment and discrimination laws. A number of legal issues remain
unresolved with respect to the employment arrangement between a PEO and its
worksite employees. The Company's PEO agreement will establish the contractual
division of responsibilities between the Company and its clients for various
personnel management matters, including compliance with and liability under
various governmental regulations. However, the Company may act as a co-employer
in its PEO business, thereby subjecting it to liability for violations of these
or other laws despite these contractual provisions, even if it does not
participate in such violations. In addition, worksite employees may be deemed to
be agents of the Company, subjecting the Company to liability for the actions of
such worksite employees. See "Regulation."
GOVERNMENT REGULATION. The Company's costs could increase if there are any
material changes in government regulations. Recent federal and certain state
legislative proposals have included provisions extending health insurance
benefits to employees who do not presently receive such benefits. Due to the
wide variety of national and state proposals currently under consideration, the
impact of such proposals cannot be predicted. There can be no assurance that the
Company will be able to increase the fees charged to its clients in a timely
manner and in a sufficient amount to cover increased costs related to any new
benefits that may be extended to temporary employees. It is not possible to
predict whether other legislation or regulations affecting the Company's
operations will be proposed or enacted at the federal or state level. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Regulation."
While many states do not explicitly regulate PEO activities, 15 states have
passed laws that have licensing or registration requirements for PEO companies
and other states are considering such regulation. Immediately after the closing
of this Offering, the Company will conduct PEO operations in five of the
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<PAGE>
states that regulate PEO operations. Such laws vary from state to state but
generally provide for monitoring the fiscal responsibility of PEO companies.
There can be no assurance that the Company will be able to satisfy licensing
requirements or other applicable regulations of any particular state in which
the Company subsequently commences PEO operations. For a more complete
description of these regulations, see "Regulation -- PEO."
In providing temporary staffing services, the Company is treated as the
employer of record. In providing PEO services, the Company assumes certain
obligations and responsibilities of an employer. However, laws applicable to the
employment situation (such as ERISA and federal and state employment tax laws)
do not specifically address the obligations and responsibilities of
non-traditional employers such as PEO companies. In addition, many states have
not addressed the PEO relationship for purposes of compliance with applicable
state laws governing the employer/employee relationship. If these or other
federal or state laws are ultimately applied to the Company's PEO relationship
with its worksite employees in a manner adverse to the Company, such an
application could adversely affect the Company's results of operations or
financial condition. See "Regulation." Additionally, the federal immigration
laws and regulations are becoming increasingly complex, stringent and expensive,
and there can be no assurance that continued compliance with existing or future
laws or regulations will not adversely affect the operations of the Company.
The IRS has established an Employee Leasing Market Segment Group for the
purpose of identifying specific compliance issues prevalent in certain segments
of the PEO industry. One issue that has arisen is whether a PEO can be a
co-employer of worksite employees, including officers and owners of client
companies, for various purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), including participation in the PEO's 401(k) plan. Should
the IRS conclude that a PEO is not a "co-employer" of worksite employees for
purposes of the Code, worksite employees could not continue to make salary
deferral contributions to a 401(k) Plan or pursuant to a cafeteria plan or
continue to participate in certain other employee benefit plans which may be
established by the Company. The Company believes that, although unfavorable to
the Company, a prospective application of such a conclusion (that is, one
applicable only to periods after the conclusion by the IRS is finalized) would
not have a material adverse effect on its financial position or results of
operations, as the affected Founding Company could continue to make available
similar benefit programs to its client companies at comparable cost. If such
conclusion were applied retroactively to disqualify a 401(k) Plan of the
Founding Companies, the employees' vested account balances under the 401(k) Plan
would become taxable and the affected Founding Company would lose its tax
deductions to the extent its matching contributions and profit sharing
contributions were not vested, a Founding Company's Plan trust would become a
taxable trust and such Founding Company would be subject to liability with
respect to trust earnings and its failure to withhold applicable taxes with
respect to certain contributions. Further, the affected Founding Company or the
Company would be subject to liability, including penalties, with respect to its
cafeteria plan for the failure to withhold and pay taxes applicable to salary
deferral contributions by employees, including worksite employees. In such a
scenario, the affected Founding Company or the Company also would face the risk
of client dissatisfaction and potential litigation. Retroactive application by
the IRS of an adverse conclusion could have a material adverse effect on the
Company's financial position and results of operations.
POTENTIAL MALPRACTICE LIABILITY AND INSURANCE. Providing engineering,
specialty medical, legal and accounting services entails an inherent risk of
professional malpractice and other similar claims. The Company expects to
maintain insurance coverage that it believes will be adequate both as to risks
and amounts. Each Founding Company will maintain its existing insurance coverage
at its existing levels after the Mergers. The Company is evaluating various
insurance options and intends to implement a new program at such time as, in
management's judgment, a more cost-effective program is identified. The Company
believes that such insurance will extend to professional liability claims that
may be asserted against worksite employees of the Company. While the Company
believes that replacement insurance contracts could be secured on competitive
terms without causing significant disruption to the Company's business, there
can be no assurance in this regard. Additionally, although management believes
its professional malpractice coverage amounts are adequate, there can be no
assurance that the Company's actual future claims will not exceed the coverage
amounts. Should the Company experience a large claim on
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<PAGE>
its professional malpractice insurance, the rates for such insurance may
increase. The Company's ability to incorporate such increases into service fees
to clients could be constrained by contractual arrangements with clients, which
could result in a delay before such increases can be reflected in service fees.
As a result, such increases could have a material adverse effect on the
Company's financial condition or results of operations.
FLUCTUATIONS IN OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY RESULTS. The
Company's results of operations may fluctuate significantly from quarter to
quarter or year to year. Results may fluctuate due to a number of factors,
including the timing of future acquisitions and branch office openings, seasonal
fluctuations in the businesses of the Company's clients, seasonal fluctuations
in the demand for staffing services and competitive factors. Accordingly,
quarterly comparisons of the Company's revenues and operating results should not
be relied on as an indication of future performance and the results of any
quarterly period may not be indicative of results to be expected for a full
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RELIANCE ON KEY PERSONNEL. Due in part to the Company's decentralized
business strategy, the Company will be highly dependent on the continuing
efforts of its executive officers and the senior management of the Founding
Companies, and will likely depend on the senior management of any significant
business it acquires in the future. The business or prospects of the Company
could be affected adversely if these persons do not continue in their management
role until the Company is able to attract and retain qualified replacements.
VOTING CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following the
completion of the Mergers and this Offering, the Company's executive officers
and directors, former stockholders of the Founding Companies and entities
affiliated with any of them will hold shares representing voting interests of
approximately 48.2% (45.3% if the Underwriters' over-allotment option is
exercised in full), assuming the conversion by certain individuals of Common
Stock into Restricted Common Stock. These persons, if acting in concert, could
exercise control over the Company's affairs, elect the entire Board of Directors
or control the outcome of any matter submitted to a vote of stockholders. See
"Principal Stockholders."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. Upon the closing of the Mergers and the Offering, 8,671,433 (9,241,433
if the Underwriters' over-allotment option is exercised) shares of Common Stock
will be outstanding. The 3,800,000 shares sold in this Offering (other than
shares that may be purchased by affiliates of the Company) will be freely
tradable. The remaining outstanding shares may be resold publicly only following
their registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption from registration
(such as provided by Rule 144 and Rule 145 promulgated under the Securities Act
following a one-year holding period for previously unregistered shares). The
holders of those remaining shares have certain rights to have their shares
registered in the future under the Securities Act, but may not exercise such
registration rights and have agreed with the Company that they will not sell,
transfer or otherwise dispose of any of their shares, for one year following the
closing of this Offering. See "Shares Eligible for Future Sale." On completion
of this Offering, the Company also will have outstanding warrants to purchase up
to 50,000 shares of Common Stock, outstanding options to purchase 415,000 shares
of Common Stock and 535,000 shares of Common Stock reserved for issuance
pursuant to the Company's 1997 Stock Awards Plan and the Company's 1997
Directors Stock Option Plan. The Company intends to register all the shares
subject to the options under the Securities Act for public resale. The Company
intends to register 3,000,000 additional shares of Common Stock under the
Securities Act within 90 days after completion of the Offering for issuance in
connection with future acquisitions. These shares will be subject to the same
180-day lockup period agreed to by certain affiliates of the Company in this
Offering and thereafter generally will be freely tradable after their issuance
by persons not affiliated with the Company unless the Company contractually
restricts their resale. Sales, or the availability for sale of, substantial
amounts of the Common Stock in the public market could adversely affect
prevailing market prices and the future ability of the Company to raise equity
capital and complete any additional acquisitions for Common Stock. See "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to this
Offering, there has been no public market for the Common Stock. Therefore, the
initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives of the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
the Offering. See
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<PAGE>
"Underwriting" for the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for listing on the New
York Stock Exchange. However, there can be no assurance that an active trading
market will develop subsequent to this Offering or, if active trading develops,
that it will be sustained. Additionally, the Company must maintain certain
financial and equity thresholds to continue to have its Common Stock listed on
the New York Stock Exchange.
After this Offering, the market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including the timing
of any acquisitions by the Company, variations in the annual or quarterly
financial results of the Company or its competitors, changes by financial
research analysts in their estimates of the earnings of the Company, conditions
in the economy in general or in the Company's industry in particular,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations) affecting the Company or the staffing
business. From time to time, the stock market experiences significant price and
volume volatility, which may affect the market price of the Common Stock for
reasons unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in this
Offering will experience immediate and substantial dilution in the net tangible
book value of their stock of $10.01 per share and may experience further
dilution in that value from issuances of Common Stock in connection with future
acquisitions. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The Company's Amended
and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), authorizes the Board of Directors to issue, without
stockholder approval, one or more series of preferred stock having such
preferences, powers and relative, participating, optional and other rights
(including preferences over the Common Stock respecting dividends and
distributions and voting rights) as the Board of Directors may determine. The
existence of this "blank-check" preferred stock could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise. In addition, the Company's
Certificate of Incorporation provides for a classified Board of Directors, which
may also have the effect of inhibiting or delaying a change in control of the
Company. Certain provisions of the Delaware General Corporation Law may also
discourage takeover attempts that have not been approved by the Board of
Directors. See "Management" and "Description of Capital Stock."
NONPAYMENT OF DIVIDENDS. The Company has never paid any cash dividends and
intends for the foreseeable future to retain any earnings otherwise available
for dividends for the future operation and growth of the Company's business. In
addition, the Company's financing arrangements will likely prohibit the payment
of cash dividends on its capital stock. See "Dividend Policy."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of any number of factors, including the risk factors set forth above
and elsewhere in this Prospectus. When used in this Prospectus, the words
"anticipate," "estimate," "believe," "project" and similar expressions
are intended to identify forward-looking statements. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated,
believed or projected. Among the key factors that have a direct bearing on the
Company's results of operations and the staffing business are the effects of
general economic factors and of various governmental regulations, the
fluctuation of the Company's direct costs and the costs and effectiveness of the
Company's business strategy. These and other factors are discussed above and
elsewhere in this Prospectus.
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THE COMPANY
Nationwide Staffing was organized in February 1997 to become a leading
national provider of comprehensive staffing solutions to businesses,
professional and service organizations and governmental agencies. The Company
provides professional, skilled industrial and commercial (clerical and light
industrial) employees to over 2,400 clients in a wide variety of industries,
including aerospace, petrochemicals, petroleum refining, insurance, food
processing, legal and high technology, and to the government sector. The
Company's pro forma combined 1996 revenues of $133.8 million were derived
approximately 70% from temporary staffing and approximately 30% from staff
leasing or PEO services. Upon consummation of the Offering, Nationwide Staffing
will acquire through the Mergers the eight Founding Companies, which have been
in business for an average of 15 years and currently have 29 offices and
operations in 42 states and the District of Columbia. The following is a
description of the Founding Companies:
ALTERNATIVE SOLUTIONS, INC. -- Alternative Solutions, Inc.
("Alternative Solutions"), founded in 1982, is headquartered in Boston,
Massachusetts and also has branch offices in Springfield, Massachusetts and
East Hartford, Connecticut. Alternative Solutions provides temporary and
permanent, administrative and technical workers in specialized areas such
as the medical, legal and insurance industries, and PEO services. In
addition, Alternative Solutions also provides temporary light industrial
workers to various manufacturing industries. As of September 30, 1997,
Alternative Solutions provided approximately 743 worksite employees serving
243 clients in the Boston, Springfield and East Hartford areas. None of
Alternative Solutions' customers accounted for more than 10.0% of
Alternative Solutions' revenue for the nine-month period ended September
30, 1997. Stephen M. Alter, Chief Executive Officer and founder of
Alternative Solutions and Keith D. Alter, President of Alternative
Solutions, have been employed by Alternative Solutions since its inception
and will sign three-year employment agreements to continue in their present
positions following consummation of the Offering. In addition, Mr. Stephen
Alter will become a director of the Company.
A.S.A.P. SERVICES, INC. -- A.S.A.P. Services, Inc. ("ASAP"),
founded in 1990, is headquartered in Springdale, Arkansas and has branch
offices in Fayetteville and Rogers, Arkansas and Joplin, Missouri. ASAP
specializes in supplying light industrial labor to the food processing and
manufacturing industries. As of September 30, 1997, ASAP provided
approximately 732 worksite employees serving approximately 34 clients,
primarily in Arkansas and Missouri. One of ASAP's clients, Butterball
Turkey Company, a division of Armour Swift Eckrich, a division of Conagra
Foods Incorporated, generated approximately 64.9% of ASAP's revenue for the
nine-month period ended September 30, 1997. Brenda S. Dougan and L. Paul
Dobbs, the President and Vice President of ASAP, respectively, will sign
three-year employment agreements to continue in their present positions
with ASAP following consummation of this Offering. In addition, Ms. Dougan
will become a director of the Company.
CARDINAL SERVICES, INC. -- Cardinal Services, Inc. ("Cardinal"),
founded in 1988, is headquartered in Coos Bay, Oregon and has four branch
offices in Eugene, Roseburg, Florence and Newport, Oregon. Cardinal
provides temporary and leased employees to numerous industries, including
the timber, paper and light industrial industries. As of September 30,
1997, Cardinal employed approximately 1,390 worksite employees serving
approximately 381 clients in Oregon and California. None of Cardinal's
clients accounted for more than 10.0% of Cardinal's revenue for the
nine-month period ended September 30, 1997. Quincy T. Freeman, Chief
Executive Officer of Cardinal, will sign a three-year employment agreement
to continue in his present position with Cardinal following consummation of
this Offering. In addition, Mr. Freeman will become a director of the
Company.
EMPLOYMENT ENTERPRISES, INC. -- Employment Enterprises, Inc.,
("Employment Enterprises") is headquartered in Manassas, Virginia and was
founded in 1980. Employment Enterprises operates through two wholly-owned
subsidiaries: (i) Temporary Solutions, Inc., a temporary staffing company
and (ii) Checks and Balances, Inc, a PEO. Employment Enterprises has five
branch offices in North Carolina and Virginia. Both subsidiaries specialize
in providing professional and clerical workers to
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the insurance and high technology industries. As of September 30, 1997,
Employment Enterprises provided approximately 2,606 worksite employees in
39 states and the District of Columbia serving over 1,500 clients. Two of
Employment Enterprises' clients, Allstate Insurance Company and Nationwide
Mutual Insurance Company, generated approximately 52.6% and 39.3%
respectively, of Employment Enterprises' revenue for the nine-month period
ended September 30, 1997. Jana W. Yeates and Lovey L. Hammel have served as
the Chief Executive Officer and President, respectively, of Employment
Enterprises since its inception and both will sign three-year employment
agreements to continue in their present positions with Employment
Enterprises following consummation of the Offering. In addition, Ms. Hammel
will become a director of the Company.
EVINS PERSONNEL GROUP -- Evins Personnel Group is comprised of an
affiliated group of corporations that are collectively referred to in this
Prospectus as the "Evins Group." The first Evins Group corporation was
founded in 1967, and all the companies are headquartered in Austin, Texas.
Evins Group maintains branch offices in Austin, Abilene, Killeen and San
Angelo, Texas and specializes in providing temporary staffing and permanent
placements to companies in the Austin and central Texas area and to various
agencies of the State of Texas. Evins Group's employees fill a wide range
of roles including clerical and computer, circuit board and semi-conductor
fabrication. As of September 30, 1997, Evins Group provided approximately
539 worksite employees serving approximately 168 clients. Various agencies
of the State of Texas accounted for approximately 46.9% of Evins Group's
revenue for the nine-month period ended September 30, 1997. Mary E. Evins
has served as the President of Evins Group since its inception and will
sign a three-year employment agreement to continue in her present position
with Evins Group following consummation of this Offering. In addition, Ms.
Evins will become a director of the Company.
GLOBAL TECHNICAL SERVICES, INC. -- Global Technical Services, Inc.
("GTS"), located in Fort Worth, Texas, began operations in 1973 as a
division of The Global Group, Inc., a privately held printing and
publishing company located in Fort Worth. GTS was operated as a division of
The Global Group until 1989 when it was spun off as a separate corporation.
As of September 30, 1997, GTS provided approximately 623 worksite employees
in 12 states serving 31 clients. GTS specializes in supplying engineers and
skilled and unskilled labor to the aerospace industry. Two of GTS's
customers, Lockheed Martin & Bell Helicopter (Textron), generated
approximately 34.6% and 21.7%, respectively, of GTS's revenues for the
nine-month period ended September 30, 1997. Paul L. Milligan has served as
the President of GTS since 1989 and will sign a three-year employment
agreement to continue in his present position with GTS following
consummation of this Offering. In addition, Mr. Milligan will become a
director of the Company.
HP SERVICES, INC. -- HP Services, Inc. ("HP Services"), was founded
in 1990 to acquire the employees of Gulf Coast Maintenance, Inc., which had
been in operation since 1978. HP Services is headquartered in Alvin, Texas
and specializes in supplying light industrial labor to the petrochemical
industry. As of September 30, 1997, HP Services provided approximately 482
worksite employees to 8 clients located in the Texas Gulf Coast region.
Three of HP Services' clients, Formosa Plastics Corporation, USA, Amtopp
Plastics, Incorporated and Seadrift Coke, Incorporated generated
approximately 39.3%, 16.9% and 18.7%, respectively of HP Services revenue
for the nine-month period ended September 30, 1997. Gary D. Pitts has
served as President of HP Services since its inception and will sign a
three-year employment agreement to continue in his present position with HP
Services following consummation of this Offering. In addition, Mr. Pitts
will become a director of the Company.
TECHNOLOGY PLUS, INC. -- Technology Plus, Inc. ("Technology Plus"),
founded in 1985, is headquartered in Lee's Summit, Missouri, a suburb of
Kansas City, Missouri and has branch offices in St. Louis, Missouri; Panama
City, Florida and New Orleans, Louisiana. Technology Plus specializes in
providing engineers, designers, CAD personnel and CAD services to the
petrochemical, oil and gas refining and gas transportation industries. As
of September 30, 1997, Technology Plus provided approximately 150 worksite
employees in 22 states to approximately 50 clients. Four of Technology
17
<PAGE>
Plus' clients, Monsanto Company, Bayer Corporation, Waldenar S. Nelson and
Company Incorporated, and Bechtel Corporation, generated approximately
29.1%, 17.8%, 13% and 11%, respectively, of Technology Plus, revenue for
the nine-month period ended September 30, 1997. Mr. Richard L. Bronson and
Bobby W. Watson have served as President and Executive Vice President, of
Technology Plus, for twelve and seven years, respectively, and both will
sign three-year employment agreements to continue in their present
positions with Technology Plus following consummation of the Offering. In
addition, Mr. Bronson will become a director of the Company.
The Company's mailing address is 600 Travis, Suite 6200, Houston, Texas
77002 and its telephone number is (713) 223-7742.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, after deducting the underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $40.2 million ($46.8
million if the Underwriters' over-allotment option is exercised in full).
Of the net proceeds, $21.5 million will be used to pay the cash portion of
the purchase prices for the Founding Companies, of which approximately $15.1
million will be paid to former stockholders of the Founding Companies who will
become directors or holders of more than 5.0% of the Common Stock of the
Company. Approximately $3.9 million of the net proceeds will be used to repay
indebtedness assumed by the Company in the Mergers. Of such amount, $0.3 million
and $1.2 million are owed to stockholders and affiliates of Evins Group and GTS,
respectively. See "Certain Transactions."
The approximately $14.8 million of remaining net proceeds will be available
for working capital and general corporate purposes, which are expected to
include future acquisitions. The Company currently has no binding agreements or
letters of intent to effect any acquisitions. Pending such uses, the net
proceeds will be invested in short-term, interest-bearing, investment grade
securities.
The Company is currently negotiating with various banks to obtain a $40
million credit facility, which the Company believes will be available upon the
closing of this Offering. There can be no assurance that any line of credit will
be obtained or that, if obtained, it will be on terms that are favorable to the
Company. See "Risk Factors -- Risks Related to Acquisition Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions. The Company does not anticipate paying any cash dividends on its
Common Stock for the foreseeable future. In addition, in the event the Company
is successful in obtaining one or more lines of credit, it is likely that any
such facility will include restrictions on the ability of the Company to pay
dividends without the consent of the lender. See "Management Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Combined."
Several of the Founding Companies will make S Corporation Distributions and
C Corporation Distributions prior to the Mergers totaling approximately $1.8
million.
19
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term debt
obligations and capitalization as of September 30, 1997 (i) of the Company on a
pro forma combined basis to give effect to the Mergers; and (ii) of the Company
on a pro forma combined as adjusted basis to give effect to both the Mergers and
the Offering and the application of the estimated net proceeds therefrom. See
"Selected Financial Data" and "Use of Proceeds." This table should be read
in conjunction with the Unaudited Pro Forma Combined Financial Statements of the
Company and the Notes thereto included elsewhere in this Prospectus.
SEPTEMBER 30, 1997
-------------------------
PRO FORMA
COMBINED AS ADJUSTED
(IN THOUSANDS)
Total short-term debt................ $ 3,371 $--
========= ===========
Long-term debt obligations, less
current maturities................. $ 518 $--
Stockholders' equity:
Common Stock: $0.01 par value,
55,000,000 shares authorized;
4,871,433 and 8,671,433 shares
issued and outstanding,
respectively(1)............... 49 87
Additional paid-in capital...... 28,954 81,473
Retained earnings............... (1,815) (14,197)
--------- -----------
Total stockholders'
equity..................... 27,188 67,363
--------- -----------
Total
capitalization........ $27,706 $67,363
========= ===========
- ------------
(1) Excludes (a) 50,000 shares of Common Stock reserved for issuance upon
exercise of outstanding warrants, (b) up to 850,000 shares available for
issuance under the Company's 1997 Stock Awards Plan, 325,000 of which have
been granted to date, 60,000 of which will be issued upon consummation of
the Offering and (c) up to 100,000 shares available for issuance under the
Company's 1997 Directors Stock Option Plan, 20,000 of which have been
granted to date and 10,000 of which will be issued upon the consummation of
the Offering. See "Management -- 1997 Stock Awards Plan", "-- Director
Compensation", "Certain Transactions" and "Description of Capital
Stock."
20
<PAGE>
DILUTION
The deficit in pro forma combined net tangible book value of the Company at
September 30, 1997 was approximately $18.6 million, or $3.81 deficit per share
of Common Stock. The deficit in pro forma combined net tangible book value per
share represents the amount of the Company's stockholders' equity, less
intangible assets, divided by the number of shares of Common Stock issued and
outstanding after giving effect to the Mergers. Net tangible book value dilution
per share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the Offering and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offering. After giving effect to the sale of 3,800,000 shares of Common
Stock by the Company in the Offering at $12.50 per share and the application of
the estimated net proceeds therefrom, the pro forma net tangible book value of
the Company as of September 30, 1997 would have been $21.6 million or $2.49 per
share. This represents an immediate increase in pro forma net tangible book
value of $6.30 per share to stockholders as of September 30, 1997 and an
immediate dilution in pro forma net tangible book value of $10.01 per share to
purchasers of Common Stock in the Offering. The following table illustrates the
dilution per share:
Assumed initial public offering price
per share.......................... $ 12.50
Pro forma deficit in net
tangible book value per share
before the Offering............ ($ 3.81)
Increase in pro forma net
tangible book value per share
attributable to new
investors...................... 6.30
---------
Pro forma net tangible book value per
share after the Offering........... 2.49
---------
Dilution per share to new
investors.......................... $ 10.01
=========
The following table shows, on a pro forma basis as of September 30,1997,
the difference between existing stockholders prior to the Offering and new
investors with respect to the number of shares purchased from the Company, the
aggregate cash consideration paid and the average price per share paid to the
Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
----------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders (including
owners of Founding Companies)...... 4,871,433 56.2% $(18,576) (64.2)% $ (3.81)
New investors........................ 3,800,000 43.8% 47,500 164.2% $ 12.50
--------- ------- -------- -------
Total........................... 8,671,433 100.0% $ 28,924 100.0%
========= ======= ======== =======
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies and Nationwide Staffing
before this Offering of $5.4 million, reduced to reflect: (i) the $21.5
million of cash consideration payable to the stockholders of the Founding
Companies in connection with the Mergers; and (ii) the S Corporation
Distributions and C Corporation Distributions and other distributions with
a total effect of $2.5 million. See "Use of Proceeds" and "Capitalization."
21
<PAGE>
SELECTED FINANCIAL DATA
Nationwide Staffing will acquire the Founding Companies simultaneously with
and as a condition to the consummation of this Offering. For financial statement
presentation purposes, however, Alternative Solutions has been identified as the
accounting acquiror. The following selected historical financial data of
Alternative Solutions as of, April 30, 1995, 1996 and 1997, December 31, 1996
and September 30, 1997 and for the respective fiscal years then ended and the
nine months ended September 30, 1997 have been derived from the audited
financial statements of Alternative Solutions included elsewhere in this
Prospectus. The following selected historical financial data for Alternative
Solutions as of April 30, 1993 and 1994 and September 30, 1996 for the
respective fiscal years then ended and for the nine months ended September 30,
1996 have been derived from unaudited financial statements and, in the opinion
of Alternative Solutions, reflect all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of such data. The
following summary unaudited pro forma financial data presents certain data for
the Company, as adjusted for (i) the effects of the Mergers on a historical
basis, (ii) the effects of certain pro forma adjustments to the historical
financial statements described below and (iii) the consummation of the Offering
and the application of the net proceeds therefrom. See the Unaudited Pro Forma
Combined Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED APRIL 30, YEAR ENDED SEPTEMBER 30,
----------------------------------------------------- DECEMBER 31, --------------------
1993 1994 1995 1996 1997 1996 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
ALTERNATIVE SOLUTIONS:
Revenues............................. $ 7,050 $ 10,053 $ 11,461 $ 12,381 $ 13,681 $ 12,855 $ 9,659 $ 11,219
Cost of services..................... 5,238 7,742 8,990 9,805 10,278 9,792 7,390 8,443
--------- --------- --------- --------- --------- ------------ --------- ---------
Gross profit......................... 1,812 2,311 2,471 2,576 3,403 3,063 2,269 2,776
Operating costs and expenses......... 1,641 2,130 2,312 2,486 3,241 2,988 2,168 2,301
--------- --------- --------- --------- --------- ------------ --------- ---------
Operating income..................... 171 181 159 90 162 75 101 475
Interest and other, net.............. (30) (38) (44) (18) 13 (25) 4 21
--------- --------- --------- --------- --------- ------------ --------- ---------
Income before income tax............. 141 143 115 72 175 50 105 496
Income tax expense................... 41 57 51 36 80 15 47 212
--------- --------- --------- --------- --------- ------------ --------- ---------
Net income........................... $ 100 $ 86 $ 64 $ 36 $ 95 $ 35 $ 58 $ 284
========= ========= ========= ========= ========= ============ ========= =========
PRO FORMA COMBINED(1):
Revenues.................................................................................... $133,768 $ 96,558 $ 120,984
Cost of services............................................................................ 116,626 84,372 104,600
------------ --------- ---------
Gross profit................................................................................ 17,142 12,186 16,384
Operating costs and expenses(2)............................................................. 10,670 7,782 10,345
Depreciation and amortization(3)............................................................ 1,835 1,110 1,174
------------ --------- ---------
Operating income............................................................................ 4,637 3,294 4,865
Interest and other, net(4).................................................................. 95 97 124
------------ --------- ---------
Income before income tax.................................................................... 4,732 3,391 4,989
Income tax(5)............................................................................... 2,291 1,539 2,339
------------ --------- ---------
Net income.................................................................................. $ 2,441 $ 1,852 $ 2,650
============ ========= =========
Net income per share........................................................................ $ 0.32 $ 0.25 $ 0.35
Shares used in computing pro forma net income per share(6).................................. 7,523 7,523 7,523
<CAPTION>
ALTERNATIVE SOLUTIONS, INC.
------------------------------------------------------------------------
AS OF APRIL 30, AS OF
--------------------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1996
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital...................... $ 95 $ 70 $ 163 $ 267 $ 378 $ 380
Total assets......................... 1,071 1,637 1,636 1,434 1,976 1,875
Long term debt, net of current
portion............................ -- -- -- -- -- --
Stockholders' equity(9).............. 229 315 387 329 425 434
<CAPTION>
COMBINED COMPANIES
AS OF SEPTEMBER 30, 1997
AS OF -------------------------
SEPTEMBER 30, PRO FORMA AS
1997 COMBINED(7) ADJUSTED(8)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 670 $ 76 $20,351
Total assets......................... 2,094 64,688 77,478
Long term debt, net of current
portion............................ -- 518 --
Stockholders' equity(9).............. 718 27,188 67,363
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
22
<PAGE>
- ------------
(1) During the periods presented above, the Founding Companies were not under
common control or management. The unaudited pro forma combined income
statement data assume that the Mergers and the Offering were consummated on
January 1, 1996 and are not indicative of the results the Company would have
achieved had these events actually occurred on such date or of the Company's
future performance. Neither the savings from consolidating certain
operational and administrative functions nor the costs of corporate overhead
have been included in the pro forma combined financial information.
(2) The unaudited pro forma combined income statement data include an aggregate
of approximately $2.7 million, $1.4 million and $1.5 million for the twelve
months ended December 31, 1996 and the nine months ended September 30, 1996
and 1997, respectively, in pro forma reductions for the Compensation
Differential.
(3) Includes amortization of goodwill over a 40-year period.
(4) Adjusted to repay $3.9 million of debt assumed by the Company in the Mergers
and to eliminate the related interest expense.
(5) Assumes a corporate income tax rate of 39% and the non-deductibility of
goodwill amortization for federal income tax purposes.
(6) The number of outstanding shares used in computing net income per share
includes (i) 1,300,715 shares outstanding prior to the Mergers and Offering,
(ii) 3,570,718 shares issued to owners of the Founding Companies, (iii)
32,000 net shares that would be outstanding if the warrants and options were
exercised and the proceeds used to repurchase shares at the Offering Price
and (iv) 2,619,256 of the 3,800,000 shares sold in the Offering necessary to
pay the cash portion of the purchase prices for the Founding Companies, to
repay indebtedness and to pay estimated Offering expenses. The remaining
1,180,744 shares have been excluded from shares outstanding in computing net
income per share and represent the net cash proceeds to be used for working
capital and general corporate purposes.
(7) The unaudited pro forma combined balance sheet data assume that the Mergers
were closed on September 30, 1997.
(8) Adjusted for the sale of the 3,800,000 shares of Common Stock offered hereby
and the application of the net proceeds therefrom. See "Use of Proceeds"
and "Certain Transactions."
(9) Several of the Founding Companies are S corporations. Prior to the Mergers,
these Founding Companies will make an aggregate of $1.8 million of S
Corporation Distributions and C Corporation Distributions.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS, THE HISTORICAL FINANCIAL STATEMENTS OF
NATIONWIDE STAFFING AND THE FOUNDING COMPANIES AND THE NOTES THERETO AND
"SELECTED FINANCIAL DATA" APPEARING ELSEWHERE IN THIS PROSPECTUS.
INTRODUCTION
The Company's revenues are derived from providing services, to clients with
billings related to a variety of services, including temporary staffing, staff
leasing, temporary to permanent placements, recruiting, permanent placements,
payroll processing, vendor-on-premises and human resource consulting services.
Cost of services consist primarily of salaries and benefits for employees
provided to clients. Operating costs and expenses consist primarily of
compensation and related benefits to the Founding Companies' owners and certain
key employees, administrative salaries and benefits, marketing, communications
and professional fees.
The Founding Companies have been managed throughout the periods presented
as independent private companies, and as such, their results of operations
reflect a variety of tax structures (S corporations and C corporations) which
have influenced, among other things, their historical levels of owners'
compensation. These owners and certain key employees have agreed to certain
reductions in their compensation and benefits in connection with the
organization of the Company and the Mergers.
The Company, which has conducted no operations to date other than in
connection with this Offering and the Mergers, has estimated the savings that it
expects to realize by consolidating certain general and administrative
functions. To the extent the owners and certain key employees of the Founding
Companies have agreed prospectively to reductions in salary, bonuses, benefits
and rent expense paid to the owners, these reductions have been reflected in the
unaudited pro forma combined statements of income. With respect to other
potential costs savings, the Company has not and cannot quantify these savings
until completion of the combination of the Founding Companies. It is anticipated
that these savings will be partially offset by the costs of being a publicly
held company and the incremental increase in costs related to the Company's new
management. However, these costs, like the savings that they offset, cannot be
estimated at this time. These costs and possible savings may also make a
comparison of historical operating results not comparable to, or indicative of,
future performance.
COMBINED FOUNDING COMPANIES
RESULTS OF OPERATIONS -- COMBINED
The Combined Founding Companies Statements of Operations data for fiscal
1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997 do not
purport to present results of operations of the combined Founding Companies in
accordance with generally accepted accounting principles, but are only a
summation of the revenues, gross profit and operating costs and expenses of the
individual Founding Companies on a historical basis and exclude the effects of
pro forma adjustments. This data may not be comparable to and may not be
indicative of the Company's post combination results of operations because (i)
the Founding Companies were not under common control or management during the
periods presented; (ii) the Founding Companies used different tax structures (S
corporations and C corporations) during the periods presented; (iii) the Company
will incur incremental costs related to its new corporate management and the
costs of being a public company; (iv) the Company will use the purchase method
to record the Mergers, resulting in the recording of goodwill that will be
amortized over 40 years; and (v) the combined data does not reflect the
Compensation Differential and potential benefits and costs savings the Company
expects to realize when operating as a combined entity.
24
<PAGE>
The following table sets forth certain unaudited combined data and data as
a percentage of revenues of the Founding Companies on a historical basis and
excludes the effects of pro forma adjustments for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1)
----------------------------------------------------------------
1994 1995 1996
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues --
Temporary staffing............... $ 70.3 69.1% $ 76.0 67.0% $ 93.6 69.5%
PEO services..................... 31.4 30.9% 37.4 33.0% 41.0 30.5%
--------- --------- --------- --------- --------- ---------
101.7 100.0% 113.4 100.0% 134.6 100.0%
Cost of services..................... 90.1 88.6% 100.1 88.3% 117.1 87.0%
--------- --------- --------- --------- --------- ---------
Gross profit......................... 11.6 11.4% 13.3 11.7% 17.5 13.0%
Operating costs and expenses......... 10.0 9.8% 11.4 10.0% 14.2 10.5%
--------- --------- --------- --------- --------- ---------
Operating income..................... $ 1.6 1.6% $ 1.9 1.7% $ 3.3 2.5%
========= ========= ========= ========= ========= =========
<CAPTION>
COMBINED NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
1996 1997
<S> <C> <C> <C> <C>
Revenues --
Temporary staffing............... $ 66.6 69.0% $ 85.9 71.0%
PEO services..................... 29.9 31.0% 35.1 29.0%
--------- --------- --------- ---------
96.5 100.0% 121.0 100.0%
Cost of services..................... 84.3 87.4% 104.6 86.5%
--------- --------- --------- ---------
Gross profit......................... 12.2 12.6% 16.4 13.5%
Operating costs and expenses......... 9.4 9.7% 11.9 9.8%
--------- --------- --------- ---------
Operating income..................... $ 2.8 2.9% $ 4.5 3.7%
========= ========= ========= =========
</TABLE>
- ------------
(1) The fiscal years presented are as follows: Alternative Solutions -- the
fiscal years ended April 30, 1995, 1996 and 1997; Cardinal -- the fiscal
years ended June 30, 1995, 1996 and 1997; Employment Enterprises -- the
fiscal years ended November 30, 1994 and 1995 and the year ended December
31, 1996; and ASAP, Evins Group, GTS, HP Services and Technology Plus -- the
years ended December 31, 1994, 1995 and 1996.
COMBINED RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased $24.5 million, or 25.4%, from $96.5 million
for the nine months ended September 30, 1996 to $121.0 million for the nine
months ended September 30, 1997. The increase in revenues occurred primarily at
GTS and Employment Enterprises. Revenues at GTS increased $11.1 million
primarily as a result of several new contracts which were entered into
subsequent to September 30, 1996. Revenues at Employment Enterprises increased
$6.1 million primarily as a result of obtaining new temporary staffing clients
in the banking industry prior to and during the period ended September 30, 1997
and revenues related to a renewal of a nationwide leasing contract. All of the
Founding Companies, except HP Services, reported an increase in revenues from
the nine months ended September 30, 1996 when compared to the nine months ended
September 30, 1997.
GROSS PROFIT. Gross profit increased $4.2 million, or 34.4%, from $12.2
million for the nine months ended September 30, 1996 to $16.4 million for the
nine months ended September 30, 1997. Gross profit, as a percent of total
revenues, increased from 12.6% for the nine months ended September 30, 1996 to
13.5% for the nine months ended September 30, 1997 primarily due to savings from
technological improvements made at Employment Enterprises and a profitability
increase at GTS associated with a 53.3% increase in revenues for the nine months
ended September 30, 1997 compared to the same period in the prior year. As part
of its comprehensive service capabilities, the Company provides traditional
short-term temporary staffing services, long-term contract staffing services and
PEO services, as well as a full range of other staffing solutions. The provision
of short-term temporary staffing services by the Company generates significantly
higher gross profit margins than the provision of extended-term and PEO
services. These differences are primarily due to the significantly lower SG&A
costs associated with extended-term and PEO services and competitive pricing for
such services. While the gross profit percentages between these services differ
significantly, the Company's mix between short-term temporary staffing,
extended-term and PEO services and related profit margins remained relatively
consistent for all periods presented and did not have a significant impact on
gross profit or operating income for any period.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $2.5
million, or 26.6%, from $9.4 million for the nine months ended September 30,
1996 to $11.9 million for the nine months ended September 30, 1997. Operating
costs and expenses increased from 9.7% of total revenues in the nine
25
<PAGE>
months ended September 30, 1996 to 9.8% for the nine months ended September 30,
1997. The increase in operating costs and expenses primarily was due to an
increase in owners' compensation as well as increased expenses related to
internal staff to support new public-sector contracts awarded to Evins Group in
prior periods.
OPERATING INCOME. As a result of the aforementioned, operating income
increased $1.7 million, or 60.7%, from $2.8 million for the nine months ended
September 30, 1996 to $4.5 million for the nine months ended September 30, 1997.
Operating income as a percent of total revenue increased from 2.9% for the nine
months ended September 30, 1996 to 3.7% of sales for the nine months ended
September 30, 1997.
COMBINED RESULTS FOR FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES. Revenues increased $21.2 million, or 18.7%, from $113.4 million
for 1995 to $134.6 million for 1996. The increase in revenues occurred primarily
at GTS, Employment Enterprises and Technology Plus. Revenues at GTS increased
$5.5 million primarily as a result of several new contracts. Revenues at
Employment Enterprises increased $3.5 million primarily as a result of obtaining
new clients in 1996 from sales efforts started in prior periods. Technology Plus
revenues increased $2.5 million due primarily to overtime billings associated
with existing clients and partially due to billings with new clients. All of the
Founding Companies reported an increase in revenues from 1995 to 1996.
GROSS PROFIT. Gross profit increased $4.2 million, or 31.6%, from $13.3
million for 1995 to $17.5 million for 1996. Gross profit, as a percent of total
revenues, increased from 11.7% in 1995 to 13.0% in 1996 due to a combination of
factors, such as a reduction in workers' compensation insurance expense for
Alternative Solutions and an increase in revenues without a commensurate
increase in costs for worksite employees for Evins Group.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $2.8
million, or 24.6%, from $11.4 million for 1995 to $14.2 million for 1996.
Operating costs and expenses increased from 10.0% of total revenues in 1995 to
10.5% of total revenues in 1996. The dollar and percentage increase in operating
costs and expenses was primarily due to an increase in owners' compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
increased $1.4 million, or 73.7%, from $1.9 million for 1995 to $3.3 million for
1996. Operating income as a percent of total revenue increased from 1.7% for
1995 to 2.5% of sales for 1996.
COMBINED RESULTS FOR FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. Revenues increased $11.7 million, or 11.5%, from $101.7 million
for 1994 to $113.4 million for 1995. The increase in revenues occurred primarily
at Employment Enterprises, Technology Plus and Cardinal. Revenues increased at
Employment Enterprises by $3.9 million, at Cardinal by $3.4 million and at
Technology Plus by $3.2 million primarily as a result of the development of the
existing client base in each instance. All of the Founding Companies, except
GTS, experienced an increase in revenues from 1994 to 1995. GTS reported a
decline in revenues of $2.0 million primarily due to a significant downturn in
the fourth quarter of 1995 for two existing clients which subsequently returned
to historical revenue levels in the first quarter of 1996.
GROSS PROFIT. Gross profit increased $1.7 million, or 14.7%, from $11.6
million for 1994 to $13.3 million for 1995. Gross profit, as a percent of total
revenues, increased from 11.4% in 1994 to 11.7% in 1995.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $1.4
million, or 14.0%, from $10.0 million for 1994 to $11.4 million for 1995.
Operating costs and expenses increased from 9.8% of total revenues in 1994 to
10.0% of sales in 1995. The dollar and percentage increase in operating costs
and expenses was primarily due to an increase in owners' compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
increased $0.3 million, or 18.8%, from $1.6 million for 1994 to $1.9 million for
1995. Operating income as a percent of total revenue increased from 1.6% for
1994 to 1.7% of sales for 1995.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
On a combined basis, the Founding Companies generated $4.0 million of net
cash from operating activities for the nine months ended September 30, 1997,
primarily at HP Services, Cardinal, GTS and ASAP . Net cash provided by
investing activities totaled $0.7 million, primarily due to receipts from
related party receivables at GTS. Net cash used in financing activities was $3.4
million and consisted of net decreases in debt and distributions to
stockholders. At September 30, 1997 the combined Founding Companies had working
capital of $4.3 million and $3.9 million of outstanding debt.
In connection with and prior to the Mergers, certain Founding Companies
will make S Corporation Distributions to their owners of substantially all of
their previously taxed undistributed earnings. In addition, several of the
Founding Companies which are C corporations have elected to withdraw retained
earnings prior to the Merger. The pro forma combined financial statements as of
September 30, 1997 and for the nine months then ended, included elsewhere in
this Prospectus, reflect pro forma adjustments for the estimated amount of $1.8
million for such distributions.
On a combined basis, the Founding Companies generated $0.6 million of net
cash from operating activities during fiscal 1996, primarily at ASAP, HP
Services and Employment Enterprises. Net cash used in investing activities was
$0.4 million on a combined basis, primarily for equipment purchases at GTS. Net
cash used in financing activities was $0.3 million on a combined basis,
consisting of net reductions in debt and distributions to stockholders. At
December 31, 1996, the combined Founding Companies had working capital of $2.1
million and total debt of $5.9 million.
The Company is negotiating a $40 million revolving line of credit facility
with various banking organizations. Such proposed credit facility will be used
for acquisitions, capital expenditures, and for general corporate purposes. The
proposed credit facility most likely will require the Company to comply with
various loan covenants including (i) maintenance of certain financial ratios,
(ii) restrictions on additional indebtedness, and (iii) restrictions on liens,
guarantees, advances and dividends. The proposed credit facility should also be
subject to customary drawing conditions and the consummation of the Offering.
The Company expects to pursue acquisition opportunities and to fund those
acquisitions through the issuance of additional Common Stock, borrowings,
including the use of amounts available under the proposed credit facility, and
cash flow from operations. The Company anticipates that its cash flow from
operations will provide cash in excess of the Company's normal working capital
needs, debt service requirements and planned capital expenditures for equipment.
On a combined basis, the Founding Companies made capital expenditures of $0.5
million in fiscal 1996.
After giving effect to the Mergers and the Offering and the S Corporation
Distributions and C Corporation Distributions, the Company will have combined
pro forma working capital of $20.4 million and no long-term debt as of September
30, 1997. The Company anticipates that its existing working capital, cash flow
from operations and credit facilities will be sufficient to meet the Company's
working capital needs through the end of fiscal 1998.
ALTERNATIVE SOLUTIONS
Founded in 1982, Alternative Solutions is headquartered in Boston,
Massachusetts, and also has two other branch offices. Alternative Solutions
specializes in providing temporary administrative workers in specialized areas
such as the medical, legal and insurance industries and provides temporary light
industrial workers to various manufacturing industries primarily in
Massachusetts and Connecticut.
27
<PAGE>
RESULTS OF OPERATIONS -- ALTERNATIVE SOLUTIONS
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30,
----------------------------------------------------------------
1995 1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues --
Temporary staffing............... $ 9,484 82.8% $ 9,241 74.6% $ 10,858 79.4%
PEO services..................... 1,977 17.2% 3,140 25.4% 2,823 20.6%
--------- --------- --------- --------- --------- ---------
11,461 100.0% 12,381 100.0% 13,681 100.0%
Cost of services..................... 8,990 78.4% 9,805 79.2% 10,278 75.1%
--------- --------- --------- --------- --------- ---------
Gross profit......................... 2,471 21.6% 2,576 20.8% 3,403 24.9%
Operating costs and expenses......... 2,312 20.2% 2,486 20.1% 3,241 23.7%
--------- --------- --------- --------- --------- ---------
Operating income..................... $ 159 1.4% $ 90 0.7% $ 162 1.2%
========= ========= ========= ========= ========= =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1996 1997
<S> <C> <C> <C> <C>
Revenues --
Temporary staffing............... $ 7,742 80.2% $ 8,780 78.3%
PEO services..................... 1,917 19.8% 2,439 21.7%
--------- --------- --------- ---------
9,659 100.0% 11,219 100.0%
Cost of services..................... 7,391 76.5% 8,443 75.3%
--------- --------- --------- ---------
Gross profit......................... 2,268 23.5% 2,776 24.7%
Operating costs and expenses......... 2,167 22.4% 2,301 20.5%
--------- --------- --------- ---------
Operating income..................... $ 101 1.1% $ 475 4.2%
========= ========= ========= =========
</TABLE>
ALTERNATIVE SOLUTIONS RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased $1.5 million, or 15.5%, from $9.7 million for
the nine months ended September 30, 1996 to $11.2 million for the nine months
ended September 30, 1997. This increase was attributable to an increase in
permanent placement and PEO services revenue and expansion with three new
divisions.
GROSS PROFIT. Gross profit increased $0.5 million, or 21.7%, from $2.3
million for the nine months ended September 30, 1996 to $2.8 million for the
nine months ended September 30, 1997. Gross profit, as a percent of sales,
increased from 23.5% for the nine months ended September 30, 1996 to 24.7% of
sales for the nine months ended September 30, 1997 primarily due to an increase
in permanent placement revenues which enjoy higher profit margins than other
lines of business.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million, or 4.5%, from $2.2 million for the nine months ended September 30, 1996
to $2.3 million for the nine months ended September 30, 1997. Operating costs
and expenses as a percent of total revenues decreased from 22.4% in the nine
months ended September 30, 1996 to 20.5% in the nine months ended September 30,
1997. The percentage decrease in operating costs and expenses was primarily
attributable to a decrease in owner compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 400.0%, from approximately $0.1 million, or 1.1% of revenues, in the
nine months ended September 30, 1996 to $0.5 million, or 4.2% of revenues, in
the nine months ended September 30, 1997.
ALTERNATIVE SOLUTIONS RESULTS FOR YEAR ENDED APRIL 30, 1997 COMPARED TO YEAR
ENDED APRIL 30, 1996
REVENUES. Revenues increased $1.3 million, or 10.5%, from $12.4 million in
1996 to $13.7 million in 1997. The increase was related to an increase in
temporary staffing revenues from new clients. PEO services revenues decreased
$0.3 million or 9.7% from $3.1 million in 1996 to $2.8 million in 1997 due to a
decline in business with a major client.
GROSS PROFIT. Gross profit increased $0.8 million, or 30.8%, from $2.6
million for 1996 to $3.4 million for 1997. Gross profit, as a percent of sales,
increased from 20.8% in 1996 to 24.9% of sales in 1997 primarily attributed to a
reduction in workers' compensation insurance expenses.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.7
million, or 28.0%, from $2.5 million in 1996 to $3.2 million in 1997. Operating
costs and expenses as a percent of total revenues increased from 20.1% in 1996
to 23.7% of sales in 1997. The dollar and percentage increase was primarily
related to an increase in owner compensation.
28
<PAGE>
OPERATING INCOME. As a result of the foregoing, operating income increased
100.0% from $0.1 million, or 0.7% of revenues, in 1996 to $0.2 million or, 1.2%
of revenues, in 1997.
ALTERNATIVE SOLUTIONS RESULTS FOR YEAR ENDED APRIL 30, 1996 COMPARED TO YEAR
ENDED APRIL 30, 1995
REVENUES. Revenues increased $0.9 million, or 7.8%, from $11.5 million in
1995 to $12.4 million in 1996. The increase was related to an increase in
revenues generated from new PEO clients.
GROSS PROFIT. Gross profit increased $0.1 million, or 4.0%, from $2.5
million for 1995 to $2.6 million for 1996. Gross profit, as a percent of sales,
decreased from 21.6% in 1995 to 20.8% of sales in 1996 primarily due to an
increase in costs of worksite employees relative to pricing to clients.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million, or 8.7%, from $2.3 million in 1995 to $2.5 million in 1996. Operating
costs and expenses, as a percent of revenues, decreased from 20.2% in 1995 to
20.1% of sales in 1996.
OPERATING INCOME. As a result of the foregoing, operating income decreased
50.0% from $0.2 million, or 1.4% of revenues, in 1995 to $0.1 million, or 0.7%
of revenues, in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- ALTERNATIVE SOLUTIONS
Alternative Solutions generated no material net cash from operations for
the nine months ended September 30, 1997. Net cash used in investing activities
and financing activities for the nine months ended September 30, 1997 was not
material. At September 30, 1997, Alternative Solutions had working capital of
$0.7 million and $0.3 million in outstanding debt.
Alternative Solutions generated $0.2 million in net cash from operating
activities for the twelve months ended April 30, 1997. No cash was used in
investing activities. No net cash was used in nor generated from financing
activities. At April 30, 1997, Alternative Solutions had working capital of $0.4
million and $0.3 million of outstanding debt.
ASAP
Founded in 1990, ASAP specializes in supplying light industrial labor to
the food processing and manufacturing industries. ASAP is headquartered in
Springdale, Arkansas with branches in three other cities and services clients
primarily in Arkansas and Missouri.
RESULTS OF OPERATIONS -- ASAP
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ------------------------------------------
1995 1996 1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 4,099 100.0% $ 6,132 100.0% $ 4,379 100.0% $ 7,275 100.0%
Cost of services..................... 3,447 84.1% 5,016 81.8% 3,558 81.3% 5,943 81.7%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 652 15.9% 1,116 18.2% 821 18.7% 1,332 18.3%
Operating costs and expenses......... 272 6.6% 537 8.8% 329 7.5% 668 9.2%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 380 9.3% $ 579 9.4% $ 492 11.2% $ 664 9.1%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
ASAP RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased $2.9 million, or 65.9%, from $4.4 million for
the nine months ended September 30, 1996 to $7.3 million for the nine months
ended September 30, 1997. This increase was primarily attributable to the
addition of two new branch locations.
GROSS PROFIT. Gross profit increased $0.5 million, or 62.5% from $0.8
million for the nine months ended September 30, 1996 to $1.3 million for the
nine months ended September 30, 1997. Gross profit, as a
29
<PAGE>
percent of sales, decreased from 18.7% in the nine months ended September 30,
1996 to 18.3% of sales in the nine months ended September 30, 1997.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.4
million, or 133.3%, from $0.3 million for the nine months ended September 30,
1996 to $0.7 million for the nine months ended September 30, 1997. Operating
costs and expenses as a percent of total revenues increased from 7.5% in the
nine months ended September 30, 1996 to 9.2% in the nine months ended September
30, 1997. The dollar and percentage increase in operating costs and expenses
were primarily attributable to an increase in administrative overhead related to
the opening of a new branch facility as well as expenses associated with a new
management information system.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 40.0%, from $0.5 million, or 11.2% of revenues, in the nine months
ended September 30, 1996 to $0.7 million, or 9.1% of revenues, in the nine
months ended September 30, 1997.
ASAP RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER
31, 1995
REVENUES. Revenues increased $2.0 million, or 48.8%, from $4.1 million in
1995 to $6.1 million in 1996. The increase was related to a significant increase
in revenues with an existing client and addition of a new branch location.
GROSS PROFIT. Gross profit increased $0.4 million, or 57.1%, from $0.7
million for 1995 to $1.1 million for 1996. Gross profit, as a percent of sales,
increased from 15.9% in 1995 to 18.2% of sales in 1996 primarily due to
economies of scale associated with certain operational improvements made in
prior periods.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million, or 66.7%, from $0.3 million in 1995 to $0.5 million in 1996. Operating
costs and expenses as a percent of total revenue increased from 6.6% of sales in
1995 to 8.8% of sales in 1996. The dollar and percentage increase in operating
costs and expenses was primarily related to opening a branch office and other
administrative overhead in 1996 at both existing and new branch locations.
OPERATING INCOME. As a result of the foregoing, operating income increased
50.0% from $0.4 million, or 9.3% of revenues, in 1995 to $0.6 million, or 9.4%
of revenues, in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- ASAP
ASAP generated $0.6 million in net cash from operating activities for the
nine months ended September 30, 1997. Net cash used in investing activities was
approximately $0.1 million, principally for equipment purchases. Net cash used
in financing activities was $0.6 million, representing shareholder
distributions. At September 30, 1997, ASAP had working capital of $0.5 million
and no material outstanding debt.
ASAP generated $0.7 million in net cash from operating activities for the
twelve months ended December 31, 1996. There was no significant cash used in
investing activities. Net cash used in financing activities was $0.4 million,
representing distributions to shareholders. At December 31, 1996, ASAP had
working capital of $0.5 million and no material outstanding debt.
CARDINAL
Founded in 1988, Cardinal is headquartered in Coos Bay, Oregon and has four
branch offices in Oregon. Cardinal provides temporary and leased employees to
numerous industries, including the timber, paper and other light manufacturing
industries.
30
<PAGE>
RESULTS OF OPERATIONS -- CARDINAL
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
----------------------------------------------------------------
1995 1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues --
Temporary staffing............... $ 7,205 51.0% $ 9,569 54.6% $ 11,057 54.5%
PEO services..................... 6,931 49.0% 7,962 45.4% 9,235 45.5%
--------- --------- --------- --------- --------- ---------
14,136 100.0% 17,531 100.0% 20,292 100.0%
Cost of services..................... 12,869 91.0% 15,794 90.1% 17,814 87.8%
--------- --------- --------- --------- --------- ---------
Gross profit......................... 1,267 9.0% 1,737 9.9% 2,478 12.2%
Operating costs and expenses......... 1,112 7.9% 1,634 9.3% 2,473 12.2%
--------- --------- --------- --------- --------- ---------
Operating income..................... $ 155 1.1% $ 103 0.6% $ 5 0.0%
========= ========= ========= ========= ========= =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1996 1997
<S> <C> <C> <C> <C>
Revenues --
Temporary staffing............... $ 7,418 52.6% $ 7,826 52.7%
PEO services..................... 6,679 47.4% 7,035 47.3%
--------- --------- --------- ---------
14,097 100.0% 14,861 100.0%
Cost of services..................... 12,513 88.8% 12,900 86.8%
--------- --------- --------- ---------
Gross profit......................... 1,584 11.2% 1,961 13.2%
Operating costs and expenses......... 1,299 9.2% 1,860 12.5%
--------- --------- --------- ---------
Operating income..................... $ 285 2.0% $ 101 0.7%
========= ========= ========= =========
</TABLE>
CARDINAL RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased $0.8 million, or 5.7%, from $14.1 million for
the nine months ended September 30, 1996 to $14.9 million for the nine months
ended September 30, 1997. This increase was attributable to an increase in
revenues with existing clients and sales to new clients.
GROSS PROFIT. Gross profit increased $0.4 million, or 25.0% from $1.6
million for the nine months ended September 30, 1996 to $2.0 million for the
nine months ended September 30, 1997. Gross profit as a percent of sales,
increased from 11.2% for the nine months ended September 30, 1996 to 13.2% of
sales for the nine months ended September 30, 1997 primarily due to an increase
in volume without a corresponding increase in costs of worksite employees.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.6
million, or 46.2%, from $1.3 million for the nine months ended September 30,
1996 to $1.9 million for the nine months ended September 30, 1997. Operating
costs and expenses as a percent of total revenues increased from 9.2% in the
nine months ended September 30, 1996 to 12.5% in the nine months ended September
30, 1997. The dollar and percentage increase in operating costs and expenses was
primarily attributed to an increase in owners' compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
decreased from $0.3 million, or 2.0% of revenues, for the nine months ended
September 30, 1996 to $0.1 million, or 0.7% of revenues, for the nine months
ended September 30, 1997.
CARDINAL RESULTS FOR YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30,
1996
REVENUES. Revenues increased $2.8 million, or 16.0%, from $17.5 million
for 1996 to $20.3 million for 1997. This increase was attributable to an
increase in revenues with existing clients.
GROSS PROFIT. Gross profit increased $0.8 million or 47.1% from $1.7
million for 1996 to $2.5 million for 1997. Gross profit as a percent of sales,
increased from 9.9% in 1996 to 12.2% of sales in 1997 primarily due to revenue
increases without a commensurate increase in wages for worksite employees.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.9
million, or 56.3%, from $1.6 million for 1996 to $2.5 million for 1997.
Operating costs and expenses as a percent of total revenues increased from 9.3%
in 1996 to 12.2% in 1997. The dollar and percentage increase in operating costs
and expenses was primarily attributed to an increase in owners' compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
decreased 95.0%, from $0.1 million, or 0.6% of revenues, in 1996 to
approximately $5,000 in 1997.
31
<PAGE>
CARDINAL RESULTS FOR YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30,
1995
REVENUES. Revenues increased $3.4 million, or 24.1%, from $14.1 million in
1995 to $17.5 million in 1996. The increase was related to an increase in sales
with existing clients and the opening of a new branch in 1996.
GROSS PROFIT. Gross profit increased $0.4 million, or 30.8%, from $1.3
million for 1995 to $1.7 million for 1996. Gross profit, as a percent of sales,
increased from 9.0% for 1995 to 9.9% of sales in 1996 due primarily to a
reduction in workers' compensation insurance expenses.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.5
million, or 45.5%, from $1.1 million in 1995 to $1.6 million in 1996. Operating
costs and expenses increased from 7.9% of sales in 1995 to 9.3% of sales in
1996. This dollar and percentage increase was primarily related to an increase
in owners' compensation.
OPERATING INCOME. As a result of the foregoing, operating income decreased
50.0% from $0.2 million, or 1.1% of revenues, in 1995 to $0.1 million, or 0.6%
of revenues, in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- CARDINAL
Cardinal generated $0.9 million in net cash from operating activities for
the nine months ended September 30, 1997. There was $0.2 million of net cash
provided by investing activities as a result of decreased notes receivable from
related parties. Net cash used in financing activities was $0.5 million,
representing shareholder distributions and a net reduction in debt. At September
30, 1997, Cardinal had working capital of $0.5 million and $0.2 million of
outstanding debt.
Cardinal used $0.5 million in net cash from operating activities for the
twelve months ended June 30, 1997 primarily due to an increase in trade
receivables outstanding. Net cash used in investing activities was approximately
$0.1 million, principally for equipment purchases. Net cash provided by
financing activities was $0.8 million, representing net increases in debt. At
June 30, 1997, Cardinal had working capital of $0.2 million and $0.5 million in
outstanding debt.
EMPLOYMENT ENTERPRISES
Founded in 1980, Employment Enterprises is headquartered in Manassas,
Virginia with five branches in North Carolina and Virginia. Employment
Enterprises specializes in providing professional and clerical workers to the
insurance and high technology industries and had employees serving clients in 39
states and the District of Columbia as of September 30, 1997.
RESULTS OF OPERATIONS -- EMPLOYMENT ENTERPRISES
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, DECEMBER 31,
1994 1995 1996
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues --
Temporary staffing............... $ 6,676 22.8% $ 6,869 20.7% $ 7,746 21.1%
PEO services..................... 22,576 77.2% 26,303 79.3% 28,929 78.9%
--------- --------- --------- --------- --------- ---------
29,252 100.0% 33,172 100.0% 36,675 100.0%
Cost of services..................... 26,109 89.3% 29,789 89.8% 32,874 89.6%
--------- --------- --------- --------- --------- ---------
Gross profit......................... 3,143 10.7% 3,383 10.2% 3,801 10.4%
Operating costs and expenses......... 2,982 10.1% 3,157 9.6% 3,560 9.7%
--------- --------- --------- --------- --------- ---------
Operating income..................... $ 161 0.6% $ 226 0.6% $ 241 0.7%
========= ========= ========= ========= ========= =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1996 1997
<S> <C> <C> <C> <C>
Revenues --
Temporary staffing............... $ 5,652 21.0% $ 7,464 22.6%
PEO services..................... 21,305 79.0% 25,607 77.4%
--------- --------- --------- ---------
26,957 100.0% 33,071 100.0%
Cost of services..................... 24,209 89.8% 29,404 88.9%
--------- --------- --------- ---------
Gross profit......................... 2,748 10.2% 3,667 11.1%
Operating costs and expenses......... 2,595 9.6% 2,809 8.5%
--------- --------- --------- ---------
Operating income..................... $ 153 0.6% $ 858 2.6%
========= ========= ========= =========
</TABLE>
32
<PAGE>
EMPLOYMENT ENTERPRISES RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased $6.1 million, or 22.6%, from $27.0 million
for the nine months ended September 30, 1996 to $33.1 million for the nine
months ended September 30, 1997. This was primarily attributable to new
temporary staffing clients in the banking industry and revenues increasing
related to a renewal of a nationwide PEO services contract.
GROSS PROFIT. Gross profit increased $1.0 million, or 37.0%, from $2.7
million for the nine months ended September 30, 1996 to $3.7 million for the
nine months ended September 30, 1997. Gross profit, as a percent of sales,
increased from 10.2% for the nine months ended September 30, 1996 to 11.1% of
sales for the nine months ended September 30, 1997 due to economies of scale
associated with technological improvements made in prior periods which enhanced
operational efficiencies.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million, or 7.7%, from $2.6 million for the nine months ended September 30, 1996
to $2.8 million for the nine months ended September 30, 1997. Operating costs
and expenses as a percent of total revenues declined from 9.6% in the nine
months ended September 30, 1996 to 8.5% in the nine months ended September 30,
1997. The dollar increase in operating costs and expenses was primarily
attributable to an increase in management information systems staffing and
related expenses.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 350.0% from approximately $0.2 million, or 0.6% of revenues, in the
nine months ended September 30, 1996 to $0.9 million, or 2.6% of revenues, in
the nine months ended September 30, 1997.
EMPLOYMENT ENTERPRISES RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO
YEAR ENDED NOVEMBER 30, 1995
REVENUES. Revenues increased $3.5 million, or 10.5%, from $33.2 million in
1995 to $36.7 million in 1996. The increase was related primarily to a number of
new PEO clients from sales efforts started in prior periods.
GROSS PROFIT. Gross profit increased $0.4 million, or 11.8%, from $3.4
million for 1995 to $3.8 million for 1996. Gross profit, as a percent of sales,
increased from 10.2% in 1995 to 10.4% of sales in 1996.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.4
million, or 12.5%, from $3.2 million in 1995 to $3.6 million in 1996. Operating
costs and expenses, as a percent of sales, increased from 9.6% in 1995 to 9.7%
of sales in 1996. The dollar and percentage increase was primarily related to
expenses associated with technological improvements.
OPERATING INCOME. As a result of the foregoing, operating income remained
at $0.2 million. Operating income as a percent of total revenues was 0.6% in
1995 and 0.7% in 1996.
EMPLOYMENT ENTERPRISES RESULTS FOR YEAR ENDED NOVEMBER 30, 1995 COMPARED TO
YEAR ENDED NOVEMBER 30, 1994
REVENUES. Revenues increased $3.9 million, or 13.3%, from $29.3 million in
1994 to $33.2 million in 1995. The increase was related primarily to development
of the existing PEO client base.
GROSS PROFIT. Gross profit increased $0.3 million, or 9.7%, from $3.1
million for 1994 to $3.4 million for 1995. Gross profit, as a percent of sales,
declined from 10.7% in 1994 to 10.2% of sales in 1995.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million, or 6.7%, from $3.0 million in 1994 to $3.2 million in 1995. Operating
costs, as a percent of sales, declined from 10.1% of revenues in 1994 to 9.6% of
revenues in 1995.
OPERATING INCOME. As a result of the foregoing, operating income remained
at $0.2 million for both 1994 and 1995. Operating income as a percent of total
revenues was 0.6% in 1994 and 1995.
33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES -- EMPLOYMENT ENTERPRISES
Employment Enterprises generated $0.3 million in net cash from operating
activities for the nine months ended September 30, 1997. Net cash used in
investing activities was $0.1 million and net cash used in financing activities
was $0.2 million. At September 30, 1997, Employment Enterprises had working
capital of $0.5 million and $0.4 million in outstanding debt.
Employment Enterprises generated $0.4 million in net cash from operating
activities for the twelve months ended December 31, 1996. Net cash was used in
investing activities was not material, and net cash used in financing activities
was $0.5 million, representing a net reduction of long-term debt. At December
31, 1996, Employment Enterprises had no material working capital and had $0.7
million of outstanding debt.
EVINS GROUP
The first Evins Group company was formed in 1967 and all of the companies
are headquartered in Austin, Texas. Evins Group specializes in providing
temporary staffing and permanent placement to companies in the Austin and
central Texas area and to various agencies of the State of Texas. Evins Group
has three branch offices in Texas.
RESULTS OF OPERATIONS -- EVINS GROUP
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, 1996 ------------------------------------------
1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 7,833 100.0% $ 5,346 100.0% $ 7,000 100.0%
Cost of services..................... 5,824 74.4% 4,044 75.6% 5,153 73.6%
--------- --------- --------- --------- --------- ---------
Gross profit......................... 2,009 25.6% 1,302 24.4% 1,847 26.4%
Operating costs and expenses......... 1,630 20.8% 1,142 21.4% 1,640 23.4%
--------- --------- --------- --------- --------- ---------
Operating income..................... $ 379 4.8% $ 160 3.0% $ 207 3.0%
========= ========= ========= ========= ========= =========
</TABLE>
EVINS GROUP RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased $1.7 million, or 32.1%, from $5.3 million for
the nine months ended September 30, 1996 to $7.0 million for the nine months
ended September 30, 1997. This increase was attributable to an increase in
public sector contracts due to new and renewed contracts during the third and
fourth quarter of 1996, and also due to the opening of a new medical service
division.
GROSS PROFIT. Gross profit increased $0.5 million, or 38.5%, from $1.3
million for the nine months ended September 30, 1996 to $1.8 million for the
nine months ended September 30, 1997. Gross profit, as a percent of sales,
increased from 24.4% in the nine months ended September 30, 1996 to 26.4% of
sales in the nine months ended September 30, 1997 due to economies of scale
associated with operational improvements made in prior periods.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.5
million, or 43.6%, from $1.1 million for the nine months ended September 30,
1996 to $1.6 million for the nine months ended September 30, 1997. Operating
costs and expenses, as a percent of sales, increased from 21.4% in the nine
months ended September 30, 1996 to 23.4% in the nine months ended September 30,
1997. The dollar and percentage increase in operating costs and expenses were
primarily attributable to an increase in owner compensation and expenses related
to increased internal staff needed to support new public sector contracts
awarded in prior periods.
34
<PAGE>
OPERATING INCOME. As a result of the aforementioned, operating income
remained at $0.2 million, or 3.0% of revenues, in the nine months ended
September 30, 1996 and $0.2 million, or 2.9% of revenues, in the nine months
ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES -- EVINS GROUP
Evins Group generated $0.1 million in net cash from operating activities
for the nine months ended September 30, 1997. Net cash used in investing
activities and financing activities was not material. At September 30, 1997,
Evins Group had negative working capital of $0.2 million and $1.1 million in
outstanding debt.
Evins Group used $0.2 million in net cash from operating activities for the
twelve months ended December 31, 1996, primarily due to a $0.4 million increase
in trade receivables. Net cash used in investing activities was not material.
Net cash provided by financing activities was $0.2 million, representing a net
increase in debt. At December 31, 1996, Evins Group had negative working capital
of $0.1 million and $1.2 million of outstanding debt.
GTS
GTS began operations in 1973 as a division of The Global Group, Inc., a
privately held company located in Fort Worth, Texas. GTS was operated as a
division of The Global Group until 1989 when it was incorporated and spun-off as
a separate entity. GTS specializes in supplying engineers and skilled and
unskilled labor to the aerospace industry and, as of September 30, 1997,
provided employees to clients in 12 states.
RESULTS OF OPERATIONS -- GTS
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1994 1995 1996
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 25,162 100.0% $ 23,167 100.0% $ 28,661 100.0%
Cost of services..................... 23,686 94.1% 21,677 93.6% 26,561 92.7%
--------- --------- --------- --------- --------- ---------
Gross profit......................... 1,476 5.9% 1,490 6.4% 2,100 7.3%
Operating costs and expenses......... 1,039 4.2% 1,154 4.9% 1,247 4.3%
--------- --------- --------- --------- --------- ---------
Operating income..................... $ 437 1.7% $ 336 1.5% $ 853 3.0%
========= ========= ========= ========= ========= =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1996 1997
<S> <C> <C> <C> <C>
Revenues............................. $ 20,824 100.0% $ 31,892 100.0%
Cost of services..................... 19,235 92.4% 29,262 91.8%
--------- --------- --------- ---------
Gross profit......................... 1,589 7.6% 2,630 8.2%
Operating costs and expenses......... 872 4.2% 1,433 4.5%
--------- --------- --------- ---------
Operating income..................... $ 717 3.4% $ 1,197 3.7%
========= ========= ========= =========
</TABLE>
GTS RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased $11.1 million, or 53.3%, from $20.8 million
for the nine months ended September 30, 1996 to $31.9 million for the nine
months ended September 30, 1997. This increase was attributable to several new
contracts entered into after September 30, 1996.
GROSS PROFIT. Gross profit increased $1.0 million, or 62.5%, from $1.6
million for the nine months ended September 30, 1996 to $2.6 million for the
nine months ended september 30, 1997. Gross profit, as a percent of sales,
increased from 7.6% in the nine months ended September 30, 1996 to 8.2% of sales
in the nine months ended September 30, 1997.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.5
million, or 55.6%, from $0.9 million for the nine months ended September 30,
1996 to $1.4 million for the nine months ended September 30, 1997. Operating
costs and expenses, as a percent of sales, increased from 4.2% in the nine
months ended September 30, 1996 to 4.5% in the nine months ended September 30,
1997.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 71.4%, from $ 0.7 million, or 3.4% of revenues, in the nine months
ended September 30, 1996 to $1.2 million, or 3.7% of revenues, in the nine
months ended September 30, 1997.
35
<PAGE>
GTS RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31,
1995
REVENUES. Revenues increased $5.5 million, or 23.7%, from $23.2 million in
1995 to $28.7 million in 1996. The increase was related to an increase in
revenues with existing clients and two new contracts with new clients.
GROSS PROFIT. Gross profit increased $0.6 million, or 40.0%, from $1.5
million for 1995 to $2.1 million for 1996. Gross profit, as a percent of sales,
increased from 6.4% in 1995 to 7.3% of sales in 1996.
OPERATING COSTS AND EXPENSES. Operating costs and expenses remained at
$1.2 million for 1995 and 1996. Operating costs and expenses as a percent of
total revenues decreased from 4.9% in 1995 to 4.3% in 1996.
OPERATING INCOME. As a result of the foregoing, operating income increased
200.0% from $0.3 million, or 1.5% of revenues, in 1995 to $0.9 million, or 3.0%
of revenues, in 1996.
GTS RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31,
1994
REVENUES. Revenues decreased $2.0 million, or 7.9%, from $25.2 million in
1994 to $23.2 million in 1995. The decline was primarily related to a
significant downturn in the fourth quarter of 1995 for two existing clients
which subsequently returned to historical revenue levels in the first quarter of
1996.
GROSS PROFIT. Gross profit remained at $1.5 million for 1994 and 1995.
Gross profit, as a percent of sales, increased from 5.9% in 1994 to 6.4% of
sales in 1995.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million or 20.0%, from $1.0 million in 1994 to $1.2 million in 1995. Operating
costs and expenses as a percent of sales increased from 4.2% in 1994 to 4.9% in
1995. The increase in operating costs and expenses as a percent of sales is
primarily attributed to a 7.9% decrease in revenues.
OPERATING INCOME. As a result of the foregoing, operating income decreased
from $0.4 million, or 1.7% of revenues, in 1994 to $0.3 million, or 1.5% of
revenues, in 1995.
LIQUIDITY AND CAPITAL RESOURCES -- GTS
GTS generated $0.7 million in net cash from operating activities for the
nine months ended September 30, 1997. Net cash provided by investing activities
was approximately $0.6 million, principally for receipts of receivables from
related parties. Net cash used in financing activities was $1.2 million,
representing net reductions of debt. At September 30, 1997, GTS had working
capital of $0.5 million and $1.2 million in outstanding debt.
GTS used $0.4 million in net cash from operating activities for the twelve
months ended December 31, 1996, primarily due to an increase in trade
receivables of $1.2 million. Net cash used in investing activities was
approximately $0.3 million, principally for equipment purchases. Net cash
provided by financing activities was $0.1 million, representing net increases in
debt. At December 31, 1996, GTS had negative working capital of $0.7 million and
$2.4 million of outstanding debt.
HP SERVICES
Founded in 1990, HP Services acquired the employees of Gulf Coast
Maintenance, Inc. which had been in operation since 1978. Headquartered in
Alvin, Texas, HP Services specializes in supplying light industrial labor to the
petrochemical industry.
36
<PAGE>
RESULTS OF OPERATIONS -- HP SERVICES
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1994 1995 1996
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 5,868 100.0% $ 6,488 100.0% $ 9,063 100.0%
Cost of services..................... 5,220 89.0% 5,697 87.8% 7,943 87.6%
--------- --------- --------- --------- --------- ---------
Gross profit......................... 648 11.0% 791 12.2% 1,120 12.4%
Operating costs and expenses......... 338 5.8% 381 5.9% 641 7.1%
--------- --------- --------- --------- --------- ---------
Operating income..................... $ 310 5.3% $ 410 6.3% $ 479 5.3%
========= ========= ========= ========= ========= =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1996 1997
<S> <C> <C> <C> <C>
Revenues............................. $ 6,755 100.0% $ 6,676 100.0%
Cost of services..................... 5,984 88.6% 5,693 85.3%
--------- --------- --------- ---------
Gross profit......................... 771 11.4% 983 14.7%
Operating costs and expenses......... 315 4.7% 399 6.0%
--------- --------- --------- ---------
Operating income..................... $ 456 6.7% $ 584 8.7%
========= ========= ========= =========
</TABLE>
HP SERVICES RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996
REVENUES. Revenues remained at $6.7 million for the nine months ended
September 30, 1996 and the nine months ended September 30, 1997.
GROSS PROFIT. Gross profit increased $0.2 million, or 25.0%, from $0.8
million for the nine months ended September 30, 1996 to $1.0 million for the
nine months ended September 30, 1997. Gross profit, as a percent of sales,
increased from 11.4% in the nine months ended September 30, 1996 to 14.7% of
sales in the nine months ended September 30, 1997 primarily due to a reduction
in expenses associated with workers' compensation insurance.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million, or 33.3%, from $0.3 million for the nine months ended September 30,
1996 to $0.4 million for the nine months ended September 30, 1997. Operating
costs and expenses as a percent of sales increased from 4.7% in the nine months
ended September 30, 1996 to 6.0% in the nine months ended September 30, 1997.
The dollar and percentage increase was primarily related to an increase in
owners' compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
increased $0.1 million, or 20%, from $0.5 million in the nine months ended
September 30, 1996 to $0.6 million for September 30, 1997. Operating income as a
percent of total revenue increased from 6.7% of revenues in the nine months
ended September 30, 1996 to 8.7% in the nine months ended September 30, 1997,
respectively.
HP SERVICES RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
REVENUES. Revenues increased $2.6 million, or 40.0%, from $6.5 million in
1995 to $9.1 million in 1996. The increase was related to a significant increase
in revenues with existing clients in the third and fourth quarters of 1996.
GROSS PROFIT. Gross profit increased $0.3 million, or 37.5%, from $0.8
million for 1995 to $1.1 million for 1996. Gross profit, as a percent of sales,
increased from 12.2% in 1995 to 12.4% of sales in 1996. The dollar increase in
the gross profit was primarily attributable to the increase in revenues of
40.0%.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million, or 50.0%, from $0.4 million in 1995 to $0.6 million in 1996. Operating
costs and expenses increased from 5.9% of revenues in 1995 to 7.1% of revenues
in 1996. The dollar and percentage increase was primarily related to an increase
in owners' compensation in 1996.
OPERATING INCOME. As a result of the foregoing, operating income increased
25.0% from $0.4 million, or 6.3% of revenues, in 1995 to $0.5 million, or 5.3%
of revenues, in 1996.
HP SERVICES RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994
REVENUES. Revenues increased $0.6 million, or 10.2%, from $5.9 million in
1994 to $6.5 million in 1995. The increase was related to an increase in
revenues with existing clients.
GROSS PROFIT. Gross profit increased $0.2 million, or 33.3%, from $0.6
million for 1994 to $0.8 million for 1995. Gross profit, as a percent of sales,
increased from 11.0% in 1994 to 12.2% of sales in 1995 primarily related to
pricing increases without a commensurate increase in worksite employee costs.
37
<PAGE>
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million, or 33.3%, from $0.3 million in 1994 to $0.4 million in 1995. Operating
costs and expenses as a percent of total revenues increased from 5.8% in 1994 to
5.7% of sales in 1995.
OPERATING INCOME. As a result of the foregoing, operating income increased
33.3% from $0.3 million in 1994, or 5.3% of revenues, to $0.4 million, or 6.3%
or revenues, in 1995.
LIQUIDITY AND CAPITAL RESOURCES -- HP SERVICES
HP Services generated $1.0 million in net cash from operating activities
for the nine months ended September 30, 1997. No net cash was used in investing
activities. Net cash used in financing activities was $0.7 million, representing
shareholder distributions. At September 30, 1997, HP Services had working
capital of $1.1 million and $0.3 million in outstanding debt.
HP Services generated $0.4 million in net cash from operating activities
for the twelve months ended December 31, 1996. Net cash provided by investing
activities was not material. Net cash used in financing activities was $0.6
million, representing distributions to shareholders and reductions in loans to
shareholders. At December 31, 1996, HP Services had working capital of $1.2
million and $0.3 million of outstanding debt.
TECHNOLOGY PLUS
Founded in 1985, Technology Plus is headquartered in Lee's Summit,
Missouri, a suburb of Kansas City, Missouri. Technology Plus specializes in
providing technical manpower, including engineers, designers and CAD personnel
to the chemical, petrochemical, refinery, gas transportation and heavy
industries. Technology Plus has branch offices in St. Louis, Missouri; Panama
City, Florida; and New Orleans, Louisiana and as of September 30, 1997 provided
employees to clients in 22 states.
RESULTS OF OPERATIONS -- TECHNOLOGY PLUS
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------ ------------------------------------------
1995 1996 1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 9,828 100.0% $ 12,256 100.0% $ 8,541 100.0% $ 8,990 100.0%
Cost of services..................... 8,571 87.2% 10,802 88.1% 7,438 87.1% 7,801 86.8%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 1,257 12.8% 1,454 11.9% 1,103 12.9% 1,189 13.2%
Operating costs and expenses......... 878 8.9% 964 7.9% 707 8.3% 822 9.1%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 379 3.9% $ 490 4.0% $ 396 4.6% $ 367 4.1%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
TECHNOLOGY PLUS RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased $0.5 million, or 5.9%, from $8.5 million for
the nine months ended September 30, 1996 to $9.0 million for the nine months
ended September 30, 1997. This increase was attributable primarily to an
increase in revenues with existing clients due to overtime and partially due to
revenues from new clients.
GROSS PROFIT. Gross profit increased $0.1 million, or 9.1%, from $1.1
million for the nine months ended September 30, 1996 to $1.2 million for the
nine months ended September 30, 1997. Gross profit, as a percent of sales,
increased from 12.9% in the nine months ended September 30, 1996 to 13.2% in the
nine months ended September 30, 1997.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million, or 14.3%, from $0.7 million for the nine months ended September 30,
1996 to $0.8 million for the nine months ended September 30, 1997. Operating
costs and expenses, as a percent of sales, increased from 8.3% in the nine
months ended September 30, 1996 to 9.1% in the nine months ended September 30,
1997. The dollar and percentage increase was primarily related to an increase in
marketing costs and expenses associated with the relocation of a branch office.
38
<PAGE>
OPERATING INCOME. As a result of the aforementioned, operating income
remained at $0.4 million or 4.6% and 4.1% of revenues in the nine months ended
September 30, 1996 and 1997, respectively.
TECHNOLOGY PLUS RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
REVENUES. Revenues increased $2.5 million, or 25.5%, from $9.8 million in
1995 to $12.3 million in 1996. The increase was primarily related to revenues
from new clients and partially due to overtime billings with existing clients.
GROSS PROFIT. Gross profit increased $0.1 million, or 7.7%, from $1.3
million for 1995 to $1.4 million for 1996. Gross profit, as a percent of sales,
decreased from 12.8% in 1995 to 11.9% of sales in 1996 primarily due to the
unfavorable timing of increased costs for worksite employees compared to price
increases to clients.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million, or 11.1%, from $0.9 million in 1995 to $1.0 million in 1996. Operating
costs and expenses as a percent of total revenue decreased from 8.9% to 7.9%.
OPERATING INCOME. As a result of the foregoing, operating income increased
25.0% from $0.4 million, or 3.9% of revenues, in 1995 to $0.5 million, or 4.0%
of revenues, in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- TECHNOLOGY PLUS
Technology Plus generated $0.3 million in net cash from operating
activities for the nine months ended September 30, 1997. There was no material
net cash provided by investing activities. Net cash used in financing activities
was $0.1 million, representing net decreases in debt. At September 30, 1997,
Technology Plus had working capital of $0.9 million and $0.4 million in
outstanding debt.
Technology Plus net cash from operating activities for the twelve months
ended December 31, 1996 was not material. Net cash used in investing activities
was $0.1 million. Net cash provided by financing activities was not material. At
December 31, 1996, Technology Plus had working capital of $0.6 million and $0.6
million of outstanding debt.
SEASONALITY, INFLATION AND QUARTERLY FLUCTUATIONS
The Company's operating results have historically fluctuated from quarter
to quarter. In addition, due to the timing of the assessment of employment
related taxes, the Company's gross profit margin typically improves from quarter
to quarter within each year with the first quarter generally being the least
favorable. Employment related taxes are based on the cumulative earnings of
individual employees up to a specified wage level. Since the Company's revenues
related to an individual employee are generally earned and collected at a
relatively constant rate throughout each year, payment of such unemployment tax
obligations has a substantial impact on the Company's financial condition and
results of operations during the first six months of each year. In addition, the
Company's operations are also affected by the seasonal fluctuations in the
businesses of the Company's clients, as well as the fluctuations in the demand
for staffing services, which are typically stronger in the second and third
quarters.
The Company believes the effects of inflation have not had a significant
impact on its results of operations or financial condition.
39
<PAGE>
BUSINESS
INTRODUCTION
Nationwide Staffing was organized in February 1997 to become a leading
national provider of comprehensive staffing solutions to businesses,
professional and service organizations and governmental agencies. The Company
provides professional, skilled industrial and commercial (clerical and light
industrial) employees to over 2,400 clients in a wide variety of industries,
including aerospace, petrochemicals, petroleum refining, insurance, food
processing, legal and high technology, and to the government sector. The
Company's pro forma revenues for the year ended December 31, 1996 of $133.8
million were derived approximately 70% from temporary staffing and approximately
30% from staff leasing or professional employer organization ("PEO") services.
In a PEO arrangement, the Company enters into a contract to transfer the client
company's existing workforce, or a portion thereof, to the Company and assumes
responsibility for all or a portion of personnel-related matters. Upon
consummation of the Offering, Nationwide Staffing will acquire through the
Mergers the eight Founding Companies, which have been in business for an average
of 15 years and currently have 29 offices and operations in 42 states and the
District of Columbia.
The Company believes that as businesses increasingly outsource a wider
range of human resource functions in order to focus on their core operations,
they will require more sophisticated and diverse services from their staffing
providers. In order to serve these needs, the Company offers significantly
broader services than those provided by traditional staffing companies. In
addition to supplying temporary workers for short-term needs, the Company also
provides extended-term temporary employees, including staff leasing or PEO
services, temporary-to-permanent placements, recruiting, permanent placements,
payroll processing, vendor-on-premises and human resource consulting. In
addition, the Company is pursuing strategic alliances with selected human
resource consulting firms that will enable the Company to expand its range of
staffing services to include additional human resource department outsourcing
services and executive compensation and employee benefits consulting.
The Company's emphasis on providing comprehensive staffing solutions
affords it a competitive advantage by appealing to a broader universe of
potential clients, including regional and national companies, while also
creating cross-marketing opportunities within its existing client base. The
Company intends to provide companies with single-source solutions to their
staffing needs by combining and integrating the extensive services already being
provided by the Founding Companies, along with additional services that may
become available through acquisitions and strategic alliances. This
comprehensive service offering will allow the Company to offer cost-effective
service to companies who can select those staffing services that best satisfy
their particular needs. In addition, the Company will be able to cross market
services to existing and new clients, thereby reducing the Company's business
development costs, and will be able to serve larger companies seeking
comprehensive staffing services on a regional or national basis. Finally, the
Company believes that a comprehensive service offering will assist the Company
in establishing multiple contacts within existing and new clients that should
contribute to more extensive and longer-term relationships.
INDUSTRY OVERVIEW
The staffing industry encompasses a wide range of services to businesses,
professional and service organizations and government agencies. The U.S.
staffing industry has grown rapidly in recent years as organizations have sought
to reduce costs and improve operating efficiency by outsourcing human resource
functions. Staffing Industry Analysts, Inc. ("SIA") estimates that gross
revenues in the U.S. staffing industry have grown since 1991 at a compound
annual growth rate of 18.8%, from approximately $31.4 billion in 1991 to
approximately $74.4 billion in 1996. According to SIA, temporary staffing and
PEO services represented approximately 63.3% and 23.3%, respectively, of total
staffing industry gross revenues in 1996.
The U.S. staffing industry is highly fragmented and has begun to experience
consolidation, particularly with respect to temporary staffing and PEO
companies. Based on data available from Dun & Bradstreet and
40
<PAGE>
the National Association of Professional Employer Organizations ("NAPEO"), in
the United States over 9,300 companies provide temporary staffing services and
more than 1,800 companies provide PEO services. Many of these companies are
small, owner-operated businesses with limited access to capital for development
and expansion. The Company believes that temporary staffing and, to a lesser
extent, PEO companies are consolidating in response to (i) the increased demands
of local, regional and national companies for a single supplier of a full range
of staffing and human resource services, (ii) increased competition from larger,
better capitalized competitors and (iii) owners' desires for liquidity. Although
some consolidation activity has already occurred, the Company believes that
consolidation in the U.S. staffing industry will continue and that there will be
numerous available acquisition candidates.
TEMPORARY STAFFING. Temporary staffing has grown rapidly in recent years
as competitive pressures have caused businesses to focus on reducing overhead,
including converting fixed labor costs to variable costs. The use of temporary
employees also enables companies to improve flexibility in employee hiring and
scheduling and allows them to focus on their core business operations. According
to SIA, the United States market for temporary services has grown since 1991 at
a compound annual growth rate of 17.0%, from approximately $21.5 billion in
revenue in 1991 to approximately $47.1 billion in 1996. National Association of
Temporary and Staffing Services ("NATSS") data also shows that temporary
staffing personnel now account for approximately 1.9% of the total U.S.
workforce. The Company believes that the use of temporary personnel has become
widely accepted as a valuable tool for managing personnel costs, supplementing
permanent workforces and meeting specialized or fluctuating employment
requirements. Vacations, illnesses, resignations, seasonal increases in work
volume, marketing promotions and month-end accounting requirements have
historically created demand for temporary staffing. More recently, the growing
cost and difficulty of administering, hiring and terminating full-time workers
has also encouraged greater use of temporary workers.
Organizations have also begun using temporary staffing to reduce
administrative overhead by outsourcing operations that are not part of their
core business operations, such as recruiting, training and benefits
administration. By utilizing temporary personnel, businesses are able to avoid
the management and administrative costs that would be incurred if full-time
employees were employed. An ancillary benefit, particularly for smaller
businesses, is that use of temporary personnel reduces certain employment costs
and risks (for example, workers' compensation and medical and unemployment
insurance) that a temporary personnel provider can spread over a much larger
pool of employees. Businesses are also utilizing temporary staffing services as
a method of selectively hiring and adding to their full-time staff. This
concept, typically referred to as "temp-to-perm," provides the client with an
opportunity to evaluate the skills and proficiency of workers prior to extending
full-time employment offers. NATSS estimates that approximately 38.0% of
temporary personnel are offered full-time employment while on assignment.
PEO. PEO services have also grown substantially in recent years, driven
by the increasingly complex legal and regulatory burdens placed on employers as
well as trends relating to the growth of small businesses in the United States
and their efforts at improving productivity and competitiveness. While various
service providers, such as payroll processing firms, benefits and safety
consultants and temporary services firms were available to assist these
businesses with specific tasks, PEO service companies began to emerge as
providers of a more comprehensive range of services relating to the
employer/employee relationship. Growth in PEO services has been significant. SIA
estimates that gross revenues in the PEO industry have grown since 1991 at a
compound annual rate of 28.2%, from approximately $5.0 billion in 1991 to
approximately $17.3 billion in 1996. Because of the numerous benefits realized
by small businesses using PEO services, growth in PEO services has also been
influenced by growth of the small business sector. According to reports
published by the Small Business Administration ("SBA"), at year end 1994 there
were more than 5.2 million businesses in the United States with fewer than 500
employees. In addition, the Company believes that attempts to achieve higher
levels of productivity in the workplace have supported a movement toward the
outsourcing of services such as payroll administration and consulting on
benefits, safety and other employment issues. The Company believes that the key
factors driving demand for PEO services include (i) complex regulation of labor
and employment issues and the related costs of compliance, including the
allocation of time and effort to such functions by owners and key executives,
(ii)
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the need to provide competitive health care and related benefits to employees of
small businesses, (iii) the increasing costs associated with workers'
compensation and health insurance coverage, workplace safety programs,
employee-related complaints and related litigation, (iv) trends relating to the
growth and productivity of the small business community in the United States and
(iv) the desire of business owners to focus on their core operations.
BUSINESS STRATEGY
The Company plans to achieve its objective of becoming a leading national
provider of comprehensive staffing solutions through the implementation of a
cohesive business strategy consisting of the following elements:
o OFFER A DIVERSIFIED RANGE OF STAFFING SERVICES. The Company offers a wide
range of staffing services, including short and extended-term temporaries, PEO
services, temporary-to-permanent placements, recruiting, permanent placements,
payroll processing, vendor-on-premises and human resource consulting. Each of
the Company's services is available on a stand-alone basis or as part of a
comprehensive staffing solution, thereby affording the Company the flexibility
to provide customized services based on individual client requirements. By
offering a broad range of staffing services, the Company believes that it will
be able (i) to offer its services on a more cost-effective basis, (ii) to cross
market services to existing and new clients, (iii) to capitalize on new
marketing opportunities with clients demanding comprehensive staffing services,
particularly regional and national companies, and (iv) to solidify long-term
relationships with clients.
o CONTINUE TO DEVELOP NICHE MARKETS. As U.S. corporations have become more
accustomed to using specialized employees on a temporary basis, the Company has
developed a strong reputation in certain markets either by focusing on specific
industries, such as aerospace, petrochemical and insurance, or by providing
temporary employees with specialized skills, such as engineers, computer
technicians and health care specialists. These "niche" markets tend to yield
longer-term staffing placements and, in many instances, higher margins. The
Company intends to continue to expand its services in these speciality markets
by leveraging the Founding Companies expertise on a company-wide basis and to
pursue additional niche market opportunities.
o CONTINUE TO DEVELOP LONG-TERM CLIENT RELATIONSHIPS. The Company's
emphasis on providing high quality, value-added staffing solutions has enabled
it to establish long-term relationships with a number of clients. The Company's
25 largest clients have utilized its services on average for approximately eight
years. By continuing to focus on providing superior client service and by
continuing to expand its range of services, the Company intends to further its
relationships with long-standing clients and to establish long-term
relationships with new clients. The Company believes that long-standing client
relationships provide it with the in-depth knowledge necessary to continue to
provide focused and customized service, affording the Company with an advantage
over competitors.
o INCREASE OPERATING EFFICIENCIES. The Company believes that it can provide
significant opportunities to achieve cost savings and greater operating
efficiencies that are not available to the Founding Companies on an individual
basis. The Company intends to support its subsidiaries and branch offices by
combining a number of general and administrative functions at the corporate
level, such as risk management, certain purchasing (including workers'
compensation and health insurance), cash management, human resource and other
systems and administrative support services. The Company will also implement a
program to identify "best practices" among the Founding Companies to enhance
operating efficiencies that can be implemented successfully throughout its
operations. However, while maintaining strong operating and financial controls
at the corporate level, the Company will also maintain a decentralized operating
structure at the local level that will retain the entrepreneurial spirit present
in each of the Founding Companies and will allow the Company to capitalize on
the considerable local and regional market knowledge and customer relationships
possessed by the Founding Companies.
o FOCUS ON INTERNAL GROWTH OPPORTUNITIES. A key component of the Company's
strategy is to build on the Founding Companies' history of internal growth. By
combining the Founding Companies, Nationwide Staffing will be able to
significantly expand the available service offering of each individual Founding
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Company, thereby allowing them to present a wider variety of services to both
existing clients and potential clients. This wider service offering will also
appeal to regional or national companies searching for a one-stop source of
staffing solutions who previously may not have considered utilizing a Founding
Company on a stand alone basis. Furthermore, the Company's assumption of many
administrative functions formerly carried out by the Founding Companies will
allow them to devote increased management efforts towards the cultivation of new
clients.
o EXPAND THROUGH ACQUISITIONS. The Company believes that providers of
temporary staffing and PEO services in the United States are highly fragmented
and consolidating, thereby offering significant opportunities for the Company to
complement its internal growth by aggressively pursuing strategic acquisitions.
The key objectives of the Company's acquisition program are (i) to enhance the
Company's position in its existing niche markets and to establish a position in
new niche markets, (ii) to broaden further the Company's range of staffing
services, (iii) to enter new geographic markets, and (iv) to expand the
Company's presence within its existing geographic markets. The Company's focus
will be to acquire companies that have a history of growth and profitability, a
strong management team, a reputation for quality services and the infrastructure
necessary to be a core business into which other operations may be consolidated.
The Company believes that there are significant opportunities to expand by
acquiring companies that satisfy the Company's acquisition criteria. Once the
Company has entered a geographic market, the Company will also pursue
"tuck-in" acquisitions of smaller companies whose operations can be
assimilated into an existing operation thereby leveraging the Company's
established infrastructure.
OPERATIONS
The Company will offer its comprehensive staffing solutions on a nationwide
basis through the Founding Companies, which are headquartered in Arkansas,
Massachusetts, Missouri, Oregon, Texas and Virginia, and their 29 branch
offices. The Company currently provides staffing services in 42 states and the
District of Columbia. In order to capitalize on established local reputations
and name recognition, each of the Founding Companies will operate as a separate
subsidiary with subsidiary presidents exercising a significant degree of
autonomy, authority and accountability for their operations.
The Company intends to form an Operating Committee comprised of the Chief
Executive Officer, Senior Vice President -- Operations and certain subsidiary
presidents. The Operating Committee will be responsible for certain senior level
planning and oversight of Company activities pertaining to areas such as
strategic planning, national sales and marketing, development of strategic
alliances, advertising, insurance, risk management and safety programs and the
identification and evaluation of acquisition candidates.
The Company also intends to centralize various administrative functions to
enable management of the Founding Companies to focus on serving clients,
coordinating new business opportunities and improving efficiencies. Some of the
administrative functions expected to be centralized include risk management and
insurance coordination, employee benefit programs, selected accounting and
information technology activities, certain purchasing activities, marketing,
treasury and cash management.
Within established guidelines, subsidiary presidents will be responsible
for establishing and maintaining incentive compensation programs designed to
motivate and reward branch managers and other personnel based on the growth and
profitability of their operations. Subsidiary chairmen and presidents will also
participate in incentive compensation programs established by the Company's
Board of Directors. Branch managers will report to regional managers or
subsidiary presidents and will be responsible for certain functions on a local
and regional basis such as sales and marketing, safety programs, employee
recruitment and retention and client relations.
ACQUISITIONS
The Company believes that it will be regarded by acquisition candidates as
an attractive acquiror due to (i) its operation as a comprehensive service
provider, which should appeal to an acquired company's desire to offer expanded
services and grow in its local and regional markets; (ii) the potential for
improved profitability as a result of the Company's centralization of certain
administrative functions, greater
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purchasing power and economies of scale; (iii) its decentralized management
structure, which will often offer an acquired company's management the
opportunity to remain involved in local operations; (iv) the Company's access to
financial resources as a public company; (v) training and job promotion
opportunities that will allow employees to advance their careers; (vi) the
potential for the owners of acquired businesses to realize liquidity and to
participate in the Company's planned growth; and (vii) the Company's increased
visibility as a public company.
The Company believes that management of the Founding Companies will be
instrumental in identifying and completing future acquisitions due to their
industry knowledge and experience. Also, the Company has executed a contract
with Messrs. Warren L. Williams and Jerry L. Hyde (both of whom are members of
WJG Capital) as well as W. Sherman Adcock that provides for two years after the
consummation of the Offering they will assist the Company in identifying
qualified acquisition candidates. Since January 1997, Messrs. Williams, Hyde and
Adcock have been identifying potential merger or acquisition candidates and are
primarily responsible for introducing the eight Founding Companies to the
Company. The Company believes this agreement with Messrs. Williams, Hyde and
Adcock will significantly enhance the Company's ability to implement the
acquisitions contemplated in its business strategy. See "Certain Transactions
- -- Other Transactions." The Company currently has no agreements, other
arrangements or understandings to effect any acquisition other than with the
Founding Companies.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, other capital stock, cash and debt.
The consideration for each future acquisition will vary on a case-by-case basis,
with the major factors in establishing the purchase price being historical
operating results, future prospects of the business to be acquired and the
ability of that business to complement the services offered by the Company and
to implement additional service offerings. The Company intends to register
3,000,000 additional shares of Common Stock under the Securities Act for its use
in connection with future acquisitions. See "Shares Eligible For Future Sale and
Underwriting."
SALES AND MARKETING
The Company intends to develop a comprehensive sales and marketing strategy
that will focus on cross-marketing services to existing clients and developing
additional regional and national clients. Local accounts will be targeted by
account managers at the subsidiaries and branch offices, thereby permitting the
Company to capitalize on the local expertise and established relationships of
its subsidiaries and branch offices. The Company's marketing strategy will
include personal sales presentations, telephone marketing, direct mail
solicitation, referrals from clients and advertising in a variety of local and
national media. It is contemplated that advertisements will appear in general
circulation newspapers, in trade and industry specific newspapers, in
publications and telephone directories. The Company also intends to conduct
additional public relations activities designed to enhance public recognition of
the Company and its services. Local employees will be encouraged to be active in
civic organizations and industry trade groups to facilitate the development of
new customer relationships. Lastly, when a specialty or niche market is served
by one or more of its subsidiaries, the Company will implement a program by
which such subsidiaries can share information, cross market services and
employment candidates and eliminate duplicative functions.
INFORMATION TECHNOLOGY
Each of the Founding Companies currently operates a variety of management
information systems to generate the information necessary to operate their
businesses and serve clients. These systems enable the Company to maintain
customer profile data, communicate with clients, process order entry and
billing, track employee utilization and supply customized reporting to clients.
Additionally, these systems enable the Company to maintain employee profile data
and screen prospective employees for the skills needed for proper job placement.
These information systems also perform accounting, Internet, E-mail and other
miscellaneous applications, such as computer testing of potential employees and
employee training.
For operating and financial reporting purposes, the Company will utilize
comprehensive reporting and information systems packages prepared by branch
offices. These packages will provide both local and
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corporate management with daily, weekly, monthly and quarterly operating and
financial data necessary to manage its business and report operating results. In
addition, the Company will evaluate its existing management information systems
and its present and future information technology needs. Based on this
evaluation, the Company plans to implement Company-wide management information
systems that will enable all of the Company's offices to readily share pertinent
information and provide those capabilities required to meet the increasing needs
of clients, regulatory authorities and management of the Company. Until such
evaluation is completed, the Company believes that it can operate successfully
utilizing the management information systems maintained by the Founding
Companies.
WORKERS' COMPENSATION PROGRAM AND SAFETY PROGRAM
The maintenance of workers' compensation and health insurance plans that
cover worksite employees will be a significant aspect of the Company's business.
The workers' compensation and health insurance contracts used by the Founding
Companies are provided by vendors with whom the Founding Companies have
established relationships and on terms that the Company believes to be
favorable. The Company believes there are savings to be achieved by
consolidating its workers' compensation and employee benefits and intends to
implement a new program at such time as, in management's judgment, a more
cost-effective program can be identified.
The Company intends to maintain and improve existing safety programs in
each of its subsidiary and branch offices pursuant to which it will provide
safety training to employees prior to job assignment. The Company's risk
managers and field personnel will also perform safety inspections at customer
locations to help determine potential risks for employee injury and to assist
customers in making the workplace safer. The Company's policies will prohibit
staffing of high-risk work such as roofing, the handling of hazardous materials
or other high risks that could have an adverse effect on the Company's workers'
compensation rates and liability.
COMPETITION
The Company believes that the U.S. temporary staffing and PEO markets are
highly competitive and fragmented, with an estimated 9,300 and 1,800 firms,
respectively, providing such services, some of which operate on a regional,
national and international basis. There are limited barriers to entry and new
competition frequently enters the markets. There are many national and regional
temporary personnel companies and PEOs with substantially greater financial and
marketing resources than those of the Company. See "Risk Factors -- Substantial
Competition and New Market Entrants."
The key competitive factors in obtaining clients for temporary staffing
services are a strong sales and marketing program, the timely availability of
qualified temporary personnel, the ability to match client requirements with
available temporary personnel, competitive pricing of services and meeting the
clients' work production requirements. Moreover the key competitive factors in
the PEO industry are the breadth, quality and value of services provided and the
prices of such services. The Company anticipates that its long-term client
relationships and strong emphasis on providing comprehensive, value-added
staffing solutions to clients and to temporary employees will be important
competitive advantages.
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EMPLOYEES
At September 30, 1997, the Founding Companies had the following temporary
and leased employees working at client worksites:
TEMPORARY LEASED
NAME EMPLOYEES(1) EMPLOYEES
Alternative Solutions................ 567 176
ASAP................................. 732 --
Cardinal............................. 760 630
Employment Enterprises............... 540 2,066
Evins Group.......................... 516 23
GTS.................................. 623 --
HP Services.......................... 482 --
Technology Plus...................... 150 --
------------ ---------
Total........................... 4,370 2,895
============ =========
- ------------
(1) Temporary employees include some employees of the Company who have been at
the same job site for over a year.
The Company will have approximately 204 employees in its corporate
headquarters, subsidiary and branch offices. These employees will consist of 49
employees in corporate services, 26 in accounting and finance, five in benefits
administration, one in legal, nine in marketing, five in information technology,
25 in human resources and 84 in client services (including sales associates).
LEGAL AND ADMINISTRATIVE PROCEEDINGS
None of the Founding Companies is a party to any pending legal proceedings
that would be material to the Company, other than ordinary routine litigation
incidental to its business. In the ordinary course of their business, the
Founding Companies are periodically threatened with or named as a defendant in
various lawsuits, including personal injury, discrimination and harassment and
other similar claims. The Company will maintain insurance in such amounts and
with such coverage and deductibles as management believes are reasonable.
INTELLECTUAL PROPERTY
The Company owns and licenses several state and federal trademarks used by
the Founding Companies. The Company believes that it has all rights to
trademarks and tradenames necessary for the conduct of its business.
FACILITIES
The Company will lease from third parties its corporate headquarters office
as well as many of the facilities for the Founding Companies and the Company's
branch offices. In addition, several of the Founding Companies lease office
space from their former owners or affiliates. The Company believes that the
lease terms are at least as favorable as could be obtained from any unrelated
third party. See "Certain Transactions -- Leases of Real Property by Founding
Companies."
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REGULATION
GENERAL
As an employer, the Company is subject to all federal and state laws
regarding the employer-employee relationship, including numerous federal and
state laws relating to labor, tax and discrimination matters. In a temporary
staffing situation, these obligations are directly applicable to the Company. In
a PEO situation, the Company assumes certain of these obligations of the client
company. Because many of these federal and state laws were enacted prior to the
development of non-traditional employment relationships, such as temporary
staffing, PEO and outsourcing arrangements, many of these laws do not
specifically address the obligations and responsibilities of non-traditional
employers.
State-mandated workers' compensation and unemployment insurance premiums
may change from year to year that directly impact the Founding Companies' cost
of services. In addition, the extent and type of health insurance benefits that
employers are required to provide employees have been the subject of intense
scrutiny and debate in recent years at both the national and state provide
health insurance benefits to staffing employees and that some states could
impose sales taxes, or raise sales tax rates, on staffing services. Further
increases in such premiums or rates, or the introduction of new regulatory
provisions, could substantially raise the costs associated with hiring and
employing employees for the Company.
TEMPORARY STAFFING
The Company's temporary staffing operations are not generally subject to
state or local licensing requirements or other regulations specifically
governing the provision of commercial and professional temporary staffing
services. There can be no assurance, however, that states in which the Company
operates or may in the future operate will not adopt such licensing or other
regulations affecting the Company.
PEO
While many states do not explicitly regulate PEO operations, 15 states have
enacted legislation containing licensing or registration requirements. In
addition, the Company believes that other states are considering such
regulation. Such laws vary from state to state but generally provide for
monitoring the fiscal responsibility of PEO companies. Five of the Founding
Companies hold licenses in states that regulate PEO operations. State regulation
assists in screening insufficiently capitalized PEO operations and has the
effect of resolving interpretive issues concerning employee status under
applicable state law. The Company does not view the compliance with these
regulations as material to its business operations.
Some governmental agencies that regulate employment and labor laws have
developed rules that specifically address labor and employment issues raised by
the relationship among PEO companies, client companies and worksite employees.
Existing regulations are relatively new and, therefore, their interpretation and
application by administrative agencies and federal and state courts is very
limited. The development of additional regulations and interpretations of
existing regulations can be expected to evolve over time. The Company cannot
predict the nature or direction of the development of federal, state and local
regulations.
EMPLOYEE BENEFIT PLANS
The Founding Companies offer various employee benefit plans to their
employees, including temporary and leased employees. These employee benefit
plans are treated by the Founding Companies as constituting "single-employer"
plans of each Founding Company rather than multiple employer plans. Of the
Founding Companies, six companies provide a 401(k) Plan, which is a
profit-sharing plan with (i) a cash or deferral arrangement ("CODA") under
Section 401(k) of the Internal Revenue Code of 1986, as amended ("Code"), (ii)
a discretionary matching contribution feature under Code Section 401(m)
("Matching Contribution") and (iii) an additional discretionary contribution
feature which is allocated based on an employee's compensation ("Profit Sharing
Contribution"). Since the inception of each 401(k) Plan, any Matching
Contributions or Profit Sharing Contributions to such plans have been minimal,
if made at all. Additionally, each Founding Company maintains a group health
plan on behalf of its employees with
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at least six maintaining such medical plan through a cafeteria plan under Code
Section 125. Several of the Founding Companies provide group life insurance,
group disability plans and dependent care plans. Generally, all the employee
benefit plans provided by the Founding Companies are subject to provisions of
both the Code and the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
After the Offering, the Company intends to evaluate each of the 401(k)
Plans of the Founding Companies and intends, if prudent, to merge the 401(k)
Plans of the Founding Companies into one single-employer 401(k) Plan sponsored
by the Company to provide retirement benefits to its headquarters and branch
office personnel and, possibly, to its temporary and leased employees.
Additionally, after the Offering, the Company intends to evaluate all other
employee benefit plans provided by the Founding Companies, and based on such
evaluation, the Company intends to offer those employee benefits to its
headquarters and branch office personnel and to its temporary and leased
employees as the Company deems reasonable.
EMPLOYER STATUS. In order to qualify for favorable tax treatment under the
Code, the benefit plans of the Founding Companies and the benefit plans to be
implemented by the Company must be established and maintained by an employer for
the exclusive benefit of its employees. Generally, an entity is an "employer"
of certain workers for federal employment tax purposes if an employment
relationship exists between the entity and the workers under the common law test
of employment. In addition, the officers of a corporation are deemed to be
employees of that corporation for federal employment tax purposes. The common
law test of employment, as applied by the Internal Revenue Service ("IRS"),
involves an examination of approximately 20 factors to ascertain whether an
employment relationship exists between a worker and a purported employer. That
test is generally applied to determine whether an individual is an independent
contractor or an employee for federal employment tax purposes and not to
determine whether each of two or more companies is a "co-employer."
Substantial weight is typically given to the question of whether the purported
employer has the right to direct and control the details of an individual's
work. Among the various categories of factors which appear to be considered more
important by the IRS are (i) the employer's degree of behavioral control (the
extent of instructions, training and the nature of the work), (ii) the financial
control of the economic aspects of the relationship and (iii) the intended
relationship of the parties, as evidenced by any contracts, permanency (that is,
are services ongoing or for a project) and penalties for discharge/termination.
The IRS has established a Market Segment Study Group on Employee Leasing
for the purpose of identifying specific compliance issues prevalent in certain
segments of the PEO industry. Approximately 70 PEO companies have been randomly
selected by the IRS for audit pursuant to this program. One issue that has
arisen from these audits is the issue of whether a PEO company can be a
co-employer of worksite employees, including officers and owners of client
companies, for various purposes under the Code ("Industry Issue"). If it is
determined that the PEO company is not a co-employer with respect to its
worksite employees, then such worksite employees may not be able to participate
in the employee benefit plans of a PEO company, including a 401(k) Plan and a
cafeteria plan. Additionally, the IRS may treat temporary employees who have
been on the same job for over one year as leased employees, who are not
considered to be employees of the Company. NAPEO is cooperating with the IRS in
this study. The Company also understands that, with respect to the Market
Segment Study, the IRS is similarly referring the Industry Issue to its National
Office. The Company understands that it is the IRS's view that such a co-
employer status is not recognized under current tax law. If the Market Segment
Study were to reach a conclusion that is adverse to the PEO industry, there is
an administrative procedure available to appeal that conclusion. In addition to
working with the Market Segment Study, NAPEO is actively engaged in policy
discussions with both the Treasury Department and with members of Congress in an
effort to reduce the likelihood of unfavorable conclusions and to procure
favorable legislation.
The Company is unable to predict whether the Treasury Department will issue
a policy statement with respect to its position on the Industry Issue or, if
issued, whether such a statement would be favorable to the Company. If it were
ultimately determined that a PEO company is not a co-employer of its leased
worksite employees, then the leased worksite employees could not continue to
make salary deferral contributions to a
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401(k) Plan or a cafeteria plan or continue to participate in certain other
employee benefit plans of the affected Founding Company or participate in
various employee benefit plans which may be established by the Company. The
Company believes that, although unfavorable to the Company, a prospective
application by the IRS of such an adverse conclusion (that is, one applicable
only to periods after such a conclusion is reached) would not have a material
adverse effect on its financial position or results of operations, as the
affected Founding Company could continue to make available similar benefit
programs to its client companies at comparable cost. If such unfavorable
conclusion were applied retroactively to disqualify a 401(k) Plan of the
Founding Companies, the employees' vested account balances under the 401(k) Plan
would become taxable and the affected Founding Company would lose its tax
deductions to the extent its Matching Contributions and Profit Sharing
Contributions were not vested, a Founding Company's plan trust would become a
taxable trust and such Founding Company would be subject to liability with
respect to trust earnings and its failure to withhold applicable taxes with
respect to certain contributions. Further, the affected Founding Company or the
Company would be subject to liability, including penalties, with respect to its
cafeteria plan for the failure to withhold and pay taxes applicable to salary
deferral contributions by employees, including worksite employees. In such a
scenario, the affected Founding Company or the Company also would face the risk
of client dissatisfaction and potential litigation. Retroactive application by
the IRS of an adverse conclusion could have a material adverse effect on the
Company's financial position and results of operations. While the Company
believes that a retroactive disqualification is unlikely, there can be no
assurance as to the ultimate resolution of these issues by the IRS.
ERISA REQUIREMENTS. Employee benefit plans are also governed by ERISA.
ERISA defines "employer" as "any person acting directly as an employer, or
indirectly in the interest of an employer, in relation to an employee benefit
plan." ERISA defines the term "employee" as "an individual employed by an
employer." The United States Supreme Court has held that the common law test of
employment must be applied to determine whether an individual is an employee or
an independent contractor under ERISA. A definitive judicial interpretation of
"employer" in the context of employee leasing arrangement has not been
established.
If a Founding Company were found not to be an employer for ERISA purposes
in its PEO operations, its plans would not comply with ERISA. Further, as a
result of such finding the Founding Company and its plans would not enjoy, with
respect to worksite employees, the preemption of state laws provided by ERISA
and could be subject to varying state laws and regulations, as well as to claims
based upon state common laws. Even if such a finding were made, however, the
Company believes that the Founding Company would not be materially adversely
affected because it could continue to make available similar benefits at
comparable cost.
POSSIBLE MULTIPLE EMPLOYER TAX TREATMENTS. The U.S. Department of Labor
("DOL") issued an Advisory Opinion in December 1995 to a PEO company advising
that particular company that its health plan, which covered worksite employees,
was a multiple employer plan, rather than a single employer plan. Because the
Company believes that the five Founding Companies which conduct PEO operations
are co-employers with respect to their worksite employees, the Company views
such Founding Company group health plans to be single employer plans. However,
if this DOL opinion were applied to a Founding Company, it is possible, although
the Company believes it is unlikely, that the DOL would assert penalties against
the Founding Company for having incorrectly filed annual reports treating its
plan as a single employer plan. Such a conclusion, if applied to the other
employee benefit plans that cover worksite employees, could result in additional
liabilities of the affected Founding Company. The Company does not believe that
any such penalties will, individually or in the aggregate, be material. Further,
even if such a conclusion is reached, the Company believes that it would
continue to be able to make available comparable benefit programs to client
companies.
FEDERAL AND STATE EMPLOYMENT TAXES
In a temporary staffing situation, the Company is the employer for tax
purposes. In a PEO situation, the Company assumes from its clients the clients'
responsibility and liability for the payment of federal and state employment
taxes with respect to wages and salaries paid to its worksite employees. There
are
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essentially three types of federal employment tax obligations: (i) withholding
of income tax governed by Code Section 3401; (ii) obligations under FICA
governed by Code Section 3101; and (iii) obligations under the FUTA governed by
Code Section 3301. Under the Code, employers have the obligation to remit the
employer portion and, where applicable, withhold and remit the employee portion
of these taxes.
The IRS Market Segment Study Group discussed above is examining, among
other issues, whether PEO companies are employers of worksite employees under
the Code provisions applicable to federal employment taxes and, consequently,
responsible for payment of employment taxes on wages and salaries paid to such
worksite employees.
The uncertainties associated with new and developing regulatory positions
and the IRS studies and investigations could have the effect of discouraging
companies from enrolling with PEO companies.
State employment tax obligations vary from state to state; therefore, the
Company's responsibilities with respect to state employment tax obligations will
be dependent upon the particular states in which the worksite employees are
performing services.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors, executive officers and key employees upon completion of this
Offering.
NAME AGE POSITION
- ------------------------------------ --- -------------------------------------
Larry E. Darst...................... 46 Chairman of the Board, President,
Chief Executive Officer and Director
Dean G. Walberg..................... 58 Senior Vice President -- Operations
Gary J. Petry....................... 48 Senior Vice President and Chief
Financial Officer
Stephen M. Alter.................... 59 Chief Executive Officer of
Alternative Solutions, Director*
Brenda S. Dougan.................... 47 President of ASAP, Director*
Mary E. Evins....................... 66 President of Evins Group, Director*
Lovey L. Hammel..................... 38 President of Employment Enterprises,
Director*
Paul L. Milligan.................... 43 President of GTS, Director*
Gary D. Pitts....................... 40 President of HP Services, Director*
Richard L. Bronson.................. 52 President of Technology Plus,
Director*
Quincy T. Freeman................... 59 Chief Executive Officer of Cardinal,
Director*
Carl L. Norton...................... 54 Director
George C. Woods..................... 39 Director
Thomas N. Amonett................... 53 Director*
- ------------
* Election as a director effective as of the consummation of this Offering.
LARRY E. DARST became the Chief Executive Officer of the Company and a
director in April 1997. From 1974 to 1996, Mr. Darst was employed by Ernst &
Young LLP, an international professional services firm. From 1983 until he
departed in 1996, Mr. Darst was a partner in Ernst & Young LLP. At the time of
his departure, Mr. Darst had served for two years as the Associate Regional
Director of Accounting and Auditing. In addition, from 1984 to 1988, Mr. Darst
was Ernst & Young LLP's Regional Director of Human Resources.
DEAN G. WALBERG became Senior Vice President -- Operations of the Company
in August 1997. From June 1991 through August 1992, Mr. Walberg served as
President of Questco, Inc., a staff leasing company. From August 1992 to May
1995, Mr. Walberg was with Unisource Services, Inc. as a consultant working
primarily in the staffing industry, and from May 1995 to August 1997, he was
Vice President of Southwestern Headquarters with Digital Solutions, Inc., a
staff leasing company. He is a member of NAPEO.
GARY J. PETRY became Senior Vice President and Chief Financial Officer of
the Company in August 1997. Prior to joining the Company, Mr. Petry was employed
in various management capacities from 1979 to 1997 by Air Liquide America
Corporation and Big Three Industries, Inc., before it was acquired by Air
Liquide. During his tenure with Air Liquide America Corporation, Mr. Petry
served as Vice President and Controller (Chief Accounting Officer) from 1994 to
1997 and Vice President -- Finance from 1992 to 1994. Mr. Petry is a Certified
Public Accountant, licensed in the State of Texas.
STEPHEN M. ALTER will become a director of the Company upon the
consummation of this Offering. He has been the Chief Executive Officer of
Alternative Solutions since April 1982 and he will continue in that capacity
after the consummation of this Offering. Mr. Alter is active in both the
National Association of Temporary and Staffing Services and the Massachusetts
Association of Staffing Services.
BRENDA S. DOUGAN will become a director of the Company upon the
consummation of this Offering. She has been the President of ASAP since its
founding in September 1990. Ms. Dougan will continue as President of ASAP after
the consummation of this Offering.
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MARY E. EVINS will become a director of the Company upon the consummation
of this Offering. She has been the Chairman of the Board and President of Evins
Group since its founding in July 1967. Ms. Evins will continue as President of
Evins Group after the consummation of this Offering. Ms. Evins has held numerous
industry association officer positions, including Chairman of the Certification
Committee for the National Association of Personnel Consultants and currently
serves as a member of the Board of Directors for the Texas Chapter of NAPEO. Ms.
Evins was designated a Certified Personnel Consultant in 1969 and a Certified
Professional Employer Specialist in 1994.
LOVEY L. HAMMEL will become a director of the Company upon the consummation
of this Offering. She has been a co-owner and Vice President of Employment
Enterprises, Inc. since March 1980. Ms. Hammel will continue as President of
Employment Enterprises after the consummation of this Offering.
PAUL L. MILLIGAN will become a director of the Company upon the
consummation of this Offering. Mr. Milligan has served as President of GTS since
its inception in October 1989. From 1984 to 1989 Mr. Milligan was Regional Vice
President for PDS Technical Services Inc., a contract staffing services firm. He
will continue as President of GTS after the consummation of this Offering.
GARY D. PITTS will become a director of the Company upon the consummation
of this Offering. He has been President of HP Services since its founding in
1990 and will continue as President of HP Services after the consummation of the
Offering.
RICHARD L. BRONSON will become a director of the Company upon the
consummation of this Offering. Mr. Bronson has served as President of Technology
Plus since December 1985. He will continue as President of Technology Plus after
the consummation of this Offering.
QUINCY T. FREEMAN will become a director of the Company upon the
consummation of this Offering. Mr. Freeman has served as Chief Executive Officer
of Cardinal since 1988. He will continue as Chairman of the Board of Cardinal
after the consummation of this Offering.
CARL L. NORTON has been a director of the Company since February 1997. He
has been a partner in the Houston, Texas law firm of Norton, Jacobs, Kuhn &
McTopy, L.L.P. since 1994. From 1982 through 1994, Mr. Norton was a shareholder,
director and officer in the law firm of Norton & Blair, P.C. and its
predecessors.
GEORGE C. WOODS has been a director of the Company since February 1997. He
has been a manager of WJG Capital since February 1997. From 1987 to 1996, Mr.
Woods held senior financial and accounting positions with Quality Tubing, Inc.
at which company he was the Chief Financial Officer, Vice President -- Finance
and Administration, Secretary and Treasurer.
THOMAS N. AMONETT will become a director of the Company upon the
consummation of the Offering. In November 1997, Mr. Amonett became the President
and Chief Executive Officer of American Residential Services, Inc., a
publicly-traded provider of residential heating, air conditioning, plumbing and
similar services. Prior to that, he served as President and Chief Executive
Officer of Weatherford Enterra, Inc. from July 1996 to May 1997. From 1992 to
1996, he served as Chairman of the Board and President of Reunion Resources
Company (previously known as Buttes Gas and Oil Company and now known as Reunion
Industries, Inc.). Prior thereto, he was Of Counsel with the law firm of
Fulbright & Jaworski L.L.P. from 1986 to 1992. He was President and a director
of Houston Oil Fields Company from 1982 to 1986. Mr. Amonett also currently
serves as a director of ITEQ, Inc., PetroCorp Incorporated, Reunion Industries,
Inc., Weatherford Enterra, Inc. and American Residential Services, Inc.
Effective upon consummation of this Offering, the Board of Directors will
be divided into three classes of four directors, respectively, with directors
serving staggered three-year terms, expiring at the annual meeting of
stockholders in 1998, 1999 and 2000, respectively. Directors whose terms expire
in 1998 are: Brenda S. Dougan, Carl L. Norton, Paul L. Milligan and Gary D.
Pitts. Directors whose terms expire in 1999 are: Stephen M. Alter, Lovey L.
Hammel, Quincy T. Freeman and George C. Woods. Directors whose terms expire in
2000 are: Mary E. Evins, Richard L. Bronson, Larry E. Darst and Thomas N.
Amonett. At each annual meeting of stockholders, one class of directors will be
elected for a full term of three years to
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succeed that class of directors whose terms are expiring. All officers serve at
the discretion of the Board of Directors.
The Board of Directors will establish an Audit Committee, Nominating
Committee, Compensation Committee and an Executive Committee. The members of
these committees will be selected following the consummation of the Offering.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was organized in February 1997, has conducted limited
operations and generated no revenue to date. The Company anticipates that during
1997 and 1998 its most highly compensated executive officers will be Messrs.
Darst, Walberg and Petry.
Each of Messrs. Darst, Walberg and Petry has entered into an employment
agreement with the Company pursuant to which he will act as the Company's Chief
Executive Officer, Senior Vice President -- Operations and Senior Vice
President -- Chief Financial Officer, respectively. Pursuant to the agreements,
each executive will receive a base salary, a performance bonus in an amount up
to 100% of his annual salary, certain insurance, vacation, pension and profit
sharing benefits and an opportunity to receive options to purchase additional
shares of Common Stock on conditions consistent with the Company's 1997 Stock
Awards Plan and agreed to by the Compensation Committee and the executive. Prior
to the consummation of this Offering, the base salaries of the executives are as
follows: Mr. Darst -- $10,000 per month; Mr. Walberg -- $7,500 per month; Mr.
Petry -- $6,000 per month. After the consummation of this Offering, the annual
base salaries of the executive officers become: Mr. Darst -- $175,000; Mr.
Walberg -- $150,000; and Mr. Petry -- $150,000. The $6,000 per month salary due
to Mr. Petry prior to closing this Offering is not payable until the
consummation of this Offering. Each bonus will be payable upon the satisfaction
of certain performance criteria to be established annually by the Company's
Board of Directors. The initial term of each employment agreement is for three
years from the date of the closing of this Offering, with automatic one year
extensions thereafter unless the agreement is terminated by either party at
least 30 days prior to the expiration of any term. Each agreement may also be
terminated upon (i) the death or disability of the executive, (ii) three months
prior notice by the executive to the Company, (iii) notice by the Company to the
executive, "for cause," (iv) notice by the Company to the executive without
"cause," (v) notice by the executive to the Company, within 60 days after a
"constructive termination," or (vi) immediately, in the event (a) the Company
fails to consummate an initial public offering prior to January 31, 1998 in the
case of Mr. Darst, or March 15, 1998, in the case of Messrs. Walberg and Petry,
(b) the Offering is abandoned by the Board of Directors, or (c) in the case of
Mr. Darst, prior to the Offering a majority of the representatives of the
Founding Companies inform the Board of Directors that they do not want Mr. Darst
to serve as Chief Executive Officer. Each agreement provides for the payment of
certain severance benefits in the event the executive is terminated due to
disability. If any executive is terminated without cause, such executive will be
paid a severance amount payable in equal monthly payments over a period of 24
months as follows: Mr. Darst -- $350,000; Mr. Walberg -- $300,000 and Mr.
Petry -- $300,000. Each agreement also contains a covenant not to compete with
the Company for a period of two years after termination of employment.
1997 STOCK AWARDS PLAN
In September 1997, the Board of Directors and the Company's stockholders
approved the Company's 1997 Stock Awards Plan (the "1997 Stock Awards Plan").
The 1997 Stock Awards Plan is intended to provide employees, consultants and
other service providers with an opportunity to acquire a proprietary interest in
the Company and additional incentive and reward opportunities based on the
growth in the Common Stock price of the Company and to aid the Company in
attracting and retaining outstanding personnel. The 1997 Stock Awards Plan
provides for the granting of options (either incentive stock options within the
meaning of Code Section 422(b), or options that do not constitute incentive
stock options ("non-qualified stock options")), restricted stock awards, stock
appreciation rights, performance awards and phantom stock awards, or any
combination thereof. The maximum number of shares of Common Stock that may be
subject to outstanding awards, determined immediately after the grant of any
award, may not exceed
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the greater of 850,000 shares or 10% of the aggregate number of shares of Common
Stock outstanding. Shares of Common Stock which are attributable to awards which
have expired, terminated or been canceled or forfeited are available for
issuance or use in connection with future awards.
GRANTS. The following individuals or groups have been granted options
under the 1997 Stock Awards Plan contingent on the completion of the Offering:
Mr. Darst (non-qualified stock options for 175,000 shares which have an exercise
price equal to the price of the shares sold in this Offering), Mr. Walberg
(non-qualified stock options for 100,000 shares, 50,000 of which have an
exercise price equal to the price of the shares sold in this Offering and 50,000
of which have an exercise price of $3.00 less than the price of the shares sold
in this Offering), and Mr. Petry (non-qualified stock options for 50,000 shares
which have an exercise price equal to the price of the shares sold in this
Offering) and all Named Executive Officers (three in number) as a group
(non-qualified stock options for 325,000 shares). At the consummation of the
Offering, additional options to purchase 60,000 shares will be granted to
certain employees of the Company at an exercise price equal to the price of the
shares sold in this Offering.
ADMINISTRATION. The 1997 Stock Awards Plan will be administered by the
Compensation Committee of the Company. The Compensation Committee will have the
power to determine which employees, consultants and other service providers will
receive an award, the time or times when such award will be made, the type of
the award and the number of shares of Common Stock to be issued under the award
or the value of the award. Only persons who at the time of the award are
employees of or service providers to the Company or of any subsidiary of the
Company will be eligible to receive awards under the 1997 Stock Awards Plan. A
director of the Company is not eligible to receive an award under the 1997 Stock
Awards Plan unless such director is an employee of the Company or any of its
subsidiaries.
OPTIONS. The 1997 Stock Awards Plan will provide for two types of options:
incentive stock options and nonqualified stock options. The Compensation
Committee will designate the persons to receive the options, the number of
shares subject to the options and the terms and conditions of each option
granted under the 1997 Stock Awards Plan. The maximum number of shares of Common
Stock which may be issued under the 1997 Stock Awards Plan as incentive stock
options is 850,000. No person may be awarded an option in any calendar year to
purchase more than 200,000 shares of Common Stock. The term of any option
granted under the 1997 Stock Awards Plan shall be determined by the Compensation
Committee; provided, however, that an incentive stock option may only be awarded
to an employee and that the term of any incentive stock option cannot exceed ten
years from the date of the grant and any incentive stock option granted to an
employee who possesses more than 10.0% of the total combined voting power of all
classes of shares of the Company or of its subsidiary within the meaning of
Section 422(b)(6) of the Code must not be exercisable after the expiration of
five years from the date of grant. No option may be exercised earlier than six
months from the date of grant. The exercise price of options granted under the
1997 Stock Awards Plan will be determined by the Compensation Committee;
provided, however, that an incentive stock exercise price cannot be less than
the fair market value of a share of Common Stock on the date such option is
granted (subject to certain adjustments provided under the 1997 Stock Awards
Plan). Further, the exercise price of any incentive stock option granted to an
employee who possesses more than 10.0% of the total combined voting power of all
classes of shares of the Company or of its subsidiaries within the meaning of
Section 422(b)(6) of the Code must be at least 110% of the fair market value of
the Common Stock on the date such option is granted. The exercise price of
options granted under the 1997 Stock Awards Plan will be paid in full in a
manner prescribed by the Compensation Committee.
RESTRICTED STOCK AWARDS. Pursuant to a restricted stock award, Common
Stock will be issued in the name of an eligible person at the time the award is
made without any cash payment to the Company, except to the extent otherwise
provided by the Compensation Committee or required by law; provided, however,
that such shares will be subject to certain restrictions on the disposition
thereof and certain obligations to forfeit such shares to the Company as may be
determined in the discretion of the Compensation Committee. The restrictions on
disposition may lapse based upon (a) the Company's attainment of specific
performance targets established by the Compensation Committee that are based on
(i) the price of a share of Common Stock, (ii) the Company's earnings per share,
(iii) the Company's revenue, (iv) the revenue of a business
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unit of the Company designated by the Compensation Committee, (v) the return on
stockholders' equity achieved by the Company, or (vi) the Company's pre-tax cash
flow from operations, (b) the grantee's tenure with the Company, or (c) a
combination of factors. The Company will retain custody of the Common Stock
issued pursuant to a restricted stock award until the restrictions lapse. An
employee may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of such shares until the expiration of the restriction period. However,
upon the issuance to the employee of Common Stock pursuant to a restricted stock
award, except for the foregoing restrictions, such employee will have all the
rights of a stockholder of the Company with respect to such shares, including
the right to vote such shares and to receive all dividends and other
distributions paid with respect to such shares. No person may be awarded more
than 200,000 shares of restricted stock in any calendar year.
STOCK APPRECIATION RIGHTS. A stock appreciation right permits the holder
thereof to receive an amount (in cash, Common Stock, or a combination thereof
(as determined by the Compensation Committee)), equal in value to the number of
stock appreciation rights exercised by the holder multiplied by the excess of
the fair market value of Common Stock on the exercise date over the stock
appreciation rights' exercise price. Stock appreciation rights may or may not be
granted in connection with the grant of an option and no stock appreciation
right may be exercised earlier than six months from the date of grant. A stock
appreciation right may be exercised in whole or in such installments and at such
time as determined by the Compensation Committee. No person may be awarded more
than 200,000 stock appreciation rights in any calendar year.
PERFORMANCE AND PHANTOM STOCK AWARDS. The 1997 Stock Awards Plan will
permit grants of performance awards and phantom stock awards, which may be paid
in cash, Common Stock, or a combination thereof as determined by the
Compensation Committee. Performance awards granted under the 1997 Stock Awards
Plan will have a maximum value established by the Compensation Committee at the
time of the grant. No person may be granted a performance award in any calendar
year where the value of such award exceeds the Fair Market Value of 200,000
shares of Common Stock. A grantee's receipt of such amount will be contingent
upon satisfaction by the Company, or any subsidiary, division or department
thereof, of future performance conditions established by the Compensation
Committee prior to the beginning of the performance period. Future performance
conditions may be based on (i) the price of a share of Common Stock, (ii) the
Company's earnings per share, (iii) the Company's revenue, (iv) the revenue of a
business unit of the Company designated by the Compensation Committee, (v) the
return on stockholder's equity achieved by the Company, (vi) the Company or
business unit's pre-tax cashflow from operations or (vii) a combination of such
factors. Such performance awards, however, may be subject to later revisions as
the Compensation Committee deems appropriate to reflect significant unforeseen
events or changes. A performance award will terminate if the grantee's
employment with the Company terminates during the applicable performance period
except as otherwise provided by the Compensation Committee at the time of grant.
Phantom stock awards granted under the 1997 Stock Awards Plan are awards of
Common Stock or rights to receive amounts equal to stock appreciation over a
specific period of time. No person may be granted a phantom stock award in any
calendar year for more than 200,000 shares of Common Stock. Such awards vest
over a period of time or upon the occurrence of a specific event(s) (including,
without limitation, a change of control) established by the Compensation
Committee, without payment of any amounts by the holder thereof (except to the
extent required by law) or satisfaction of any performance criteria or
objectives. Future performance conditions may be based on (i) the price of a
share of Common Stock, (ii) the Company's earnings per share, (iii) the
Company's revenue, (iv) the revenue of a business unit of the Company designated
by the Compensation Committee, (v) the return on stockholder's equity achieved
by the Company, (vi) the Company or business unit's pre-tax cashflow from
operations or (vii) a combination of such factors. A phantom stock award will
terminate if the grantee's employment with the Company terminates during the
applicable vesting period or, if applicable, the occurrence of a specific
event(s), except as otherwise provided by the Compensation Committee at the time
of grant. In determining the value of performance awards or phantom stock
awards, the Compensation Committee must take into account the employee's
responsibility level, performance, potential, other awards under the 1997 Stock
Awards Plan and such other considerations as it deems appropriate. Such payment
may be made in a lump
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sum or in installments as prescribed by the Compensation Committee. Any payment
made in Common Stock will based upon the fair market value of the Common Stock
on the payment date.
INCOME TAX CONSIDERATIONS. The grant of an incentive stock option does not
result in any income tax consequences to the employee and the Company. The
exercise of an incentive stock option does not result in any income tax
consequences to the employee if the incentive stock option is exercised by the
employee during his employment with the Company or a subsidiary, or within a
specified period after termination of employment. However, the excess of the
fair market value of the shares of Common Stock as of the date of exercise over
the option price is a tax preference item for purposes of determining the
employee's alternative minimum tax. An employee who sells shares acquired
pursuant to the exercise of an incentive stock option after the expiration of
(i) two years from the date of grant, and (ii) one year after the transfer of
the shares to him (the "Waiting Period") will generally recognize long-term
capital gain or loss on the sale. An employee who disposes of his incentive
stock option shares prior to the expiration of the Waiting Period (an "Early
Disposition") generally will recognize ordinary income in the year of sale in
an amount equal to the excess, if any, of (a) the lesser of (i) the fair market
value of the shares as of the date of exercise or (ii) the amount realized on
the sale, over (b) the option price. Any additional amount realized on an Early
Disposition should be treated as capital gain to the employee, short or long
term, depending on the employee's holding period for the shares. If the shares
are sold for less than the option price, the employee will not recognize any
ordinary income but will recognize a capital loss, short or long term, depending
on the holding period. The Company will not be entitled to a deduction as a
result of the grant of an incentive stock option, the exercise of an incentive
stock option, or the sale of incentive stock option shares after the Waiting
Period. If an employee disposes of his incentive stock option shares in an Early
Disposition, the Company will be entitled to deduct the amount of ordinary
income recognized by the employee.
The grant of a nonqualified stock option will not result in the recognition
of any taxable income by the optionee nor a tax deduction by the Company. The
optionee will recognize income on the date of exercise of the nonqualified stock
option equal to the difference between (i) the fair market value on that date of
the shares acquired, and (ii) the exercise price, and the Company will be
entitled to deduct that amount. The grant of a restricted stock award,
performance award and phantom stock award will not result in the recognition of
any taxable income by the recipient nor a tax deduction by the Company. At the
time each such award is earned or the restrictions lapse, the recipient will
recognize ordinary income equal to the amount of cash and or the fair market
value of Common Stock received, and the Company generally will be entitled to a
tax deduction.
COMPENSATION DEDUCTION LIMITATION/SECTION 162(M) OF THE CODE. In the 1993
Omnibus Budget Reconciliation Act ("OBRA"), Congress generally limited to $1
million per year the tax deduction available to public companies for certain
compensation paid to designated executives. These executives include the Chief
Executive Officer and the next four highest compensated officers of the Company.
An exception is provided from this deduction limitation, for
"performance-based" compensation, if specified statutory requirements are
satisfied. The Plan is designed to satisfy these statutory requirements for
stock options and for performance-based awards, Thus, the Company anticipates
being entitled to deduct an amount equal to the ordinary income reportable by an
optionee on exercise of a nonqualified stock option, the Early Disposition of
shares of stock acquired by exercise of an incentive stock option, and the
payment of restricted stock awards, performance based awards, and phantom stock
awards which are performance-based. However, restricted stock awards and
performance based awards which become vested as a result of a "change of
control" without reference to the applicable performance goals, or based on
service to the Company, rather than achievement of performance goals established
by the Committee, may not be exempt from the $1.0 million deduction cap.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors
meeting). Under the 1997
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Nonqualified Stock Option Plan for Non-Employee Directors (the "1997 Directors
Stock Option Plan"), each current non-employee director and, upon the election
of a new non-employee director, such additional non-employee director will be
granted an option to acquire 10,000 shares of Common Stock at an exercise price
equal to fair market value of a share of Common Stock as of the date of grant.
In addition, each non-employee director will automatically be granted an annual
option to acquire 5,000 shares at an exercise price equal to the then fair
market value of a share of Common Stock at each annual meeting of the Company's
stockholders at which such director is re-elected or remains a director, unless
such annual meeting is held within three months of such person's initial
election as a director. Each non-employee director also may elect to receive
shares of Common Stock or credits representing "deferred shares" in lieu of
cash directors' fees. Directors are also reimbursed for out-of-pocket expenses
incurred in attending meetings of the Board of Directors or committees thereof.
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, the Company issued to WJG
Capital a total of 1,000 shares of Common Stock for an aggregate cash
consideration of $1,000. These shares were converted into 1,083,929 shares of
Common Stock after the 1,084-for-one stock split. See "Description of Capital
Stock." WJG Capital is a Texas limited liability company that is managed by
three managers: Messrs. Warren L. Williams, Jerry L. Hyde and George C. Woods.
Mr. Hyde and Woods, Williams & Company, a Texas general partnership of which
Messrs. Woods and Williams are the only partners, are members of WJG Capital.
The Norton Family Trust, of which Carl L. Norton is a beneficiary, is also a
member of WJG Capital. Mr. Norton is a director of the Company and has a
consulting agreement with WJG Capital pursuant to which he is assisting the
Company with the Mergers and the Offering. For such consulting services, WJG
Capital will pay Mr. Norton $10,000 upon the consummation of this Offering and
the Company will reimburse WJG Capital for this payment. Shortly after
consummation of this Offering, the Company expects that WJG Capital will
distribute its shares of Common Stock in the Company to its equity owners. WJG
Capital has agreed with the Company not to sell any shares of Common Stock for
one year after the consummation of this Offering.
The members of WJG Capital intend to exchange their shares of Common Stock
for Restricted Common Stock which will have 0.35 of one vote for each share
held. As a result WJG Capital will have effective voting shares of 379,375 and
all existing stockholders of Nationwide Staffing will have 596,161 effective
voting shares collectively.
WJG Capital has agreed to advance whatever funds are necessary to pay the
expenses incurred to effect the Mergers and this Offering. As of September 30,
1997, WJG Capital had outstanding advances to the Company in the aggregate
amount of approximately $1,948,000, all of which is non-interest-bearing. All of
WJG Capital's advances will be repaid from the net proceeds of this Offering.
In February 1997, for nominal consideration, the Company sold the Norton
Family Trust and Sabrina A. McTopy warrants to purchase 45,000 and 5,000 shares
of Common Stock, respectively, at the exercise price equal to the lower of $8.00
per share or 60% of the per share price at which shares of Common Stock are sold
in this Offering. See "Description of Capital Stock." The Norton Family Trust
is also a member of WJG Capital. Mr. Norton, a beneficiary of the Norton Family
Trust, is also a director of the Company and Mr. Norton and Ms. McTopy are
partners in a Houston, Texas law firm.
In April 1997 and September 1997, the Company issued a total of 216,786
shares of Common Stock to various members of management, as follows: Mr.
Darst -- 173,429 shares at $0.01 per share and Mr. Petry 43,357 shares at $0.01
per share. The Company also granted options to purchase 10,000 shares of Common
Stock to each of Messrs. Norton and Woods, directors of the Company, and will
grant Mr. Amonett an option to purchase 10,000 shares of Common Stock upon the
consummation of this Offering.
Simultaneously with the closing of this Offering, Nationwide Staffing will
acquire in the Mergers all of the issued and outstanding stock of the eight
Founding Companies, at which time each Founding Company
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will become a wholly-owned subsidiary of the Company. The aggregate
consideration to be paid by Nationwide Staffing in the Mergers is $21.5 million
in cash and 3,570,718 shares of Common Stock. In addition, immediately prior to
the Mergers certain of the Founding Companies will make S Corporation
Distributions and C Corporation Distributions of approximately $1.8 million to
their respective stockholders.
The consummation of each Merger is subject to customary conditions. These
conditions include, among others, the continuing accuracy on the closing date of
the Mergers of the representations and warranties of the Founding Companies and
the principal stockholders thereof and of Nationwide Staffing, the performance
by each of them of all covenants included in the agreements relating to the
Mergers and the non-existence of a material adverse change in the results of
operations, financial condition or business of each Founding Company. There can
be no assurance that the conditions to closing of the Mergers will be satisfied
or waived or that the acquisition agreements will not be terminated prior to
consummation. If any of the Mergers is terminated for any reason, the Company
does not intend to consummate this Offering on the terms described herein.
The following table sets forth the consideration to be paid by Nationwide
Staffing for each of the Founding Companies based on the Offering Price:
CASH SHARES OF
NAME (IN THOUSANDS) COMMON STOCK
Alternative Solutions................ $ 1,721 731,669
A.S.A.P.............................. 1,292 293,830
Cardinal............................. 2,023 447,856
Employment Enterprises............... 3,800 667,971
Evins Group.......................... 1,726 200,550
GTS.................................. 6,242 380,969
HP Services.......................... 2,427 428,022
Technology Plus...................... 2,297 419,851
-------------- ------------
Total........................... $ 21,528 3,570,718
============== ============
Pursuant to the agreements entered into in connection with the Mergers, the
stockholders of the Founding Companies have agreed not to compete with the
Company for five years, commencing on the date of consummation of this Offering.
In addition, the employment agreements entered into by certain stockholders of
the Founding Companies contain a covenant not to compete with the Company for a
period of two years after termination of employment.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders or their affiliates. At September
30, 1997, the aggregate amount of indebtedness of these Founding Companies that
was subject to personal guarantees was approximately $0.6 million. The Company
intends to repay such indebtedness from the proceeds of this Offering. See "Use
of Proceeds."
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In connection with the Mergers and as consideration for their interests in
the Founding Companies, certain officers, directors, and holders of more than
5.0% of the outstanding shares of the Company, together with their spouses and
trusts for which they act as trustees, will receive cash and shares of Common
Stock of the Company as follows:
SHARES OF
NAME CASH COMMON STOCK
(IN THOUSANDS)
Quincy T. Freeman & Diane Gail
Freeman, JTWROS.................... $2,023 447,856
Jana W. Yeates....................... 2,533 445,314
Richard L. Bronson................... 1,723 314,888
Lovey L. Hammel...................... 1,267 222,657
Brenda S. Dougan..................... 904 205,681
Mary E. Evins........................ 1,726 200,550
Paul L. Milligan..................... 2,746 167,628
Stephen M. Alter..................... 929 135,038
Gary D. Pitts........................ 1,214 128,407
LEASES OF REAL PROPERTY BY FOUNDING COMPANIES
Following the Mergers, Alternative Solutions will continue to lease its
office space at Boston, Massachusetts from Commonwealth Realty Trust of which
Stephen M. Alter owns a 40% interest. Mr. Stephen M. Alter owns a 25% interest
of Alternative Solutions and will become a director of the Company upon the
consummation of the Mergers. The lease expires on April 30, 1998, and can be
renewed for one year at the option of Alternative Solutions. The annual base
rent for 1997 and 1998 is $156,000 per year. Additionally, Alternative Solutions
will pay all utilities, taxes and insurance costs on the leased premises. The
Company believes that the rent for this property does not exceed fair market
value.
Following the Mergers, ASAP will continue to lease its office space at
Springdale, Arkansas from Ms. Brenda S. Dougan. Ms. Dougan owns a 70% interest
in ASAP and will become a director of the Company upon the consummation of the
Mergers. The lease expires May 31, 1998, and provides for minimum aggregate
annual rent of $13,200 in 1997 and $5,500 in 1998. An extension has also been
executed which provides for rent of $13,200 per year and expires in 2003. The
Company believes that the rent for this property does not exceed fair market
value.
Following the Mergers, HP Services will continue to lease its office space
at Alvin, Texas from GEM Enterprises, Inc., a company in which Gary D. Pitts
owns a 30% interest. Mr. Pitts owns a 30% interest in HP Services and will be a
director of the Company upon the consummation of the Mergers. The lease provides
for rent of $12,000 per year and expires in 2002. Additionally, HP Services will
pay all utilities, taxes and insurance costs on the leased premises. The Company
believes that the rent for this property does not exceed fair market value.
Following the Mergers, Employment Enterprises will continue to lease its
office space at Woodbridge, Virginia from Jana W. and Marvin D. Yeates. Ms.
Yeates owns 66.67% of Employment Enterprises. The term of the lease expires on
August 31, 1998, and provides for aggregate minimum annual rent of $11,569.
Employment Enterprises has the option to renew the lease for an additional one
year term at a 7% rent increase. Additionally, Employment Enterprises will pay
all condominium fees, utilities and insurance costs on the leased premises. The
Company believes that the rent for this property does not exceed fair market
value.
Following the Mergers, Evins Group will continue to lease its office space
at Austin, Texas, from C&M Properties. C&M Properties is a Texas company that is
wholly owned by Ms. Mary E. Evins. Ms. Evins will be a director of the Company
upon the consummation of the Mergers. The leases are for terms of 56 and 60
months each, and combined provide for future annual minimum rent payments of
$142,018 in 1997, $133,600 in 1998, $136,350 in 1999 and $45,450 in 2000. Both
leases expire on April 1, 2000 and can be renewed at the Company's option.
Additionally, Evins Group will pay all utilities, taxes and
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insurance costs on the leased premises. The Company believes that the rent for
this property does not exceed fair market value.
Following the Mergers, Cardinal will continue to lease its office space at
Coos Bay, Oregon from Freeman Industries which is owned by Quincy T. Freeman and
Diane Gail Freeman. Mr. Freeman will be a director of the Company upon
consummation of the Mergers. The lease expires on September 30, 2000 and
provides for minimum aggregate annual rent of $39,000. The Company believes that
the rent for this property does not exceed fair market value.
OTHER TRANSACTIONS
Pursuant to an agreement among Nationwide Staffing and Messrs. Williams,
Adcock and Hyde, for two years after the consummation of this Offering, Messrs.
Williams, Adcock and Hyde will be paid a finder's fee with respect to any
acquisition by the Company of a temporary staffing, PEO, permanent placement
and/or human resource consulting or outsourcing company that they introduce to
the Company. Such fee will be based on a sliding scale of 5.0% of the first
$1,000,000 of the consideration paid for the acquired business, declining
ratably to 1.0% of the consideration in excess of $4,000,000 paid for such
business and will be payable with respect to all acquired businesses other than
the Founding Companies. In addition, as a group, Messrs. Williams, Adcock and
Hyde will receive from the Company $30,000 per month as an advance against
potential fees to be earned. However, in no event will such advances exceed the
aggregate of $90,000. If the aggregate of such advances exceeds the fees earned
by Messrs. Williams, Adcock and Hyde, they will be jointly and severally
obligated to repay such excess to the Company. The agreement is terminable by
Nationwide Staffing or any of Messrs. Williams, Adcock or Hyde upon 30 days
prior written notice.
From time to time, HP Services provides light industrial labor for BEAED
Corporation, a company owned by Mr. W.M. Hartman. Mr. Hartman is a 70% owner of
HP Services. Revenues derived from BEAED totaled $433,849 in 1996, $525,576 in
1995 and $263,990 in 1994. As of September 30, 1997, the outstanding amount owed
by BEAED to HP Services for such services was $114,081.
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal and will be approved in advance by
a majority of disinterested members of the Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company, after giving effect to the Mergers
and this Offering, by (i) each person known to own beneficially more than 5.0%
of the outstanding shares of Common Stock; (ii) each Company director and person
who has consented to be named as a director ("named directors"); (iii) each
named executive officer; and (iv) all executive officers, directors and named
directors as a group. Unless otherwise noted, the address of each such person is
c/o Nationwide Staffing, Inc., 600 Travis, Suite 6200, Houston, Texas 77002. All
persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.
SHARES BENEFICIALLY
OWNED AFTER OFFERING
----------------------
NUMBER PERCENT
WJG Capital, L.L.C................... 1,083,929 12.5%
Quincy T. Freeman and Diane Gail
Freeman, JTWROS.................... 447,856 5.2%
Jana W. Yeates....................... 445,314 5.1%
Richard L. Bronson................... 314,888 3.6%
George C. Woods...................... 264,090(1) 3.0%
Lovey L. Hammel...................... 222,657 2.6%
Brenda S. Dougan..................... 205,681 2.4%
Mary E. Evins........................ 200,550 2.3%
Carl L. Norton....................... 191,799(2) 2.2%
Larry E. Darst....................... 173,429 2.0%
Paul L. Milligan..................... 167,628 1.9%
Stephen M. Alter..................... 135,038 1.6%
Gary D. Pitts........................ 128,407 1.5%
Dean G. Walberg...................... 50,000(3) *
Gary J. Petry........................ 43,357 *
Thomas N. Amonett.................... 10,000(4) *
--------- --------
All executive officers, directors and
named directors as
a group (14 persons)............... 2,555,380 29.20%
========= ========
- ------------
* Less than 1.0%
(1) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted under the Company's 1997 Directors Stock Option Plan and 254,090
shares of Common Stock issued to WJG Capital. Of the shares of Common Stock
issued to WJG Capital, 249,290 shares will be distributed to Woods, Williams
& Company, of which Mr. Woods is the general partner, and 4,800 shares will
be distributed to another member of WJG Capital. Mr. Woods has acquired the
right to acquire the 4,800 shares of Common Stock issued to the other member
of WJG Capital.
(2) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted under the Company's 1997 Directors Stock Option Plan and 181,799
shares of Common Stock issued to WJG Capital. Of the shares of Common Stock
issued to WJG Capital, 53,239 shares will be distributed to the Norton
Family Trust, 52,560 will be issued to Mr. Norton and 76,000 shares will be
distributed to a member of WJG Capital. Mr. Norton is one of the
beneficiaries of the Norton Family Trust, and he has acquired the right to
receive the 76,000 shares of Common Stock issued to such other member of WJG
Capital. In addition, other members of Mr. Norton's family have acquired the
right to receive 5,600 shares of Common Stock issued to another member of
WJG Capital. Mr. Norton disclaims beneficial ownership of these shares.
(3) Represents 50,000 shares of Common Stock issuable upon the exercise of
options granted under the Company's 1997 Stock Awards Plan.
(4) Represents 10,000 shares of Common Stock issuable upon the exercise of
options to be granted under the Company's 1997 Director's Stock Option Plan.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 60,000,000 shares
of capital stock consisting of 55,000,000 shares of Common Stock, of which
5,000,000 are Restricted Common Stock, and 5,000,000 shares of Preferred Stock
("Preferred Stock"). Upon completion of the Mergers and this Offering, the
Company will have outstanding 8,671,433 shares of Common Stock (9,241,433 if the
Underwriters' over-allotment option is exercised in full) and no shares of
Restricted Common Stock or Preferred Stock. The following discussion of the
material features of the capital stock of the Company is intended as a summary
only and is qualified in its entirety by reference to the Restated Certificate
of Incorporation of Nationwide Staffing, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to 0.35 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Upon consummation of
this Offering, the Board of Directors will be classified into three classes of
four, with the term of each class expiring on a staggered basis. The
classification of the Board of Directors may make it more difficult to change
the composition of the Board of Directors and thereby may discourage or make
more difficult an attempt by a person or group to obtain control of the Company.
Cumulative voting for the election of directors is not permitted. Any director,
or the entire Board of Directors, may be removed at any time, with cause, by a
majority of the aggregate number of votes which may be cast by the holders of
outstanding shares of Common Stock and Restricted Common Stock entitled to vote
for the election of directors, provided, however, that only the holders of the
Restricted Common Stock may remove the director such holders are entitled to
elect. See "Management -- Directors and Executive Officers."
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are entitled to participate
pro rata in such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock and
Restricted Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. Holders
of Common Stock and holders of Restricted Common Stock have no preemptive rights
to purchase shares of stock of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. Shares of Restricted Common Stock are not subject to
any redemption provisions but are convertible into Common Stock, on the
occurrence of certain events. All outstanding shares of Common Stock and
Restricted Common Stock are, and the shares of Common Stock to be issued
pursuant to this Offering and the Mergers will be upon payment threfor, fully
paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986)), (ii) in the event any person
acquires beneficial ownership of 30% or more of the outstanding shares of Common
Stock of the Company, (iii) in the event any person offers to acquire 30% or
more of the outstanding shares of Common Stock of the Company, (iv) in the event
the holder of Restricted Common Stock elects to convert it into Common Stock at
any time after the fifth anniversary of the date of this Prospectus, (v) on the
fifth anniversary of the date of this Prospectus or (vi) earlier, upon the
affirmative vote of a majority of the aggregate number of votes which may be
cast by the holders of outstanding shares of Common Stock and Restricted Common
Stock. After January 31, 1999, the Board of Directors may elect to convert any
outstanding shares of Restricted Common Stock into shares of Common Stock in the
event
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80% or more of the originally outstanding shares of Restricted Common Stock have
been previously converted into shares of Common Stock.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "STF," subject to official notice of issuance. The
Restricted Common Stock will not be listed on any exchange.
WARRANTS
Effective February 1997, for nominal consideration, the Company sold to the
Norton Family Trust and Sabrina A. McTopy warrants to purchase 45,000 shares and
5,000 shares of Common Stock, respectively, at an exercise price equal to the
lower of $8.00 or 60.0% of the per-share price at which shares of Common Stock
are sold in this Offering. The warrants are exercisable for a four-year period
beginning one year after the date of this Offering. In addition, the warrants
contain anti-dilution provisions providing for adjustment of the exercise price
upon the occurrence of certain events, including the issuance of shares of
Common Stock or other securities convertible into or exercisable for shares of
Common Stock at a price per share less than the exercise price or the market
price of the Common Stock, or in the event of any recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transaction. Such anti-dilution provisions could, under certain circumstances,
afford the holders of these warrants the opportunity to purchase a substantial
amount of the Company's securities at a price significantly below market.
Further, the warrants grant to the holders thereof certain "piggyback"
registration rights. Mr. Norton is a beneficiary of the Norton Family Trust. Mr.
Norton is serving as a consultant to WJG Capital and is a director of the
Company. See "Directors and Executive Officers" and "Certain
Transactions -- Organization of the Company."
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative participating, optional or other special rights, qualifications,
limitations or restrictions, including dividend rights (including whether
dividends are cumulative), dividend rates, terms of redemption (including
sinking fund provisions), redemption prices, conversion rights and liquidation
preferences of the shares constituting any series of the Preferred Stock, in
each case without any further action or vote by the stockholders. The Company
has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise and to protect the continuity of the Company's management. The
issuance of shares of the Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred Stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock or may otherwise adversely affect the market price of
the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the Delaware General Corporation
Law ("DGCL") which, with certain exceptions, prohibits a Delaware corporation
from engaging in any of a broad range of business combinations with any
"interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
time, the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in the
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stockholder becoming an interested stockholder, the interested stockholder owned
at least 85.0% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) at or subsequent
to such time, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. An "interested stockholder" is defined as any
person that is (a) the owner of 15.0% or more of the outstanding voting stock of
the corporation or (b) an affiliate or associate of the corporation and, in
either instance, was the owner of 15.0% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
Additionally, the Certificate of Incorporation and the Bylaws of the
Company provide that directors and officers of the Company shall be and at the
discretion of the Board of Directors non-officer employees and agents may be,
indemnified by the Company to the fullest extent authorized by Delaware law, as
it now exists or may in the future be amended, against all expenses and
liabilities actually and reasonably incurred in connection with service for or
on behalf of the Company and further permits the advancing of expenses incurred
in defense of claims. The Certificate of Incorporation also provides that any
action required or permitted to be taken by the stockholders of the Company at
an annual or special meeting of stockholders must be effected at a duly called
meeting and may not be taken or effected by a written consent of stockholders in
lieu thereof.
The Company's Bylaws provide that a special meeting of stockholders may be
called only by the Chief Executive Officer, by a majority of the Board of
Directors, or by a majority of the Executive Committee of the Board of
Directors. The Bylaws provide that only those matters set forth in the notice of
the special meeting may be considered or acted upon at that special meeting. The
Company's Bylaws may be amended or repealed, or new Bylaws may be adopted by the
Board of Directors, subject to the right of the stockholders entitled to vote
thereon to amend or repeal such Bylaws as adopted or amended by the Board of
Directors; provided that such stockholder right to amend or repeal the Bylaws
requires at least a 66 2/3% vote of the stockholders.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure").
The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the Company's Bylaws. If the Chairman of the Board of
Directors determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director.
Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Company's Bylaws. If the Chairman of the
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Board of Directors determines that the other business was not properly brought
before such meeting in accordance with the Business Procedure, such business
will not be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Mergers and completion of this Offering, the
Company will have outstanding 8,671,433 shares of Common Stock (9,241,433 if the
Underwriters' over-allotment option is exercised in full). The 3,800,000 shares
sold in this Offering (plus any additional shares sold upon exercise of the
Underwriters' over-allotment option) will be freely tradeable without
restriction unless acquired by affiliates of the Company. None of the remaining
outstanding shares of Common Stock have been registered under the Securities
Act, which means that they may be resold publicly only upon registration under
the Securities Act or in compliance with an exemption from the registration
requirements of the Securities Act, including the exemption provided by Rule 144
or Rule 145 thereunder.
In general, under Rule 144 and Rule 145, if a period of at least one year
has elapsed between the later of the date on which restricted securities were
acquired from the Company or the date on which they were acquired from an
affiliate, the holder of such restricted securities (including an affiliate) is
entitled to sell a number of shares within any three-month period that does not
exceed the greater of (i) one percent of the then outstanding shares of the
Common Stock (approximately 86,714 shares upon completion of this Offering) or
(ii) the average weekly reported volume of trading of the Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 and Rule 145
are also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
securities in accordance with the foregoing volume limitations and other
requirements but without regard to the one year holding period. Under Rule
144(k), if a period of at least two years has elapsed between the later of the
date on which restricted securities were acquired from the Company and the date
on which they were acquired from an affiliate, a holder of such restricted
securities who is not an affiliate at the time of the sale and has not been an
affiliate for a least three months prior to the sale is entitled to sell the
shares immediately without regard to the volume limitations and other conditions
described above.
The Company and its officers, directors and certain stockholders who
beneficially own 4,871,433 shares in the aggregate have agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, except that the Company may issue
Common Stock in connection with acquisitions (so long as such shares are subject
to such selling restrictions during the 180-day period) or in connection with
its 1997 Stock Awards Plan. See "Underwriting." In addition, all of the
stockholders of the Founding Companies and the Company's officers and all
members of WJG Capital have agreed with the Company that they will not sell any
of their shares for a period of one year after the closing of this Offering.
Such stockholders, however, have the right, in the event the Company proposes to
register under the Securities Act any Common Stock for its own account or for
the account of others, subject to certain exceptions, to require the Company to
include their shares in the registration, subject to the right of the Company to
exclude some or all of the shares in the offering upon the advice of the
managing underwriter.
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Within 90 days after the closing of this Offering, the Company intends to
register 3,000,000 shares of its Common Stock under the Securities Act for use
by the Company in connection with future acquisitions. Upon such registration,
these shares will generally be freely tradeable after their issuance; provided,
however, that such shares will be subject to the selling restrictions during the
180-day period discussed in the section of this Prospectus entitled
"Underwriting." In some instances, however, the Company may contractually
restrict the sale of shares issued in connection with future acquisitions. The
piggyback registration rights described above do not apply to the registration
statement relating to these 3,000,000 shares. See "Shares Eligible For Future
Sale" and "Underwriting."
Prior to this Offering, there has been no public market for the Common
Stock and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.
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UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, (the
"Underwriting Agreement"), the Underwriters named below, who are represented
by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Legg Mason
Wood Walker, Incorporated and Ladenburg Thalmann & Co. Inc. (the
"Representatives"), have severally agreed to purchase from the Company the
respective numbers of shares of Common Stock set forth opposite their names
below.
NUMBER OF
UNDERWRITERS SHARES
Donaldson, Lufkin & Jenrette
Securities Corporation...............
Legg Mason Wood Walker,
Incorporated.........................
Ladenburg Thalmann & Co. Inc.........
---------
Total...................... 3,800,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 570,000 additional shares of Common
Stock at the initial public offering price less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the Offering. To the extent
that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company has agreed, subject to certain exceptions noted
below, not to (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any of
the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise) for a
period of 180 days after the date of this Prospectus without the prior written
consent of DLJ. In addition, during such period, the Company has also agreed not
to file any registration statement with respect to, and each of its executive
officers, directors and certain stockholders of the Company has agreed, except
as noted below, not to make any demand for, or exercise any right with respect
to, the registration of any shares of
67
<PAGE>
Common Stock or any securities convertible into or exercisable or exchangeable
for Common stock without DLJ's prior written consent.
The Underwriters have agreed to allow the Company to issue shares of Common
Stock in connection with acquisitions after the thirtieth day following the date
of the Prospectus; provided, however, such shares shall be subject to the same
selling restrictions during the 180-day period mentioned above. In addition, the
Company intends to register 3,000,000 shares of Common Stock under the
Securities Act for use by the Company in future acquisitions; provided, however,
such shares shall be subject to the same selling restrictions during the 180-day
period mentioned above. See "Shares Eligible For Future Sale."
Prior to the Offering, there has been no established trading market of the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the past and present operations of the Founding
Companies, the historical results of operations of the Founding Companies, the
prospects for future earnings of the Company, the recent market prices of
securities of generally comparable companies and the general condition of the
securities markets at the time of the Offering.
The Common Stock has been approved for listing on the New York Stock
Exchange (the "NYSE"). In order to meet the requirements for listing the
Common Stock on the NYSE, the Underwriters have undertaken to sell lots of 100
or more shares to a minimum of 2,000 beneficial owners.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Common
Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Stock offered hereby may not be offered or sold,
directly or indirectly, nor may this Prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the Offering and the distribution of this Prospectus. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of Common Stock offered hereby in any jurisdiction in which such
an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas. Certain legal matters
will be passed on for the Underwriters by Fulbright & Jaworski L.L.P., Houston,
Texas.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
68
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the offered Common Stock.
This Prospectus, which is part of the Registration Statement, does not contain
all the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain items of which are omitted in accordance with the
rules and regulations of the SEC. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is hereby
made to the exhibit for a more complete description of the matter involved and
each such statement shall be deemed qualified in its entirety by such reference.
For further information with respect to the Company, reference is hereby made to
the Registration Statement and such exhibits and schedules filed as a part
thereof, which may be inspected, without charge, at the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661-2511. The SEC
maintains a World Wide Web site on the Internet at HTTP://WWW.SEC.GOV that
contains reports, proxy and information statements regarding registrants that
file electronically with the SEC. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
SEC, upon payment of the prescribed fees.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
NATIONWIDE STAFFING, INC., AND FOUNDING
COMPANIES UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma
Combined Financial Statements..... F-3
Unaudited Pro Forma Combined
Balance Sheet..................... F-4
Unaudited Pro Forma Combined
Statements of Operations.......... F-5
Notes to Unaudited Pro Forma
Combined Financial Statements..... F-8
NATIONWIDE STAFFING, INC.
Report of Independent Public
Accountants....................... F-11
Balance Sheets..................... F-12
Statement of Operations............ F-13
Statement of Changes in
Stockholders' Equity.............. F-14
Statement of Cash Flows............ F-15
Notes to Financial Statements...... F-16
FOUNDING COMPANIES
ALTERNATIVE SOLUTIONS, INC.
Report of Independent Public
Accountants....................... F-18
Balance Sheets..................... F-19
Statements of Operations........... F-20
Statements of Changes in
Shareholders' Equity.............. F-21
Statements of Cash Flows........... F-22
Notes to Financial Statements...... F-23
A.S.A.P. SERVICES, INC.
Report of Independent Public
Accountants....................... F-28
Balance Sheets..................... F-29
Statements of Operations........... F-30
Statements of Changes in
Shareholders' Equity.............. F-31
Statements of Cash Flows........... F-32
Notes to Financial Statements...... F-33
CARDINAL SERVICES, INC.
Report of Independent Public
Accountants....................... F-36
Balance Sheets..................... F-37
Statements of Operations........... F-38
Statements of Changes in
Shareholders' Equity.............. F-39
Statements of Cash Flows........... F-40
Notes to Financial Statements...... F-41
EMPLOYMENT ENTERPRISES, INC.
Report of Independent Public
Accountants....................... F-47
Consolidated Balance Sheets........ F-48
Consolidated Statements of
Operations........................ F-49
Consolidated Statements of Changes
in Shareholders' Equity........... F-50
Consolidated Statements of Cash
Flows............................. F-51
Notes to Financial Statements...... F-52
F-1
<PAGE>
PAGE
-----
EVINS PERSONNEL CONSULTANTS, INC., AND
AFFILIATES
Report of Independent Public
Accountants....................... F-58
Balance Sheets..................... F-59
Statements of Operations........... F-60
Statements of Changes in
Shareholders' Equity.............. F-61
Statements of Cash Flows........... F-62
Notes to Financial Statements...... F-63
GLOBAL TECHNICAL SERVICES, INC.
Report of Independent Public
Accountants....................... F-68
Balance Sheets..................... F-69
Statements of Operations........... F-70
Statements of Changes in
Shareholders' Equity.............. F-71
Statements of Cash Flows........... F-72
Notes to Financial Statements...... F-73
HP SERVICES, INC.
Report of Independent Public
Accountants....................... F-82
Balance Sheets..................... F-83
Statements of Operations........... F-84
Statements of Changes in
Shareholders' Equity.............. F-85
Statements of Cash Flows........... F-86
Notes to Financial Statements...... F-87
TECHNOLOGY PLUS, INC.
Report of Independent Public
Accountants....................... F-90
Balance Sheets..................... F-91
Statements of Operations........... F-92
Statements of Changes in
Shareholders' Equity.............. F-93
Statements of Cash Flows........... F-94
Notes to Financial Statements...... F-95
F-2
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the acquisition by Nationwide Staffing, Inc. (Nationwide Staffing), of
substantially all of the net assets of (a) Employment Enterprises, Inc.
(Employment Enterprises), (b) Alternative Solutions, Inc. (Alternative
Solutions), (c) Cardinal Services, Inc. (Cardinal), (d) Global Technical
Services, Inc. (GTS), (e) HP Services, Inc. (HP Services), (f) A.S.A.P. Staffing
Services, Inc. (ASAP), (g) Technology Plus, Inc. (Technology Plus), and (h)
Evins Personnel Group (Evins Group) (together, the Founding Companies).
Nationwide Staffing and the Founding Companies are hereinafter referred to as
"the Company." These mergers (the Mergers) will occur simultaneously with the
closing of Nationwide Staffing's initial public offering (the Offering) and will
be accounted for using the purchase method of accounting. Alternative Solutions
has been identified as the accounting acquiror because it will receive the
largest portion of voting rights of the Company.
These statements are based on the historical financial statements of
Nationwide Staffing and the Founding Companies included elsewhere in this
Prospectus. The unaudited pro forma combined balance sheet gives effect to the
Mergers and the Offering as if they had occurred on September 30, 1997. The
unaudited pro forma combined statements of operations give effect to these
transactions as if they were consumated on January 1, 1996.
The Company has estimated the savings that it expects to be realized by
consolidating certain operational and general and administrative functions. To
the extent the owners and certain key employees of the Founding Companies have
agreed prospectively to reductions in salary, bonuses, benefits, and rent
expense paid to the owners, these reductions have been reflected in the
unaudited pro forma combined statement of income. With respect to other
potential cost savings, the Company has not and cannot quantify these savings
until completion of the combination of the Founding Companies. It is anticipated
that these savings will be partially offset by the costs of being a publicly
held company and the incremental increase in costs related to the Company's new
management. However, these costs, like the savings that they offset, cannot be
estimated at this time. Neither the anticipated savings nor the anticipated
costs have been included in the pro forma combined financial information. In
addition the pro forma combined results of operations exclude all non-cash,
non-recurring charges related to common stock issued prior to the Offering and
the Mergers.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The unaudited 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 on those dates and
are not representative of the Company's financial position or results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus. See "Risk
Factors" included elsewhere herein.
F-3
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALTERNATIVE EMPLOYMENT EVINS HP
NATIONWIDE SOLUTIONS ASAP CARDINAL ENTERPRISES GROUP GTS SERVICES
---------- ----------- --------- -------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ 132 $ 7 $ 362 $ 916 $-- $ 62 $ 107 $ 339
Trade accounts receivable............ -- 1,927 793 1,071 3,410 916 3,252 1,115
Other current assets................. -- 112 29 66 185 -- 114 158
---------- ----------- --------- -------- ---------- ------ --------- --------
Total current assets............... 132 2,046 1,184 2,053 3,595 978 3,473 1,612
Property and equipment, net.......... 5 48 118 135 231 92 237 11
Goodwill............................. -- -- -- 4 -- -- -- --
Other assets......................... 2,146 -- -- 12 6 164 371 --
---------- ----------- --------- -------- ---------- ------ --------- --------
Total assets....................... $2,283 $ 2,094 $ 1,302 $2,204 $3,832 $1,234 $ 4,081 $1,623
========== =========== ========= ======== ========== ====== ========= ========
Accounts payable and accrued
liabilities........................ $2,481 $ 1,086 $ 638 $1,415 $2,621 $ 406 $ 1,759 $ 271
Borrowings under lines of credit..... -- 290 -- -- 432 679 1,192 250
Notes payable, current portion....... -- -- 4 157 -- -- -- --
---------- ----------- --------- -------- ---------- ------ --------- --------
Total current liabilities.......... 2,481 1,376 642 1,572 3,053 1,085 2,951 521
Notes payable, long term............. -- -- 7 9 -- 451 10 --
Other long term liabilities.......... -- -- -- 8 -- -- -- --
---------- ----------- --------- -------- ---------- ------ --------- --------
Total liabilities.................. 2,481 1,376 649 1,589 3,053 1,536 2,961 521
---------- ----------- --------- -------- ---------- ------ --------- --------
Common stock......................... 13 10 -- 1 3 1 10 1
Additional paid-in capital........... 600 -- -- -- 7 -- 190 --
Retained earnings
(deficit).......................... (811) 708 653 614 769 (303) 920 1,101
---------- ----------- --------- -------- ---------- ------ --------- --------
Total shareholders' equity
(deficit)........................ (198) 718 653 615 779 (302) 1,120 1,102
---------- ----------- --------- -------- ---------- ------ --------- --------
Total liabilities and shareholders'
equity............................. $2,283 $ 2,094 $ 1,302 $2,204 $3,832 $1,234 $ 4,081 $1,623
========== =========== ========= ======== ========== ====== ========= ========
<CAPTION>
TECHNOLOGY MERGER PRO FORMA OFFERING AS
PLUS ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ 327 $(1,753) $ 499 $ 14,956 $15,455
Trade accounts receivable............ 1,361 -- 13,845 -- 13,845
Other current assets................. 279 (82) 861 -- 861
---------- ----------- --------- ----------- --------
Total current assets............... 1,967 (1,835) 15,205 14,956 30,161
Property and equipment, net.......... 127 -- 1,004 -- 1,004
Goodwill............................. -- 45,760 45,764 -- 45,764
Other assets......................... 2 (6) 2,695 (2,146) 549
---------- ----------- --------- ----------- --------
Total assets....................... $2,096 $43,919 $64,668 $ 12,810 $77,478
========== =========== ========= =========== ========
Accounts payable and accrued
liabilities........................ $ 722 $ 359 $11,758 $ (1,948) $ 9,810
Borrowings under lines of credit..... 367 -- 3,210 (3,210) --
Notes payable, current portion....... -- -- 161 (161) --
---------- ----------- --------- ----------- --------
Total current liabilities.......... 1,089 359 15,129 (5,319) 9,810
Notes payable, long term............. 41 -- 518 (518) --
Other long term liabilities.......... -- 21,825 21,833 (21,528) 305
---------- ----------- --------- ----------- --------
Total liabilities.................. 1,130 22,184 37,480 (27,365) 10,115
---------- ----------- --------- ----------- --------
Common stock......................... 1 9 49 38 87
Additional paid-in capital........... (279) 28,436 28,954 52,519 81,473
Retained earnings
(deficit).......................... 1,244 (6,710) (1,815) (12,382) (14,197)
---------- ----------- --------- ----------- --------
Total shareholders' equity
(deficit)........................ 966 21,735 27,188 40,175 67,363
---------- ----------- --------- ----------- --------
Total liabilities and shareholders'
equity............................. $2,096 $43,919 $64,668 $ 12,810 $77,478
========== =========== ========= =========== ========
</TABLE>
F-4
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALTERNATIVE EMPLOYMENT EVINS HP
NATIONWIDE SOLUTIONS ASAP CARDINAL ENTERPRISES GROUP GTS SERVICES
---------- ----------- --------- -------- ---------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services............... $-- $12,855 $ 6,132 $ 20,292 $ 36,676 $ 7,833 $ 28,661 $ 9,063
Cost of services..................... -- (9,792) (5,016) (17,814) (32,874) (5,824) (26,561) (7,943)
---------- ----------- --------- -------- ---------- ------- --------- --------
Gross profit..................... -- 3,063 1,116 2,478 3,802 2,009 2,100 1,120
---------- ----------- --------- -------- ---------- ------- --------- --------
Operating costs and expenses......... -- (2,988) (537) (2,473) (3,560) (1,630) (1,247) (641)
Interest expense..................... -- (30) -- (11) (113) (134) (173) (10)
Other income (expense) net........... -- 4 6 29 -- -- (3) 14
---------- ----------- --------- -------- ---------- ------- --------- --------
Income before income tax........... -- 49 585 23 129 245 677 483
Income tax........................... -- (14) -- (11) (54) (114) (290) --
---------- ----------- --------- -------- ---------- ------- --------- --------
Net income......................... $-- $ 35 $ 585 $ 12 $ 75 $ 131 $ 387 $ 483
========== =========== ========= ======== ========== ======= ========= ========
Earnings per share...................
Shares used in computing pro forma
earnings per share.................
</TABLE>
TECHNOLOGY PRO FORMA PRO FORMA
PLUS ADJUSTMENTS COMBINED
---------- ----------- ---------
Revenues from services............... $ 12,256 $-- $133,768
Cost of services..................... (10,802) -- (116,626)
---------- ----------- ---------
Gross profit..................... 1,454 -- 17,142
---------- ----------- ---------
Operating costs and expenses......... (964) 2,679 (h) (12,505)
(1,144)(j)
Interest expense..................... (67) 538 (k) --
Other income (expense) net........... 45 -- 95
---------- ----------- ---------
Income before income tax........... 468 2,073 4,732
Income tax........................... (197) (1,611)(l) (2,291)
---------- ----------- ---------
Net income......................... $ 271 $ 462 $ 2,441
========== =========== =========
Earnings per share................... .32
=========
Shares used in computing pro forma
earnings per share................. 7,522,689
=========
F-5
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALTERNATIVE EMPLOYMENT EVINS HP
NATIONWIDE SOLUTIONS ASAP CARDINAL ENTERPRISES GROUP GTS SERVICES
---------- ----------- ------- -------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services............... $ -- $ 9,659 $ 4,379 $14,097 $ 26,957 $ 5,346 $ 20,824 $ 6,755
Cost of Services..................... -- (7,391) (3,558) (12,513) (24,209) (4,044) (19,235) (5,984)
---------- ----------- ------- -------- ---------- ------- -------- --------
Gross profit....................... -- 2,268 821 1,584 2,748 1,302 1,589 771
---------- ----------- ------- -------- ---------- ------- -------- --------
Operating costs and expenses......... -- (2,168) (329) (1,299) (2,595) (1,142) (872) (316)
Interest expense..................... -- (21) -- (17) (58) (73) (129) (8)
Other income (expense), net.......... -- 25 3 18 -- -- 4 14
---------- ----------- ------- -------- ---------- ------- -------- --------
Income before income tax........... -- 104 495 286 95 87 592 461
Income tax........................... -- (47) -- (118) (46) (41) (266) --
---------- ----------- ------- -------- ---------- ------- -------- --------
Net income......................... $ -- $ 57 $ 495 $ 168 $ 49 $ 46 $ 326 $ 461
========== =========== ======= ======== ========== ======= ======== ========
Earnings per share...................
Shares used in computing pro forma
earnings per share.................
</TABLE>
TECHNOLOGY PRO FORMA PRO FORMA
PLUS ADJUSTMENTS COMBINED
---------- ----------- ---------
Revenues from services............... $ 8,541 $-- $ 96,558
Cost of Services..................... (7,438) -- (84,372)
---------- ----------- ---------
Gross profit....................... 1,103 -- 12,186
---------- ----------- ---------
Operating costs and expenses......... (707) 1,394 (h) (8,892)
(858)(j)
Interest expense..................... (52) 358 (k) --
Other income (expense), net.......... 33 -- 97
---------- ----------- ---------
Income before income tax........... 377 894 3,391
Income tax........................... (159) (862)(l) (1,539)
---------- ----------- ---------
Net income......................... $ 218 $ 32 $ 1,852
========== =========== =========
Earnings per share................... .25
=========
Shares used in computing pro forma
earnings per share................. 7,522,689
=========
F-6
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALTERNATIVE EMPLOYMENT EVINS HP
NATIONWIDE SOLUTIONS ASAP CARDINAL ENTERPRISES GROUP GTS SERVICES
---------- ----------- --------- -------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services............... $-- $11,219 $ 7,275 $14,861 $ 33,071 $ 7,000 $ 31,892 $ 6,676
Cost of services..................... -- (8,443) (5,943) (12,900) (29,404) (5,153) (29,263) (5,693)
---------- ----------- --------- -------- ---------- --------- --------- --------
Gross profit..................... -- 2,776 1,332 1,961 3,667 1,847 2,629 983
---------- ----------- --------- -------- ---------- --------- --------- --------
Operating costs and expenses......... (199) (2,301) (668) (1,860) (2,809) (1,639) (1,433) (399)
Special non-cash compensation
expense............................ (612) -- -- -- -- -- -- --
Interest expense..................... -- (20) -- (2) (39) (189) (114) (20)
Other income
(expense), net..................... -- 41 3 8 -- -- 52 --
---------- ----------- --------- -------- ---------- --------- --------- --------
Income (loss) before income tax.. (811) 496 667 107 819 19 1,134 564
Income tax........................... -- (212) -- (44) (324) (16) (481) --
---------- ----------- --------- -------- ---------- --------- --------- --------
Net income (loss)................ $ (811) $ 284 $ 667 $ 63 $ 495 $ 3 $ 653 $ 564
========== =========== ========= ======== ========== ========= ========= ========
Earnings per share...................
Shares used in computing pro forma
earnings per share.................
</TABLE>
TECHNOLOGY PRO FORMA PRO FORMA
PLUS ADJUSTMENTS COMBINED
---------- ----------- ---------
Revenues from services............... $ 8,990 $-- $120,984
Cost of services..................... (7,801) -- (104,600)
---------- ----------- ---------
Gross profit..................... 1,189 -- 16,384
---------- ----------- ---------
Operating costs and expenses......... (822) 1,469 (h) (11,519)
(858)(j)
Special non-cash compensation
expense............................ -- 612 (i) --
Interest expense..................... (25) 409 (k) --
Other income
(expense), net..................... 20 -- 124
---------- ----------- ---------
Income (loss) before income tax.. 362 1,632 4,989
Income tax........................... (151) (1,111)(l) (2,339)
---------- ----------- ---------
Net income (loss)................ $ 211 $ 521 $ 2,650
========== =========== =========
Earnings per share................... .35
=========
Shares used in computing pro forma
earnings per share................. 7,522,689
=========
F-7
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BUSINESS:
Nationwide Staffing was formed to create a leading national provider of
comprehensive staffing solutions to businesses, professional and service
organizations and governmental agencies. The Founding Companies provide
professional skilled industrial and commercial (clerical and light industrial)
employees in a wide variety of industries, including aerospace and defense,
petrochemicals, petroleum refining, insurance, food processing, legal and
high-technology, and the government sector. Nationwide Staffing has conducted no
operations to date and will acquire the Founding Companies simultaneously with
the consummation of the Offering.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations of Nationwide Staffing and the Founding Companies and were
derived from their respective financial statements. All Founding Companies have
been presented as of a December 31 year-end, except for Cardinal which has been
presented as of June 30. Interim results of operations for Cardinal for the nine
months ended September 30, 1997 and September 30, 1996, have been included in
the pro forma statements of operations for those periods.
3. ACQUISITION OF FOUNDING COMPANIES:
Concurrent with the closing of the Offering, Nationwide Staffing will
acquire substantially all of the net assets of the Founding Companies. The
Acquisitions will be accounted for using the purchase method of accounting and
Alternative Solutions has been identified as the acquiror on the basis that
Alternative Solutions will have the greatest percentage of voting rights upon
completion of the Mergers.
The following table sets forth for each Founding Company the estimated
consideration to be paid its common stockholders (a) in cash and (b) in shares
of common stock. The estimated consideration is subject to certain adjustments
at and following closing. See "Certain Transactions Organization of the
Company."
COMMON STOCK
--------------------------------
CASH SHARES VALUE OF SHARES(1)
--------- ----------- ------------------
(DOLLARS IN THOUSANDS)
Alternative Solutions........... $ 1,721 731,669 $ 7,317
ASAP............................ 1,292 293,830 2,938
Cardinal........................ 2,023 447,856 4,479
Employment Enterprises.......... 3,800 667,971 6,680
Evins Group..................... 1,726 200,550 2,005
GTS............................. 6,242 380,969 3,810
HP Services..................... 2,427 428,022 4,280
Technology Plus................. 2,297 419,851 4,198
--------- ----------- ------------------
Total................. $ 21,528 3,570,718 $ 35,707
========= =========== ==================
- ------------
(1) Valued at the initial offering price of $12.50 per share discounted by 20%.
The 20% discount is based on the contractual and legal restrictions on the
sale of these shares, the anticipated price volatility and trading volume of
these shares, the intent of the Company not to issue dividends, and
available information regarding the marketability discounts taken by
comparable companies on shares with similar restrictions.
F-8
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records distribution of certain Founding Company's S Corporation
Accumulated Adjustment Accounts and the deferred income taxes
attributable to temporary differences between the financial reporting
and tax basis of assets and liabilities held by these S Corporations
and distributions of retained earnings by C Corporations prior to the
Mergers.
(b) Records the recapitalization of Alternative Solutions with the cash
consideration of $1.7 million received reflected as a dividend.
(c) Records the purchase of the Founding Companies consisting of $19.8
million in cash (reflected as other long term liabilities which are
distributed in adjustment (f)) and 2,839,049 shares of Common Stock
for a total estimated purchase price of $48.2 million (based on an
estimated fair value per share, which represents a discount of twenty
percent from the estimated initial public offering price) resulting
in the purchase price exceeding the fair value of assets acquired of
$2.4 million by $45.8 million.
(d) Eliminates the balance sheet accounts of GTS, a division and an
equity investment disposed of during 1997, which will not be included
in the Mergers.
(e) Records the proceeds of $40.2 million from the issuance of 3,800,000
shares of Common Stock net of underwriters' discount, and estimated
offering costs of $4.0 million (based on an estimated offering
price).
(f) Records the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the Mergers
and the repayment of certain debt obligations with the proceeds of
this Offering.
(g) Records the non-cash, non-recurring charge of $10.8 million to
reflect Offering expenses related to the 1,083,929 shares of Common
Stock issued to WJG Capital, Inc., and the $1.6 million of non-cash,
non-recurring charges related to the revaluation of 216,786 shares of
Common Stock issued to management of the Company which will be
recorded contemporaneously with the Offering.
The following tables summarize unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
MERGER
(A) (B) (C) (D) ADJUSTMENTS
--------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ (1,753) $ -- $ -- $ -- $ (1,753)
Other current assets................. (82) (82)
Goodwill............................. 45,760 45,760
Other assets......................... (6) (6)
Accounts payable and accrued
liabilities........................ (200) (159) (359)
Other long term liabilities.......... (292) (1,721) (19,807) (5) (21,825)
Common stock......................... 2 (11) (9)
Additional paid-in capital........... 8 (28,444) (28,436)
Retained earnings.................... 2,045 1,711 2,702 252 6,710
--------- --------- ---------- --------- ------------
$ -- $ -- $ -- $ -- $ --
========= ========= ========== ========= ============
</TABLE>
F-9
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OFFERING
(E) (F) (G) ADJUSTMENTS
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............ $ 40,373 $ (25,417) $ -- $ 14,956
Other assets......................... (2,146) (2,146)
Accounts payabale and accrued
liabilities........................ 1,948 1,948
Borrowings under lines of credit..... 3,210 3,210
Notes payable, current portion....... 161 161
Notes payable, long term............. 518 518
Other long term liabilities.......... 21,528 21,528
Common stock......................... (38) (38)
Additional paid-in capital........... (40,137) (12,382) (52,519)
Retained earnings.................... 12,382 12,382
---------- ---------- --------- -----------
$ -- $ -- $ -- $ --
========== ========== ========= ===========
</TABLE>
5. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
(h) Adjust salaries, bonuses, benefits and amounts established in
contractual agreements between the Company and certain owners and key
employees of the Founding Companies.
(i) Reflects the elimination of the non-recurring, non-cash compensation
charge of $0.6 million recorded by Nationwide Staffing during the
nine-month period ended September 30, 1997 related to Common Stock
issued to management of the Company. Contemporanously with the
Offering, non-cash, non-recurring charges of approximately $10.8
million and $1.6 million will be recorded to reflect the revaluation
of the Common Stock held by WJG and management, respectively. These
issuances of Common Stock to management and WJG were made in
contemplation of the Mergers and Offering, and no future issuances of
this nature are anticipated.
(j) Record pro forma goodwill amortization using a 40 year estimated
life.
(k) Eliminate interest expense related to certain debt obligations repaid
with the proceeds of this Offering.
(l) Adjust the provision for federal and state income taxes to an
estimated 39 percent effective tax rate for the Company and to
reflect the effect of non-deductible goodwill. Amortization of
goodwill will not be deductible for tax purposes since the
Acquisitions are considered to be a tax free reorganization.
6. NET INCOME PER SHARE:
The number of shares used in computing net income per share includes (i)
1,300,715 shares outstanding prior to the Mergers and Offering, (ii) 3,570,718
shares issued to owners of the Founding Companies, (iii) 32,000 net shares that
would be outstanding if the warrants and options were exercised and the proceeds
used to repurchase shares at the assumed Offering Price and (iv) 2,619,256 of
the 3,800,000 shares sold in the Offering necessary to pay the purchase prices
for the Founding Companies, repay indebtedness and pay estimated offering
expenses. The remaining 1,180,744 shares excluded reflects the net cash proceeds
to be available for working capital and general corporate purposes.
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nationwide Staffing, Inc.:
We have audited the accompanying balance sheet of Nationwide Staffing,
Inc., (a Delaware corporation) as of September 30, 1997, and the related
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the period from inception of operations (February 12, 1997) through
September 30, 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 Nationwide Staffing, Inc.,
as of September 30, 1997, and the results of its operations and cash flows for
the period from inception of operations (February 12, 1997) through September
30, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 19, 1997
F-11
<PAGE>
NATIONWIDE STAFFING, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 132,132
------------
Total current
assets............... 132,132
------------
OTHER ASSETS:
Deferred offering costs......... 2,145,516
Property and equipment.......... 4,868
------------
Total other assets.... 2,150,384
------------
Total assets.......... $ 2,282,516
============
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE
TO STOCKHOLDER..................... $ 2,480,320
------------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
55,000,000 shares authorized,
1,300,715 shares outstanding... 13,007
Paid-in capital................. 600,402
Retained deficit, net of
subscription receivable........ (811,213)
------------
Total stockholders'
equity............... (197,804)
------------
Total liabilities and
stockholders'
equity............... $ 2,282,516
============
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
NATIONWIDE STAFFING, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 12, 1997)
THROUGH SEPTEMBER 30, 1997
REVENUES............................. $ --
SPECIAL NON-CASH COMPENSATION
EXPENSES........................... 612,059
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 199,154
-----------
LOSS BEFORE INCOME TAXES............. (811,213)
INCOME TAX EXPENSE................... --
-----------
NET LOSS............................. $ (811,213)
===========
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
NATIONWIDE STAFFING, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (FEBRUARY 12, 1997)
THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- SUBSCRIPTION PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE CAPITAL DEFICIT EQUITY
---------- --------- ------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Initial Capitalization............... 1,083,929 $ 10,839 $ (9,839) $ -- $ -- $ 1,000
Issuance of warrant............. -- -- -- 50 -- 50
Issuance of management shares... 216,786 2,168 (1,868) 612,059 -- 612,359
Net loss........................ -- -- -- -- (811,213) (811,213)
---------- --------- ------------- -------- ----------- --------------
Balance at September 30, 1997........ 1,300,715 $ 13,007 $ (11,707) $612,109 $ (811,213) $ (197,804)
========== ========= ============= ======== =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
NATIONWIDE STAFFING, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 12, 1997)
THROUGH SEPTEMBER 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................ $ (811,213)
Adjustments to reconcile net
loss to net cash provided by
operating activities --
Special non-cash
compensation expense....... 612,059
Increase in deferred
offering costs............. (2,145,516)
Increase in accrued
liabilities and amounts due
to stockholder............. 2,480,320
-------------
Net cash provided by
operating activities.... 135,650
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............ (4,868)
-------------
Net cash used in
investing activities.... (4,868)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common
stock.......................... 1,350
-------------
Net cash provided by
financing activities.... 1,350
-------------
NET INCREASE IN CASH................. 132,132
CASH, beginning of period............ --
-------------
CASH, end of period.................. $ 132,132
=============
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
NATIONWIDE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Nationwide Staffing, Inc., a Delaware corporation (Nationwide Staffing or
the Company), was organized in February 12, 1997 to become a leading national
provider of comprehensive staffing solutions to businesses, professional and
service organizations and governmental agencies and to pursue aggressively the
consolidation of the highly fragmented temporary staffing and employee leasing
industry. Nationwide Staffing intends to acquire eight businesses (the Mergers),
contemporaneously complete an initial public offering (the Offering) of its
common stock and, subsequent to the Offering, continue to acquire through merger
or purchase, similar companies to expand its national operations.
Nationwide Staffing has not conducted any operations, and all activities to
date have related to the Offering and the Mergers. Initial capitalization of the
Company by WJG Capital, Inc. (WJG) was $1,000 which was less than the par value
of the Common Stock. All expenditures to date have been funded by WJG, on behalf
of the Company. As of September 30, 1997, costs of approximately $2,145,516 have
been incurred by WJG in connection with the Offering. Nationwide Staffing has
treated these costs as deferred offering costs. Nationwide Staffing is dependent
upon the Offering to execute the pending Mergers and to repay WJG. There is no
assurance that the pending Mergers discussed below will be completed or that
Nationwide Staffing will be able to generate future operating revenues.
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 in the financial statements. Actual
results could differ from those estimates.
2. STOCKHOLDERS' EQUITY:
COMMON STOCK
Nationwide Staffing has entered into agreements whereby the total shares of
Nationwide Staffing held by WJG and management of the Company, excluding shares
to be issued to the Founding Companies and to the public, will represent 15
percent of the total shares outstanding immediately upon completion of the
Offering. Of these shares, certain members of management will hold 2.5 percent
of the total shares outstanding immediately upon completion of the Offering and
WJG will hold the remaining shares. Based on these agreements and the estimated
total shares to be outstanding upon completion of the Offering, the shares
presented herein have been restated to effect a 1,084-for-one stock split and an
increase in authorized shares of common stock to 55,000,000 shares.
In connection with the organization and initial capitalization of
Nationwide Staffing, the Company issued 1,083,929 shares of common stock to WJG.
In April 1997, management of the Company acquired 173,429 shares of common stock
at par value. The issuance of the 173,429 shares of common stock resulted in a
non-cash compensation charge of approximately $431,837 based on 20 percent of
the estimated Offering price to the public which represents the estimated fair
value of shares issued at that date. In September 1997, certain members of
management who joined the Company were issued an additional 43,357 shares at par
value. As a result of the issuance of 43,357 shares the Company recorded an
additional non-cash compensation charge of approximately $180,222 based on 33%
of the estimated Offering price to the public which represents the estimated
fair value of the shares issued at that date. Upon completion of the Offering,
non-cash, non-recurring charges of approximately $10,828,451 and $1,553,632
based on a twenty percent marketability discount from the estimated Offering
price to the public will be recorded to reflect Offering expenses related to the
1,083,929 shares of common stock to WJG and to recognize the revaluation at the
date of the Offering of the 216,786 shares of common stock to management of the
Company, respectively.
F-16
<PAGE>
NATIONWIDE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTS
At the date of the Company's organization, warrants were issued for 50,000
shares of common stock with an exercise price equal to the lesser of $8 per
share or 60 percent of the initial public offering price. These shares were
issued to legal and investment advisors for $50. As the Company was subject to
significant uncertainties, the value of the warrants and their underlying shares
was de minimus at that date and no value beyond the consideration received has
been assigned to them.
STOCK OPTION PLANS
The board of directors of the Company has adopted the 1997 Nonqualified
Stock Option Plan for Non-Employee Directors, whereby non-employee directors are
eligible to receive awards, and the 1997 Stock Awards Plan (the Plan). The
Company anticipates that upon or shortly after the consummation of its Offering
that it will have granted options to purchase up to 615,000 shares of common
stock under the Plan. Under this arrangement, the Company has granted certain
members of management options for 50,000 shares of common stock at a discount of
$3 from the Offering price to the public. At the closing of the Offering, the
Company will record an additional non-cash compensation charge to the extent
that exercise price of the options exceeds the estimated Offering price to the
public less a 20 percent marketability discount. The Company will account for
options issued to employees and non-employee directors under the Plan in
accordance with APB Opinion No. 25, and accordingly no compensation cost will be
recognized to the extent that shares are issued at the fair market value as of
the date of grant. If the 615,000 options had been granted at the Offering price
to the public, the annual compensation expense as determined consistent with
SFAS No. 123, "Accounting for Stock-Based Compensation," would have reduced
the Company's pro forma net income by approximately $1.2 million. The fair value
of employee stock options was estimated using the Black-Scholes pricing model
with the following assumptions:
Expected stock price volatility......... 63.0%
Risk-free interest rate................. 6.75%
Expected life of options................ 10 years
3. NEW ACCOUNTING PRONOUNCEMENT:
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." For the Company, SFAS No. 128 will be effective for
the year ended December 31, 1997. SFAS No. 128 simplifies the standards required
under current accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per share
with a presentation of basic earnings per share (basic EPS) and diluted earnings
per share (diluted EPS). Basic EPS excludes dilution and is determined by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if securities and other contracts to issue
common stock were exercised or converted into common stock. Diluted EPS is
computed similarly to fully diluted earnings per share under current accounting
rules. The implementation of SFAS No. 128 is not expected to have a material
effect on the Company's earnings per share as determined under current
accounting rules.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Alternative Solutions, Inc.:
We have audited the accompanying balance sheets of Alternative Solutions,
Inc. (a Massachusetts corporation) as of April 30, 1996 and 1997, December 31,
1996, and September 30, 1997, and the related statements of operations, changes
in shareholders' equity and cash flows for each of the three years in the period
ended April 30, 1997, the year ended December 31, 1996 and the nine month period
ended September 30, 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 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alternative Solutions, Inc.,
as of April 30, 1996 and 1997, December 31, 1996 and September 30, 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended April 30, 1997, the year ended December 31, 1996 and the nine month
period ended September 30, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 14, 1997
F-18
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
-------------------------- DECEMBER 31, SEPTEMBER 30,
1996 1997 1996 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 6,080 $ 168,806 $ 7,089 $ 6,741
Trade accounts receivable, net
of allowance of $28,439,
$44,615, $54,584 and
$61,584....................... 1,198,805 1,570,693 1,577,560 1,927,072
Employee loans receivable....... 39,119 36,983 41,876 32,331
Prepaid expenses and other
assets........................ 94,972 84,999 159,655 18,314
Deferred tax asset.............. 33,153 68,709 34,958 60,879
------------ ------------ ------------ -------------
Total current assets....... 1,372,129 1,930,190 1,821,138 2,045,337
PROPERTY AND EQUIPMENT, net.......... 62,330 46,289 53,831 48,233
------------ ------------ ------------ -------------
Total assets............... $ 1,434,459 $ 1,976,479 $1,874,969 $ 2,093,570
============ ============ ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit.................. $ 313,092 $ 300,000 $ 320,000 $ 289,676
Accounts payable................ 234,984 79,662 292,304 198,689
Accrued payroll and related
taxes......................... 512,781 979,863 786,413 755,525
Other current liabilities....... 44,308 192,441 41,934 131,700
------------ ------------ ------------ -------------
Total liabilities.......... 1,105,165 1,551,966 1,440,651 1,375,590
SHAREHOLDERS' EQUITY:
Common stock, no par value,
12,500 shares authorized,
10,000 issued and
outstanding................... 10,000 10,000 10,000 10,000
Retained earnings............... 319,294 414,513 424,318 707,980
------------ ------------ ------------ -------------
Total shareholders'
equity.................. 329,294 424,513 434,318 717,980
------------ ------------ ------------ -------------
Total liabilities and
shareholders' equity.... $ 1,434,459 $ 1,976,479 $1,874,969 $ 2,093,570
============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE-MONTHS
YEAR ENDED APRIL 30, YEAR ENDED ENDED SEPTEMBER 30,
---------------------------------------- DECEMBER 31, ----------------------------
1995 1996 1997 1996 1996 1997
------------ ------------ ------------ ------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES FROM SERVICES............. $ 11,461,267 $ 12,380,866 $ 13,681,206 $12,855,116 $ 9,659,485 $ 11,218,693
COST OF SERVICES................... 8,989,533 9,804,639 10,278,122 9,791,696 7,390,718 8,443,009
------------ ------------ ------------ ------------ ----------- --------------
Gross profit.............. 2,471,734 2,576,227 3,403,084 3,063,420 2,268,767 2,775,684
OPERATING COSTS AND EXPENSES....... 2,312,297 2,486,575 3,241,406 2,988,253 2,167,539 2,300,767
------------ ------------ ------------ ------------ ----------- --------------
Operating income.......... 159,437 89,652 161,678 75,167 101,228 474,917
INTEREST EXPENSE................... 52,241 48,146 28,357 29,640 21,128 20,068
OTHER INCOME....................... 7,751 30,580 41,501 4,209 24,895 40,746
------------ ------------ ------------ ------------ ----------- --------------
Income before income tax
expense................. 114,947 72,086 174,822 49,736 104,995 495,595
INCOME TAX EXPENSE................. 51,044 36,094 79,603 14,296 47,401 211,933
------------ ------------ ------------ ------------ ----------- --------------
NET INCOME......................... $ 63,903 $ 35,992 $ 95,219 $ 35,440 $ 57,594 $ 283,662
============ ============ ============ ============ =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, April 30, 1994................. 10,000 $10,000 $ 219,399 $ 229,399
Net income......................... -- -- 63,903 63,903
------ ------- --------- ---------
BALANCE, April 30, 1995................. 10,000 10,000 283,302 293,302
Net income......................... -- -- 35,992 35,992
------ ------- --------- ---------
BALANCE, April 30, 1996................. 10,000 10,000 319,294 329,294
Net income......................... -- -- 95,219 95,219
------ ------- --------- ---------
BALANCE, April 30, 1997................. 10,000 $10,000 $ 414,513 $ 424,513
====== ======= ========= =========
BALANCE, December 31, 1995.............. 10,000 $10,000 $ 388,878 $ 398,878
Net income......................... -- -- 35,440 35,440
------ ------- --------- ---------
BALANCE, December 31, 1996.............. 10,000 10,000 424,318 434,318
Net income......................... -- -- 283,662 283,662
------ ------- --------- ---------
BALANCE, September 30, 1997............. 10,000 $10,000 $ 707,980 $ 717,980
====== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
APRIL 30, YEAR ENDED ENDED SEPTEMBER 30,
---------------------------------- DECEMBER 31, --------------------------
1995 1996 1997 1996 1996 1997
---------- ---------- ---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 63,903 $ 35,992 $ 95,219 $ 35,440 $ 57,594 $ 283,662
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation..................... 36,348 33,796 30,694 32,526 23,254 17,690
Changes in operating assets and
liabilities --
Trade accounts receivable...... (22,499) 175,313 (371,888) (288,600) (176,042) (349,512)
Employee receivables........... (5,241) 5,493 2,136 462 3,196 9,545
Prepaid expenses and other
assets...................... (1,055) (86,259) (25,583) (190,467) (43,720) 115,420
Accounts payable and accrued
liabilities................. 61,144 (15,855) 459,893 597,381 217,819 (34,737)
---------- ---------- ---------- ------------ ------------ ------------
Net cash provided by
operating activities...... 132,600 148,480 190,471 186,742 82,101 42,068
---------- ---------- ---------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment........................ (7,899) (10,540) (14,653) (14,779) (11,173) (12,092)
---------- ---------- ---------- ------------ ------------ ------------
Net cash used in investing
activities................ (7,899) (10,540) (14,653) (14,779) (11,173) (12,092)
---------- ---------- ---------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on line of credit......... 622,616 492,000 247,908 272,908 317,000 1,066,987
Principal payments on line of
credit........................... (746,907) (630,000) (261,000) (511,000) (455,092) (1,097,311)
---------- ---------- ---------- ------------ ------------ ------------
Net cash used in financing
activities................ (124,291) (138,000) (13,092) (238,092) (138,092) (30,324)
---------- ---------- ---------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 410 (60) 162,726 (66,129) (67,164) (348)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 5,730 6,140 6,080 73,218 73,218 7,089
---------- ---------- ---------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 6,140 $ 6,080 $ 168,806 $ 7,089 $ 6,054 $ 6,741
========== ========== ========== ============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............. $ 52,469 $ 48,948 $ 27,568 $ 32,283 $ 23,738 $ 20,494
Cash paid for taxes................ $ 43,500 $ 25,409 $ 70,808 $ 49,633 $ 34,219 $ 47,106
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Alternative Solutions, Inc. (ASI or the Company), incorporated in the state
of Massachusetts in March 1987, provides temporary and permanent personnel to
business, professional service organizations, health care facilities and
government agencies located primarily in Massachusetts and Connecticut.
In September 1997, the Company and its shareholders entered into a
definitive agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to
which all shares of the Company will be exchanged for cash and shares of
Nationwide's common stock concurrent with the consummation of an initial public
offering (the Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements for the nine months ended September 30,
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
fairly present the financial position, results of operations and cash flows with
respect to the interim financial statements, have been included. The results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health care insurance and
unemployemnt taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with original maturities of three months or less when purchased.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company provides, if necessary, allowances which management believes
are adequate to absorb losses to be incurred in realizing the amounts recorded
in the accompanying financial statements. The Company periodically evaluates the
creditworthiness of its customers' financial conditions to determine credit to
be extended and to determine the adequacy of the allowance for bad debts.
Historically, bad debts have not been significant.
The Company operates primarily in the healthcare industry. The Company is
obligated to pay the salaries, wages and related benefit costs and payroll taxes
of worksite employees. Accordingly, the Company's ability to collect amounts due
from customers could be affected by economic fluctuations in its markets or
these industries.
F-23
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using the straightline method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from three to nine years.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
REVENUE AND COST RECOGNITION
ASI's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, ASI
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment related taxes and (c) workers'
compensation insurance premiums. ASI accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The carrying amounts of borrowings pursuant to ASI's revolving line of
credit agreement approximate fair value because the rates on such agreements are
variable, based on current market rates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------------- DECEMBER 31, SEPTEMBER 30,
1996 1997 1996 1997
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Furniture and fixtures.................. $ 21,916 $ 27,083 $ 21,523 $ 27,084
Office equipment........................ 121,272 104,971 130,758 117,063
Leasehold improvements.................. 51,924 51,924 51,924 51,924
------------ ------------ ------------ --------------
195,112 183,978 204,205 196,071
Less -- Accumulated depreciation........ (132,782) (137,689) (150,374) (147,838)
------------ ------------ ------------ --------------
$ 62,330 $ 46,289 $ 53,831 $ 48,233
============ ============ ============ ==============
</TABLE>
F-24
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LINE OF CREDIT:
The Company maintains a revolving line of credit that allows for borrowings
of up to 80 percent of temporary service and 75 percent of permanent service
trade accounts receivable which are less than 90 days old. Borrowings made under
this arrangement bear interest at prime plus 1/4 percent. The line is secured by
all of the business assets and guaranteed by two shareholders up to $150,000
each.
In August 1996, the agreement was amended to include a LIBOR revolving loan
option available to the Company. The amended agreement allows the Company to
borrow funds subject to an interest rate of LIBOR plus 2.5 percent. Such
borrowings must equal at least $300,000 and in increments of $100,000
thereafter. Maximum borrowings under the two available interest options are
$1,500,000. The agreement expires April 30, 1998, and is renewable annually. The
line of credit is subject to certain financial covenants including minimum net
worth, minimum net income and certain financial ratio requirements. The Company
was in compliance with such covenants for all periods presented.
The amounts outstanding at April 30, 1996 and 1997 were $313,092 and
$300,000, respectively. The weighted average interest rates for the years ended
April 30, 1996 and 1997 were 10% and 9.5%, respectively. The amount outstanding
and weighted average interest rate in the year ended December 31, 1996 were
$320,000 and 8%. The amount outstanding and weighted average interest rate in
the nine month period ended September 30, 1997 were $289,676 and 7%.
5. INCOME TAXES
Income tax (benefit) expense consisted of the following components:
<TABLE>
<CAPTION>
APRIL 30,
--------------------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1996 1996 1997
--------- ---------- ---------- ------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal......................... $ 40,208 $ 48,689 $ 87,480 $ 12,569 $ 39,928 $178,523
State........................... 12,722 15,405 27,679 1,921 13,270 59,331
--------- ---------- ---------- ------------ -------------- --------------
52,930 64,094 115,159 14,490 53,198 237,854
--------- ---------- ---------- ------------ -------------- --------------
Deferred:
Federal......................... (1,433) (21,270) (27,010) (162) (4,403) (19,690)
State........................... (453) (6,730) (8,546) (32) (1,394) (6,231)
--------- ---------- ---------- ------------ -------------- --------------
(1,886) (28,000) (35,556) (194) (5,797) (25,921)
--------- ---------- ---------- ------------ -------------- --------------
Total...................... $ 51,044 $ 36,094 $ 79,603 $ 14,296 $ 47,401 $211,933
========= ========== ========== ============ ============== ==============
</TABLE>
F-25
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differs from amounts computed by applying the statutory
rate to income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------ NINE MONTHS ENDED
APRIL 30, --------------------------------
--------------------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1996 1996 1997
--------- ---------- ---------- ------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at the statutory
rate............................... $ 40,231 $ 25,230 $ 61,188 $ 17,408 $ 36,748 $173,459
Increase (decrease) resulting from:
State income tax, net of benefit
for federal deduction......... 7,975 5,639 12,436 3,986 7,350 34,515
Nondeductible expenses.......... 2,838 5,225 5,979 (7,098) 3,303 3,959
--------- ---------- ---------- ------------ -------------- --------------
$ 51,044 $ 36,094 $ 79,603 $ 14,296 $ 47,401 $211,933
========= ========== ========== ============ ============== ==============
</TABLE>
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------- DECEMBER 31, SEPTEMBER 30,
1996 1997 1996 1997
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Deferred income tax assets --
Allowance for doubtful accounts. $ 12,789 $ 24,546 $ 20,627 $ 28,637
Accrued expenses................ 33,450 56,913 25,351 42,947
---------- ---------- ------------ --------------
Total................. 46,239 81,459 45,978 71,584
---------- ---------- ------------ --------------
Deferred income tax liabilities --
Property and equipment.......... (10,298) (6,970) (8,080) (5,584)
State taxes..................... (2,788) (5,780) (2,940) (5,121)
---------- ---------- ------------ --------------
Total................. (13,086) (12,750) (11,020) (10,705)
---------- ---------- ------------ --------------
Net deferred income tax assets....... $ 33,153 $ 68,709 $ 34,958 $ 60,879
========== ========== ============ ==============
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
The Company leases office space under noncancelable leases. One location is
leased from a related party (see Note 7) and expires on April 30, 1998. The
future minimum lease payments under this operating lease is $164,328 for the
year ending April 30, 1998. During 1995 and 1996, the Company also leased motor
vehicles and office equipment under operating lease agreements. Rent paid each
of the years ended 1995, 1996 and 1997 was $225,632, $231,068 and $238,723,
respectively. Rent paid for the nine months ended September 30, 1997 was
$187,792.
In the ordinary course of its business, the Company has been threatened
with or named as defendant in various lawsuits, including claims related to the
actions of its clients and their employees. Management does not believe that any
claims would have a material adverse effect on the Company's financial position
or results of operations.
7. RELATED-PARTY TRANSACTIONS:
The Company has a lease commitment with an entity controlled by two
shareholders for one office facility. The annual base rent for this facility was
$156,000 for April 30, 1996 and 1997 and December 31,
F-26
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996, respectively and $117,000 for the nine month period ended September 30,
1997. The lease expires on April 30, 1998, and can be renewed for one year at
the option of the Company.
The Company pays a management fee to a company owned by a principal
shareholder. Management fees of $150,000 were paid by the Company for the years
ended April 30, 1996 and 1997, and December 31, 1996, respectively and $112,500
for the nine month period ended September 30, 1997.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To A.S.A.P. Services, Inc.:
We have audited the accompanying balance sheets of A.S.A.P. Services, Inc.
(an Arkansas Corporation) as of December 31, 1996 and September 30, 1997, and
the related statements of operations, changes in shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1996 and for
the nine-month period ended September 30, 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 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A.S.A.P. Services, Inc., as
of December 31, 1996 and September 30, 1997 and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1996 and for the nine-month period ended September 30, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 17, 1997
F-28
<PAGE>
A.S.A.P. SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $378,176 $ 362,051
Trade accounts receivable....... 312,038 792,833
Prepaid expenses and other
assets....................... 8,885 28,680
------------ -------------
Total current assets....... 699,099 1,183,564
PROPERTY AND EQUIPMENT, net.......... 58,220 118,141
------------ -------------
Total assets............... $757,319 $ 1,301,705
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities.................. $ 71,814 $ 235,683
Accrued payroll and related
taxes........................ 115,945 401,871
Notes payable................... 5,101 4,098
------------ -------------
Total current
liabilities.............. 192,860 641,652
NOTES PAYABLE, less current
portion.............................. 9,645 6,534
------------ -------------
Total liabilities.......... 202,505 648,186
SHAREHOLDERS' EQUITY:
Common stock, no par value,
100,000 shares authorized, 100
shares issued and
outstanding.................... 300 300
Retained earnings............... 554,514 653,219
------------ -------------
Total shareholders'
equity.................. 554,814 653,519
------------ -------------
Total liabilities and
shareholders' equity... $757,319 $ 1,301,705
============ =============
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
A.S.A.P. SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE-MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------- --------------------------
1995 1996 1996 1997
------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES FROM SERVICES............. $ 4,099,136 $ 6,131,833 $ 4,378,864 $ 7,274,778
COST OF SERVICES................... 3,446,516 5,015,748 3,558,368 5,942,715
------------ ------------ ----------- ------------
Gross profit............. 652,620 1,116,085 820,496 1,332,063
OPERATING COSTS AND EXPENSES....... 272,431 537,106 328,871 667,623
------------ ------------ ----------- ------------
Operating income......... 380,189 578,979 491,625 664,440
OTHER INCOME....................... 4,682 6,243 3,490 3,160
------------ ------------ ----------- ------------
NET INCOME......................... $ 384,871 $ 585,222 $ 495,115 $ 667,600
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
A.S.A.P. SERVICES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ --------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. 100 $ 300 $ 300,502 $ 300,802
Distributions...................... -- -- (260,445) (260,445)
Net income......................... -- -- 384,871 384,871
------ ------ --------- ------------
BALANCE, December 31, 1995.............. 100 300 424,928 425,228
Distributions...................... -- -- (455,636) (455,636)
Net income......................... -- -- 585,222 585,222
------ ------ --------- ------------
BALANCE, December 31, 1996.............. 100 300 554,514 554,814
Distributions...................... -- -- (568,895) (568,895)
Net income......................... -- -- 667,600 667,600
------ ------ --------- ------------
BALANCE, September 30, 1997............. 100 $ 300 $ 653,219 $ 653,519
====== ====== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
A.S.A.P. SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------- ------------------------
1995 1996 1996 1997
------------ ------------ --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 384,871 $ 585,222 $ 495,115 $ 667,600
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation.................. 4,027 12,092 8,506 23,535
Changes in operating assets
and liabilities --
Trade accounts
receivable............ (16,463) (41,984) (293,882) (480,795)
Prepaid expenses and
other assets.......... 64,563 27,743 36,197 (19,795)
Accounts payable and
accrued liabilities... (78,055) 71,814 35,084 163,869
Accrued payroll and
related taxes......... (17,312) 58,474 92,090 285,926
------------ ------------ --------- ------------
Net cash provided by operating
activities................. 341,631 713,361 373,110 640,340
------------ ------------ --------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment........................ (38,112) (22,424) (22,424) (83,456)
------------ ------------ --------- ------------
Net cash used in investing
activities....................... (38,112) (22,424) (22,424) (83,456)
------------ ------------ --------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable........ -- 14,634 18,898 --
Payments on notes payable.......... (2,279) (3,116) (5,917) (4,114)
Shareholder distributions.......... (260,445) (455,636) (138,705) (568,895)
------------ ------------ --------- ------------
Net cash used in financing
activities................. (262,724) (444,118) (125,724) (573,009)
------------ ------------ --------- ------------
NET INCREASE (DECREASE) IN CASH......... 40,795 246,819 224,962 (16,125)
CASH AT BEGINNING OF PERIOD............. 90,562 131,357 131,357 378,176
------------ ------------ --------- ------------
CASH AT END OF PERIOD................... $ 131,357 $ 378,176 $ 356,319 $ 362,051
============ ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
A.S.A.P. SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
A.S.A.P. Services, Inc. (ASAP or the Company), incorporated in the state of
Arkansas on December 28, 1990, specializes in the placement of clerical and
light industrial labor to companies in northwest Arkansas and southern Missouri.
The majority of revenues are derived from companies in the food processing
industry.
In September 1997, ASAP and its two shareholders entered into a definitive
agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to which all
shares of the Company will be exchanged for cash and shares of Nationwide's
common stock concurrent with the consummation of an initial public offering (the
Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1996, and for the nine
months ended September 30, 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 fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers compensation, health insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company provides, if necessary, allowances which management believes
are adequate to absorb losses to be incurred in realizing the amounts recorded
in the accompanying financial statements. Historically, bad debts have not been
significant.
The Company operates in the food processing and manufacturing industry. The
Company is obligated to pay the salaries, wages and related benefit costs and
payroll taxes of worksite employees. Accordingly, the Company's ability to
collect amounts due from customers could be affected by economic fluctuations in
its markets or these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
F-33
<PAGE>
A.S.A.P. SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using an accelerated method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from five to seven years.
INCOME TAXES
ASAP, with the consent of its shareholders, has elected to be an S
Corporation under the Internal Revenue Code. Instead of paying corporation
income taxes, the shareholders are taxed individually on the taxable income.
Therefore, no provision or liability for federal income taxes has been made in
the accompanying financial statements.
REVENUE AND COST RECOGNITION
ASAP's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, ASAP
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. ASAP accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues, and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The fair value of other debt was estimated by discounting future cash
flows, including interest payments, using rates currently available for debt of
similar terms and maturities based on ASAP's credit standing and other market
factors. At December 31, 1996 and September 30, 1997, the carrying amounts of
ASAP's other debt approximates fair value.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
Office equipment and leasehold
improvements............................ $ 59,871 $ 143,327
Vehicles................................ 18,898 18,898
------------ -------------
78,769 162,225
Less -- Accumulated depreciation........ (20,549) (44,084)
------------ -------------
$ 58,220 $ 118,141
============ =============
F-34
<PAGE>
A.S.A.P. SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
Note payable to bank, secured by auto,
bearing interest at 10%, payable in 42
monthly installments of $415, balance
due February 2000..................... $ 13,448 $10,632
Note payable to bank, secured by
property, bearing interest at 8.5%,
payable in 36 monthly installments of
$190, balance due May 1997............ 1,298 --
------------ -------------
Total notes payable........... 14,746 10,632
Less -- Current portion....... (5,101) (4,098)
------------ -------------
Long-term portion............. $ 9,645 $ 6,534
============ =============
Future maturities of notes payable as of September 30, 1997 are as follows:
1997.................................... $ 987
1998.................................... 4,201
1999.................................... 4,641
2000.................................... 803
---------
$ 10,632
=========
5. COMMITMENTS AND CONTINGENCIES:
ASAP leases office space from the majority owner. Rent paid in 1995, 1996
and for the nine-months ended September 30, 1997 was $13,500, $11,500 and
$9,900, respectively. The lease requires monthly payments of $1,100 and expires
May 31, 1998. Future minimum lease payments due as of December 31, 1996, are as
follows: 1997 -- $13,200, 1998 -- $5,500 and none thereafter.
In the ordinary course of its business, the Company has been threatened
with or named as defendant in various lawsuits, including claims related to the
actions of its clients and their employees. Management does not believe that any
claims will have a material adverse effect on the Company's financial position
or results of operations.
6. SALES TO SIGNIFICANT CUSTOMERS:
ASAP derived approximately 68 percent of its 1996 revenues and 53 percent
of its 1995 revenues from one customer. Accounts receivable for such customer
was $151,956 at December 31, 1996 and $138,643 at December 31, 1995. ASAP
derived approximately 69% of its revenues for the nine month period ended
September 30, 1997 from one customer. Accounts receivable for such customer was
$414,281. The loss of this customer could have a material adverse effect on the
operations of ASAP.
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cardinal Services, Inc.:
We have audited the accompanying balance sheets of Cardinal Services, Inc.
(an Oregon corporation) as of June 30, 1996 and 1997, and the related statements
of operations, changes in shareholders' equity and cash flows for the three
years in the period ended June 30, 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 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cardinal Services, Inc., as
of June 30, 1996 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 29, 1997
F-36
<PAGE>
CARDINAL SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- SEPTEMBER 30,
1996 1997 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ -- $ 270,968 $ 915,940
Trade accounts receivable, net of
allowance of $174,200, $162,470
and $162,470, respectively...... 969,960 1,223,380 1,071,351
Prepaid expenses and other
assets.......................... 135,885 65,621 65,621
Workers' compensation receivable... 420,399 516,502 --
------------ ------------ -------------
Total current assets....... 1,526,244 2,076,471 2,052,912
PROPERTY AND EQUIPMENT, net........ 122,716 133,270 135,610
OTHER ASSETS:
Notes receivable................... 22,324 -- --
Notes receivable, related
parties......................... 247,719 274,227 11,937
Goodwill........................... 4,168 3,833 3,750
------------ ------------ -------------
Total assets............... $ 1,923,171 $ 2,487,801 $ 2,204,209
============ ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ 815,012 $ 777,351 $ 765,840
Accrued payroll and related
taxes........................... 523,676 605,052 648,864
Current portion of notes payable... 6,259 4,807 156,615
Notes payable, related parties..... -- 525,000 --
------------ ------------ -------------
Total current
liabilities............. 1,344,947 1,912,210 1,571,319
NOTES PAYABLE........................ 15,315 10,612 9,302
DEFERRED INCOME TAX LIABILITY........ 8,934 8,384 8,384
------------ ------------ -------------
Total liabilities.......... 1,369,196 1,931,206 1,589,005
SHAREHOLDERS' EQUITY:
Common stock, no par value, 100
shares authorized, 100 shares
issued and outstanding.......... 1,000 1,000 1,000
Retained earnings.................. 552,975 555,595 614,204
------------ ------------ -------------
Total shareholders'
equity.................. 553,975 556,595 615,204
------------ ------------ -------------
Total liabilities and
shareholders' equity.... $ 1,923,171 $ 2,487,801 $ 2,204,209
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
CARDINAL SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
---------------------------------------------- --------------------------
1995 1996 1997 1996 1997
-------------- -------------- -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM SERVICES............... $ 14,135,623 $ 17,531,485 $ 20,292,311 $ 5,453,826 $ 5,125,919
COST OF SERVICES..................... 12,868,713 15,793,831 17,813,808 4,786,130 4,500,433
-------------- -------------- -------------- ------------ ------------
Gross profit.................... 1,266,910 1,737,654 2,478,503 667,696 625,486
OPERATING COSTS AND EXPENSES......... 1,112,314 1,634,243 2,473,155 435,591 520,184
-------------- -------------- -------------- ------------ ------------
Operating income................ 154,596 103,411 5,348 232,105 105,302
INTEREST EXPENSE..................... 2,140 14,813 11,487 3,190 1,676
OTHER INCOME (EXPENSE), net.......... 7,585 5,678 28,649 14,045 (4,751)
-------------- -------------- -------------- ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE..... 160,041 94,276 22,510 242,960 98,875
INCOME TAX EXPENSE................... 63,204 38,782 10,751 96,615 40,266
-------------- -------------- -------------- ------------ ------------
NET INCOME........................... $ 96,837 $ 55,494 $ 11,759 $ 146,345 $ 58,609
============== ============== ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
CARDINAL SERVICES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------- ------- --------- ----------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1994............... 100 $1,000 $ 422,493 $ 423,493
Distributions................... -- -- (9,833) (9,833)
Net income...................... -- -- 96,837 96,837
------- ------- --------- ----------
BALANCE, June 30, 1995............... 100 1,000 509,497 510,497
Distributions................... -- -- (12,016) (12,016)
Net income...................... -- -- 55,494 55,494
------- ------- --------- ----------
BALANCE, June 30, 1996............... 100 1,000 552,975 553,975
Distributions................... -- -- (9,139) (9,139)
Net income...................... -- -- 11,759 11,759
------- ------- --------- ----------
BALANCE, June 30, 1997............... 100 1,000 555,595 556,595
Net income (Unaudited).......... -- -- 58,609 58,609
------- ------- --------- ----------
BALANCE, September 30, 1997
(Unaudited).......................... 100 $1,000 $ 614,204 $ 615,204
======= ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
CARDINAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 96,837 $ 55,494 $ 11,759 $ 146,345 $ 58,609
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Depreciation and
amortization................ 21,195 31,244 35,531 12,577 20,088
Provision for bad debts........ 125,000 100,000 130,000 -- --
Loss (gain) on sale of assets.... (4,437) 654 315 -- --
Changes in operating assets and
liabilities --
Trade accounts receivable,
net....................... (659,390) (54,008) (700,198) 53,065 152,029
Prepaid expenses and other
assets.................... 49,348 (12,262) 32,774 -- --
Workers' compensation
receivable................ -- (420,399) (96,103) -- 516,502
Accounts payable and accrued
liabilities............... 270,971 111,442 (722) (196,073) (11,511)
Accrued payroll and related
taxes..................... 112,437 (66,453) 81,376 48,733 43,812
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating
activities................ 11,961 (254,288) (505,268) 64,647 779,529
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property
and equipment.................... 20,451 -- 1,400 -- --
Purchases of property and
equipment........................ (43,433) (69,673) (47,464) (25,896) (22,345)
Notes receivable................... -- 2,265 22,324 22,324 --
Notes receivable, related
parties.......................... 16,829 (71,184) (26,508) (45,158) 262,290
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities............. (6,153) (138,592) (50,248) (48,730) 239,945
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable, related parties..... -- -- 525,000 -- (525,000)
Proceeds from accounts receivable
factoring........................ -- 387,327 316,778 -- --
Distributions to shareholders...... (9,833) (12,016) (9,139) -- --
Notes payable...................... 4,025 17,569 (6,155) (15,917) 150,498
--------- --------- --------- --------- ---------
Net cash provided by financing
activities....................... (5,808) 392,880 826,484 (15,917) (374,502)
INCREASE IN CASH AND CASH
EQUIVALENTS........................ -- -- 270,968 -- 644,972
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR.................. -- -- -- -- 270,968
CASH AND CASH EQUIVALENTS AT END OF --------- --------- --------- --------- ---------
YEAR............................... $ -- $ -- $ 270,968 -- 915,940
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for income taxes......... $ 17,087 $ 42,723 $ 3,729 -- --
========= ========= ========= ========= =========
Cash paid for interest............. $ 2,140 $ 12,589 $ 13,711 $ 3,190 $ 1,673
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Cardinal Services, Inc. (Cardinal or the Company), incorporated in 1988 in
the state of Oregon, specializes in providing temporary employees, part-time and
replacement employees and full-time leased employees to a vast array of
employers primarily in southwest Oregon. The Company's headquarters are located
in Coos Bay, Oregon, with other offices in Florence, Eugene, Roseburg and
Newport, Oregon.
The Company and its shareholders intend to enter into a definitive
agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to which all
shares of the Company will be exchanged for cash and shares of Nationwide's
common stock concurrent with the consummation of an initial public offering (the
Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1996 and 1997, and for
the three months ended September 30, 1996 and 1997, 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 fairly present the financial
position, results of operations and cash flows with respect to the interim
financial statements have been included. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health care insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with original maturities of three months or less when purchased.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company uses the allowance method for estimating the allowance for bad
debts. The Company periodically evaluates the creditworthiness of its customers'
financial conditions to determine credit to be extended and determine the
adequacy of the allowance for bad debts. Historically, bad debts have not been
significant.
The Company is obligated to pay the salaries, wages and related benefit
costs and payroll taxes of worksite employees. Accordingly, the Company's
ability to collect amounts due from customers could be affected by economic
fluctuations in its markets or these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and
F-41
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the accumulated depreciation applicable thereto are eliminated from the
accounts, and the resulting gain or loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using the straight-line method. For federal income
tax purposes, depreciation is computed using the accelerated methods in
accordance with the Internal Revenue Code. Leasehold improvements are amortized
over the lesser of the term of the related lease or the estimated useful lives
of the assets.
Since October 1993, the Company has been insured for workers compensation
under a policy that includes a provision to retroactively adjust premiums. The
policy also contains a stop-loss limit whereby the Company's maximum loss
exposure to the Company is 120 percent of standard rates, as defined. Premiums
are paid to the insurance carrier based on estimates of current year loss
experience and payroll. The loss estimates are based on several factors,
including the Company's current experience, relative health care costs, regional
influences and other factors. While estimated losses may not be paid for several
years, an accrual for premiums is made based on actual payroll and these
estimated loss experiences. The estimated premiums are continually reviewed by
the Company's management, and any adjustments are reflected as a component of
direct costs in the period of change, as they become known.
In July 1997, the Company received a reduction of $516,552 in its premiums
paid on its workers compensation policy for the period ended October 1996. This
amount was treated as a reduction in direct costs over the period affected.
INCOME TAXES
The Company (Cardinal) has adopted the liability method of accounting for
income taxes in accord-
ance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
REVENUE AND COST RECOGNITION
Cardinal's revenues consist of service fees paid by its clients under
client service agreements. In consideration for payment of such service fees,
Cardinal agrees to pay the following direct costs associated with the worksite
employees: (a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. Cardinal accounts for service fees and the
related direct payroll costs using the accrual method of accounting. Under the
accrual method, service fees relating to worksite employees with earned but
unpaid wages at the end of each period are recognized as unbilled revenues and
the related direct payroll costs for such wages are accrued as a liability
during the period in which wages are earned by the worksite employee. Subsequent
to the end of each period, such wages are paid and the related service fees are
billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, bank overdrafts, unearned revenue, accrued
expenses and notes payable, related parties approximate fair value at the
applicable balance sheet dates due to the short-term maturity of these
instruments. The carrying amount of notes payable at each balance sheet date
approximates fair value as the interest rates on such agreements are at rates
similar to what could be obtained for debt with similar remaining maturities and
collateral requirements. The fair value of the accounts receivable recourse
obligation for accounts sold under the factoring agreement is based on the
Company's estimated exposure for uncollectable receivables, which was determined
by considering the Company's past collection experience and performing an
assessment of each of the individual accounts that were sold. The carrying
amounts of notes receivable and notes receivable, related parties were
calculated based on expected future cash flows, discounted at each balance sheet
date, using rates at which loans would be made to borrowers with
F-42
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
similar credit ratings. The carrying amount of notes receivable and notes
receivable, related parties, approximate fair value at each applicable balance
sheet date.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
JUNE 30,
-------------------------- SEPTEMBER 30,
1996 1997 1997
------------ ------------ -------------
(UNAUDITED)
Equipment and machinery............. $ 55,574 $ 70,549 $ 86,336
Furniture and fixtures.............. 28,436 37,592 37,592
Computer equipment and software..... 98,987 121,474 127,982
Trucks and autos.................... 34,473 26,573 26,573
Leaseholds.......................... 5,734 6,459 6,459
------------ ------------ -------------
223,204 262,647 284,942
Less -- Accumulated depreciation.... (100,488) (129,377) (149,332)
------------ ------------ -------------
$ 122,716 $ 133,270 $ 135,610
============ ============ =============
4. NOTE RECEIVABLE:
During the year ended June 30, 1995, the Company sold real estate and
received for partial consideration, a note in the amount of $25,000, bearing
interest at the rate of 9 percent. As of June 30, 1997, the note had been paid
in full.
5. ACCOUNTS RECEIVABLE FACTORING AGREEMENT:
The Company entered into a credit agreement with Security Bank on March 1,
1996, which provided for a line of credit of $150,000, which was personally
guaranteed by shareholders. During 1996, the line of credit was increased to
$295,000 and was secured by a pledge of accounts receivable and personal assets
of a shareholder. No borrowings were made under the line of credit.
Simultaneously, the Company entered into an agreement with the bank, whereby
trade accounts receivable would be discounted at 1.65 percent of the face amount
and sold to the bank with recourse. The recourse provision stated the Company
was responsible for any receivables deemed uncollectable by the bank plus any
attorneys' fees incurred by the bank during collection proceedings. The bank
required an initial reserve, subject to the bank's right of adjustment, equal to
5 percent of the face amount of receivables purchased by the bank. The proceeds
from accounts receivable that had been sold to the bank for the years ended June
30, 1996 and 1997, were $387,327 and $316,778, respectively, with $7,861 in
reserves posted by the Company at June 30, 1996. The total finance and
administrative fees incurred by the Company for the years ended June 30, 1996
and 1997, were $8,185 and $14,803, respectively. Both agreements were terminated
during fiscal year 1997, at which time all amounts owed to the bank under the
factoring agreement were settled.
F-43
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE:
Notes payable include the following:
JUNE 30,
-------------------- SEPTEMBER 30,
1996 1997 1997
--------- --------- -------------
(UNAUDITED)
Notes payable bearing interest at
8.05% and 7.75%, secured by
certificates of deposit............ $ -- $ -- $ 152,030
Ford Motor Credit, bearing interest
at 10%, monthly
payments of $421, secured by
vehicle............................ 17,142 13,648 12,475
Xerox Corporation, bearing interest
at 15.5%, monthly
payments of $183, secured by office
equipment.......................... 2,181 181 --
Ikon Capital, bearing interest at
23.965%, monthly
payments of $90, secured by office
equipment.......................... 2,251 1,590 1,412
--------- --------- -------------
Total debt................. 21,574 15,419 165,917
Less -- Current portion.............. (6,259) (4,807) (156,615)
--------- --------- -------------
Long-term portion.......... $ 15,315 $ 10,612 $ 9,302
========= ========= =============
Maturities of long-term debt for future years are as follows:
For the year ending June 30 --
1998............................ $ 4,807
1999............................ 5,088
2000............................ 4,692
2001............................ 832
---------
$ 15,419
=========
7. RELATED-PARTY TRANSACTIONS:
NOTES RECEIVABLE
The Company is a closely held corporation and engages in financial
transactions with its shareholders and immediate family members. As of June 30,
1996 and 1997 and September 30, 1997, the shareholders and family members owed
the corporation as follows:
JUNE 30,
---------------------- SEPTEMBER 30,
1996 1997 1997
---------- ---------- -------------
(UNAUDITED)
Shareholders......................... $ 240,326 $ 249,826 $ 9,500
Other related parties................ 4,500 6,900 6,900
Accrued interest..................... 2,893 17,501 (4,463)
---------- ---------- -------------
$ 247,719 $ 274,227 $11,937
========== ========== =============
The notes receivable bear interest at 6% and require monthly payments. The
notes stipulate if a payment is missed, all amounts are due and callable at the
option of the holder. Current payments have not been made, but the Company has
not called the notes.
NOTES PAYABLE
The Company accrued bonuses to an officer of $525,000 for the year ended
June 30, 1997, to an officer. A note, which was noninterest bearing with five
monthly payments of $105,000 beginning
F-44
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 1, 1997, was issued for the bonus payable to the officer. This note
was repaid as of September 30, 1997.
MANAGEMENT FEE PAYABLE
Cardinal is affiliated, through related shareholders, with Freeman
Industries, Inc. The Company has contracted with Freeman Industries, Inc. to
provide management services for the Company. The contract is still in effect,
yet Cardinal has not incurred any expenses or fees since the fiscal year ended
June 1995, when services were last provided. For the periods ended June 30, 1996
and 1997 and September 30, 1997, the Company was indebted to Freeman Industries,
Inc. for $102,950, $102,350 and $101,750, respectively, for past management
services provided.
8. INCOME TAX:
The income tax (benefit) expense consists of the following components:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, --------------------------------
-------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1996 1997
--------- --------- ---------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current
Federal......................... $ 33,037 $ 2,217 $ 62,067 $ 85,800 $ 32,711
State........................... 6,670 448 12,531 17,580 6,519
--------- --------- ---------- -------------- --------------
39,707 2,665 74,598 103,380 39,230
--------- --------- ---------- -------------- --------------
Deferred --
Federal......................... 19,550 30,050 (53,122) (5,415) 791
State........................... 3,947 6,067 (10,725) (1,350) 245
--------- --------- ---------- -------------- --------------
23,497 36,117 (63,847) (6,765) 1,036
--------- --------- ---------- -------------- --------------
Total...................... $ 63,204 $ 38,782 $ 10,751 $ 96,615 $ 40,266
========= ========= ========== ============== ==============
</TABLE>
Income tax expense differs from amounts computed by applying the statutory
rate to income before income taxes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, --------------------------------
------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1996 1997
--------- --------- --------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax expense at the statutory
rate............................... $ 56,014 $ 32,997 $ 7,879 $ 85,036 $ 34,606
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction......... 6,901 4,235 1,174 9,263 4,396
Nondeductible expenses.......... 289 1,550 1,698 2,316 1,264
--------- --------- --------- -------------- --------------
$ 63,204 $ 38,782 $ 10,751 $ 96,615 $ 40,266
========= ========= ========= ============== ==============
</TABLE>
F-45
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred income tax assets and liabilities are comprised of the
following:
<TABLE>
<CAPTION>
THREE MONTHS
JUNE 30, ENDED
---------------------------------------- SEPTEMBER 30,
1995 1996 1997 1997
------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred income tax assets --
Allowance for doubtful
accounts...................... $ 34,528 $ 72,467 $ 67,588 $ 67,588
Management fees................. 24,960 24,960 24,960 24,960
State taxes..................... 8,851 10,974 7,221 7,221
Other........................... 5,103 9,704 6,972 6,972
------------ ------------ ------------ -------------
$ 73,442 $ 118,105 $ 106,741 $ 106,741
------------ ------------ ------------ -------------
Deferred income tax liabilities --
Revenue accruals................ $ (213,884) $ (232,778) $ (15,699) $ (14,663)
Accrued wages................... -- (44,039) (172,894) (172,894)
Depreciation.................... (10,100) (9,459) (8,877) (8,877)
Other........................... (18,489) (32,083) (32,083)
------------ ------------ ------------ -------------
(223,984) (304,765) (229,553) (228,517)
------------ ------------ ------------ -------------
Net deferred income tax
liabilities............. $ (150,542) $ (186,660) $ (122,812) $(121,776)
============ ============ ============ =============
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
The Company leases office space at each of its five locations. The lease
for the Coos Bay office is with a related party. The lease is on a
month-to-month basis with total lease payments for the Coos Bay location for the
years ended June 30, 1995, 1996 and 1997, totaling $48,528, $26,760 and $29,669,
respectively. Monthly lease payments for the other four locations range from
$540 to $1,614. Total property lease expense, including Coos Bay, amounted to
$62,488, $91,682 and $112,748 for the years ended June 30, 1995, 1996 and 1997,
respectively.
The Company also has various operating leases for automobiles and office
equipment. Minimum future lease commitments for all noncancellable operating
leases including property leases are as follows:
For the year ending June 30 --
1998............................ $ 72,536
1999............................ 15,533
---------
$ 88,069
=========
10. EMPLOYEE BENEFIT PLAN:
Cardinal sponsors a 401(k) defined contribution plan (the Plan) that
originated January 1, 1997. The Plan covers all non-highly compensated full-time
employees of Cardinal who are over 21 and have completed at least one year of
employment. The Plan is subject to provisions of the Employee Retirement Income
Security Act of 1974. Company contributions are discretionary, and no amounts
were contributed during fiscal year 1997.
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Employment Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Employment
Enterprises, Inc. (a Virginia corporation) and subsidiaries as of November 30,
1995, December 31, 1996, and September 30, 1997 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the two years in the period ended November 30, 1995, the period ended
December 31, 1996 and for the nine month period ended September 30, 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 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Employment Enterprises,
Inc., as of November 30, 1995, December 31, 1996 and September 30, 1997 and the
results of their operations and their cash flows for each of the two years in
the period ended November 30, 1995, the period ended December 31, 1996 and the
nine month period ended September 30, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 14, 1997
F-47
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 50,132 $ -- $ --
Trade accounts receivable, net of
allowance of $94,884, $39,297 and
$93,451.......................... 2,553,518 2,629,811 3,409,902
Deferred tax asset................. 81,950 89,093 121,704
Prepaid expenses and other
assets........................... 53,205 104,964 63,122
------------ ------------ -------------
Total current assets.......... 2,738,805 2,823,868 3,594,728
PROPERTY AND EQUIPMENT, net............. 302,141 238,147 230,968
OTHER ASSETS............................ 5,761 7,076 5,634
------------ ------------ -------------
Total assets.................. $3,046,707 $3,069,091 $ 3,831,330
============ ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit..................... $ 502,000 $ 13,000 $ 432,000
Accounts payable................... 129,208 395,788 510,058
Accrued payroll and related
taxes............................ 819,197 913,839 1,290,508
Deferred compensation.............. 765,267 819,929 819,929
Loans from shareholders............ 645,906 643,406 --
------------ ------------ -------------
Total liabilities............. 2,861,578 2,785,962 3,052,495
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 5,000
shares authorized, 3,000 shares
issued and outstanding........... 3,000 3,000 3,000
Additional paid in capital......... 7,000 7,000 7,000
Retained earnings.................. 175,129 273,129 768,835
------------ ------------ -------------
Total shareholders' equity.... 185,129 283,129 778,835
------------ ------------ -------------
Total liabilities and
shareholders' equity....... $3,046,707 $3,069,091 $ 3,831,330
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE-MONTHS ENDED
----------------------------------------------- --------------------------------
NOVEMBER 30, NOVEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1997
------------- ------------- ------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM SERVICES............... $29,251,670 $33,172,417 $ 36,675,731 $ 26,957,282 $ 33,071,090
COST OF SERVICES..................... 26,109,015 29,789,041 32,874,334 24,209,225 29,403,662
------------- ------------- ------------- -------------- --------------
Gross profit.................... 3,142,655 3,383,376 3,801,397 2,748,057 3,667,428
OPERATING COSTS AND EXPENSES......... 2,981,331 3,156,565 3,559,868 2,595,227 2,808,863
------------- ------------- ------------- -------------- --------------
Operating income................ 161,324 226,811 241,529 152,830 858,565
INTEREST EXPENSE..................... 75,884 125,042 112,975 57,823 38,846
------------- ------------- ------------- -------------- --------------
Income before income tax expense..... 85,440 101,769 128,554 95,007 819,719
INCOME TAX EXPENSE................... 39,387 49,082 54,262 45,603 324,013
------------- ------------- ------------- -------------- --------------
NET INCOME........................... $ 46,053 $ 52,687 $ 74,292 $ 49,404 $ 495,706
============= ============= ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT APIC EARNINGS TOTAL
------ ------ ------ --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, November 30, 1993........... 3,000 $3,000 $7,000 $ 76,389 $ 86,389
Net income...................... -- -- -- 46,053 46,053
------ ------ ------ --------- ----------
BALANCE, November 30, 1994........... 3,000 3,000 7,000 122,442 132,442
Net income...................... -- -- -- 52,687 52,687
------ ------ ------ --------- ----------
BALANCE, November 30, 1995........... 3,000 3,000 7,000 175,129 185,129
Net income (unaudited).......... -- -- -- 23,708 23,708
------ ------ ------ --------- ----------
BALANCE, December 31, 1995........... 3,000 3,000 7,000 198,837 208,837
Net income...................... -- -- -- 74,292 74,292
------ ------ ------ --------- ----------
BALANCE, December 31, 1996........... 3,000 3,000 7,000 273,129 283,129
Net income...................... -- -- -- 495,706 495,706
------ ------ ------ --------- ----------
BALANCE, September 30, 1997.......... 3,000 $3,000 $7,000 $ 768,835 $ 778,835
====== ====== ====== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE-MONTHS ENDED
------------------------------------------ -----------------------------
NOVEMBER 30, NOVEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 46,053 $ 52,687 $ 74,292 $ 49,404 $ 495,706
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation.................... 38,556 75,878 74,237 48,194 67,398
Change in net deferred income
tax assets.................... (68,668) (9,052) (7,143) (4,560) (32,611)
Changes in operating assets and
liabilities --
Trade accounts receivable..... (500,763) 120,316 (71,648) (419,619) (780,091)
Prepaid expenses and other
assets..................... (8,265) (18,139) (35,025) (7,057) 43,284
Accounts payable and accrued
liabilities................ 342,736 2,158 380,767 752,620 490,939
------------ ------------ ------------ -------------- -------------
Net cash provided by (used
in) operating
activities.............. (150,351) 223,848 415,480 418,982 284,625
------------ ------------ ------------ -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (118,909) (156,681) (17,061) (7,563) (60,219)
------------ ------------ ------------ -------------- -------------
Net cash used in investing
activities.............. (118,909) (156,681) (17,061) (7,563) (60,219)
------------ ------------ ------------ -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit....... 4,690,000 5,094,000 5,914,000 5,065,000 3,186,000
Principal payments on line of
credit.......................... (4,451,000) (5,280,000) (6,386,000) (5,550,000) (2,767,000)
Loans from shareholders............ (4,131) 90,000 (2,500) (2,500) (643,406)
------------ ------------ ------------ -------------- -------------
Net cash provided by (used
in) financing
activities.............. 234,869 (96,000) (474,500) (487,500) (224,406)
------------ ------------ ------------ -------------- -------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................ (34,391) (28,833) (76,081) (76,081) --
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 113,356 78,965 76,081 76,081 --
------------ ------------ ------------ -------------- -------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR............................... $ 78,965 $ 50,132 $ -- $ -- $ --
============ ============ ============ ============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest............. $ 75,884 $ 107,988 $ 75,584 $ 57,823 $ 38,846
Cash paid for income taxes......... $ 79,187 $ 105,405 $ 107,345 $ 89,759 $ 189,777
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Employment Enterprises, Inc. (EEI or the Company), incorporated in the
state of Virginia in February 1989, specializes as a provider of temporary and
leased employment opportunities for individuals. EEI is composed of two wholly
owned subsidiaries, Temporary Solutions, Inc., and Checks & Balances, Inc.
Temporary Solutions, Inc. (TSI), offers companies in Virginia a wide variety of
staffing solutions including temporary, temp-to-hire, permanent contract,
project and specialty recruitment. Checks & Balances, Inc. (C&B), is a
nationwide professional employer organization (PEO) that provides comprehensive
personnel management services including benefit and payroll administration,
medical and workers' compensation programs and tax filings.
In September 1997, the Company and its shareholders entered into a
definitive agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to
which all shares of the Company will be exchanged for cash and shares of
Nationwide's common stock concurrent with the consummation of an initial public
offering (the Offering) of the common stock of Nationwide.
Effective January 1, 1996 EEI changed its fiscal year end from November 30
to December 31. Accordingly, EEI's fiscal 1996 year includes the period for
January 1, 1996 to December 31, 1996. During the one month transition period
ended December 31, 1995, EEI recognized revenues of $2,487,817, gross profit of
$254,911, and net income of $23,708.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements for the nine months ended September 30,
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
fairly present the financial position, results of operations and cash flows with
respect to the interim financial statements, have been included. The results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers compensation, health insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
EEI and its wholly owned subsidiaries, TSI and C&B. All material intercompany
transactions have been eliminated in consolidation.
ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company uses the allowance method for estimating the allowance for bad
debts. The Company periodically evaluates the creditworthiness of its customers'
financial conditions to determine credit to be
F-52
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
extended and to determine the adequacy of the allowance for bad debts.
Historically, bad debts have not been significant.
The Company operates within several industries including the insurance and
high-tech industries. The Company is obligated to pay the salaries, wages and
related benefit costs and payroll taxes of worksite employees. Accordingly, the
Company's ability to collect amounts due from customers could be affected by
economic fluctuations in its markets or these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using the straight-line method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from five to seven years.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Acconting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
REVENUE RECOGNITION
EEI's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, EEI
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. EEI accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The carrying amounts of borrowings pursuant to EEI's revolving credit
agreement approximate fair value because the rates on such agreements are
variable, based on current market rates.
F-53
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
NOVEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
Furniture and fixtures........... $ 111,402 $ 114,649 $ 114,649
Leasehold improvements........... 26,210 26,210 26,210
Computer equipment............... 491,819 524,001 584,220
Vehicles......................... 18,131 -- --
------------ ------------ -------------
647,562 664,860 725,079
Less -- Accumulated depreciation. (345,421) (426,713) (494,111)
------------ ------------ -------------
$ 302,141 $ 238,147 $ 230,968
============ ============ =============
4. DEBT:
Short-term notes payable are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Unsecured notes payable to shareholders,
bearing interest at rates ranging from
9% to 10%............................. $ 645,906 $643,406 $ --
Line of credit up to $1,750,000,
$2,050,000, and $2,050,000,
respectively, with bank bearing
interest at 8.75%, 8.25% and 8.5%
respectively.......................... 502,000 13,000 432,000
------------ ------------ -------------
$1,147,906 $656,406 $ 432,000
============ ============ =============
</TABLE>
The line of credit bears interest at various rates ranging from prime to
prime plus 7/8 percent, depending on the amounts outstanding. The weighted
average interest rate for the years ended November 30, 1995, December 31, 1996,
and for the nine-month period ended September 30, 1997, was 8.75 percent, 8.25
percent and 8.5 percent, respectively.
The line of credit is subject to certain financial reporting covenants and
certain financial ratio requirements. The Company was in compliance with such
covenants for all periods presented.
F-54
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Income tax expense (benefit) consists of the following components.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
NOVEMBER 30, -----------------------------
-------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1997
--------- --------- ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal......................... $ 58,088 $ 50,853 $ 51,350 $42,137 $ 298,228
State........................... 11,374 9,957 10,055 8,026 58,396
--------- --------- ------------ ------------- -------------
69,462 60,810 61,405 50,163 356,624
--------- --------- ------------ ------------- -------------
Deferred:
Federal......................... (25,150) (9,808) (5,973) (3,813) (27,271)
State........................... (4,925) (1,920) (1,170) (747) (5,340)
--------- --------- ------------ ------------- -------------
(30,075) (11,728) (7,143) (4,560) (32,611)
--------- --------- ------------ ------------- -------------
Total...................... $ 39,387 $ 49,082 $ 54,262 $45,603 $ 324,013
========= ========= ============ ============= =============
</TABLE>
Income tax expense (benefit) differs from amounts computed by applying the
statutory rate to income before income taxes as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
NOVEMBER 30, -----------------------------
-------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1997
--------- --------- ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax provision at the statutory
rate............................... $ 29,904 $ 35,619 $ 44,994 $33,252 $ 286,901
Increase resulting from:
State income tax, net of benefit
for federal deduction......... 4,195 5,224 5,775 5,558 34,486
Nondeductible expenses.......... 5,288 8,239 3,493 6,793 2,625
--------- --------- ------------ ------------- -------------
$ 39,387 $ 49,082 $ 54,262 $45,603 $ 324,012
========= ========= ============ ============= =============
</TABLE>
The net deferred income tax assets and liabilities are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Deferred income tax assets --
Bad debts....................... 9,775 16,274 38,746
Deferred compensation........... 316,926 339,564 356,542
Other........................... 2,679 -- --
------------ ------------ -------------
Total...................... $ 329,380 $ 355,838 $ 395,288
============ ============ =============
Deferred income tax liabilities --
Property, plant and equipment... (12,200) (17,325) (22,295)
Deferred income................. (235,230) (235,230) (235,230)
Other........................... -- (14,190) (16,059)
------------ ------------ -------------
Total...................... (247,430) (266,745) (273,584)
------------ ------------ -------------
Net deferred income tax assets....... $ 81,950 $ 89,093 $ 121,704
============ ============ =============
</TABLE>
F-55
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and office equipment under operating lease
agreements expiring in 2000. Rent paid in each of the years ended November 30,
1994, and 1995, December 31, 1996, and the nine months ended September 30, 1997,
was $148,638, $212,783 and $249,632, $170,692, respectively. Future lease
commitments through 2000 under its operating leases are as follows:
1997.................................... $ 59,311
1998.................................... 181,758
1999.................................... 134,244
2000.................................... 33,561
2001.................................... --
Thereafter.............................. --
----------
$ 408,874
==========
Providing certain services entails an inherent risk of professional
malpractice and other similar claims. The Company believes that its exposure to
these risks is mitigated by its existing insurance coverage. In the ordinary
course of its business, the Company has been threatened with or named as
defendant in various lawsuits, including claims related to the actions of its
clients and their employees. Management does not believe that any claims will
have a material adverse effect on the Company's financial position or results of
operations.
The Internal Revenue Service (IRS) is currently reviewing specific
compliance issues prevalent in certain segments in the professional employer
organization (PEO) industry (See "Regulation -- Employee Benefit Plans"). One
issue that has arisen is whether a PEO can be a co-employer of worksite
employees for various purposes under the Internal Revenue Code of 1986, as
amended (the Code), including participation in the PEO company's 401(k) plan. If
the IRS concludes that the Company is not the "employer" of certain worksite
employees for the purposes of the Code, the 401(k) plan tax-exempt status could
be revoked and those worksite employees would not be permitted to make tax
deferred salary contributions to the 401(k) plan. The Company believes that,
although unfavorable to the Company, the prospective application of an
unfavorable conclusion would not have a material adverse effect on its financial
position or the results of its operations. A retroactive application of such a
decision would have an adverse financial effect on the Company. However, the
Company is unable to determine the ultimate resolution of this matter by the
IRS, and therefore, cannot assess or reasonably estimate the effect on the
Company's financial position or results of operations if an unfavorable decision
is reached by the IRS.
7. SALES TO SIGNIFICANT CUSTOMERS:
During 1994, one customer accounted for 66 percent of the Company's service
revenue. During 1995, one customer accounted for 63 percent of the Company's
service revenue. During 1996, two customers accounted for 56 percent and 15
percent, respectively, of the Company's service revenue. During the nine months
ended September 30, 1997 two customers accounted for 43 percent and 25 percent,
respectively, of the Company's service revenues. The loss of these customers
could have a material adverse effect on the operations of the Company in the
near term.
8. RELATED-PARTY TRANSACTIONS:
The Company owed $645,906 and $643,406 to shareholders of the Company for
the years ended November 30, 1995, and December 31, 1996, respectively. The
notes bear interest at annual rates of 9 percent and 10 percent and are
subordinated to the line of credit. The notes were repaid in full in July 1997.
F-56
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996 and September 30, 1997 EEI has accrued $819,929 to
officers and shareholders of the Company under deferred compensation
arrangements.
EEI leases a portion of its office space from directors of the Company.
Rental expense incurred for each of the years ended November 30, 1994, and 1995,
and December 31, 1996, was $10,800.
9. EMPLOYEE BENEFIT PLAN:
C&B sponsors a 401(k) retirement plan that originated January 1, 1994, and
is a defined contribution plan (the Plan) covering all full-time employees of
EEI and its wholly owned subsidiaries, C&B and TSI, who have completed at least
one year of employment and 1,000 hours of service. There is no minimum age
requirement for participation. The Plan is subject to provisions of the Employee
Retirement Income Security Act of 1974. The Company made no contributions to the
Plan.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Evins Personnel Consultants, Inc., and Affiliates:
We have audited the accompanying combined balance sheet of Evins Personnel
Consultants, Inc. (a Texas corporation) and affiliates as of December 31, 1996
and the related combined statements of operations, changes in shareholder's
equity (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Evins Personnel
Consultants, Inc., and affiliates as of December 31, 1996 and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 17, 1997
F-58
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 11,716 $ 62,618
Trade accounts receivable --
Factored to third party............ 728,480 678,809
Unfactored......................... 233,605 237,673
------------ -------------
Total trade accounts
receivable................. 962,085 916,482
------------ -------------
Total current assets.......... 973,801 979,100
PROPERTY AND EQUIPMENT, net............. 88,678 91,601
OTHER ASSETS............................ 146,368 164,000
------------ -------------
Total assets.................. $1,208,847 $ 1,234,701
============ =============
LIABILITIES AND SHAREHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities........................ $ 141,085 $ 140,910
Accrued payroll and related taxes..... 207,628 265,317
Notes payable, due to factor.......... 728,480 678,809
------------ -------------
Total current liabilities..... 1,077,193 1,085,036
LONG-TERM LIABILITIES:
Notes payable to shareholder.......... 345,742 335,742
Notes payable to insurance company.... 115,562 115,562
------------ -------------
Total long-term liabilities... 461,304 451,304
------------ -------------
Total liabilities............. 1,538,497 1,536,340
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock, $1 par value, 10,000
shares authorized, 1,000 shares
issued and outstanding............. 1,000 1,000
Accumulated deficit................... (330,650) (302,639)
------------ -------------
Total shareholder's equity
(deficit).................. (329,650) (301,639)
------------ -------------
Total liabilities and
shareholder's equity
(deficit).................. $1,208,847 $ 1,234,701
============ =============
The accompanying notes are an integral part of these combined financial
statements.
F-59
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
NINE-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
REVENUES FROM SERVICES............. $7,832,520 $ 5,346,056 $ 6,999,917
COST OF SERVICES................... 5,824,275 4,043,648 5,153,251
------------ ------------ ------------
Gross profit.................. 2,008,245 1,302,408 1,846,666
OPERATING COSTS AND EXPENSES....... 1,629,504 1,141,836 1,639,228
------------ ------------ ------------
Operating income.............. 378,741 160,572 207,438
INTEREST EXPENSE................... 134,382 72,977 189,095
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE... 244,359 87,595 18,343
INCOME TAX EXPENSE................. 113,693 40,735 15,832
------------ ------------ ------------
NET INCOME......................... $ 130,666 $ 46,860 $ 2,511
============ ============ ============
The accompanying notes are an integral part of these combined financial
statements.
F-60
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
COMMON STOCK
---------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ ------ ----------- ------------
BALANCE, December 31, 1995.... 1,000 $1,000 $(497,138) $ (496,138)
Contributions............ -- -- 35,822 35,822
Net income............... -- -- 130,666 130,666
------ ------ ----------- ------------
BALANCE, December 31, 1996.... 1,000 1,000 (330,650) (329,650)
Contributions............ -- -- 25,500 25,500
Net income (unaudited)... -- -- 2,511 2,511
------ ------ ----------- ------------
BALANCE, September 30, 1997
(unaudited)................. 1,000 $1,000 $(302,639) $ (301,639)
====== ====== =========== ============
The accompanying notes are an integral part of these combined financial
statements.
F-61
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
NINE-MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 130,666 $ 46,860 $ 2,511
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation....................... 7,272 3,636 3,636
Changes in operating assets and
liabilities --
Trade accounts receivable........ (439,164) (144,886) 45,603
Employee advances................ -- 1,800 --
Prepaid expenses................. 1,100 1,100 --
Accounts payable and accrued
liabilities................... 57,729 (15,770) (175)
Accrued payroll and related
taxes......................... (730) 2,067 57,689
Other assets..................... 19,501 13,737 (17,632)
------------ ---------- ----------
Net cash provided by (used in)
operating activities............. (223,626) (91,456) 91,632
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (22,250) (1,550) (6,559)
------------ ---------- ----------
Net cash used in investing
activities....................... (22,250) (1,550) (6,559)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Factoring Agreement..... 728,480 627,388 (49,671)
Payments on revolving credit
agreement.......................... (500,000) (500,000) --
Payments on notes payable to
shareholder........................ (24,956) (19,358) (10,000)
Contributions......................... 35,822 26,306 25,500
------------ ---------- ----------
Net cash provided by (used in)
financing activities............. 239,346 134,336 (34,171)
------------ ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (6,530) 41,330 50,902
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 18,246 18,246 11,716
------------ ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 11,716 $ 59,576 $ 62,618
============ ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 43,435 $ 30,709 $ --
Cash paid for income taxes............ 1,307 1,307 788
The accompanying notes are an integral part of these combined financial
statements.
F-62
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Evins Personnel Consultants, Inc., and affiliates (the Company or Evins),
was incorporated in 1967 as a Texas corporation. Evins Personnel Consultants,
Inc., and affiliates specialize in the permanent and temporary placement of
clerical, light industrial and specialty medical labor to clients in Austin,
Texas and other southeast regions of Texas.
The accompanying combined financial statements include the following
entities, which are each wholly owned by the sole shareholder of the Company:
Evins Personnel Consultants, Inc., Evins Personnel Consultants, Inc. # One,
Evins Personnel Consultants, Inc. # Two, Evins Personnel Consultants Inc., of
Abilene, Exceptional Resource Services, Inc., Excelsior Personnel Consultants,
Inc., Excellent Personnel Consultants, Inc. and Elite Personnel Consultants,
Inc. All significant intercompany accounts and transactions have been eliminated
in order to present the combined financial statements of Evins Personnel
Consultants, Inc., and affiliates.
In September 1997, the Company and its sole shareholder entered into a
definitive agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to
which all shares of the Company will be exchanged for cash and shares of
Nationwide's common stock concurrent with the consummation of an initial public
offering of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1997, and for the
nine-months ended September 30, 1996 and 1997, 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 fairly present the financial
position, results of operations and cash flows with respect to the interim
combined financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health care insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with original maturities of three months or less when purchased.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company uses the direct write-off method for recognition of bad debts.
The Company periodically evaluates the creditworthiness of its customers'
financial conditions to determine credit to be extended and to determine the
adequacy of the allowance for bad debts. Historically, bad debts have not been
significant.
F-63
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is obligated to pay the salaries, wages and related benefit
costs and payroll taxes of worksite employees. Accordingly, the Company's
ability to collect amounts due from customers could be affected by economic
fluctuations in its markets or these industries.
Trade accounts receivable as of December 31, 1996 and September 30, 1997,
respectively, includes $728,480 and $678,809 which has been factored to a third
party (see Note 3).
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using an accelerated method. The estimated useful
lives of property and equipment for purposes of computing depreciation are five
years for all categories of property and equipment.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
REVENUE AND COST RECOGNITION
Revenues from services consist of service fees paid by its clients under
client service agreements. In consideration for payment of such service fees,
Evins agrees to pay the following direct costs associated with the worksite
employees: (a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. Evins accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, trade accounts receivable (factored and
unfactored), accounts payable, other accrued expenses and notes payable, due to
factor approximate their fair values due to the short-term maturities of these
instruments.
The fair values of notes payable to shareholder and notes payable to
insurance company were estimated by discounting future cash flows, including
interest payments, using rates currently available for debt of similar terms and
maturities, based on Evins' credit standing and other market factors. At
December 31, 1996, and September 30, 1997, the carrying amount of these loans
approximates fair value.
3. TRADE ACCOUNTS RECEIVABLE -- FACTORED TO THIRD PARTY:
Effective September 19, 1996, Evins entered into a Receivables Purchase
Agreement (the Agreement) with Brentwood Service Group, Inc. (Brentwood), an
unrelated third party. Pursuant to the Agreement, Evins factored 95 percent,
with recourse, of all outstanding accounts receivables on that date to
Brentwood. On this effective date, proceeds of $467,350 were paid to Bank One,
Texas, N.A., to repay a revolving line-of-credit agreement (see Note 5). The
corresponding notes payable, due to factor represents Evins'
F-64
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
obligation to Brentwood for factored accounts receivable not collected as of
December 31, 1996 and September 30, 1997.
The Agreement is for a 24-month period, commencing September 19, 1996, and
may be terminated by either party giving written notice of termination at least
90 days prior to the termination date. Brentwood is entitled to a nonrefundable
2 percent administrative fee which is calculated on the face amount of each
factored receivable, as well as finance charges calculated as follows: 1 percent
of the face amount on receivables collected between 30 days and 45 days of the
factoring date, and an additional 1 percent finance charge on those receivables
collected between 46 days and 60 days of the factoring date. For the year ended
December 31, 1996 and the nine-month period ended September 30, 1997, such
finance charges amounted to $54,574 and $163,595, respectively. Any receivable
which remains uncollected by Brentwood 60 days after the factoring date shall be
deemed Defaulted Receivables and must be immediately paid by Evins, including
applicable finance charges. As of December 31, 1996 and September 30, 1997,
there were no factored receivables which were outstanding for greater than 60
days.
The Agreement requires that Evins comply with certain representations and
warranties, which include maintaining a positive Tangible Net Worth, as defined
by the Agreement, of at least $100,000 during the term of the Agreement. Evins
has not been in compliance with this and certain other provisions of the
Agreement since the inception of the Agreement. In the event of a breach of
warranty, Brentwood must allow a reasonable period for Evins to cure the breach.
If Evins does not cure the breach within this time period, Brentwood may
accelerate payment of accrued administrative and interest fees. As of December
31, 1996, and September 30, 1997 (unaudited), Evins has accrued all such
administrative and interest fees due to Brentwood. Brentwood has made no demand
of accelerated payment as of November 17, 1997.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
Furniture and fixtures.................. $ 41,283 $ 47,842
Computer equipment...................... 80,694 80,694
Vehicles................................ 28,200 28,200
Leasehold improvements.................. 77,854 77,854
------------ -------------
228,031 234,590
Less -- Accumulated depreciation........ 139,353 142,989
------------ -------------
$ 88,678 $ 91,601
============ =============
5. REVOLVING LINE OF CREDIT AGREEMENT:
During June 1995, Evins entered into a one-year revolving line-of-credit
agreement with Bank One, Texas, N.A., for borrowings up to $500,000 for working
capital requirements. The agreement had a stated interest rate of the bank's
base rate plus 2 percent. The loan was repaid in September 1996. The average
interest rate on the agreement for 1996 was 10.25 percent.
6. NOTES PAYABLE TO SHAREHOLDER:
At December 31, 1996 and September 30, 1997, Evins had two notes payable
outstanding to its sole shareholder. Both notes related to advances to the
Company in 1995 for operating purposes. The notes payable had principal balances
at December 31, 1996, of $320,100 and $25,642, and $320,100 and $15,642 at
September 30, 1997 respectively. Both note agreements bear interest of 10
percent per annum on any unpaid principal balance. The sole shareholder has
waived all interest charges since the inception of the
F-65
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
notes. As a result, interest expense has been recognized and a related amount
recorded as a capital contribution by the shareholder in these financial
statements. The note agreements do not state a repayment schedule or a maturity
date. The Company made payments on such notes payable of $24,956 during 1996 and
$10,000 during 1997.
7. NOTES PAYABLE TO INSURANCE COMPANY:
Evins purchased key employee life insurance policies for four individuals,
which have a total cash surrender value of $130,260 and $132,160 (unaudited) as
of December 31, 1996 and September 30, 1997, respectively. During 1987 and 1988,
Evins entered into eight notes payables with Texas Life Insurance Company (Texas
Life), related to funds borrowed against these key employees' life insurance
policies. As of December 31, 1996 and September 30, 1997, total principal and
accrued interest payable on such notes amounted to $115,562. The notes accrue
interest annually at the rate of 7.4 percent. Any monthly unpaid interest is
added to the principal of the loans. The notes do not require annual payments,
nor do the notes state a specific term or maturity date. The total of the
accrued interest and principal outstanding will be deducted from any amount
payable by Texas Life during any settlement of amounts due for any reason. Evins
has not repaid any principal or made any accrued interest payments since the
inception of the notes.
8. INCOME TAXES:
Income tax expense (benefit) consists of the following components:
NINE-MONTHS ENDED
YEAR ENDED ------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
Current --
Federal.................. $ 65,827 $ 23,585 $16,487
State.................... 8,862 3,175 2,219
------------ ------------- -------------
74,689 26,760 18,706
Deferred --
Federal.................. 34,374 12,316 (2,535)
State.................... 4,630 1,659 (339)
------------ ------------- -------------
39,004 13,975 (2,874)
------------ ------------- -------------
Total............... $113,693 $ 40,735 $15,832
============ ============= =============
Income tax expense differs from amounts computed by applying the statutory
rate to income before taxes as follows:
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
YEAR ENDED ------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Tax provision at the statutory rate..... $ 85,525 $30,658 $ 6,420
------------ ------------- -------------
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction............ 8,769 3,127 1,878
Nondeductible expenses............. 19,399 6,950 7,534
------------ ------------- -------------
$113,693 $40,735 $15,832
============ ============= =============
</TABLE>
F-66
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred income tax assets and liabilities are comprised of the
following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
Deferred income tax assets --
Property and equipment............. $ 5,706 $ 7,142
Accrued expenses................... 4,661 64,307
------------ -------------
Total......................... 10,367 71,449
------------ -------------
Deferred income tax liabilities --
State taxes and other.............. (10,004) (68,210)
------------ -------------
Total......................... (10,004) (68,210)
------------ -------------
Net deferred income tax
assets..................... $ 363 $ 3,239
============ =============
9. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The following is a schedule of future minimum lease payments due as of
December 31, 1996 (such lease arrangements are described below):
1997.................................... $ 138,018
1998.................................... 121,600
1999.................................... 124,350
2000.................................... 41,450
Thereafter.............................. --
The Company leases three buildings from C&M Properties, a company wholly
owned by its sole shareholder. The lease terms range from 40 to 60 months with
monthly lease payments ranging from $2,800 to $6,250 and are subject to annual
escalations. Total rental payments to C&M Properties in 1996 and for the
nine-month period ended September 30, 1997, were $94,304 and $89,059
(unaudited), respectively. The leases require that the Company pay C&M
Properties a proportionate share of any increase in the real property taxes
assessed against the premises as compared to a designated base rate. Total
property tax payments to C&M Properties during 1996 were $9,517. There were no
property tax payments made to C&M Properties for the nine-month period ended
September 30, 1997 (unaudited).
CONTINGENCIES
Providing specialty medical services entails an inherent risk of
professional malpractice and other similar claims. The Company believes that its
exposure to these risks is substantially mitigated by its existing insurance
coverage.
In the ordinary course of its business, the Company has been threatened
with or named as a defendant in various lawsuits, including claims related to
the actions of its customers and their employees. Management does not believe
that any claims would have a material adverse effect on the Company's combined
financial position or results of operations.
F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Technical Services, Inc.:
We have audited the accompanying consolidated balance sheets of Global
Technical Services, Inc. (a Texas corporation) as of December 31, 1995 and 1996,
and September 30, 1997 and the related consolidated statements of operations,
changes in shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996 and for the nine month period ended
September 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Global
Technical Services, Inc., as of December 31, 1995 and 1996 and September 30,
1997 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 and for the nine month period ended
September 30, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 14, 1997
F-68
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 612,109 $ 43,193 $ 107,041
Trade accounts receivable....... 1,345,412 2,541,387 3,251,904
Notes receivable --
Related parties............ 2,615 2,533 850
Other...................... 4,757 2,578 37,750
Prepaid expenses and other
assets........................ 356,964 90,444 75,012
------------ ------------ -------------
Total current
assets............. 2,321,857 2,680,135 3,472,557
PROPERTY AND EQUIPMENT, net.......... 385,950 517,324 236,929
NOTES RECEIVABLE, related parties.... 541,254 575,388 204,035
NOTE RECEIVABLE, other............... 5,629 3,780 46,427
Equity investments.............. (33,456) 2,886 102
DEFERRED INCOME TAX ASSET............ 15,974 5,471 6,551
OTHER ASSETS, net.................... 90,900 86,944 113,535
------------ ------------ -------------
Total assets.......... $ 3,328,108 $ 3,871,928 $ 4,080,136
============ ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities................... $ 367,332 $ 392,175 $ 469,700
Accrued payroll and related
taxes......................... 485,203 624,812 1,289,234
Notes payable, related party,
GGI........................... -- 5,953 6,372
Line of credit, GGI............. 2,299,099 2,373,627 1,185,686
Deferred income tax liability... -- 6,140 --
------------ ------------ -------------
Total current
liabilities........ 3,151,634 3,402,707 2,950,992
NOTES PAYABLE, related party, GGI.... -- 14,423 9,594
------------ ------------ -------------
Total liabilities..... 3,151,634 3,417,130 2,960,586
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.10 par value;
1,000,000 shares authorized,
100,000 shares issued and
outstanding................... 10,000 10,000 10,000
Additional paid-in capital...... 190,000 190,000 190,000
Retained earnings (deficit)..... (23,526) 254,798 919,550
------------ ------------ -------------
Total shareholders'
equity (deficit)... 176,474 454,798 1,119,550
------------ ------------ -------------
Total liabilities and
shareholders'
equity (deficit)... $ 3,328,108 $ 3,871,928 $ 4,080,136
============ ============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-69
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE-MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM SERVICES.................. $ 25,162,293 $ 23,167,013 $ 28,660,778 $ 20,823,515 $ 31,892,418
COST OF SERVICES........................ 23,686,084 21,677,307 26,560,697 19,234,832 29,262,587
-------------- -------------- -------------- -------------- --------------
Gross profit....................... 1,476,209 1,489,706 2,100,081 1,588,683 2,629,831
OPERATING COSTS AND EXPENSES............ 1,039,460 1,153,495 1,247,024 871,534 1,433,188
-------------- -------------- -------------- -------------- --------------
Operating income................... 436,749 336,211 853,057 717,149 1,196,643
OTHER (INCOME) EXPENSE, net............. 15,999 (38,727) 3,438 (4,386) (51,848)
INTEREST EXPENSE, net................... 128,467 155,808 173,407 129,476 113,657
-------------- -------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAX
(BENEFIT) EXPENSE AND SHARE OF INCOME
(LOSS) OF EQUITY INVESTMENTS AND
DISCONTINUED OPERATIONS............... 292,283 219,130 676,212 592,059 1,134,834
INCOME TAX (BENEFIT) EXPENSE............ 155,043 31,188 290,351 266,234 481,091
-------------- -------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE SHARE OF INCOME OF
EQUITY INVESTMENTS AND DISCONTINUED
OPERATIONS............................ $ 137,240 $ 187,942 $ 385,861 $ 325,825 $ 653,743
MINORITY INTEREST IN SUBSIDIARY'S
EARNINGS (LOSS)....................... 147,070 (155,165) -- -- --
SHARE OF INCOME (LOSS) OF EQUITY
INVESTMENTS........................... (41,497) 30,005 36,342 12,009 18,441
-------------- -------------- -------------- -------------- --------------
INCOME BEFORE DISCONTINUED OPERATIONS... 242,813 62,782 422,203 337,834 672,184
DISCONTINUED OPERATIONS:
LOSS FROM OPERATIONS OF DISCONTINUED
SEGMENTS.............................. (212,434) (190,220) (143,879) (54,613) (45,763)
GAIN ON DISPOSAL OF
DISCONTINUED
SEGMENT............................... -- -- -- -- 38,331
-------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS)....................... $ 30,379 $ (127,438) $ 278,324 $ 283,221 $ 664,752
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------ PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. 100,000 $10,000 $ 190,000 $ 134,291 $ 334,291
Net (loss)......................... (30,379) (30,379)
------- ------- ---------- --------- ------------
BALANCE, December 31, 1994.............. 100,000 10,000 190,000 103,912 303,912
Net (loss)......................... -- -- -- (127,438) (127,438)
------- ------- ---------- --------- ------------
BALANCE, December 31, 1995.............. 100,000 10,000 190,000 (23,526) 176,474
Net income......................... -- -- -- 278,324 278,324
------- ------- ---------- --------- ------------
BALANCE, December 31, 1996.............. 100,000 10,000 190,000 254,798 454,798
Net income......................... -- -- -- 664,752 664,752
------- ------- ---------- --------- ------------
BALANCE, September 30, 1997............. 100,000 $10,000 $ 190,000 $ 919,550 $ 1,119,550
======= ======= ========== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-71
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................... $ 30,379 $ (127,438) $ 278,324 $ 283,221 $ 664,752
Adjustments to reconcile net
income/(loss) to net cash (used in)
provided by operating activities
Depreciation and amortization....... 124,363 85,658 119,935 87,517 86,215
Bad debt expense.................... -- 66,961 -- -- 188,701
(Gain) loss on disposal of fixed
assets........................... (1,262) (28,401) -- -- (8,405)
Share of (income)/loss of equity
investments...................... 41,497 (30,100) (36,342) (12,009) (18,441)
Minority interest................... (147,070) 155,164 -- -- --
Discontinued operations............. -- 132,787 -- -- --
Change in net deferred income tax
assets........................... (105,906) 97,535 16,643 16,643 (5,060)
Changes in operating assets and
liabilities --
Trade accounts receivable........ (895,287) 857,420 (1,195,975) (841,873) (899,218)
Prepaid expenses and other
assets......................... (80,018) (93,012) 266,520 310,412 (15,432)
Other assets, net................ 1,105 (54,573) 3,956 (36,215) (41,591)
Accounts payable and other
accrued expenses............... 593,664 (89,391) 24,843 57,164 77,525
Accrued payroll and related
taxes.......................... -- 76,068 139,609 315,834 664,422
Other, net.......................... -- 69,651 2,848 -- (8,594)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
operating activities......... (438,535) 1,118,329 (379,639) 180,694 684,874
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.... (192,722) (325,542) (271,566) (231,539) (117,786)
Sales of property and equipment....... 5,945 91,300 46,908 46,908 193,000
Sale of Americom...................... -- -- -- -- 179,762
Dissolution of All Star............... -- -- -- -- 21,130
Proceeds from notes
receivable -- related party......... 54,962 154,840 2,383 3,680 379,037
Advances on notes
receivable -- related party......... (419,022) (40,718) (36,435) (37,633) (6,000)
Proceeds from notes
receivable -- other................. -- 5,660 4,028 3,250 1,842
Advances on notes
receivable -- other................. -- (12,516) -- (271) (79,660)
------------ ------------ ------------ ------------ ------------
Net cash flows provided by
(used in) investing
activities................... (550,837) (126,976) (254,682) (215,605) 571,325
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable........... -- -- -- -- --
Payments on notes payable............. (27,296) (79,469) (9,123) -- --
Proceeds from notes payable -- related
party............................... -- -- -- 33,113 --
Payment on notes payable -- related
party............................... -- -- -- (10,877) (4,410)
Proceeds from line of credit.......... 22,522,535 20,430,852 26,259,895 20,666,280 27,200,059
Payments on line of credit............ (21,374,288) (20,863,000) (26,185,367) (21,096,265) (28,388,000)
------------ ------------ ------------ ------------ ------------
Net cash flows provided by
(used in) financing
activities................... 1,120,951 (511,617) 65,405 (407,749) (1,192,351)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH......... 131,579 479,736 (568,916) (442,660) 63,848
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 794 132,373 612,109 612,109 43,193
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 132,373 $ 612,109 $ 43,193 $ 169,449 $ 107,041
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION...........................
Cash paid for income taxes............ $ 175,819 $ 42,200 $ 203,986 $ 3,196 $ 100,500
Cash paid for interest................ 203,555 233,044 231,365 177,868 157,015
Non-cash investing and financing
activities:
Note received in sale of Americom..... -- -- -- -- $ 100,000
Stock received in sale of Americom.... -- -- -- -- 102
Accounts Payable written off with sale
of Americom......................... -- -- -- -- 20,340
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Global Technical Services, Inc. (GTS or the Company), incorporated in the
state of Texas in 1989, specializes in providing temporary contract labor,
engineers and aircraft maintenance technicians to businesses primarily within
the aerospace and defense industries throughout the United States. Contracts to
provide such services vary in length, usually less than one year.
The accompanying consolidated financial statements include the Company and
the following division, subsidiary and equity investments:
a. American Compliance (Americom), a division of the Company, began
operations in 1995, for the purposes of providing administration of
workplace drug testing. Effective March 19, 1997, the Company sold the
assets and accounts payable of Americom to a third party.
b. Tuff-Bilt Manufacturing, Inc., ("Tuff-Bilt") a 55% owned subsidiary,
was formed in December, 1993 in order to manufacture trailers in
Naples, Texas. The subsidiary ceased operations and was liquidated in
1995.
c. The Company owned 25.5% of the capital stock in All Star Truck Parts &
Equipment, Inc., (All Star) which ceased operations in May 1997. The
investment was accounted for under the equity method. Accordingly, the
Company's initial investment is increased (decreased) by its share of
the investee's net income (loss). At December 31, 1996 and 1995 and
September 30, 1997, the Company's investment was $2,886, $(33,456),
and $0, respectively.
d. The Company owned 49% of Arapaho Trailer Sales & Services, Inc.
(Arapaho) which ceased operations in October, 1995. The investment was
accounted for under the equity method. The investment in Arapaho was
worthless as of December 31, 1995, and the Company reversed the deficit
balance of $33,824 by adjusting its income from equity investments in
1995.
See Note 5 for information relating to the disposal of the above division,
subsidiary and equity investments.
GTS is owned by eight shareholders who, together with the Company, entered
into a definitive agreement with Nationwide Staffing, Inc. (Nationwide) in
September 1997, pursuant to which all shares of the Company will be exchanged
for cash and shares of Nationwide's common stock concurrent with the
consummation of an initial public offering (the Offering) of the common stock of
Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements for the nine-months ended
September 30, 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 fairly present the financial position, results of operations and
cash flows with respect to the interim consolidated financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-73
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company provides for workers' compensation, health insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
PRINCIPLES OF CONSOLIDATION
As described in Note 1, the accompanying consolidated financial statements
include the accounts of the Company, and its 55% owned subsidiary (Tuff-Bilt) in
1995 and 1994. All significant intercompany transactions were eliminated in
consolidation.
BASIS OF ACCOUNTING
The accounts are maintained and the financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles. The accounts for Tuff-Bilt were recorded as of December
31, 1995 on the liquidation basis of accounting in accordance with generally
accepted accounting principles.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with an original maturity of three months or less.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
Bad debts are accounted for using the direct write-off method. Expense is
recognized only when a specific account is determined to be uncollectible. The
effects of this method approximate those of the allowance method. In the event
of complete nonperformance by the Company's customers, the maximum exposure to
the Company is the outstanding accounts receivable balance at the date of
nonperformance. The Company performs ongoing credit evaluations of its
customers' financial conditions to determine credit to be extended.
The Company operates within the aerospace and defense industries. The
Company is obligated to pay the salaries, wages and related benefit costs and
payroll taxes of worksite employees. Accordingly, the Company's ability to
collect amounts due from customers could be affected by economic fluctuations in
its market or these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated using the double
declining-balance method over the estimated useful lives of the related assets,
which range from three to thirty-nine years.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
F-74
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The financial results of the Company and its 55% owned subsidiary,
Tuff-Bilt, are consolidated for financial reporting purposes for 1995. However,
earnings from, Tuff-Bilt, were included in taxable income only when they were
received (via dividends or sale of Tuff-Bilt) and a substantial portion of any
dividends would be nontaxable. Losses from the investment in, Tuff-Bilt, were
not deductible since under current tax law the investment in, Tuff-Bilt, must be
accounted for under the cost method. The result of the above is the basis of the
investment being different for financial and income tax reporting primarily by
the Company's share of Tuff-Bilt's losses since its formation. The nondeductible
losses of Tuff-Bilt that have been recognized in the Company's financial
statements (since Tuff-Bilt's formation) approximated $200,600.
PROFIT-SHARING PLAN
The Company has a 401(k) deferred compensation plan for all eligible
employees. Active participants may elect to have the Company make salary
reduction contributions on their behalf based on a percentage of their earnings,
not to exceed 20 percent. The Company has the option of making annual
discretionary contributions to the plan up to a predetermined limit. For the
years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1997, the Company made no contributions to the plan.
REVENUE AND COST RECOGNITION
GTS's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, GTS
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. GTS accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues, and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The carrying amounts of borrowings pursuant to the Company's line of credit
agreement approximate fair value because the rates on such agreements are
variable, based on current market values. The fair value of notes payable was
estimated by discounting future cash flows, including interest payments, using
rates currently available for debt with similar terms and maturities, based on
the Company's credit standing and other market factors. At December 31, 1995 and
1996 and September 30, 1997, the carrying amounts of notes payable approximate
fair value.
F-75
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
Airplane............................ $ 25,292 $ 52,983 $ 105,351
Airplane hanger..................... 119,221 204,068 --
Vehicles............................ 5,933 5,933 3,000
Furniture and equipment............. 311,401 414,345 309,224
Leasehold improvements.............. 7,834 7,834 9,353
Software............................ 65,861 81,688 59,034
------------ ------------ -------------
535,542 766,851 485,962
Less -- Accumulated depreciation.... (149,592) (249,527) (249,033)
------------ ------------ -------------
$ 385,950 $ 517,324 $ 236,929
============ ============ =============
4. RELATED PARTY TRANSACTIONS:
NOTES RECEIVABLE, RELATED PARTIES
Notes receivable consisting of loans to affiliated companies were as
follows:
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
Global Staff Solutions, Inc., 10% per
annum, $1,675 interest and principal
due monthly, balance due December 1,
1999.................................. $ 163,392 $ 199,037 $ 204,885
All Star Truck Parts & Equipment, Inc.,
10.5% per annum, $3,500 interest and
principal due monthly, balance due
December 31, 1998, secured by
inventory, accounts receivable and
equipment............................. 380,477 378,884 --
---------- ---------- -------------
Total notes receivable,
related parties............ 543,869 577,921 204,885
Less -- Current portion................. (2,615) (2,533) (850)
---------- ---------- -------------
Long-term portion............. $ 541,254 $ 575,388 $ 204,035
========== ========== =============
These notes receivable represent advances made by GTS. Accrued interest is
payable monthly. The notes mature with balloon payments due in December 1998 and
1999. The note receivable from All Star Truck Parts & Equipment, Inc. was paid
in May 1997.
Accrued interest receivable related to the above notes totaled $7,940,
$6,629 and $4,825 at December 31, 1995 and 1996, and September 30, 1997,
respectively. During the years ended December 31, 1994, 1995, and 1996, and the
nine months ended September 30, 1996 and 1997, the Company recorded interest
income from these notes of $60,918, $70,060, $57,982, $42,724, and $28,161,
respectively.
NOTES PAYABLE, GGI
The notes payable to Global Group, Inc. (GGI) at December 31, 1996, were
for the purchase of the computer system referred to above for $29,499, payable
in monthly installments of $640, including interest of 9.75 percent, through
January 2000. Interest expense recorded was $1,021, $4,314, $3,795, and $1,349
during 1995, 1996 and the nine months ended September 30, 1996 and 1997,
respectively. GGI owns approximately 49 percent of the outstanding common stock
of GTS.
F-76
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total future debt service requirements of this note payable are $20,376
principal and $3,297 interest. The annual requirements of this note are
illustrated in the table below:
PRINCIPAL INTEREST TOTAL
--------- -------- -------
1997.................................... $ 1,543 $ 1,725 $ 3,268
1998.................................... 6,560 1,118 7,678
1999.................................... 7,229 449 7,678
2000.................................... 634 6 640
--------- -------- -------
$ 15,966 $ 3,298 $19,264
========= ======== =======
LINE OF CREDIT, GGI
The Company's major source of financing during 1994, 1995 and 1996 was
through GGI. Advances from GGI are due on demand with interest payable monthly
at bank prime plus 1 percent. If no demand is made, the note is due and payable
on December 15, 1997. Payment of the note is secured by the accounts receivable
of the Company, subordinate to a first priority security interest held by
Overton Bank and Trust, NA (Overton), on a revolving line of credit of GGI. The
note payable has been classified as a current liability in the accompanying
balance sheets as of December 31, 1995 and 1996 and September 30, 1997. Interest
paid to GGI in 1994, 1995, 1996 and for the nine months ended September 30, 1996
and 1997 totaled $180,195, $232,052, $231,365, $169,995, and $144,860,
respectively. Accrued interest payable to GGI at December 31, 1995 and 1996, and
September 30, 1997 was $17,350, $19,588, $21,757, and $10,950, respectively.
As of December 31, 1995 and 1996, and September 30, 1997, all accounts
receivable and rights to payments are pledged to secure payments of GGI's
revolving line of credit in the amount of $3,000,000 with Overton. The principal
of the note is due and payable on or before December 15, 1997. At December 31,
1996, GGI was in compliance with or obtained waivers for all covenants related
to its revolving line-of-credit agreement.
GENERAL AND ADMINISTRATIVE EXPENSE
The Company's facilities during 1994 and part of 1995 were leased from GGI
on a month-to-month basis. Rent paid to GGI in 1994 and 1995 was $13,200 and
$11,624, respectively. Computer consulting services purchased from GGI totaled
$19,400 and $21,657 in 1994 and 1995, respectively. The Company purchased repair
and maintenance services, advertising and supplies from GGI totaling $18,040 in
1996.
The Company purchased payroll services of $579,308, $617,764, $749,296,
$627,694, and $837,114 during 1994, 1995 and 1996, and for the nine months ended
September 30, 1996 and 1997, respectively, from Global Staff Solutions, Inc.
Amounts payable to Global Staff Solutions, Inc., at December 31, 1995, 1996 and
for the nine months ended September 30, 1997, were $11,914, $90,842 and $5,655,
respectively. Global Staff Solutions, Inc., and the Company have a common
shareholder which owns significant amounts of the outstanding shares of each of
the companies.
5. DISPOSAL OF CERTAIN ASSETS
The accompanying consolidated financial statements include the disposals of
Americom, Tuffbilt, All Star and Arapaho, as follows:
a. Effective March 19, 1997 the Company entered into an agreement to sell
the assets and accounts payable of its workplace drug testing segment of
operations (Americom). The Company received 101,667 shares of the purchaser's
common stock, valued at $102 ($.001 per share), cash of $100,000 and a $100,000
note payable in 24 monthly installments beginning November 19, 1997 through
October 19, 1999. Interest is computed from the date of the agreement until
October 19, 1997, at the prime rate published in the Wall
F-77
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Street Journal on the date of the agreement plus 2%, payable on October 19,
1997. Beginning October 20, 1997, through the remaining term of the note,
interest shall be payable monthly at the prime rate published in the Wall Street
Journal on October 20, 1997 plus 2%. The Company recognized a gain of $58,971,
($38,331 net of income taxes) on the sale of Americom, as shown on the
accompanying Consolidated Statements of Operations.
b. On May 1, 1997, All Star Truck Parts & Equipment, Inc. sold its assets
and the right to use the name "All Star Truck Parts & Equipment" for $650,000
cash. All Star repaid the balance of the note receivable to the Company in May
1997. (See Note 4.)
c. Global Technical Services, Inc. owned 49% of Arapaho Trailer Sales &
Services, Inc. which ceased operations in October, 1995. Upon dissolution, the
remaining stockholders contributed their interest, resulting in Global Technical
Services, Inc. becoming the sole owner. The Company subsequently sold the stock
of Arapaho to an unrelated party.
d. Effective December 31, 1995, Tuff-Bilt Manufacturing, Inc. (Tuff-Bilt)
was liquidated because of continuing losses and changes in the market that made
a return to profitable operations unlikely. Assets of Tuff-Bilt were sold in a
public auction in February, 1996, but did not yield sufficient proceeds cash to
pay all of its secured creditors. Management negotiated with two secured
creditors to forgive the remainder of the indebtedness. Another creditor
repossessed assets securing their debt.
In 1995, the carrying amounts of assets and liabilities were adjusted from
their historical basis to the amounts expected from their liquidation and net
operating results of Tuff-Bilt were included in loss from discontinued
operations.
The following table summarizes "Discontinued Operations: Loss from
Operations of Discontinued Segments" as shown in the accompanying consolidated
statements of operations:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ----------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Loss on liquidation of Tuff-Bilt........ $ (212,434) $ (101,416) $ -- $ -- $ --
Loss from operations of Americom........ -- (88,804) (143,879) (54,613) (45,763)
------------ ------------ ------------ ---------- ----------
Total.............................. $ (212,434) $ (190,220) $ (143,879) $ (54,613) $ (45,763)
============ ============ ============ ========== ==========
</TABLE>
The above amounts are net of applicable income taxes of ($114,388),
($102,426), $(77,474), ($29,406), and ($24,642) for the years ended December 31,
1994, 1995, and 1996 and for the nine months ended September 30, 1996 and 1997,
respectively.
6. SALES TO SIGNIFICANT CUSTOMERS:
The Company has two customers who combined accounted for approximately 76
percent, 65 percent and 57 percent of the Company's total sales during 1995,
1996 and the nine months ended September 30, 1997, respectively. The amount due
from these two customers, included in accounts receivable, was $475,729,
$691,769 and $1,276,596 or approximately 35 percent, 30 percent and 39 percent
of the balances, at December 31, 1995 and 1996 and September 30, 1997,
respectively. The Company has three customers who, combined, accounted for
approximately 78 percent of the Company's total sales during 1994. The loss of
these customers could have a material adverse effect on the operations of the
Company.
F-78
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
Income tax (benefit) expense includes components from continuing operations
and discontinued operations as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------- ----------------------
1994 1995 1996 1996 1997
------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations............................ $ 155,043 $ 31,188 $ 290,351 $ 266,234 $ 481,091
Loss from operations of discontinued
segment............................... (114,388) (102,426) (77,474) (29,406) (24,642)
Gain on disposal of discontinued
segment............................... -- -- -- -- 20,640
------------ ------------ ---------- ---------- ----------
Total......................... $ 40,655 $ (71,238) $ 212,877 $ 236,828 $ 477,089
============ ============ ========== ========== ==========
</TABLE>
Income tax (benefit) expense consists of the following components:
<TABLE>
<CAPTION>
NINE-MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
------------ ------------ ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current --
Federal............................ $ 111,802 $ (130,532) $ 151,770 $ 170,294 $ 374,574
State.............................. 32,754 (38,241) 44,464 49,891 109,735
------------ ------------ ---------- ----------- ----------
144,556 (168,773) 196,234 220,185 484,309
------------ ------------ ---------- ----------- ----------
Deferred --
Federal............................ (80,359) 75,435 12,873 12,873 (5,584)
State.............................. (23,542) 22,100 3,770 3,770 (1,636)
------------ ------------ ---------- ----------- ----------
(103,901) 97,535 16,643 16,643 (7,220)
------------ ------------ ---------- ----------- ----------
Total......................... $ 40,655 $ (71,238) $ 212,877 $ 236,828 $ 477,089
============ ============ ========== =========== ==========
</TABLE>
Income tax (benefit) expense differs from amounts computed by applying the
statutory rate to income (loss) before income taxes:
<TABLE>
<CAPTION>
NINE-MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------ ------------------------
1994 1995 1996 1996 1997
------------ ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax (benefit) expense at the
statutory rate........................ $ 24,862 $ (69,530) $ 171,920 $ 191,263 $ 399,644
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction............ 5,988 (10,492) 31,352 34,879 70,264
Nondeductible expenses............. 9,805 8,784 9,605 10,686 7,181
------------ ---------- ---------- ----------- ----------
$ 40,655 $ (71,238) $ 212,877 $ 236,828 $ 477,089
============ ========== ========== =========== ==========
</TABLE>
F-79
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following:
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
Deferred income tax assets --
Accruals and other................. $ 18,494 $ 8,348 $ 7,071
--------- --------- -------------
Total......................... 18,494 8,348 7,071
--------- --------- -------------
Deferred income tax liabilities --
State taxes and other.............. (2,520) (9,017) (520)
--------- --------- -------------
Total......................... (2,520) (9,017) (520)
--------- --------- -------------
Net deferred income tax
(liabilities) assets....... $ 15,974 $ (669) $ 6,551
========= ========= =============
8. COMMITMENTS AND CONTINGENCIES:
The Company is a party to various operating leases, including its office
building, copier, facsimile machine and two pad sites at Decatur Municipal
Airport. Such operating leases range in terms from 36 months to 20 years.
Minimum rental payments required under the above operating leases are as
follows:
1997.................................... $ 61,164
1998.................................... 52,912
1999.................................... 11,652
2000.................................... 8,312
2001.................................... 1,100
2002 and thereafter..................... 10,920
----------
$ 146,060
==========
Providing engineering services entails an inherent risk of professional
malpractice and other similar claims. The Company believes that its exposure to
these risks is substantially mitigated by its existing insurance coverage.
In the ordinary course of its business, the Company has been threatened
with or named as a defendant in various lawsuits, including claims related to
the actions of its clients and their employees. Management does not believe that
any claims would have a material adverse effect on the Company's financial
position or results of operations.
From March 1993 to March 1997, the Company did not subscribe to the Texas
Workers' Compensation Plan. Therefore, the Company does not have any legal
protection from any of its employees who may not believe that they have received
sufficient coverage for employment related injuries. In March 1997, the Company
elected to again subscribe to the workers' compensation program in Texas.
Potential outstanding liabilities exist for the four years in which the Company
was not in the Texas Workers' Compensation plan, primarily related to any legal
defense costs that may be incurred. However, the Company is not currently aware
of any such claims and the potential liability cannot be reasonably estimated
due to uncertainties inherent in such an estimation process.
The Internal Revenue Service (IRS) is currently reviewing specific
compliance issues prevalent in certain segments in the professional employer
organization (PEO) industry (see "Regulation -- Employee Benefit Plans"). One
issue that has arisen is whether a PEO can be a co-employer of worksite
employees for various purposes under the Internal Revenue Code of 1986, as
amended (the Code), including participation in the PEO company's 401(k) plan. If
the IRS concludes that the Company is not the "employer" of certain worksite
employees for the purposes of the Code, the 401(k) plan tax-exempt status
F-80
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
could be revoked and those worksite employees would not be permitted to make tax
deferred salary contributions to the 401(k) plan. The Company believes that,
although unfavorable to the Company, the prospective application of an
unfavorable conclusion would not have a material adverse effect on its financial
position or the results of its operations. A retroactive application of such a
decision would have an adverse financial impact on the Company. However, the
Company is unable to determine the ultimate resolution of this matter by the
IRS, and therefore, cannot assess or reasonably estimate the effect on the
Company's financial position or results of operations if an unfavorable decision
is reached by the IRS.
F-81
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HP Services, Inc.:
We have audited the accompanying balance sheets of HP Services, Inc. (a
Texas corporation) as of December 31, 1995 and 1996, and September 30, 1997, and
the related statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996 and the
nine month period ended September 30, 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 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HP Services, Inc., as of
December 31, 1995 and 1996, and September 30, 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, and the nine month period ended September 30, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 14, 1997
F-82
<PAGE>
HP SERVICES, INC.
BALANCE SHEETS
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 146,591 $ 39,856 $ 339,022
Trade accounts receivable....... 1,332,581 1,637,713 1,114,663
Due from affiliates............. 75,381 23,246 114,081
Prepaid expenses and other
assets........................ 170,640 129,800 44,311
------------ ------------ -------------
Total current assets....... 1,725,193 1,830,615 1,612,077
PROPERTY AND EQUIPMENT, net.......... 53,322 14,830 10,830
------------ ------------ -------------
Total assets............... $ 1,778,515 $ 1,845,445 $ 1,622,907
============ ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 49,128 $ 155,834 $ --
Accrued payroll and related
taxes......................... 119,388 177,096 271,001
Notes payable................... 283,447 259,149 250,000
------------ ------------ -------------
Total current
liabilities................ 451,963 592,079 521,001
LOANS FROM SHAREHOLDERS.............. 300,000 -- --
------------ ------------ -------------
Total liabilities.......... 751,963 592,079 521,001
------------ ------------ -------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value,
1,000,000 shares authorized,
1,000 shares issued and
outstanding................... 1,000 1,000 1,000
Retained earnings............... 1,025,552 1,252,366 1,100,906
------------ ------------ -------------
Total shareholders'
equity..................... 1,026,552 1,253,366 1,101,906
------------ ------------ -------------
Total liabilities and
shareholders' equity.... $ 1,778,515 $ 1,845,445 $ 1,622,907
============ ============ =============
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
HP SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE-MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM SERVICES.................. $ 5,867,792 $ 6,487,601 $ 9,062,752 $ 6,755,198 $ 6,675,706
COST OF SERVICES........................ 5,219,827 5,696,887 7,943,249 5,984,050 5,692,562
------------ ------------ ------------ ------------ ------------
Gross profit....................... 647,965 790,714 1,119,503 771,148 983,144
OPERATING COSTS AND EXPENSES............ 337,814 381,081 640,660 315,523 399,420
------------ ------------ ------------ ------------ ------------
Operating income................... 310,151 409,633 478,843 455,625 583,724
INTEREST EXPENSE........................ -- 11,753 9,935 8,094 20,262
OTHER INCOME, net....................... 380 -- 14,337 14,293 297
------------ ------------ ------------ ------------ ------------
NET INCOME.............................. $ 310,531 $ 397,880 $ 483,245 $ 461,824 $ 563,759
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE>
HP SERVICES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 1,000 $1,000 $ 401,495 $ 402,495
Distributions................... -- -- (41,890) (41,890)
Net income...................... -- -- 310,531 310,531
------ ------ ---------- ------------
BALANCE, December 31, 1994........... 1,000 1,000 670,136 671,136
Distributions................... -- -- (42,464) (42,464)
Net income...................... -- -- 397,880 397,880
------ ------ ---------- ------------
BALANCE, December 31, 1995........... 1,000 1,000 1,025,552 1,026,552
Distributions................... -- -- (256,431) (256,431)
Net income...................... -- -- 483,245 483,245
------ ------ ---------- ------------
BALANCE, December 31, 1996........... 1,000 1,000 1,252,366 1,253,366
Distributions................... -- -- (715,219) (715,219)
Net income...................... -- -- 563,759 563,759
------ ------ ---------- ------------
BALANCE, September 30, 1997.......... 1,000 $1,000 $1,100,906 $ 1,101,906
====== ====== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE>
HP SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 310,531 $ 397,880 $ 483,245 $ 461,824 $ 563,759
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation....................... 22,005 22,005 17,058 7,638 4,000
Gain on sale of property and
equipment........................ -- -- (16,966) (16,966) --
Changes in operating assets and
liabilities --
Trade accounts receivable........ (535,986) (15,565) (305,132) (22,916) 523,050
Due from affiliates.............. (3,639) (75,381) 52,135 (10,614) (90,835)
Prepaid expenses and other
assets........................ (189,156) 53,644 40,840 139,615 85,489
Accounts payable and accrued
expenses...................... 185,434 (18,620) 164,414 83,815 (61,929)
------------ ------------ ------------ ----------- ------------
Net cash provided by (used in)
operating activities............... (210,811) 363,963 435,594 642,396 1,023,534
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment.......................... -- -- 38,400 38,400 --
------------ ------------ ------------ ----------- ------------
Net cash provided by investing
activities......................... -- -- 38,400 38,400 --
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt......... 234,802 200,000 200,000 -- 100,000
Principal payments on short-term
debt............................... -- (151,355) (224,298) (83,447) (109,149)
Loans from shareholders............... 239,541 (291,450) (300,000) (300,000) --
Shareholder distributions............. (41,890) (42,464) (256,431) (302,442) (715,219)
------------ ------------ ------------ ----------- ------------
Net cash provided by (used in)
financing activities............... 432,453 (285,269) (580,729) (685,889) (724,368)
------------ ------------ ------------ ----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................... 221,642 78,694 (106,735) (5,093) 299,166
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. (153,745) 67,897 146,591 146,591 39,856
------------ ------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 67,897 $ 146,591 $ 39,856 $ 141,498 $ 339,022
============ ============ ============ =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 3,821 $ 11,753 $ 9,935 $ 5,132 $ 19,965
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE>
HP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
HP Services, Inc. (HP or the Company), incorporated in the state of Texas
in 1990, specializes in the permanent placement of light industrial labor to the
petrochemical industry in southeast Texas.
The Company and its shareholders intend to enter into a definitive
agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to which all
shares of the Company will be exchanged for cash and shares of Nationwide's
common stock concurrent with the consummation of an initial public offering (the
Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 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 fairly present the financial
position, results of operations and cash flows with respect to the interim
financial statements, have been included. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with original maturities of three months or less when purchased.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company uses the allowance method for estimating the allowance for bad
debts. The Company periodically evaluates the creditworthiness of its customers'
financial conditions to determine credit to be extended and to determine the
adequacy of the allowance for bad debts. Historically, bad debts have not been
significant.
The Company operates within the petrochemical production industry. The
Company is obligated to pay the salaries, wages and related benefit costs and
payroll taxes of worksite employees. Accordingly, the Company's ability to
collect amounts due from customers could be affected by economic fluctuations in
its markets or these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
F-87
<PAGE>
HP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using the straight-line method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from five to seven years.
INCOME TAXES
HP, with the consent of its shareholders, has elected to be an S
Corporation under the Internal Revenue Code. Instead of paying corporation
income taxes, the shareholders are taxed individually on the taxable income.
Therefore, no provision or liability for federal income taxes has been made.
REVENUE RECOGNITION
HP's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, HP agrees
to pay the following direct costs associated with the worksite employees: (a)
salaries and wages, (b) employment-related taxes and (c) workers' compensation
insurance premiums. HP accounts for service fees and the related direct payroll
costs using the accrual method of accounting. Under the accrual method, service
fees relating to worksite employees with earned but unpaid wages at the end of
each period are recognized as unbilled revenues, and the related direct payroll
costs for such wages are accrued as a liability during the period in which wages
are earned by the worksite employee. Subsequent to the end of each period, such
wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The carrying amounts of borrowings pursuant to HP's revolving credit
agreement approximate fair value because the rates on such agreements are
variable, based on current market rates.
The fair value of other debt was estimated by discounting future cash
flows, including interest payments, using rates currently available for debt of
similar terms and maturities, based on HP's credit standing and other market
factors. At September 30, 1997, the carrying amount of HP's other debt
approximates fair value.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
Miscellaneous equipment............... $ 22,500 $ 22,500 $ 22,500
Office equipment...................... 15,901 15,901 15,901
Computer equipment.................... 2,162 2,162 2,162
Vehicles.............................. 102,148 26,173 26,173
---------- ---------- -------------
142,711 66,736 66,736
Less -- Accumulated depreciation...... (89,389) (51,906) (55,906)
---------- ---------- -------------
$ 53,322 $ 14,830 $ 10,830
========== ========== =============
F-88
<PAGE>
HP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE:
Short-term notes payable are as follows:
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
Unsecured notes payable to finance
companies, bearing interest at rates
ranging from 8.7% to 10.5%............ $ 83,447 $ 59,149 $ --
Line of credit up to $600,000 with bank,
bearing interest at prime rate plus
0.5%.................................. 200,000 200,000 250,000
---------- ---------- -------------
$ 283,447 $ 259,149 $ 250,000
========== ========== =============
5. SALES TO SIGNIFICANT CUSTOMERS:
During 1994, 1995 and 1996, one customer accounted for approximately 60
percent, approximately 48 percent and approximately 60 percent, respectively, of
the Company's service revenue. During the nine months ended September 30, 1997,
this one customer accounted for approximately 40 percent of the Company's
service revenue. The loss of this customer could have a material adverse impact
on the operations of the Company.
6. COMMITMENTS AND CONTINGENCIES:
HP leases office space from a related entity. Rent paid in each of the
years ended 1994, 1995 and 1996 was $40,000, $60,000 and $184,000, respectively.
Rent paid in the nine months ended September 30, 1997 was $90,000. The lease
term expires September 30, 2001. Future minimum lease payments due in 1997 are
$30,000, $120,000 due in 1998, 1999, and 2000, and $90,000 due in 2001.
In the ordinary course of its business, the Company has been threatened
with or named as a defendant in various lawsuits, including claims related to
the actions of its clients and their employees. Management does not believe that
any claims would have a material adverse effect on the Company's financial
position or results of operations.
7. RELATED PARTY TRANSACTIONS:
HP provides light industrial labor for an entity related through common
ownership. Revenues derived from this entity totaled $306,382 for the nine
months ended September 30, 1997, $433,849 in 1996, $525,576 in 1995 and $263,990
in 1994.
HP entered into a consulting agreement with a former shareholder effective
January 1, 1997, through December 31, 1997. HP pays the consultant $8,333 per
month. The agreement may be renewed with the same terms and conditions in effect
at January 1, 1997.
F-89
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Technology Plus, Inc.:
We have audited the accompanying balance sheets of Technology Plus, Inc. (a
Kansas corporation) as of December 31, 1996, and September 30, 1997, and the
related statements of operations, changes in shareholders' equity and cash flows
for each of the two years in the period ended December 31, 1996, and for the
nine-month period ended September 30, 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 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Technology Plus, Inc., as of
December 31, 1996 and September 30, 1997 and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1996
and for the nine-month period ended September 30, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 17, 1997
F-90
<PAGE>
TECHNOLOGY PLUS, INC.
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 112,133 $ 326,572
Trade accounts receivable....... 1,607,113 1,361,137
Prepaid expenses and other
assets.......................... 11,030 209,216
Deferred income tax asset....... 55,041 69,813
------------- -------------
Total current assets....... 1,785,317 1,966,738
PROPERTY AND EQUIPMENT, net.......... 98,514 127,235
MARKETABLE SECURITIES,
available-for-sale................. 118,325 --
DEFERRED INCOME TAX ASSET............ -- 2,337
------------- -------------
Total assets............... $ 2,002,156 $ 2,096,310
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ 185,051 $ 280,389
Accrued payroll and related
taxes........................... 446,753 441,111
Line of credit.................. 561,352 366,703
------------- -------------
Total current
liabilities.................. 1,193,156 1,088,203
NOTES PAYABLE........................ -- 41,074
DEFERRED INCOME TAX LIABILITY........ 31,755 --
------------- -------------
Total liabilities.......... 1,224,911 1,129,277
SHAREHOLDERS' EQUITY:
Common stock, $0.10 par value,
250,000 shares authorized,
10,000 shares issued and
outstanding.................... 1,000 1,000
Receivable from shareholder..... (248,629) (278,900)
Unrealized holding loss on
marketable securities.......... (9,117) --
Retained earnings............... 1,033,991 1,244,933
------------- -------------
Total shareholders'
equity....................... 777,245 967,033
------------- -------------
Total liabilities and
shareholders' equity... $ 2,002,156 $ 2,096,310
============= =============
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE>
TECHNOLOGY PLUS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------------------
1995 1996 1996 1997
------------ -------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES FROM SERVICES............... $ 9,827,635 $ 12,255,946 $ 8,540,553 $ 8,990,173
COST OF SERVICES..................... 8,570,461 10,802,445 7,437,554 7,801,405
------------ -------------- ----------- ------------
Gross profit.................... 1,257,174 1,453,501 1,102,999 1,188,768
OPERATING COSTS AND EXPENSES......... 877,620 963,830 707,078 822,098
------------ -------------- ----------- ------------
Operating income................ 379,554 489,671 395,921 366,670
OTHER INCOME......................... (26,249) (44,703) (32,958) (19,921)
INTEREST EXPENSE..................... 58,153 67,170 52,417 24,709
------------ -------------- ----------- ------------
INCOME BEFORE INCOME
TAX EXPENSE........................ 347,650 467,204 376,462 361,882
INCOME TAX EXPENSE................... 144,431 197,389 159,052 150,940
------------ -------------- ----------- ------------
NET INCOME........................... $ 203,219 $ 269,815 $ 217,410 $ 210,942
============ ============== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE>
TECHNOLOGY PLUS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED ACCOUNTS
COMMON STOCK GAIN (LOSS) RECEIVABLE
--------------- ON MARKETABLE FROM RETAINED
SHARES AMOUNT SECURITIES SHAREHOLDER EARNINGS TOTAL
------ ------ ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. 10,000 $1,000 $ -- $ (111,534) $ 672,015 $ 561,481
Unrealized holding gain on
marketable securities............ -- -- 15,249 -- -- 15,249
Receivable from shareholder........ -- -- -- (100,867) -- (100,867)
Net income......................... -- -- -- -- 123,314 123,314
------ ------ ------------- ----------- ---------- ------------
BALANCE, December 31, 1995.............. 10,000 1,000 15,249 (212,401) 795,329 599,177
Distributions...................... -- -- -- -- (31,153) (31,153)
Unrealized holding loss on
marketable securities............ -- -- (24,366) -- -- (24,366)
Receivable from shareholder........ -- -- -- (36,228) -- (36,228)
Net income......................... -- -- -- -- 269,815 269,815
------ ------ ------------- ----------- ---------- ------------
BALANCE, December 31, 1996.............. 10,000 1,000 (9,117) (248,629) 1,033,991 777,245
Unrealized holding gain on
marketable securities............ 9,117 9,117
Receivable from shareholder........ -- -- -- (30,271) -- (30,271)
Net income......................... -- -- -- -- 210,942 210,942
------ ------ ------------- ----------- ---------- ------------
BALANCE, September 30, 1997............. 10,000 1,000 -- (278,900) 1,244,933 967,033
====== ====== ============= =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
TECHNOLOGY PLUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------- ------------------------------
1995 1996 1996 1997
--------------- --------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 203,219 $ 269,815 $ 217,410 $ 210,942
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation....................... 81,464 75,703 35,631 40,807
Realized (gain) loss on sale on
marketable securities, available
for sale......................... 10,053 (11,935) (5,390) 2,788
(Gain) loss on sale of equipment... (1,250) 191 (1,090) (9,265)
Change in net deferred income tax
assets........................... 4,538 (71,923) 27,276 (48,864)
Changes in operating assets and
liabilities --
Trade accounts receivable........ 10,841 (643,055) (584,118) 257,501
Prepaid expenses and other
assets........................ (15,642) 9,209 (107,275) (198,186)
Accounts payable and accrued
liabilities................... (28,035) 120,512 273,478 95,338
Accrued payroll and related
taxes......................... 48,061 223,242 89,054 (5,642)
--------------- --------------- -------------- --------------
Net cash provided by (used in)
operating activities....... 313,249 (28,241) (55,024) 345,419
--------------- --------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (105,527) (42,507) (42,261) (69,287)
Proceeds from sale of property and
equipment.......................... 8,380 6,050 450 2,600
Purchase of marketable securities
available-for-sale................. (38,506) (192,485) (73,919) (10,294)
Proceeds from sale of marketable
securities available-for-sale and
other investments.................. 32,500 165,663 33,281 114,771
Advances to shareholder............... (100,867) (36,228) (52,687) (30,271)
--------------- --------------- -------------- --------------
Net cash used in investing
activities................. (204,020) (99,507) (135,136) 7,519
--------------- --------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit.......... 10,514,778 12,984,069 8,997,789 10,501,009
Payments on line of credit............ (10,517,956) (12,904,673) (8,724,898) (10,695,658)
Proceeds from notes payable........... 36,888 -- -- 57,308
Payments on notes payable............. (19,612) (40,424) (25,375) (1,158)
--------------- --------------- -------------- --------------
Net cash provided by (used in)
financing activities....... 14,098 38,972 247,516 (138,499)
--------------- --------------- -------------- --------------
INCREASE (DECREASE) IN CASH............. 123,327 (88,776) 57,356 214,439
CASH AT BEGINNING OF PERIOD............. 77,582 200,909 200,909 112,133
--------------- --------------- -------------- --------------
CASH AT END OF PERIOD................... $ 200,909 $ 112,133 $ 258,265 $ 326,572
=============== =============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Net change in unrealized holding gain
(loss) on available-for-sale
securities......................... $ 15,249 $ (24,366) $ (16,513) $ 9,117
Cash paid for income taxes............ 146,161 139,228 104,593 332,227
Cash paid for interest................ 58,153 67,170 52,417 24,709
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Technology Plus, Inc. (TPI or the Company), incorporated in the state of
Kansas on March 6, 1985, specializes in providing temporary engineers,
designers, and CAD personnel to companies throughout the United States. The
majority of revenues are derived from companies in the heavy industrial,
refinery, chemical and petrochemical industries.
In September 1997, TPI and its two shareholders entered into a definitive
agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to which all
shares of the Company will be exchanged for cash and shares of Nationwide's
common stock concurrent with the consummation of an initial public offering (the
Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1996, and for the
nine-months ended September 30, 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 fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health care insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company periodically performs credit evaluations of its customers'
financial conditions to determine credit to be extended and to determine the
adequacy of the allowance for bad debts.
Bad debts are accounted for using the direct write-off method. Expense is
recognized only when a specific account is determined to be uncollectible. The
effects of this method approximate those of the allowance method. In the event
of complete nonperformance by the Company's customers, the maximum exposure to
the Company is the outstanding accounts receivable balance at the date of
nonperformance. Historically, bad debts have not been significant.
The Company operates primarily within the chemical industry. The Company is
obligated to pay the salaries, wages and related benefit costs and payroll taxes
of worksite employees. Accordingly, the Company's ability to collect amounts due
from customers could be affected by economic fluctuations in its markets or
these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and
F-95
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the accumulated depreciation applicable thereto are eliminated from the
accounts, and the resulting gain or loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using an accelerated method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from five to seven years.
MARKETABLE SECURITIES
All marketable securities are classified as available-for-sale and are
available to support current operations or to take advantage of other investment
opportunities. These securities are stated at estimated fair value based upon
market quotes. Unrealized gains and losses, net of tax, are computed on the
basis of specific identification and are included in retained earnings. Realized
gains, realized losses, and declines in value, judged to be
other-than-temporary, are included in Other Income. The cost of securities sold
is based on the specific identification method and interest earned is included
in Other Income. All marketable securities were sold during August of 1997.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
REVENUE AND COST RECOGNITION
TPI's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, TPI
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. TPI accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, trade accounts receivable, accounts payable
and other accrued liabilities approximate their fair values due to the
short-term maturities of these instruments.
The carrying amount of the line of credit approximates fair value because
the interest rate varies based on market rates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
Furniture and equipment.............. $395,966 $ 417,888
Vehicles............................. 31,507 68,212
------------ -------------
427,473 486,100
Less -- Accumulated depreciation..... 328,959 (358,865)
------------ -------------
$ 98,514 $ 127,235
============ =============
F-96
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. MARKETABLE SECURITIES, AVAILABLE-FOR-SALE:
TPI currently invests in only U.S. Corporate equity securities, which it
classifies as available-for-sale.
The following table presents the estimated fair values for marketable
equity securities for the following periods:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1995
Marketable equity securities....... $ 63,471 $ 15,249 $ -- $ 78,720
September 30, 1996
Marketable equity securities....... 122,619 -- (1,264) 121,355
December 31, 1996
Marketable equity securities....... 127,442 -- (9,117) 118,325
September 30, 1997
Marketable equity securities....... $ -- $ -- $ -- $ --
</TABLE>
Gross realized gains and gross realized losses on sales of available for
sale securities were not significant at September 30, 1996 and 1997,
respectively, and December 31, 1995 and 1996, respectively.
5. RELATED-PARTY TRANSACTION:
TPI has a receivable from its majority shareholder. The receivable
represents advances made by TPI to this shareholder. The receivable totaled
$248,629 and $278,900 at December 31, 1996 and September 30, 1997, respectively.
Accrued interest is payable semiannually at the Internal Revenue Service blended
annual rate and totaled $9,826, and $13,250 at December 31, 1995 and 1996,
respectively. Accrued interest totaled $10,119 and $11,183 at September 30,
1996, and 1997, respectively. Interest rates applicable to amounts outstanding
averaged 4.80%, 6.58% and 5.77% during 1995, 1996 and the nine months ended
September 30, 1997, respectively.
6. LINE OF CREDIT:
At December 31, 1996 and September 30, 1997, TPI had a revolving line of
credit agreement with United Missouri Bank, N.A. for up to $1,100,000. The
credit borrowings are due on demand with accrued interest payable monthly on the
30th at bank prime plus .75 percent. Payment of the line of credit is secured by
the accounts receivable of TPI. Outstanding borrowings under the agreement
totaled $561,352 and $366,703 at December 31, 1996 and September 30, 1997,
respectively. The average interest rates applicable to amounts outstanding were
9.0%, 9.25% and 9,25% during 1995, 1996 and the nine months ended September 30,
1997, respectively.
F-97
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
Income tax (benefit) expense consists of the following components:
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ --------------------------
1995 1996 1996 1997
---------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current --
Federal............................ $ 120,880 $ 245,358 $ 197,659 $ 164,440
State.............................. 25,995 52,765 42,510 35,364
---------- ------------ ---------- ----------
146,875 298,123 240,169 199,804
---------- ------------ ---------- ----------
Deferred --
Federal............................ (2,012) (82,908) (66,759) (40,215)
State.............................. (432) (17,826) (14,358) (8,649)
---------- ------------ ---------- ----------
(2,444) (100,734) (81,117) (48,864)
---------- ------------ ---------- ----------
Total......................... $ 144,431 $ 197,389 $ 159,052 $ 150,940
========== ============ ========== ==========
</TABLE>
Income tax expense differs from amounts computed by applying the statutory
rate to income before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE-MONTHS ENDED
31, SEPTEMBER 30,
---------------------- ------------------------
1995 1996 1996 1997
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income tax expense at the statutory
rate.................................. $ 121,677 $ 163,522 $ 131,762 $ 126,659
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction............ 16,616 22,708 18,298 18,391
Nondeductible expenses............. 6,138 11,159 8,992 5,890
---------- ---------- ----------- ----------
$ 144,431 $ 197,389 $ 159,052 $ 150,940
========== ========== =========== ==========
</TABLE>
The net deferred income tax assets and liabilities are comprised of the
following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ --------------
Deferred income tax assets --
Accrued liabilities................ $ 69,337 $ 73,236
State taxes and other.............. 17,816 28,474
------------ --------------
87,153 101,710
------------ --------------
Deferred income tax liabilities --
Accrued revenues and other......... (27,663) (29,560)
Section 481(a) adjustment.......... (36,204) --
------------ --------------
(63,867) (29,560)
------------ --------------
Net deferred income tax
assets................ $ 23,286 $ 72,150
============ ==============
8. SALES TO SIGNIFICANT CUSTOMERS:
TPI derived approximately 48 percent of its 1995 revenues and 46 percent of
its 1996 revenues from two customers. These two customers accounted for
approximately 40 percent of TPI's revenue for the nine-months ended September
30, 1997. Accounts receivable for these two customers were $654,923 at
F-98
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 and $573,527 at September 30, 1997. The loss of these
customers could have a material adverse effect on the operations of TPI in the
near term.
9. COMMITMENTS AND CONTINGENCIES:
TPI leased three office spaces in 1995 located in Kansas City, Missouri;
St. Louis, Missouri; and Birmingham, Alabama. In 1996, TPI leased an additional
office space in Midland, Texas. Rent paid for all of the offices in 1995 and
1996 was $68,000 and $77,000, respectively. Rent paid for the nine-months ended
September 30, 1996 and 1997 was $57,602 and $55,766, respectively. In 1997, TPI
moved the Midland operations to Metairie, Louisiana. Future minimum lease
payments due as of September 30, 1997 are as follows: 1997 -- $13,320;
1998 -- $40,992; and 1999 -- $11,352.
Providing engineering services entails an inherent risk of professional
malpractice and other similar claims. The Company believes that its exposure to
these risks is substantially mitigated by its existing insurance coverage.
In the ordinary course of its business, the Company has the potential to be
threatened with or named as a defendant in various lawsuits, including claims
related to the actions of its customers and their employees. Management does not
believe that any claims would have a material adverse effect on the Company's
financial position or results of operations.
The Internal Revenue Service (IRS) is currently reviewing specific
compliance issues prevalent in certain segments in the professional employer
organization (PEO) industry (see "Regulation -- Employee Benefit Plans"). One
issue that has arisen is whether a PEO can be a co-employer of worksite
employees for various purposes under the Internal Revenue Code of 1986, as
amended (the Code), including participation in the PEO company's 401(k) plan. If
the IRS concludes that the Company is not the "employer" of certain worksite
employees for the purposes of the Code, the 401(k) plan tax-exempt status could
be revoked and those worksite employees would not be permitted to make tax
deferred salary contributions to the 401(k) plan. The Company believes that,
although unfavorable to the Company, the prospective application of an
unfavorable conclusion would not have a material adverse effect on its financial
position or the results of its operations. A retroactive application of such a
decision would have an adverse financial effect on the Company. However, the
Company is unable to determine the ultimate resolution of this matter by the
IRS, and therefore, cannot assess or reasonably estimate the effect on the
Company's financial position or results of operations if an unfavorable decision
is reached by the IRS.
10. STOCK OPTIONS:
On March 4, 1993, TPI granted an employee an option to buy up to 2,500
shares of common stock at a price of $110. Currently, this employee owns 328
shares totaling 3.28% of the 10,000 shares issued and outstanding. The option is
fully vested and extends for a period of ten years. The option is not
transferable or assignable by this minority shareholder.
F-99
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has elected to account for these plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
under which no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Company's
reported net income and earnings per share would have been adjusted to the
following pro forma amounts:
NINE-MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -------------
1996 1995 1997
---------- ---------- -------------
Net Income:
As Reported..................... $ 269,215 $ 203,219 $ 179,448
Pro Forma....................... 176,908 110,312 87,591
The valuation of the option is based on the consideration offered in the
proposed transaction by Nationwide amortized over the four years since the
option was granted. The option will be terminated if not exercised prior to the
proposed transaction.
F-100
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE UNDERWRITERS OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY THE COMMON STOCK IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS OR THAT THERE HAS BEEN ANY CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................... 3
Risk Factors......................... 10
Disclosure Regarding Forward-Looking
Statements......................... 15
The Company.......................... 16
Use of Proceeds...................... 19
Dividend Policy...................... 19
Capitalization....................... 20
Dilution............................. 21
Selected Financial Data.............. 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
Business............................. 40
Regulation........................... 47
Management........................... 51
Certain Transactions................. 57
Principal Stockholders............... 61
Description of Capital Stock......... 62
Shares Eligible for Future Sale...... 65
Underwriting......................... 67
Legal Matters........................ 68
Experts.............................. 68
Additional Information............... 69
Index to Financial Statements........ F-1
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,800,000 SHARES
[LOGO -- NATIONWIDE STAFFING, INC.]
NATIONWIDE
STAFFING, INC.
COMMON STOCK
_____________________
PROSPECTUS
_____________________
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER
INCORPORATED
LADENBURG THALMANN & CO. INC.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC.
AMOUNT TO
BE PAID
SEC registration fee................. $ 21,188
Printing expenses.................... 350,000
Legal fees and expenses.............. 800,000
Accounting fees and expenses......... 2,250,000
NASD fees............................ 6,509
NYSE listing fee..................... 103,295
Blue sky fees and expenses........... 2,000
Transfer Agent's and Registrar's
fees................................. 7,000
Miscellaneous........................ 460,008
----------
TOTAL...................... $4,000,000
==========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Restated Certificate of Incorporation and Bylaws incorporate
substantially the provisions of the Delaware General Corporation Law ("DGCL")
providing for indemnification of directors and officers of the Company against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an officer or director of the Company or is or
was serving at the request of the Company as a director, officer or employee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise.
As permitted by Section 102 of the DGCL, the Company's Restated Certificate
of Incorporation contains provisions eliminating a director's personal liability
for monetary damages to the Company and its stockholders arising from a breach
of a director's fiduciary duty except for liability (a) for any breach of the
director's duty of loyalty to the Company or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL, or (d) for any transaction
from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if, in the case
of other than derivative suits, such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Restated Certificate of Incorporation may be
indemnified by the corporation for reasonable expenses, including attorneys'
fees, if such person has acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in the case of a
derivative suit in respect of any claim as to which an officer, employee or
agent has been adjudged to be liable to the corporation unless that person is
fairly and reasonably entitled to indemnity for proper expenses. Indemnification
is mandatory in the case of a director or officer who is successful on the
merits in defense of a suit against such person and is permissible at the
discretion of the Board of Directors in the case of an employee or agent who is
successful on the merits in defense of a suit against such person.
The Company has entered into Indemnity Agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
II-1
<PAGE>
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under certain
conditions, the Company, its officers and directors and persons who control the
Company within the meaning of the Securities Act against certain liabilities.
ITEM 15. RECENT SALES OF UNRESTRICTED SECURITIES.
On February 12, 1997, the Company issued and sold 1,083,929 shares of
Common Stock to WJG Capital, L.L.C. for a consideration of $1,000. This sale was
exempt from registration under Section 4(2) of the Securities Act, no public
offering being involved.
Effective as of February 12, 1997, the Company issued to the Norton Family
Trust and Sabrina A. McTopy warrants to purchase 45,000 shares and 5,000 shares,
respectively, of Common Stock. The issuance of the warrants and the sales of
Common Stock upon exercise of the warrants were and will be exempt from
registration under Section 4(2) of the Securities Act, no public offering being
involved.
On April 1, 1997, the Company sold an aggregate of 173,429 shares of Common
Stock to Larry E. Darst which were issued on April 1, 1997 and September 8,
1997. This sale was exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.
On September 8th, 1997, the Company issued and sold an aggregate of 43,357
shares of Common Stock to Gary J. Petry. This sale was exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.
On September 11, 1997, the Company issued and sold shares of Common Stock
to the stockholders of the Founding Companies as set forth below. These sales
were exempt from registration under Section 4(2) of the Securities Act, no
public offering being involved.
SHARES OF
FOUNDING COMPANY COMMON STOCK
Alternative Solutions:
John Cogliano, Jr............... 282,544
John M. Cogliano................ 33,240
Herbert Cogliano................ 33,240
James J. Cogliano............... 33,240
John Cogliano, Jr. (Family
Trust).......................... 33,240
Newbury Personnel, Inc.......... 316,165
ASAP:
Brenda S. Dougan................ 205,681
L. Paul Dobbs................... 88,149
Cardinal:
Quincy Tarver Freeman and Diane
Gail
Freeman as JTWROS............... 447,856
Employment Enterprises:
Jana W. Yeates.................. 445,314
Lovey L. Hammel................. 222,657
Evins Group:
Mary E. Evins................... 200,550
II-2
<PAGE>
SHARES OF
FOUNDING COMPANY COMMON STOCK
GTS:
The Global Group, Inc........... 186,661
Paul L. Milligan................ 167,628
Sherry A. Wood.................. 1,272
Glenn W. Wood................... 20,321
M. Nell Dahl.................... 1,272
Kirk M. Humphries............... 1,272
William J. White................ 1,272
Dorris A. Bright................ 1,272
HP Services:
W.M. Hartman.................... 299,615
Gary D. Pitts................... 128,407
Technology Plus:
Richard L. Bronson.............. 314,888
Bobby Wayne Watson.............. 104,963
Effective September 11, 1997, the Company effected a 1,084-to-1 stock split
in the form of a dividend of the shares of Common Stock outstanding as of
September 10, 1997.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1** -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., Alternative Solutions, Inc., Newbury Employment, Inc. and the Stockholders and
Newbury Stockholders named therein.
2.2** -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., A.S.A.P Acquisition Corp., A.S.A.P. Services, Inc. and the Stockholders named
therein.
2.3** -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., Cardinal Acquisition Corp., Cardinal Services, Inc. and the Stockholders named
therein.
2.4** -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., EEI Acquisition Corp., Employment Enterprises, Inc. and the Stockholders named
therein.
2.5** -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., EPG Sub 1 Acquisition Corp., EPG Sub 2 Acquisition Corp., EPG Sub 3 Acquisition
Corp., EPG Sub 4 Acquisition Corp., EPG Sub 5 Acquisition Corp., EPG Sub 6 Acquisition
Corp., EPG Sub 7 Acquisition Corp., EPG Sub 8 Acquisition Corp., Evins Personnel
Consultants, Inc., Evins Personnel Consultants, Inc., No. One, Evins Personnel
Consultants, Inc., No. Two, Exceptional Resource Services Inc., Excelsior Personnel
Consultants, Inc., Excellent Personnel Consultants, Inc., Evins Personnel Consultants of
Abilene, Inc., Elite Personnel Consultants, Inc. and the Stockholder named therein.
2.6** -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., GTS Acquisition Corp., Global Technical Services, Inc. and the Stockholders named
therein.
2.7** -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., HPSI Acquisition Corp., HP Services, Inc. and the Stockholders named therein.
2.8** -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., TPLUS Acquisition Corp., Technology Plus, Inc. and the Stockholders named therein.
II-3
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
3.1** -- Amended and Restated Certificate of Incorporation of Nationwide Staffing, Inc.
3.2** -- Bylaws of Nationwide Staffing, Inc., as amended.
4.1** -- Stock Restriction and Registration Rights Agreement dated as of September 11, 1997 between
WJG Capital, L.L.C. and Nationwide Staffing, Inc.
4.2** -- Form of certificate evidencing ownership of Common Stock of Nationwide Staffing, Inc.
4.3** -- Warrant to Purchase Shares of Common Stock of Nationwide Staffing, Inc., Warrant No. N-1.
4.4** -- Warrant to Purchase Shares of Common Stock of Nationwide Staffing, Inc., Warrant No. N-2.
5.1* -- Opinion of Bracewell & Patterson, L.L.P.
10.1** -- 1997 Stock Awards Plan of Nationwide Staffing, Inc.
10.2** -- 1997 Nonqualified Stock Option Plan for Non-Employee Directors.
10.3** -- Employment Agreement dated April 1, 1997, between Nationwide Staffing, Inc. and Larry E.
Darst, as amended by that certain Amendment to Employment Agreement dated September 8,
1997, between Nationwide Staffing, Inc. and Larry E. Darst.
10.4** -- Employment Agreement dated August 8, 1997, between Nationwide Staffing Inc. and Dean G.
Walberg.
10.5** -- Employment Agreement dated September 5, 1997, between Nationwide Staffing Inc. and Gary J.
Petry.
10.6** -- Employment Agreement between Brenda Dougan and A.S.A.P. Services, Inc.
10.7** -- Employment Agreement between Steve Alter and Alternative Solutions, Inc.
10.8** -- Employment Agreement between Quincy Tarver Freemen and Cardinal Services, Inc.
10.9** -- Employment Agreement between Lovey Hammel and Employment Enterprises, Inc.
10.10** -- Employment Agreement between Mary Evins and Evins Personnel Consultants, Inc.
10.11** -- Employment Agreement between Paul Milligan and Global Technical Services, Inc.
10.12** -- Employment Agreement between Gary Pitts and HP Services, Inc.
10.13** -- Employment Agreement between Richard Bronson and Technology Plus, Inc.
10.14** -- Nationwide Staffing, Inc. Introduction Agreement, by and among Nationwide Staffing, Inc.,
Woods and Williams collectively, W. Sherman Adcock, and Jerry L. Hyde.
21.1** -- List of subsidiaries of Nationwide Staffing, Inc.
23.1*** -- Consent of Arthur Andersen LLP.
23.2* -- Consent of Bracewell & Patterson, L.L.P. (included in Exhibit 5.1).
23.3** -- Consent of Stephen M. Alter.
23.4** -- Consent of Brenda S. Dougan.
23.5** -- Consent of Mary E. Evins.
23.6** -- Consent of Lovey L. Hammel.
23.7** -- Consent of Paul L. Milligan.
23.8** -- Consent of Gary D. Pitts.
23.9** -- Consent of Richard L. Bronson.
23.10** -- Consent of Quincy T. Freeman.
23.11** -- Consent of Thomas N. Amonett.
24.1** -- Power of Attorney.
27.1** -- Financial Data Schedule.
- ------------
</TABLE>
* To be filed by amendment.
** Previously filed.
*** Filed herewith.
II-4
<PAGE>
(b) Financial Statement Schedules
The following financial statement schedules are included herein.
None.
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the
consolidated financial statements and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; (ii) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, NATIONWIDE
STAFFING, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF HOUSTON, STATE OF TEXAS, ON DECEMBER 30, 1997.
NATIONWIDE STAFFING, INC.
By: LARRY E. DARST
LARRY E. DARST
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON DECEMBER 30, 1997.
SIGNATURE TITLE
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/s/LARRY E. DARST Chief Executive Officer; President;
LARRY E. DARST and Director
/s/GARY J. PETRY Senior Vice President and Chief
GARY J. PETRY Financial Officer
/s/CARL L. NORTON Director
CARL L. NORTON
/s/GEORGE C. WOODS Director
GEORGE C. WOODS
II-6
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement by Nationwide Staffing, Inc. (Registration No.
333-35459).
ARTHUR ANDERSEN LLP
December 30, 1997
