<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 4, 1998
--------------
Commission File No. 00-23711
----------------------------
ACSYS, Inc.
-----------
(Exact name of registrant as specified in its Charter)
Georgia 58-2299173
- ------- ----------
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification Number)
75 Fourteenth Street, Suite 2200
Atlanta, GA 30309 30309
(Address of principal executive offices) -----
- ---------------------------------------- (ZIP CODE)
(404) 817-9440
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name or former address, if changed since last report)
<PAGE>
Acsys, Inc. hereby amends its Current Report on Form 8-K dated August 4, 1998,
and filed with the Securities and Exchange Commission on August 19, 1998, to
include the financial statements and pro forma financial information and the
exhibit referenced below.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Independent Auditors' Report................................. F-1
Balance Sheets............................................... F-2
Statements of Income......................................... F-3
Statements of Stockholders' Equity........................... F-4
Statements of Cash Flows..................................... F-5
Notes to Financial Statements................................ F-6
Condensed Balance Sheet (unaudited).......................... F-14
Condensed Statements of Income (unaudited)................... F-15
Condensed Statements of Cash Flows (unaudited)............... F-16
Notes to Condensed Financial Statements (unaudited).......... F-17
(B) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Basis of Presentation........................................ F-20
Pro Forma Combined Balance Sheet............................. F-22
Pro Forma Combined Statements of Operations.................. F-23
Notes to Pro Forma Combined Financial Statements............. F-25
(C) EXHIBITS
23 Consent of Deloitte & Touche LLP
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
ACSYS, Inc.
(registrant)
Date: October 16, 1998 /s/ Brady W. Mullinax, Jr.
----------------- ---------------------------------------
Brady W. Mullinax, Jr.
Chief Financial Officer
(the registrant's principal financial and
chief accounting officer, who is duly
authorized to sign this report)
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Staffing Edge, Inc.
We have audited the accompanying balance sheets of Staffing Edge, Inc. (Company)
as of December 31, 1997 and 1996, and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Des Moines, Iowa
April 30, 1998
F-1
<PAGE>
STAFFING EDGE, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS 1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 17,387 $ 229,753
Accounts receivable, net of allowance for doubtful accounts
of $156,931 in 1997 and $100,000 in 1996 2,518,310 1,551,918
Prepaid expenses and other assets 194,525 78,664
Income taxes receivable 151,134 85,000
Deferred income taxes 115,000
----------- -----------
Total current assets 2,996,356 1,945,335
----------- -----------
EQUIPMENT 1,474,129 495,669
Accumulated depreciation (424,000) (146,143)
----------- -----------
Equipment, net 1,050,129 349,526
----------- -----------
OTHER ASSETS 66,989 27,460
----------- -----------
INTANGIBLE ASSETS, primarily goodwill, net of accumulated
amortization of $149,922 in 1997 and $69,578 in 1996 1,981,524 2,126,303
----------- -----------
TOTAL ASSETS $ 6,094,998 $ 4,448,624
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit - bank $ 500,000
Accounts payable 703,790 $ 493,485
Accrued payroll and related costs 539,933 386,722
Other accrued expenses 262,128 141,373
Deferred revenue 142,867
Current maturities of long-term debt 378,542 131,125
Deferred income taxes 60,000
----------- -----------
Total current liabilities 2,527,260 1,212,705
DEFERRED INCOME TAXES 235,000 200,000
OTHER LIABILITIES 100,000
LONG-TERM DEBT - MAJORITY STOCKHOLDER 1,000,000 819,698
LONG-TERM DEBT - BANK 1,572,757 1,368,875
----------- -----------
Total liabilities 5,335,017 3,701,278
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 4 AND 8)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - 500,000 shares authorized,
none issued and outstanding
Common stock, $.01 par value - 500,000 shares authorized;
50,505 shares in 1997 and 50,000 shares in 1996 issued and outstanding 505 500
Additional paid-in capital 37,857 24,500
Retained earnings 721,619 722,346
----------- -----------
Total stockholders' equity 759,981 747,346
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,094,998 $ 4,448,624
=========== ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
STAFFING EDGE, INC.
STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1997 1996 1995
SERVICE REVENUE $21,311,500 $14,785,632 $ 6,914,017
COST OF SERVICES 11,838,697 8,832,436 4,542,893
----------- ----------- -----------
Gross margin 9,472,803 5,953,196 2,371,124
----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 8,920,616 4,232,396 1,963,702
Depreciation and amortization 274,138 104,968 36,643
----------- ----------- -----------
Total operating expenses 9,194,754 4,337,364 2,000,345
----------- ----------- -----------
OPERATING INCOME 278,049 1,615,832 370,779
INTEREST EXPENSE 252,589 123,235 71,096
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 25,460 1,492,597 299,683
INCOME TAXES, including $275,000 from
C corporation election in 1996 11,000 825,000
----------- ----------- -----------
NET INCOME $ 14,460 $ 667,597 $ 299,683
=========== =========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 50,430 50,000 50,000
=========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.29 $ 13.35 $ 5.99
=========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.29 $ 13.35 $ 5.99
=========== =========== ===========
See notes to financial statements.
F-3
<PAGE>
STAFFING EDGE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
---------------------------
Shares Additional Total
Issued and Paid-In Retained Stockholders'
Outstanding Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1995 50,000 $ 500 $ 24,500 $(244,934) $(219,934)
Net income 299,683 299,683
--------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1995 50,000 500 24,500 54,749 79,749
Net income 667,597 667,597
--------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1996 50,000 500 24,500 722,346 747,346
Issuance of common stock 505 5 13,357 13,362
Dividend-in-kind (15,187) (15,187)
Net income 14,460 14,460
--------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1997 50,505 $ 505 $ 37,857 $ 721,619 $ 759,981
========= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
STAFFING EDGE, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,460 $ 667,597 $ 299,683
Depreciation and amortization 385,913 104,968 36,643
Write-off of license agreement 48,180
Deferred income taxes (140,000) (25,000)
C corporation election 275,000
Net change in, net of business acquired:
Accounts receivable (966,392) (553,849) (446,307)
Prepaid expenses and other assets (102,499) (48,462) (21,494)
Income taxes receivable (66,134) (85,000)
Other assets (39,529) (27,460)
Accounts payable 210,305 199,153 204,420
Accrued expenses 273,966 347,183 61,276
Deferred revenue 142,867
Other liabilities (100,000) 100,000
--------- ----------- -----------
Net cash flows from operating activities (338,863) 954,130 134,221
----------- ----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,005,104) (264,753) (1,892)
Purchase of Gamma Group, Ltd. (2,000,000)
Purchase of license agreement (52,560)
Payment for non-compete agreement (200,000)
----------- ----------- -----------
Net cash flows from investing activities (1,005,104) (2,517,313) (1,892)
----------- ----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Net changes in line of credit - bank 500,000
Proceeds from long-term debt - majority stockholder 3,647,000 1,222,515 62,772
Payments on long-term debt - majority stockholder (3,466,698) (1,076,515) (77,541)
Proceeds from long-term debt - bank 700,000 1,500,000
Payments on long-term debt - bank (248,701)
----------- ---------- -----------
Net cash flows from financing activities 1,131,601 1,646,000 (14,769)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (212,366) 82,817 117,560
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 229,753 146,936 29,376
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 17,387 $ 229,753 $ 146,936
=========== =========== ===========
SUPPLEMENTAL INFORMATION
Cash paid for:
Interest $ 267,987 $ 107,143 $ 64,036
=========== =========== ===========
Income taxes $ 442,064 $ 650,000 $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
Staffing Edge, inc.
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Staffing Edge, Inc. (Company) provides temporary
personnel and permanent personnel placement services in the fields of
accounting, banking, insurance, legal, engineering, office administration,
sales and information technology. As of December 31, 1997 the Company had
personnel placement offices in Dallas, Forth Worth, Kansas City, Des
Moines, Houston, Phoenix, Denver and San Antonio. During 1997 the Company
opened a computer training division. The division opened learning centers
in each city it has personnel placement offices. The learning centers are
dedicated to helping individuals and corporations develop or enhance
personal computer skills.
Staffing Revenue Recognition - Temporary service revenues are recognized
when the services are rendered by the Company's temporary employees.
Permanent placement revenues are recognized in contingency search
engagements upon the successful completion of the assignment. Reserves are
established to estimate losses due to placed candidates not remaining in
employment for the Company's guaranteed period which averages 90 days.
Cost of services represent temporary personnel payroll costs and certain
costs relating to the learning centers.
Learning Center Revenue Recognition - The Company periodically collects
payments in advance of providing the training to individuals or
corporations. These payments, together with amounts for students who have
signed up for training, are recorded as deferred revenue and recognized
when the training is provided.
Cash and Cash Equivalents - For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Equipment - Equipment is recorded at cost. Provision for depreciation is
provided using accelerated methods over the estimated useful life of the
assets. During 1997 depreciation expense totaling $111,775 was recorded in
Cost of Services in connection with the opening of the computer training
division.
Intangible Assets - Intangible assets represent goodwill, a non-compete
agreement, organizational costs and purchased customer files and lists.
Goodwill is being amortized on a straight-line basis over a forty-year
period. The other intangible assets are being amortized on a straight-line
basis over five year periods. The Company, using its best estimates on
reasonable and supportable assumptions and projections, regularly reviews
intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of its intangible assets
might not be recoverable.
Advertising Costs - Advertising costs are charged to operations when
incurred. Advertising costs for the years ended December 31, 1997, 1996
and 1995 were $1,158,613, $519,629 and $341,423, respectively.
F-6
<PAGE>
Self-Insurance - The Company offers an employee benefit program for which
it is self-insured for a portion of the cost. The Company is liable for
claims up to $10,000 per employee and aggregate claims up to a computed
annual amount provided by the Company's agreement with the claims
administrator. All full-time employees and temporary staff employed at
least 1,200 hours during the calendar year are eligible to participate in
the program. Self-insurance costs are accrued based on information
received from the claims administrator to approximate the liability for
reported claims and claims incurred but not reported.
Income Taxes - The Company accounts for income taxes in accordance with
Financial Accounting Standards Board Statement on Financial Accounting
Standards (FASB) No. 109, "Accounting for Income Taxes." Under FASB 109,
deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates to
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities.
Basic and Diluted Earnings Per Share - Basic earnings per share
computations reflect net income divided by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
computations reflect net income divided by the weighted average number of
common shares outstanding during the period, adjusted for dilutive common
stock options. Diluted earnings per share equals basic earnings per share
as the market price of the Company's common stock approximates the
exercise price of outstanding common stock options as of December 31,
1997. Earnings per share is computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share".
Stock-Based Compensation - The Company accounts for its stock-based
compensation under the provisions of Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees" (APB 25).
Accounting Pronouncements - In June 1997 FASB issued Statement No. 130,
"Reporting Comprehensive Income." This statement establishes requirements
for reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. This statement is
effective for 1998 financial statements and management anticipates it will
have no material effect on the Company's financial statements.
Also in June 1997, the FASB issued Statement No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which will be
effective in 1998. FASB No. 131 establishes standards for the way public
enterprises report information about operating segments. The Company has
not yet completed its analysis of this statement to determine if
additional disclosure would be required beginning in 1998.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Fair Values of Financial Instruments - The estimated fair value of
financial instruments has been determined by the Company using available
market information and appropriate valuation methodologies. The fair
values of the Company's financial instruments are estimated based on
current market rates and instruments with the same risk and maturities.
The fair values of cash, accounts receivable, accounts payable, lines of
credit and long-term debt approximate the carrying value of these
financial instruments.
F-7
<PAGE>
Reclassification - Certain amounts in the 1996 and 1995 financial
statements have been reclassified to conform with the 1997 presentation.
2. ACQUISITION
On July 1, 1996, the Company acquired 100% of the outstanding stock of
Gamma Group, Ltd. (Gamma). Gamma provides temporary and permanent
placement services from offices located in Des Moines, Iowa. The purchase
price for the stock of Gamma was $2,000,000, of which $1,900,000 was paid
prior to December 31, 1997. The remaining $100,000 was paid subsequent to
December 31, 1997. In addition, the previous stockholder of Gamma retained
possession of Gamma's cash and receivable balances at June 30, 1996 and
reimbursed the Company for any liabilities arising from Gamma's operations
through June 30, 1996, including accounts payable and accrued expenses
outstanding at that date. The Company paid the former Gamma stockholder
$200,000 on July 1, 1996 in consideration for a five year non-compete
agreement.
The acquisition has been accounted for under the purchase method and,
accordingly, the results of operations of Gamma are included in the
Company's results from the date of acquisition. The aggregate cost over
fair value of acquired net assets of approximately $1,907,000 has been
recorded as goodwill.
3. LINE OF CREDIT AND LONG-TERM DEBT
The Company has a line of credit and term loans with a bank and majority
shareholder, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
LINE OF CREDIT - BANK, maximum availability of $1,000,000, variable
interest rate of 8.75%, due January 1, 1999 $ 500,000 $ -
============ ==========
TERM LOAN - BANK, original balance of $1,500,000, variable interest rate
of 9.0%, monthly principal and interest of $25,502, matures in
2003 $ 1,354,588 $ 1,500,000
TERM LOAN - BANK, original balance of $400,000, variable interest rate of
8.75%, monthly principal and interest of $12,643, matures in
2000 319,215 -
TERM LOAN - BANK, original balance of $300,000, variable interest rate of
8.75%, monthly principal and interest of $9,500, matures in
2000 277,496 -
TERM LOAN - MAJORITY STOCKHOLDER, original balance of $1,000,000 variable
interest rate of 8.5%, due January 1, 1999
1,000,000 819,698
------------ -----------
2,951,299 2,319,698
Current maturities 378,542 131,125
------------ -----------
$ 2,572,757 $ 2,188,573
============ ===========
</TABLE>
F-8
<PAGE>
The line of credit provides for borrowings up to the lesser of $1,000,000
or 75% of eligible accounts receivable. The line of credit and term loans
with the bank are cross collateralized by substantially all the assets of
the Company. The loan agreements contain certain covenants, all which are
complied with by the Company as of December 31, 1997.
The line of credit and term loans with the bank are personally guaranteed
by the majority stockholder of the Company.
The Company has a note payable with its majority stockholder due January 1,
1999 with maximum availability of $1,000,000. Interest is payable monthly
at the prime rate published by the Wall Street Journal. The note is
subordinate to bank debt. Interest expense on this line of credit was
approximately $85,000, $49,000, and $71,000 for the years ending December
31, 1997, 1996 and 1995, respectively.
As of December 31, 1997, future principal payments on long-term debt were
as follows:
Year
1998 $ 378,542
1999 1,447,119
2000 381,014
2001 249,272
2002 272,656
Thereafter 222,696
------------
$ 2,951,299
============
4. LEASE COMMITMENTS
The Company conducts a significant portion of its operations from office
space rented under various operating leases. The following is a schedule
of future minimum rental payments applicable to non-cancelable operating
leases in effect as of December 31, 1997:
1998 $ 806,000
1999 820,000
2000 794,000
2001 729,000
2002 462,000
Thereafter 1,633,000
-----------
$ 5,244,000
===========
Rent expense for the years ended December 31, 1997, 1996 and 1995 was
$523,948, $185,659 and $112,438, respectively.
5. INCOME TAXES
Effective January 1, 1996, the Company revoked its election to be taxed as
an S Corporation and became a C Corporation. As a C Corporation, income
tax expense is reported by the Company. In
F-9
<PAGE>
connection with the election the Company recorded income tax expense of
$275,000 to reflect the tax consequences of temporary differences between
the financial statement carrying amounts and the tax bases of existing
assets and liabilities. Prior to the revocation of the election, income
was taxed directly to the Company's shareholders.
The components of income tax expense for the years ended December 31, 1997
and 1996 are as follows:
1997 1996
Current $ 159,400 $ 575,000
C Corporation election 275,000
Deferred (140,000) (25,000)
Federal tax credits (8,400)
--------- ---------
Total $ 11,000 $ 825,000
========= =========
Proforma net income and earnings per share for 1995, assuming the Company
was a C Corporation, is approximated as follows:
Net income, as reported $ 299,683
Tax effect, assuming C Corporation (120,000)
----------
Net income, as if a C Corporation $ 179,683
=========
Average number of shares outstanding 50,000
---------
Earnings per share, C Corporation $ 3.59
=========
A reconciliation of the Company's income tax expense at the effective tax
rate compared to the income tax expense at the statutory federal tax rate
is as follows for the years ended December 31,1997 and 1996:
1997 1996
Income taxes at statutory federal rate $ 8,700 $ 507,500
State taxes, net of federal benefit 7,400 59,300
C Corporation election 279,100
Federal tax credits (7,100) (20,900)
Other 2,000
--------- ---------
Total $ 11,000 $ 825,000
========= =========
The Company provides deferred income taxes for temporary differences
between assets and liabilities recognized for financial reporting and
income tax purposes. The income tax effects of
F-10
<PAGE>
these temporary differences representing significant portion of deferred
tax assets and deferred tax liabilities are as follows as of December 31,
1997 and 1996:
1997 1996
Change in tax methods from cash to accrual $ 220,000 $ 295,000
Intangible assets 85,000 60,000
Allowance for doubtful accounts (60,000) (40,000)
Accrued liabilities (125,000) (55,000)
--------- ---------
Deferred income taxes, net $ 120,000 $ 260,000
========= =========
6. EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) defined contribution retirement plan for
employees with more than one year of service. The Company matches 25% of
the first 4% of elective employee contributions. The Company may also make
additional discretionary contributions to the plan on behalf of all
employees as approved by the Company's Board of Directors. The Company's
matching contribution was $15,506, $14,172 and $6,977 for the years ended
December 31, 1997, 1996 and 1995, respectively, and no discretionary match
was provided by the Company for the years ended December 31, 1997, 1996
and 1995.
7. COMMON STOCK OPTIONS
During 1997 the Company granted common stock options to certain key
employees and certain members of the Board of Directors under individual
agreements. Common stock options are granted by the Company's Board of
Directors for issuance at a value that is at least the fair market value
of the common stock as determined as of the date of grant. The Company
applies APB 25 and related interpretations in accounting for its common
stock options. Had compensation cost for the Company's common stock
options been determined based on the minimum value of the options at the
date of grant consistent with FASB No. 123, "Accounting for Stock-Based
Compensation," the Company's net income would have been as follows for the
year ended December 31, 1997:
Earnings
Net Income Per Share
As reported $14,460 $ 0.29
======= ========
Pro forma $ 4,341 $ 0.09
======= ========
A summary of the Company's outstanding common stock options as of December
31, 1997 is presented below:
Exercise
Options Price Expiration Date
608 $ 982 June 30, 2007
F-11
<PAGE>
Vesting on the 608 common stock options occurs 20% each on July 1, 1998,
1999, 2000, 2001 and 2002, subject to the Company consummating an initial
public offering (IPO). The options become fully vested in the event of a
change in control.
A summary of the activity regarding the Company's outstanding options as
of December 31, 1997 is presented below:
1997
--------------------------
Weighted
Average
Shares Exercise Price
Options outstanding at beginning of year -- --
Options granted 608 $982
---- ----
Options outstanding at end of year 608 $982
==== ====
Minimum value of options
granted during the year $277
====
The minimum value of the options granted during 1997 was estimated on the
date of grant using the Black-Scholes options-pricing model with the
following assumptions: risk-free interest rate of 6.75%, expected life of
five years, expected volatility of 0% and an expected dividend yield of
0%. As of December 31, 1997, 6,525 shares of common stock under the
Company's stock option plan are available for future grant.
8. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is periodically involved in
legal proceedings. Management is of the opinion, after review with legal
counsel, that there are no such actions as of December 31, 1997 that will
have a material effect upon the Company's financial statements.
During 1997 the Company ceased its relationship with a licensor of
computer training services and related operational support. Amounts paid
to licensor during 1997 approximated $100,000. In January 1998 the
licensor named the Company as a defendant in a federal court action. The
Company has filed a motion to dismiss any and all litigation matters, and
intends to vigorously defend this matter. The Company has accrued
approximately $100,000 of legal costs as of December 31, 1997 relating to
this contingency. In the event of an unfavorable outcome, management
estimates the range of loss for this matter could be a nominal amount up
to $600,000.
9. NEW PERSONNEL PLACEMENT OFFICES AND COMPUTER TRAINING DIVISION
Included in the 1997 operating income are operating losses of $638,426
relating to the opening of four new personnel placement offices in
Houston, Phoenix, Denver and San Antonio. In addition, operating losses
totaling $816,703, as included in 1997 operating income, were incurred in
connection with the opening of fourteen computer training schools.
F-12
<PAGE>
10. SUBSEQUENT EVENTS
On February 28, 1998 the Company purchased certain assets and the related
business, and assumed certain liabilities of Academy Training & Placement,
a Chicago, Illinois based staffing company. The acquisition cost of
approximately $1,000,000 was primarily financed with a term note. The
acquisition will be accounted for pursuant to the purchase method of
accounting and the results of operations of the acquired business will be
included in those of the Company effective March 1, 1998. Goodwill
resulting from the acquisition will be amortized on a straight-line basis
over 40 years. An escrow of $200,000 was placed with a bank and will be
paid over a one year period subject to certain contingencies.
On April 30, 1998 the Company purchased certain assets and the related
business, excluding all liabilities, of PN Financial Recruiting, a San
Francisco, California based staffing company. The acquisition cost of
approximately $2,300,000 was primarily financed with a bank term note and
a note payable to the seller. The acquisition will be accounted for
pursuant to the purchase method of accounting and the results of
operations of the acquired business will be included in those of the
Company effective May 1, 1998. Goodwill resulting from the acquisition
will be amortized on a straight-line basis over 40 years.
* * * * * *
F-13
<PAGE>
STAFFING EDGE, INC.
CONDENSED BALANCE SHEET
(Unaudited)
JUNE 30, 1998
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 27,770
Accounts receivable, net 3,517,124
Prepaid expenses and other assets 229,718
Deferred income taxes 115,000
------------
Total current assets 3,889,612
------------
EQUIPMENT 1,714,751
Accumulated depreciation (678,808)
------------
Equipment, net 1,035,943
------------
OTHER ASSETS 73,472
------------
INTANGIBLE ASSETS, net 5,061,103
------------
$ 10,060,130
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 516,765
Accrued payroll and related costs 873,565
Other accrued expenses 246,086
Deferred revenue 316,389
Current maturities of long-term debt 3,018,762
------------
Total current liabilities 4,971,567
------------
DEFERRED INCOME TAXES 235,000
------------
LONG-TERM DEBT 4,035,605
------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - 500,000 shares authorized,
none issued and outstanding --
Common stock, $.01 par value - 500,000 shares authorized
51,801 shares issued and outstanding 518
Additional paid in capital 103,940
Retained earnings 713,500
------------
Total stockholders' equity 817,958
------------
$ 10,060,130
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-14
<PAGE>
STAFFING EDGE, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30
----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
SERVICE REVENUE $ 14,260,506 $ 9,780,689
COST OF SERVICES 7,707,603 5,417,767
---------------- ----------------
Gross margin 6,552,903 4,362,922
---------------- ----------------
OPERATING EXPENSES:
Selling, general, and administrative 6,170,033 3,598,147
Depreciation and amortization 169,630 118,085
---------------- ----------------
Total operating expenses 6,339,663 3,716,232
---------------- ----------------
OPERATING INCOME 213,240 646,690
INTEREST EXPENSE 226,857 109,265
---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES (13,617) 537,425
INCOME TAX (BENEFIT) EXPENSE (5,500) 216,000
---------------- ----------------
NET INCOME (LOSS) $ (8,117) $ 321,425
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-15
<PAGE>
STAFFING EDGE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30
----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,117) $ 321,425
Depreciation and amortization 317,715 141,675
Net change in, net of businesses acquired:
Accounts receivable (998,814) (690,424)
Prepaid expenses and other assets (15,719) (93,834)
Income taxes receivable 266,134 85,000
Accounts payable (187,025) (317,608)
Accrued expenses 222,735 33,580
Deferred revenue 173,522 154,659
---------------- ----------------
Net cash flows used in operating activities (229,569) (365,527)
---------------- ----------------
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (241,115) (239,962)
Purchase of Academy Placement and Training (836,344) --
Purchase of PN Financial Recruiting (2,305,649) --
---------------- ---------------
Net cash flows used in investing activities (3,383,108) (239,962)
---------------- ----------------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (296,932) (76,811)
Proceeds from long-term debt 3,500,000 400,000
Net changes in line of credit 400,000 62,302
Issuance of common stock 19,992 --
---------------- ---------------
Net cash flows provided by financing activities 3,623,060 385,491
---------------- ----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 10,383 (219,998)
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD 17,387 229,753
---------------- ----------------
CASH AND CASH EQUIVALENTS,
END OF THE PERIOD $ 27,770 $ 9,755
================ ================
SUPPLEMENTAL INFORMATION Cash paid for:
Interest $ 216,857 $ 118,558
================ ================
Income taxes $ 18,765 $ 415,864
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE>
STAFFING EDGE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. COMPANY BACKGROUND:
-------------------
Staffing Edge, Inc. (the "Company") provides temporary and permanent personnel
placement services in the fields of accounting, banking, insurance, legal,
engineering, office administration, sales and information technology. The
Company operates offices serving the Dallas/Ft Worth, Kansas City, Des Moines,
Houston, Phoenix, Denver, San Antonio, Chicago, and San Francisco metropolitan
markets. During 1997, the Company opened a computer training division. The
division opened learning centers in each city it has personnel placement
offices. The learning centers are dedicated to helping individuals and
corporations develop or enhance personal computer skills.
2. BASIS OF PRESENTATION:
----------------------
The accompanying financial statements are unaudited and have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
SEC's rules and regulations. The Company believes that the financial statements
include all adjustments of a normal and recurring nature necessary to present
fairly the results of operations, financial position and cash flows for the
periods presented. The results of operations for the six months ended June 30,
1997 and 1998 are not necessarily indicative of the results to be expected for
the full year.
3. DEBT:
-----
June 30,
1998
--------------
Term loans $ 6,054,367
Note Payable to majority stockholder 1,000,000
Less- Current portion (3,018,762)
--------------
$ 4,035,605
--------------
The term loans are cross collateralized by substantially all the assets of the
Company. The loan agreements contain certain covenants, all which are complied
with by the Company as of June 30, 1998.
F-17
<PAGE>
The term loans with the bank are personally guaranteed by the majority
stockholder of the Company.
The note payable to its majority stockholder is due January 1, 1999 with maximum
availability of $1,000,000. Interest is payable monthly at the prime rate
published by the Wall Street Journal. The note is subordinate to bank debt.
As described in Note 7 below, in August 1998, the Company was acquired by ACSYS,
Inc. ("ACSYS"). All debt then outstanding was paid off as part of the
acquisition.
4. ACQUISITIONS:
-------------
On February 28, 1998, the Company purchased certain assets and the related
business, and assumed certain liabilities of Academy Training & Placement, a
Chicago, Illinois based staffing company. The acquisition cost of approximately
$1,050,000 was financed primarily with a term note. The acquisition will be
accounted for pursuant to the purchase method of accounting and the results of
operations of the acquired business will be included in those of the Company
effective March 1, 1998. Goodwill resulting from the acquisition will be
amortized on a straight-line basis over 40 years. An escrow of $200,000 was
placed with a bank and will be paid over a one year period subject to certain
contingencies.
On April 30, 1998, the Company purchased certain assets and the related
business, excluding all liabilities, of PN Financial Recruiting, a San
Francisco, California based staffing company. The acquisition cost of
approximately $2,300,000 was financed primarily with a bank term note and a note
payable to the seller. The acquisition will be accounted for pursuant to the
purchase method of accounting and the results of operations of the acquired
business will be included in those of the Company effective May 1, 1998.
Goodwill resulting from the acquisition will be amortized on a straight-line
basis over 40 years.
5. COMMITMENTS AND CONTINGENCIES:
------------------------------
In the normal course of business, the Company is periodically involved in legal
proceedings. Management is of the opinion, after review with legal counsel, that
there are no such actions as of June 30, 1998 that will have a material effect
upon the Company's financial statements.
During 1997 the Company ceased its relationship with a licensor of computer
training services and related operational support. Amounts paid to the licensor
during 1997 approximated $100,000. In January 1998 the licensor named the
Company as a defendant in a federal court action. The Company filed a motion to
dismiss any and all litigation matters. The Company accrued approximately
$100,000 of legal costs as of December 31, 1997 relating to this contingency. In
July 1998, the Company determined it was probable that the dispute would be
settled and recorded a $380,000 accrual for the estimated settlement amount. The
settlement amount was paid to the licensor in September 1998. Since that time,
the licensor has asserted that the Company has not satisfied all of the terms of
the settlement and has asked the Court to require the Company to do so. The
Company believes it has satisfied the terms of
F-18
<PAGE>
the settlement. Due to the uncertainty inherent in litigation, the Company
cannot predict whether the Court will order the Company to take additional steps
under the settlement.
6. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 1997 the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, "Reporting Comprehensive Income " ("SFAS No. 130"). This statement
requires that items that are components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 became effective for fiscal years beginning
after December 31, 1997 and is now currently being applied by the Company. SFAS
No. 130 requires comparative financial statements provided for earlier periods
to be reclassified to reflect application of the provisions of this new
standard. The Company has determined that for the six months ended June 30, 1998
and 1997, no items meeting the definition of comprehensive income as specified
in SFAS No. 130 existed in the financial statements. As a result, no disclosure
is necessary to comply with the SFAS No. 130.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15, 1997.
The Company has not completed the process of evaluating the impact that will
result from adopting SFAS No. 131. The Company is, therefore, unable to disclose
the impact that adopting SFAS No. 131 will have on its financial position and
results of operations when such statement is adopted.
7. SALE OF BUSINESS:
-----------------
On August 4, 1998, an agreement and plan of merger was entered into among ACSYS,
the Company and the stockholders of the Company, whereby ACSYS purchased all of
the outstanding stock of the Company. The stockholders of the Company received
$22,510,000 of cash and 81,766 shares of ACSYS common stock valued at
approximately $838,000. In addition, ACSYS paid off outstanding debt, paid
accrued interest on the debt and certain prepayment penalties totaling
$7,037,000.
F-19
<PAGE>
ACSYS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(Unaudited)
Initial Public Offering:
- ------------------------
ACSYS, Inc. (the "Company") was formed on March 10, 1997. In February 1998, the
Company sold 2,842,500 shares of Common stock in an initial public offering,
resulting in net proceeds of approximately $20.2 million (the "Offering"). Since
its formation, the Company has acquired several professional staffing firms, as
described below:
Pooling of Interests Acquisitions
- ---------------------------------
On May 16, 1997, the Company acquired all of the issued and outstanding Common
Stock of Infinity Enterprises, Inc.; David C. Cooper & Associates, Inc.; DCCA
Professional Temporaries, Inc.; and EKT, Inc. in exchange for shares of the
Company's Common Stock. The Company also acquired all of the issued and
outstanding Common Stock of Cama of Tampa, Inc. (Cama), Rylan Forbes Consulting
Group, Inc. ("Rylan Forbes"), AcSys Resources, Inc. ("AcSys Resources") and ICON
Search and Consulting, Inc. ("ICON") on May 19, 1997, July 25, 1997, September
3, 1997 and May 22, 1998, respectively, in the same manner. The above
acquisitions have been accounted for under the pooling of interests method of
accounting. The historical financial statements of the Company have been
restated to include the accounts and operating results of the acquired companies
for all dates and periods prior to the combinations, except for Cama, which is
reflected only from the date of its formation of January 1, 1996.
Purchase Acquisitions
- ---------------------
Prior to the acquisition of AcSys Resources by the Company, AcSys Resources
acquired C.P.A. Staffing, Inc., C.P.A. Search, Inc. and Career Placement
Associates, Inc. (together, "C.P.A. Staffing") on August 12, 1997. The Company
also acquired TGS Resources Group, Inc. ("TGS"), KPD Systems, Inc. ("KPD") and
Staffing Edge, Inc. ("Staffing Edge") on March 31, 1998, July 1, 1998 and August
4, 1998, respectively. The above acquisitions were accounted for under the
purchase method of accounting and the financial results of these acquisitions
are reflected in the historical financial statements of the Company from their
respective dates of acquisition.
F-20
<PAGE>
Pro Forma Presentation
- ----------------------
The pro forma balance sheet gives effect to the acquisitions of KPD and Staffing
Edge as if they had occurred on June 30, 1998. The pro forma statements of
operations give effect to the acquisitions of C.P.A. Staffing, TGS, KPD and
Staffing Edge and the Offering as if they had occurred on January 1, 1997. See
Notes to Pro Forma Combined Financial Statements.
The pro forma adjustments are based on estimates, available information and
certain assumptions that management deems appropriate. The pro forma financial
data do not purport to represent what the Company's financial position or
results of operations would actually have been if such transactions had occurred
on those dates and are not necessarily representative of the Company's financial
position or results of operations for any future period. The pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this 8-K/A.
F-21
<PAGE>
ACSYS, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical
---------------------------------------
Pro Forma
ACSYS Staffing Edge KPD Adjustments Pro Forma
----------- --------------- ----------- --------------- -----------
(Note 1) (Notes 1 and 2) (Note 3)
---------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,523,486 $ 27,770 $ 45,279 $ (3,523,486) $ 73,049
Accounts receivable, net 16,287,815 3,517,124 377,998 -- 20,182,937
Prepaid expenses and other 1,322,912 229,718 2,620 (106,000) 1,449,250
Deferred income taxes -- 115,000 -- (115,000) --
----------- --------------- ----------- --------------- -----------
Total current assets 21,134,213 3,889,612 425,897 (3,744,486) 21,705,236
PROPERTY AND EQUIPMENT, net 3,181,991 1,035,943 3,704 (412,000) 3,809,638
GOODWILL AND OTHER INTANGIBLE ASSETS, net 17,634,819 5,061,103 -- 31,634,257 54,330,179
OTHER ASSETS 125,352 73,472 -- -- 198,824
----------- --------------- ----------- --------------- -----------
$42,076,375 $10,060,130 $ 429,601 $ 27,477,771 $80,043,877
=========== =========== ========= ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts $ 725,885 $ -- $ -- $ -- $ 725,885
Current portion of long-term debt 44,772 3,018,762 -- 1,875,119 4,938,653
Accounts payable 1,457,628 516,765 861 -- 1,975,254
Accrued liabilities 6,028,012 1,436,040 115,244 4,010,000 11,589,296
Deferred income taxes 402,279 -- -- (115,000) 287,279
----------- --------------- ----------- --------------- ------------
Total current liabilities 8,658,576 4,971,567 116,105 5,770,119 19,516,367
----------- --------------- ----------- --------------- ------------
LONG-TERM DEBT 650,308 4,035,605 -- 20,964,395 25,650,308
----------- --------------- ----------- --------------- ------------
DEFERRED INCOME TAXES 2,436,478 235,000 -- -- 2,671,478
----------- --------------- ----------- --------------- ------------
OTHER LONG-TERM LIABILITIES 401,776 -- -- -- 401,776
----------- --------------- ----------- --------------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued or outstanding -- -- -- -- --
Common stock, no par value, 45,000,000 shares
authorized, 14,253,467 shares issued and
outstanding (actual) and 14,412,737 (pro forma) 27,613,799 518 1,000 1,873,193 29,488,510
Additional paid-in capital -- 103,940 -- (103,940) --
Retained earnings 2,315,438 713,500 312,496 (1,025,996) 2,315,438
----------- --------------- ----------- --------------- ------------
Total shareholders' equity 29,929,237 817,958 313,496 743,257 31,803,948
----------- --------------- ----------- --------------- ------------
$42,076,375 $10,060,130 $ 429,601 $ 27,477,771 $80,043,877
=========== =========== ========= ============= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-22
<PAGE>
ACSYS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Historical
----------- ----------- --------------- ------ ------------ ---------------- -----------
C.P.A. Pro Forma
ACSYS Staffing Staffing Edge TGS KPD Adjustments Pro Forma
----------- ----------- --------------- ------- ----------- ---------------- -----------
(Note 1) (Notes 1 and 2) (Note 4)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing $60,057,487 $ 4,015,890 $ 16,872,094 $1,083,954 $2,579,494 $ -- $84,608,919
Permanent placement 18,070,729 540,620 3,937,170 496,199 151,000 -- 23,195,718
Other -- -- 502,236 -- -- (502,236) (m) --
----------- ----------- ------------ ---------- ----------- ---------- ----------
Total service revenues 78,128,216 4,556,510 21,311,500 1,580,153 2,730,494 (502,236) 107,804,637
DIRECT COST OF SERVICES, consisting
of payroll, payroll taxes and
insurance costs for temporary
employees 42,582,703 2,832,357 11,344,050 663,574 1,672,454 -- 59,095,138
OTHER COST OF SERVICES -- -- 494,647 -- -- (494,647) (m) --
----------- ----------- ------------ ---------- ----------- ---------- ----------
Gross profit 35,545,513 1,724,153 9,472,803 916,579 1,058,040 (7,589) 48,709,499
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 29,979,282 1,679,590 8,920,616 725,535 1,040,154 (3,742,122)(g)(k)(m) 38,603,055
COMBINATION EXPENSES 1,797,334 -- -- -- -- (1,797,334)(h) --
AMORTIZATION AND
DEPRECIATION 715,261 20,995 274,138 6,919 4,335 1,088,007 (j) 2,109,655
SEVERANCE AND FRANCHISE
TERMINATION COSTS 682,000 -- -- -- -- -- 682,000
----------- ----------- ------------ ---------- ----------- ---------- -----------
Operating income 2,371,636 23,568 278,049 184,125 13,551 4,443,860 7,314,789
OTHER INCOME (EXPENSE):
Interest income 43,929 -- -- -- -- -- 43,929
Interest expense (866,457) -- (252,589) (1,370) -- (837,086)(l) (1,957,502)
Other 34,709 -- -- -- -- -- 34,709
----------- ----------- ------------ ---------- ----------- ---------- -----------
INCOME BEFORE INCOME TAXES 1,583,817 23,568 25,460 182,755 13,551 3,606,774 5,435,925
Income taxes 437,529 -- 11,000 -- -- 1,943,278 (i) 2,391,807
----------- ----------- ------------ ---------- ----------- ---------- -----------
NET INCOME $ 1,146,288 $ 23,568 $ 14,460 $ 182,755 $ 13,551 $1,663,496 $ 3,044,118
=========== =========== ============ ========== ========= ========== ===========
PRO FORMA BASIC AND DILUTED NET $ 0.21
===========
INCOME PER SHARE
WEIGHTED AVERAGE SHARES USED
IN COMPUTING PRO FORMA BASIC NET
INCOME PER SHARE
(Note 5)
14,385,417
==========
WEIGHTED AVERAGE SHARES USED
IN COMPUTING PRO FORMA DILUTED
NET INCOME PER SHARE
(Note 5)
14,489,263
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-23
<PAGE>
ACSYS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------------------------------------
Pro Forma
ACSYS Staffing Edge TGS KPD Adjustments Pro Forma
----------- ----------------- ---------- ------------- --------------- -----------
(Note 1) (Notes 1 and 2) (Note 4)
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing $ 40,039,644 $ 10,548,518 $ 343,755 $ 1,976,234 $ -- $52,908,151
Permanent placement 11,757,189 2,941,870 208,209 85,000 -- 14,992,268
Other -- 770,118 -- -- (770,118)(m) --
------------ ------------ ------------ ------------ ------------ -----------
Total service revenues 51,796,833 14,260,506 551,964 2,061,234 (770,118) 67,900,419
DIRECT COST OF SERVICES,
consisting of payroll, payroll
taxes
and insurance costs for temporary 28,053,396 7,000,816 236,913 1,077,660 -- 36,368,785
employees
OTHER COST OF SERVICES -- 706,787 -- -- (706,787)(m) --
------------ ------------ ------------ ------------ ------------ -----------
Gross profit 23,743,437 6,552,903 315,051 983,574 (63,331) 31,531,634
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 20,534,411 6,170,033 166,798 575,912 (2,293,618)(g)(m) 25,153,536
COMBINATION EXPENSES 1,730,000 -- -- -- (1,730,000)(h) --
AMORTIZATION AND
DEPRECIATION 556,868 169,630 2,799 2,000 449,006 (j) 1,180,303
SEVERANCE AND FRANCHISE
TERMINATION COSTS 650,000 -- -- -- -- 650,000
------------ ------------ ------------ ------------ ------------ ------------
Operating income 272,158 213,240 145,454 405,662 3,511,281 4,547,795
OTHER INCOME (EXPENSE):
Interest income 123,306 -- -- -- -- 123,306
Interest expense (188,579) (226,857) -- -- (828,974)(l) (1,244,410)
Other 1,119 -- -- -- -- 1,119
------------ ------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES 208,004 (13,617) 145,454 405,662 2,682,307 3,427,810
Income taxes 3,684,144 (5,500) -- -- (2,170,408)(i) 1,508,236
------------ ------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (3,476,140) $ (8,117) $ 145,454 $ 405,662 $ 4,852,715 $ 1,919,574
============ ============ ============ ============ ============ ============
PRO FORMA BASIC AND DILUTED NET
INCOME PER SHARE $ 0.13
===========
WEIGHTED AVERAGE SHARES USED
IN COMPUTING PRO FORMA
BASIC NET INCOME PER SHARE
(Note 5) 14,439,952
===========
WEIGHTED AVERAGE SHARES USED
IN COMPUTING PRO FORMA
DILUTED NET INCOME PER SHARE
(Note 5) 15,034,797
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
------------------------------------------------
(Unaudited)
1. GENERAL:
--------
The accompanying pro forma information presents the pro forma financial position
of the Company as of June 30, 1998 and the pro forma results of operations for
the year ended December 31, 1997 and the six months ended June 30, 1998.
The historical financial statements of the Company, KPD and Staffing Edge were
derived from the historical statements of operations for each company for the
year ended December 31, 1997 and the six months ended June 30, 1998 and the
historical balance sheet for each company as of June 30, 1998.
The historical statement of operations of C.P.A. Staffing was derived from the
historical statement of operations of C.P.A. Staffing for the period from
January 1, 1997 through the date of its acquisition by the Company on August 12,
1997. The historical statements of operations of TGS were derived from the
historical statement of operations of TGS for the year ended December 31, 1997
and for the period from January 1, 1998 through the date of its acquisition by
the Company on March 31, 1998.
2. ACQUISITIONS:
-------------
Prior to the acquisition of AcSys Resources by the Company, AcSys Resources
acquired all the outstanding stock of C.P.A. Staffing on August 12, 1997. The
acquisition was accounted for under the purchase method of accounting. The total
purchase price was approximately $9,700,000 and consisted of cash of $1,900,000,
1,219,274 shares of Common Stock with a fair market value of $7,700,000 and
transaction costs of $144,000. The purchase price was allocated to the assets
acquired and liabilities assumed. The $8,600,000 excess of the purchase price
over estimated fair value of the net assets acquired was recorded as goodwill.
On March 31, 1998 and July 1, 1998, the Company acquired all of the outstanding
stock of TGS and KPD, respectively. The Company has accounted for these
acquisitions under the purchase method of accounting. The combined purchase
price of TGS and KPD was approximately $7.1 million, which consisted of cash of
$4.8 million, 147,571 shares of common stock with a fair market value of $2.2
million, and transaction costs of $75,000. The purchase price was allocated to
the assets acquired and liabilities assumed. The $6,644,000 excess of the
purchase price over the estimated fair value of net assets acquired was recorded
as goodwill.
F-25
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
-------------------------------------------------------------
(Unaudited)
On August 4, 1998, the Company acquired all of the outstanding stock of Staffing
Edge. The acquisition was accounted for under the purchase method of accounting.
The total purchase price was approximately $25.3 million and consisted of cash
of $22,510,000, 81,766 shares of common stock with a fair market value of
$838,000 and transaction costs of $1,918,000. The purchase price was allocated
to the assets acquired and liabilities assumed. The $31.8 million excess of the
purchase price over the estimated fair value of the net assets acquired was
allocated to goodwill. In addition, the stockholders of Staffing Edge can
receive up to $7.5 million in additional purchase price based on a multiple of
revenues in excess of certain thresholds over a two-year period. The pro forma
financial statements do not reflect the additional purchase price under the
earnout provisions as the amount of the additional purchase price, if any, is
not determinable until the earnout period has been completed. Based on Staffing
Edge revenues for the year ended December 31, 1997 and the six months ended June
30, 1998, there would have been no additional purchase price paid by the Company
under the earnout provisions.
Staffing Edge began providing computer training services (the "Training
Business") in the fourth quarter of 1997. In connection with the acquisition,
the Company has formulated a plan to exit the Training Business. The Company has
accrued costs to exit the Training Business in accordance with EITF Issue 95-3,
Recognition of Liabilities in Connection with a Purchase Business Combination.
These costs include severance, lease terminations and other contractual
obligations of the Training Business which provide no future economic benefit to
the Company. In addition, the Company has accrued severance costs for other
employees of Staffing Edge to be terminated in connection with the acquisition.
Total costs accrued for exiting the Training Business and severance costs were
$2.0 million. As part of its allocation of purchase price, the Company has
assigned no value to fixed assets and certain other assets used in the Training
Division.
F-26
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
-------------------------------------------------------------
(Unaudited)
3. ADJUSTMENTS TO PRO FORMA COMBINED BALANCE SHEET:
The following table summarizes the pro forma adjustments to the balance sheet as
of June 30, 1998:
<TABLE>
<CAPTION>
Pro Forma Adjustments
(a) (b) (c) (d) (e) (f) Total
------------ ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ (3,523,486) $ -- $ -- $ -- $ -- $ $ (3,523,486)
Prepaid expenses and other -- -- -- -- (106,000) -- (106,000)
Deferred income taxes -- -- -- -- -- (115,000) (115,000)
------------ ----------- ----------- ----------- ------------ ----------- ------------
Total current assets (3,523,486) -- -- -- (106,000) (115,000) (3,744,486)
PROPERTY AND EQUIPMENT, net -- -- -- -- (412,000) -- (412,000)
GOODWILL AND OTHER INTANGIBLE
ASSETS, net -- -- -- -- 31,634,257 31,634,257
------------ ----------- ----------- ----------- ------------ ----------- ------------
Total assets $ (3,523,486) $ -- $ -- $ -- $ 31,116,257 $ (115,000) $ 27,477,771
============ =========== =========== =========== ============ =========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ -- $ -- $ 1,875,119 $ -- $ -- $ 1,875,119
Accrued liabilities -- -- 4,010,000 -- -- -- 4,010,000
Deferred income taxes -- -- -- -- -- (115,000) (115,000)
------------ ----------- ----------- ----------- ------------ ----------- ------------
Total current liabilities -- -- 4,010,000 1,875,119 -- (115,000) 5,770,119
LONG-TERM DEBT 22,839,514 -- -- (1,875,119) -- -- 20,964,395
============ =========== =========== =========== ============ =========== ============
SHAREHOLDERS' EQUITY:
Common stock -- 1,874,711 -- -- (1,518) -- 1,873,193
Additional paid-in capital -- -- -- -- (103,940) -- (103,940)
Retained earnings -- -- -- -- (1,025,996) -- (1,025,996)
------------ ----------- ----------- ----------- ------------ ----------- ------------
Total shareholders' equity -- 1,874,711 -- -- (1,131,454) -- 743,257
============ =========== =========== =========== ============ =========== ============
Total liabilities and
shareholders' equity $ 22,839,514 $ 1,874,711 $ 4,010,000 $ -- $ (1,131,454) $ (115,000) $ 27,477,771
============ =========== =========== =========== ============ ============ ============
</TABLE>
F-27
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
-------------------------------------------------------------
(Unaudited)
Pro Forma Adjustments:
- ----------------------
(a) Reflects that portion of the purchase price paid in cash for KPD and
Staffing Edge in the amount of $3,853,000 and $22,510,000, respectively,
partially funded by the Company's credit facility.
(b) Reflects that portion of the purchase price paid in stock for KPD and
Staffing Edge in the amount of $1,036,609 and $838,102, respectively.
(c) Reflects accruals for estimated transaction costs of $50,000 for KPD and
$1,918,000 for Staffing Edge and $2,042,000 in severance costs and
contractual obligations of the Training Business (see Note 2 of the Notes
to the Pro Forma Combined Financial Statements).
(d) Reflects the use of the Company's credit facility to pay off outstanding
borrowings of Staffing Edge of which $1,875,119 was financed with current
debt.
(e) Reflects the allocation of the KPD and Staffing Edge purchase price to the
estimated fair market value of net assets acquired and the elimination of
their respective shareholders' equity accounts.
(f) Reflects the reclassification of deferred income taxes of Staffing Edge to
conform with the Acsys Inc. presentation.
4. ADJUSTMENTS TO THE PRO FORMA
COMBINED STATEMENTS OF OPERATIONS:
----------------------------------
The following represents the pro forma adjustments to the Combined Statements of
Operations:
(g) Reflects an adjustment of $2,327,808 and $1,605,099 for the year ended
December 31, 1997 and the six months ended June 30, 1998, respectively, to
officer and employee compensation based on employment agreements entered
into upon the closing of the acquisitions. This adjustment does not reflect
discretionary bonuses which may be paid to these individuals.
(h) Reflects the elimination of the combination expenses.
(i) Reflects the provision for income taxes as if the Company was a C
corporation during the periods presented.
(j) Reflects the amortization expense for the goodwill recorded in connection
with the acquisitions of C.P.A. Staffing, TGS, KPD and Staffing Edge. The
goodwill is being amortized on a straight-line basis over an estimated life
of 40 years.
(k) Reflects the elimination of the non-recurring, non-cash charge of $702,465
related to the acquisition of C.P.A. Staffing.
(l) Reflects an adjustment to record additional interest expense for cash used
and borrowings incurred in connection with the acquisitions of C.P.A.
Staffing, TGS, KPD and Staffing Edge and the elimination of interest
expense resulting from the reduction of debt utilizing a portion of the net
proceeds of the Offering.
F-28
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
-------------------------------------------------------------
(Unaudited)
(m) Reflects an adjustment to eliminate the Training Business. The adjustment
to service revenues, cost of services, and selling, general and
administrative expenses for the year ended December 31, 1997 was $502,236,
$494,647, and $711,849, respectively and for the six months ended June 30,
1998 was $770,118, $706,787, and $688,519, respectively.
5. SHARES USED IN COMPUTING PRO FORMA NET INCOME PER SHARE:
The shares used in computing pro forma net income per share are as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1997 June 30, 1998
-------------------- --------------------
<S> <C> <C>
Average outstanding shares of Common stock of the Company
10,439,961 13,575,000
Elimination of certain Common stock redemption rights in
connection with the Offering 122,012 --
Incremental shares issued in connection with the acquisitions of
C.P.A. Staffing, TGS, KPD, and Staffing Edge 980,944 193,723
Incremental shares issued in the Offering necessary to pay expenses
of the Offering, repay indebtedness, pay distributions to certain
shareholders for income taxes on S corporation earnings and fund
acquisitions 2,842,500 671,229
-------------------- --------------------
Pro forma, basic shares 14,385,417 14,439,952
Common stock equivalents for stock options granted 103,846 594,845
-------------------- --------------------
Pro forma, diluted shares 14,489,263 15,034,797
==================== ====================
</TABLE>
F-29
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
- -------------- ----
23 Consent of Deloitte & Touche LLP
<PAGE>
Exhibit 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-46465 of ACSYS, Inc. on Form S-8 of our report dated April 30, 1998,
appearing in this Amendment No. 1 on Form 8-K/A of ACSYS, Inc. dated August 4,
1998.
/s/ Deloitte & Touche LLP
Des Moines, Iowa
October 16, 1998
