<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ACSYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 7363 58-2299173
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
75 14TH STREET
SUITE 2200
ATLANTA, GEORGIA 30309
(404) 817-9440
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
TIMOTHY MANN, JR.
CHIEF EXECUTIVE OFFICER
ACSYS, INC.
75 14TH STREET
SUITE 2200
ATLANTA, GEORGIA 30309
(404) 817-9440
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE
WITH COPIES TO:
BRYAN E. DAVIS
RICHARD J. OELHAFEN, JR.
ALSTON & BIRD LLP
ONE ATLANTIC CENTER
1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3424
(404) 881-7000
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. [X]
If this Form is filed to register additional securities for any 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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value................... 423,056(2) $8.59 $3,634,051 $1,010.27
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 457(c), the proposed maximum offering price per share and
registration fee are based upon the average of the high and low prices of
the Registrant's Common Stock on November 12, 1998 as reported on the
Nasdaq Stock Market's National Market.
(2) Pursuant to Rule 416, Common Stock offered hereby shall be deemed to cover
additional securities to be offered or issued to prevent dilution resulting
from stock splits, stock dividends, or similar transactions.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1998
PROSPECTUS
423,056 SHARES
ACSYS, INC.
COMMON STOCK
------------
The shareholders of Acsys, Inc. identified below are offering and selling
423,056 shares of Acsys' Common Stock under this Prospectus.
The selling shareholders obtained their shares of Acsys Common Stock in
connection with a merger of ICON Merger Subsidiary, Inc., a wholly owned
subsidiary of Acsys, with and into Icon Search & Consulting, Inc. Some or all
of the selling shareholders expect to sell their shares.
The selling shareholders may offer their Acsys Common Stock through public or
private transactions, on or off the Nasdaq National Market, at prevailing
market prices, or at privately negotiated prices. We will not receive any of
the proceeds from the sale of the shares by the selling shareholders.
Acsys Common Stock is listed on the Nasdaq National Market and trades under the
ticker symbol: "ACSY." On November 13, 1998, the last reported sale price of
one share of Acsys Common Stock on the Nasdaq National Market was $8.125.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
The date of this Prospectus is November , 1998.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE +
+SELLING SHAREHOLDERS MAY NOT SELL THE SECURITIES UNTIL THE REGISTRATION +
+STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. +
+THIS PROSPECTUS IS NOT AN OFFER TO SELL THE SECURITIES AND IT IS NOT +
+SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR +
+SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus. It
is not complete and does not contain all of the information that you should
consider before investing in the Common Stock. You should read the entire
Prospectus carefully, including the "Risk Factors" section and the financial
statements and notes to the financial statements before making any decision to
invest in the Common Stock
ACSYS
Acsys is one of the leading providers of specialty professional staffing
services in the United States. We were formed as a Georgia corporation in March
1997 and since then have acquired 11 accounting and finance and information
technology (IT) specialty professional staffing businesses. We operate 40
offices serving metropolitan markets across the United States, with a more
significant presence in the Eastern and Midwestern United States.
Our goal is to build a national specialty professional staffing business and to
become a leader in the fragmented IT services industry. We believe that we can
best achieve our goal through acquiring complementary companies, expanding our
service offering and cross-selling to our combined customer base. We have
clients across a broad spectrum of industries, including communications,
consumer products, energy, financial services, health care, industrial,
insurance, medicine, professional services, retail and technology.
In February 1998, we completed our IPO of 2,842,500 shares of Common Stock at
$8.50 per share, raising approximately $20.2 million after deducting
underwriting discounts and offering expenses.
Our principal executive offices are located at 75 14th Street, Suite 2200,
Atlanta, Georgia 30309, and our telephone number is (404) 817-9440.
ACSYS' STRATEGIES
Operating Strategy
Our operating strategy focuses on client relationships. We believe that the
central function of our corporate management is to support the staffing
consultants who directly interact with clients. We carry out our strategy
through our decentralized "Hub-Center" management model, which we believe
fosters an entrepreneurial environment. Division Presidents manage the Hub-
Centers, located in major cities, and are responsible for achieving our
operational and financial goals. We support our Division Presidents by giving
them ready access to our corporate services which include marketing, public
relations, management information systems support, training, human resources,
accounting and other back office functions. We believe that our decentralized
management structure enables us to be more responsive to our clients' needs.
Our specialty professional focus also makes us more attractive to staffing
consultants and temporary and permanent placement candidates.
2
<PAGE>
Growth Strategy
Our goal is to build a national specialty professional staffing business with
offices in major United States metropolitan markets by:
. pursuing strategic acquisitions,
. enhancing and expanding existing offices,
. introducing new services, and
. opening new offices.
We seek to acquire specialty professional staffing businesses with strong
management and a significant presence in what we believe to be desirable,
growing markets. We also plan to enhance and expand our existing offices by:
. adding quality personnel,
. pursuing new clients,
. expanding relationships with our current clients, and
. replicating our most successful sales, marketing and business techniques in
offices that are not currently using those techniques.
We also intend to introduce new specialty professional staffing services in
addition to our core services. Additionally, we plan to open new offices in
both our current markets and new geographic markets.
ACSYS' MARKET
Temporary Staffing Sector
We derived 77.6% and 78.5% of our pro forma service revenues from our temporary
staffing operations for the nine months ended September 30, 1998 and the year
ended December 31, 1997, respectively. Within the temporary staffing sector, we
compete primarily in the specialty professional segments. Our temporary
staffing services include accounting and finance and IT consulting principally
in the area of implementing enterprise resource planning (ERP) software from
the German company SAP AG.
A significant part of the IT segment is the implementation of ERP software. ERP
software helps companies better manage their business by redesigning their
business processes in such areas as product development, service delivery,
manufacturing, human resources, finance and accounting. Although these services
may be offered by ERP software developers, in most cases ERP implementation and
systems integration services are provided by third party service providers,
like us.
Specialty professional and IT staffing assignments generally have profit
margins greater than those of traditional clerical and light industrial
temporary staffing assignments. We believe that companies are increasingly
accepting the idea of using specialty professional temporary employees in
traditional
3
<PAGE>
permanent professional roles and are planning to use such employees as a
continuing corporate strategy. Furthermore, companies are now outsourcing
traditional accounting and finance services and ERP software implementation
that historically were performed internally.
Permanent Placement Sector
We also operate in the placement and search sector of the staffing industry. We
derived 22.4% and 21.5% of our pro forma service revenues from our permanent
placement operations for the nine months ended September 30, 1998 and the year
ended December 31, 1997, respectively. Permanent placement firms fulfill their
clients' needs by identifying, evaluating and recommending qualified candidates
for positions. We believe that companies increasingly rely on permanent
placement firms for several reasons, including:
. the increased difficulty of finding talented candidates,
. the reduced costs and increased efficiency of outsourcing the recruiting
process, and
. the ability of placement firms to provide objective feedback on candidates
and advice regarding the appropriate qualifications and compensation for a
particular position.
ACQUISITIONS SINCE OUR IPO
On March 31, 1998, we acquired TGS Resource Group, Inc. ("TGS") (doing business
as "Don Richard Associates of Richmond"), a company that provides accounting
and finance temporary staffing services. We accounted for the acquisition as a
purchase.
On May 22, 1998, we acquired Icon Search & Consulting, Inc. ("ICON"), a company
that provides IT temporary staffing and permanent placement services to
companies that are implementing SAP's ERP software. We accounted for this
acquisition as a pooling-of-interests. As a result, our consolidated financial
statements included in this prospectus have been restated to include the
accounts and results of operations of ICON.
On July 1, 1998, we acquired KPD Systems, Inc. ("KPD"), a company that provides
information technology staffing services. We accounted for the acquisition as a
purchase.
On August 4, 1998, we acquired Staffing Edge, Inc. ("Staffing Edge"), a company
that provides temporary and permanent placement of professionals in the fields
of accounting and finance, information technology, legal, engineering and high-
end office/clerical and training services. We accounted for the acquisition as
a purchase.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997 (2) 1997 1998 1998 (2)
------- ------- ------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA (1):
Total service revenues.. $36,484 $56,742 $78,128 $107,804 $56,292 $89,371 $107,776
Gross profit............ 18,200 26,126 35,545 48,709 26,429 40,603 49,472
Operating income........ 3,459 4,097 2,372 7,314 3,015 4,195 7,912
Income before income
taxes.................. 2,594 3,286 1,584 5,436 2,427 3,729 6,185
Net income (loss) (3)... $ 2,461 $ 2,867 $ 1,146 $ 3,044 $ 1,847 $ (1,456) $ 3,550
Pro forma basic net in-
come per share, as ad-
justed for income taxes
(2)(3)(4).............. $ 0.21 $ 0.25
======== ========
Pro forma diluted net
income per share, as
adjusted for income
taxes (2)(3)(4)........ $ 0.21 $ 0.24
======== ========
Weighted average shares
used in computing pro
forma basic net income
per share (4).......... 14,385 14,462
Weighted average shares
used in computing pro
forma diluted net in-
come per share (4)..... 14,489 14,918
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 370 $ 1,175
Working capital...................................... 4,921 3,171
Total assets......................................... 33,352 85,188
Long-term debt, including current maturities......... 11,754 34,645
Redeemable Common stock.............................. 1,220 --
Shareholders' equity................................. 10,801 33,697
</TABLE>
- --------
(1) All of the financial data set forth above have been restated to give effect
to the acquisitions of Infinity Enterprises, Inc.; David C. Cooper &
Associates, Inc.; DCCA Professional Temporaries, Inc.; EKT, Inc., Cama of
Tampa, Inc.; Rylan Forbes Consulting Group, Inc.; AcSys Resources, Inc.;
and ICON, which have been accounted for under the pooling of interests
method of accounting (the "Pooling Acquisitions"). Additionally, the
financial data set forth above includes results of operations of Infinity
Enterprises, Inc., ICON and Cama of Tampa, Inc. from March 1, 1994,
September 12, 1994, and January 1, 1996, respectively, the dates of their
formation. The acquisitions of C.P.A. Staffing, Inc.; C.P.A. Search, Inc.;
Career Placement Associates (together "CPA Staffing") in August 1997; TGS
in March 1998; KPD in July 1998; and Staffing Edge in August 1998 have been
accounted for under the purchase method of accounting and are included in
the historical statements of operations from their respective dates of
acquisition (the "Purchase Acquisitions"). The entities acquired in the
Pooling Acquisitions and the Purchase Acquisitions are collectively
referred to as the "Acquired Companies." See Note 1 of Notes to
Consolidated Financial Statements.
(2) The pro forma operations data reflect the Purchase Acquisitions as if they
had occurred on January 1, 1997. In addition, the pro forma operations data
reflect (i) the elimination of combination expenses incurred in connection
with the Pooling Acquisitions, (ii) an adjustment to compensation expense
for the difference between actual compensation paid to certain owners and
key employees of the Acquired Companies and negotiated in conjunction with
such acquisitions, (iii) the elimination of a division of Staffing Edge
which was exited upon the acquisition of Staffing Edge and (iv) income tax
expense computed as if we had terminated our status as an S corporation as
of January 1, 1997. See Pro Forma Combined Financial Statements.
(3) Prior to our IPO, we operated as an S corporation for income tax purposes
except for ICON which is a C corporation. Accordingly, income tax expense
prior to the IPO was generated from the operating activities of ICON. In
connection with our IPO, we terminated our S corporation status and
recorded a charge to income tax expense of approximately $3,000,000 in the
nine months ended September 30, 1998, representing the tax effect of
differences in the bases of assets and liabilities for financial reporting
and income tax purposes. Pro forma net income reflects income tax expense
as if we had terminated our status as an S corporation as of January 1,
1997. See Note 2 of Notes to Consolidated Financial Statements for
information concerning the computation of the income taxes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) See Notes 3 and 4 of Notes to Pro Forma Combined Financial Statements for a
discussion of the computations of pro forma net income (loss) per share, as
adjusted for income taxes.
5
<PAGE>
RISK FACTORS
An investment in the shares offered by this Prospectus involves a high degree
of risk. In addition to the other information contained in this Prospectus, you
should carefully consider the following factors before purchasing any of the
shares of Common Stock.
Some of the information in this Prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
language such as "will likely result," "may," "are expected to," "is
anticipated," "estimate," "projected," "intends to" or other similar words.
Such statements are subject to certain risks and uncertainties, including but
not limited to the risks described below. When considering such forward-looking
statements, you should keep in mind these risk factors and other cautionary
statements in this Prospectus. You should not place undue reliance on any
forward-looking statement, each of which speaks only as of the date made.
UNCERTAINTIES ASSOCIATED WITH AN ABSENCE OF COMBINED OPERATING HISTORY
Acsys, Inc. was incorporated in March 1997. From May 1997 to August 1998, we
acquired eleven specialty professional staffing businesses. As a result, our
senior management has managed Acsys as a combined business for only a short
time. There can be no assurance that the process of integrating the management
and administrative functions of this combined business will be successful or
that our management will be able to manage these operations effectively or
implement our operating or expansion strategies successfully. Failure to
implement our operating and expansion strategies successfully would have a
material adverse effect on our business, results of operations, or financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Management" and "Certain Transactions."
CHALLENGES IN ACHIEVING AND MANAGING GROWTH
We intend to grow through acquisitions, internal growth and the opening of new
offices. Our ability to expand market presence in current locations and
successfully enter other markets depends upon our ability to:
. obtain capital to fund acquisitions;
. maintain sufficient profit margins despite pricing pressures;
. manage costs in a changing regulatory environment;
. adapt our infrastructure and systems to accommodate growth; and
. recruit and train additional qualified personnel.
Our ability to grow also depends upon our competition and the demand for
temporary and permanent employees in our markets. These factors may divert
management attention, require significant costs and affect our profitability.
We can provide no assurances that we will accomplish these necessary
prerequisites for the successful integration of acquired properties. See "--
Expected Losses" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
6
<PAGE>
DIFFICULTIES IN ACQUIRING BUSINESSES
We intend to pursue acquisitions of other businesses as part of our growth
strategies. With regard to these acquisitions, we cannot offer assurance that
we will:
. successfully identify suitable acquisition candidates;
. complete acquisitions; or
. integrate acquired businesses into our operations.
Acquired companies may not achieve levels of revenues, profitability or
productivity comparable to those of our existing locations, or otherwise
perform as expected. Acquisitions involve special risks, which could have a
material adverse effect on our business, results of operations or financial
condition, including, among others:
. diversion of our management's attention;
. possible adverse effects on our earnings because of increased goodwill
amortization, increased interest costs and the issuance of additional
securities;
. difficulties related to the integration of the acquired business; and
. possible dilution of the value of the Common Stock held by our shareholders.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business--Growth Strategy,"
"Business--Legal Proceedings" and "Description of Capital Stock."
LIMITED EXPERIENCE IN OPENING NEW OFFICES
We intend to open new offices which may produce significant operating losses
and place demands on our operational, administrative and financial resources.
In addition, our future performance and profitability will depend in part on
our ability to attract and retain qualified personnel to manage these new
offices. To date, we have limited experience in opening new offices and,
therefore, cannot assure their success. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Growth Strategy."
RISKS ASSOCIATED WITH NEW SERVICES
We intend to offer different services than the ones we presently provide.
Successful development of new services will depend in part upon our ability to
identify and integrate such services into our existing operating structure. The
identification and offering of new services in which we have little or no
experience or expertise could divert our management's attention and place
significant demands on our operational, administrative and financial resources.
There can be no assurance that we will successfully offer new services without
adversely affecting our business, results of operations or financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Growth Strategy" and "Business--Services."
DEPENDENCE ON AVAILABILITY OF QUALIFIED PERSONNEL
We depend on our ability to attract and retain personnel who possess the skills
and experience necessary to meet the staffing requirements of our clients.
Competition for individuals with proven
7
<PAGE>
skills in finance and accounting and ERP software implementation is intense. We
cannot assure you that qualified personnel will continue to be available to us
in sufficient numbers and on acceptable economic terms. The inability to
attract and retain such qualified personnel could have a material adverse
effect on our business, results of operations or financial condition. See
"Business--Operating Strategy."
SIGNIFICANT RELATIONSHIP WITH SAP
A significant part of our IT staffing business involves providing consultants
to implement ERP software systems for our clients. ERP software systems help
companies better manage their business by redesigning their business processes
in such areas as product development, service delivery, manufacturing, human
resources, finance and accounting. A German company, SAP AG, has developed a
widely used ERP software system. SAP authorizes our consultants to implement
SAP's technology under agreements with SAP. SAP, however, is not obligated to
refer business to us. If our relationship with SAP were to deteriorate or to be
discontinued, or if SAP's ERP software system were to become noncompetitive or
obsolete, either event could have a material adverse effect on our business,
results of operations or financial condition.
EXPECTED LOSSES
As a result of our activities to grow through acquisition and to integrate the
acquired companies, we have incurred significant charges, including combination
expenses and severance and franchise termination costs of $2.5 million in 1997
and $2.4 million in the nine month period ended September 30, 1998. Such
charges in the past and possibly in the future can cause us to incur losses in
the periods in which such charges occur.
As a result of the termination of our S corporation status, we recorded a non-
recurring income tax expense and a corresponding net deferred income tax
liability in the amount of approximately $3.0 million. We will pay this tax
liability over a four year period. As a result of this tax liability, we
incurred a net loss for the first quarter of 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Certain
Transactions--Acquisitions."
DEPENDENCE ON KEY CLIENT RELATIONSHIPS
Many of our clients may cancel or modify their contracts with us at will and
without penalty. No one client accounted for more than 3.4% of our pro forma
service revenues for the year ended December 31, 1997 or the nine months ended
September 30, 1998. Our five largest clients did not account for more than 9.4%
of our pro forma service revenues for the year ended December 31, 1997 and for
the nine months ended September 30, 1998. Included in our top five largest
clients is our relationship with SAP AG in providing our IT staffing services
to clients implementing SAP's ERP software. Failure of SAP AG to continue to
deliver its highly successful software or a loss or material reduction in
revenues from one or more large clients could have a material adverse effect on
our business, results of operations or financial condition.
8
<PAGE>
ADVERSE EFFECTS OF ECONOMIC DOWNTURNS
The general level of economic activity and unemployment in the United States
significantly affects demand for our staffing services. When economic activity
decreases, many companies reduce their utilization of permanent placement firms
and temporary employees. In addition, we may experience more competitive
pricing pressure during periods of economic downturn. Therefore, any
significant economic downturn could have a material adverse effect on our
business, results of operations or financial condition.
COMPETITIVE MARKET
We operate in a highly competitive industry, with limited barriers to entry. We
and other full service and specialized staffing companies compete for
employees, clients and acquisitions in national, regional and local markets. A
significant number of competitors have greater marketing, financial and other
resources than Acsys. Our competitors and customers contribute to the increase
of price competition in the staffing industry. A high level of future
competition could limit our ability to maintain or increase our market share or
to maintain adequate gross profits, both of which could have a material adverse
effect on our business, results of operations or financial condition. See
"Business--The Staffing Industry" and "Business--Competition."
DEPENDENCE ON MANAGEMENT
We depend upon management for continued growth and success. These managers
include: David C. Cooper, Chairman of the Board; Timothy Mann, Jr., Chief
Executive Officer; Edward S. Baumstein, President and Chief Operating Officer;
Beth Monroe Chase, Chief Development Officer; and Brady W. Mullinax, Jr., Vice
President--Finance, Chief Financial Officer and Secretary. A loss of their
services could have a material adverse effect on our business, results of
operations or financial condition. We do not maintain key person insurance
policies on any of these individuals. Furthermore, our continued growth will
depend upon our ability to attract and retain additional skilled management.
See "Management."
REFINANCING OR REPLACEMENT OF CREDIT FACILITY
Our $40 million credit facility requires us to reduce the outstanding balance
to $25 million at December 31, 1998. The total amount outstanding at September
30, 1998 was $33.9 million. We intend to refinance or replace the existing $40
million credit facility with a larger credit facility to meet the repayment
terms of the existing facility and to provide working capital and funds for
future acquisitions. We can offer no assurance that we can find such financing
in the amounts required or that the terms, covenants and the cost of such
financing will be as favorable as those which were available under our existing
credit facility.
INCREASED COSTS FROM GOVERNMENT REGULATION
Significant increases in federal, state and local payroll related costs, which
include unemployment taxes, workers compensation and insurance, FICA and
Medicare, would have a material adverse effect upon Acsys. Our costs could also
increase as a result of federal and state health care reforms, such as those
which extend health insurance benefits to currently uncovered personnel, or the
9
<PAGE>
imposition of additional requirements and restrictions for the placement of
personnel. There can be no assurance that we will promptly and adequately
increase our client fees to cover the increased costs. Further, we cannot
assure that we will adapt to future regulatory changes made by the Internal
Revenue Service, the Department of Labor or other state and federal regulatory
agencies. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS ASSOCIATED WITH THE STAFFING INDUSTRY
As a provider of temporary staffing services, we place our employees in the
workplace of other businesses. Like all employers, our employees can commit
acts which would subject us to negative publicity, injunctive orders or the
imposition of fines or damages. Such acts include discrimination, harassment,
employment of illegal aliens, violations of wage and hour requirements, errors
and omissions, misuse of client proprietary information, misappropriation of
funds and other criminal activity or torts. In some instances, we indemnify
clients against our employees' actions, but in certain circumstances, our
clients might hold us responsible for the actions of those employees not under
our direct control. In the past, we have not had any significant problems in
this area and maintains insurance coverage that we believe is adequate as to
both risks and amounts. However, if an employees fails to follow these policies
or if our insurance is inadequate, such actions could have a material adverse
effect on our business, results of operations, or financial condition. Any
interruption in our clients' business such as inclement weather or work
stoppage will further affect temporary staffing service providers.
POTENTIAL VOLATILITY IN STOCK PRICE; POTENTIAL FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS
The market price of Acsys Common Stock could fluctuate as a result of various
factors, some of which are out of our control. Poor economic conditions,
volatility in the financial markets and changes in the accounting, financial
and information technology industries could cause the market price of our
Common Stock to fluctuate.
We may, in the future, experience significant quarter to quarter fluctuations
in our results of operations. Such fluctuations may result in volatility in the
price of our Common Stock. Quarterly results of operations may fluctuate if we
are unable or unwilling to lower our expenses to meet lower than expected
future revenues. Accordingly, we believe that period to period comparisons of
results of operations are not necessarily meaningful and that you should not
rely upon such comparisons as an indication of future results of operations.
Because of the foregoing, it is likely that in some future quarter our
operating results will be below the expectations of public market analysts and
investors. Such an event would probably have a material adverse effect on the
price of our Common Stock.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The market price of the Common Stock could drop as a result of sales of a large
number of shares of Common Stock or the exercise of options for Common Stock in
the market, or the perception that such sales or exercise of options could
occur. These factors also could make it more difficult for Acsys to raise funds
through future offerings of Common Stock.
10
<PAGE>
As of November 13, 1998, there were 14,431,518 shares of Common Stock
outstanding. In addition, as of October 31, 1998, we had outstanding options to
purchase 2,000,269 shares of Common Stock. Of the outstanding shares, the
2,842,500 shares of Common Stock sold in the initial public offering are freely
transferable without restriction or further registration under the Securities
Act of 1933 as amended (the "Securities Act"). In addition, a total of 213,142
shares have been sold pursuant to Rule 144 and are now freely transferable. The
423,056 shares offered by the selling shareholders under this Prospectus will
be freely transferable. The remaining 10,952,820 shares of Common Stock
outstanding are "restricted securities" as defined in Rule 144. These shares
may be sold in the future without registration under the Securities Act to the
extent permitted by Rule 144 or an exemption under the Securities Act. When we
register the shares issuable on exercise of options, such shares will become
eligible for resale in the public market unless such resale is contractually
restricted. See "Management--1997 Stock Option Plan" and "Shares Eligible for
Future Sale."
SUBSTANTIAL OWNERSHIP BY MANAGEMENT
Currently, our executive officers and directors own approximately 33.8% of the
outstanding Common Stock. Accordingly, the executive officers and directors
will be able to influence the election of directors, the appointment of
management and the approval of certain actions requiring the approval of a
majority of Acsys' shareholders. Such concentration of ownership may have the
effect of delaying or preventing a change in control of Acsys. See "Management"
and "Principal and Selling Shareholders."
SIGNIFICANT AMOUNT OF INTANGIBLE ASSETS
As of September 30, 1998, approximately $54.6 million, or 64.3% of Acsys' total
assets were intangible assets. These intangible assets, which primarily
represent amounts attributable to goodwill, arose through acquisitions
accounted for as purchases. We will likely incur additional goodwill in the
future as we acquire other staffing companies. Additionally, we currently
amortize goodwill over a useful life that management believes is reasonable and
is allowable under generally accepted accounting principles (GAAP). GAAP can
change in the future and affect the amortization period and therefore the
future results of our company. Additionally, any impairment in the value of
such assets could have a material adverse effect on our business, results of
operations or financial condition.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
Provisions in Acsys' articles of incorporation and bylaws, the business
corporations code of the State of Georgia, and certain employment agreements
with Acsys' executive officers may make it difficult to pursue a tender offer,
change in control or takeover attempt which we oppose. As a result,
shareholders who might desire to participate in such a transaction may not have
an opportunity to do so. In addition, these provisions may reduce the trading
price of our stock. These provisions include: the issuance of preferred stock
without shareholder approval; certain provisions relating to the meeting of
shareholders; "fair price" and "business combinations" statutes under the
general corporation law of Georgia; and provisions in employment agreements
which allow certain employees to terminate their employment and receive a
severance pay in the event of a change of
11
<PAGE>
control. See "Management--Executive Compensation; Employment Agreements;
Covenants Not to Compete."
NO ANTICIPATED CASH DIVIDENDS; RESTRICTIONS ON PAYMENT
For the foreseeable future, we anticipate retaining our earnings for the
operation and expansion of our business and we do not anticipate paying cash
dividends. In addition, Acsys' $40 million credit facility with NationsBank
N.A. prohibits the payment of cash dividends without their consent. See "Prior
S Corporation Status" and "Dividend Policy."
RISK OF SYSTEMS FAILURES DUE TO YEAR 2000 ISSUE
We have begun the process of identifying, evaluating, and implementing changes
to computer programs necessary to address the year 2000 issue. The "year 2000
issue" is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
significant issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
Acsys relies on its systems in operating and monitoring all aspects of its
business. Acsys also relies heavily on the external systems of its customers,
suppliers and other organizations with which it does business. We have
initiated activities to identify the actions necessary and, where identified,
have begun to implement these actions to provide uninterrupted, normal
operations of critical business systems before, during and after the year 2000.
Management does not anticipate that Acsys will incur significant expenses or
invest heavily in computer systems improvements to be year 2000 compliant.
However, significant uncertainty exists concerning the potential costs and
effects associated with any year 2000 compliance. If necessary modifications
and conversions are not completed effectively or in a timely manner, or if the
computer systems of our vendors, customers, and other third party service
providers are adversely affected by the year 2000 issue, the year 2000 issue
may disrupt Acsys' operations and have a material adverse effect on our
business, results of operations or financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Computer Issues."
12
<PAGE>
USE OF PROCEEDS
All net proceeds from the sale of the shares of Acsys Common Stock will go to
the selling shareholders who offer and sell their shares. Accordingly, we will
not receive any proceeds from sales of the shares of Acsys Common Stock offered
by this Prospectus.
PRICE RANGE OF COMMON STOCK
Acsys' Common Stock began trading on the Nasdaq National Market on February 6,
1998, under the symbol ACSY. Before that date, there was no established public
trading market for the Common Stock. The closing sales price of the Common
Stock on November 13, 1998 was $8.125. The following table sets forth, for the
period indicated, the high and low sales prices of the Common Stock.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ------- -------
<S> <C> <C>
First Quarter (from February 6, 1998).......................... $ 16.50 $11.063
Second Quarter................................................. 20.500 13.000
Third Quarter.................................................. 13.750 6.250
Fourth Quarter (through November 13, 1998)..................... 9.875 4.750
</TABLE>
DIVIDEND POLICY
We do not anticipate paying any cash dividends on the Common Stock in the
foreseeable future because we intend to retain our earnings, if any, to finance
the expansion of our business and for general corporate purposes, including
future acquisitions. Any payment of future dividends will be at the discretion
of our Board of Directors and will depend upon, among other things, our
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
factors that our Board of Directors deems relevant. Our credit facility
currently prohibits the payment of dividends without the lender's consent.
We were an S corporation from our inception through February 5, 1998. As
explained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Recent Developments; Distribution to S Corporation
Shareholders," we distributed to our shareholders during that period the
approximate amount we needed to fund the payment of federal and state income
taxes payable on our taxable income during that period.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at September 30, 1998 (in
thousands). This table should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the other
financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Long-term debt, including current maturities.......................... $34,645
-------
Preferred Stock, no par value, 5,000,000 shares authorized, no shares
issued and outstanding............................................... --
Common Stock, no par value, 45,000,000 shares authorized, 14,422,038
shares issued and outstanding (1).................................... 29,377
Retained earnings..................................................... 4,319
-------
Total shareholders' equity............................................ 33,696
-------
Total capitalization................................................ $68,341
=======
</TABLE>
- --------
(1) Excludes 2,000,000 shares of Common Stock reserved for issuance under the
1997 Option Plan, 73,000 shares of Common Stock reserved for issuance under
options otherwise outstanding that were granted prior to the IPO and 39,480
shares of Common Stock reserved for issuance under options for former
optionholders of ICON. Options to purchase 321,928 shares of Common Stock
have been granted and were exercisable at September 30, 1998 with a
weighted average exercise price of $7.15 per share. See "Management--1997
Stock Option Plan."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
All of the financial data set forth above have been restated to give effect to
the acquisitions of Infinity Enterprises, Inc.; David C. Cooper & Associates,
Inc.; DCAA Professional Temporaries, Inc.; EKT, Inc., Cama of Tampa, Inc.;
Rylan Forbes Consulting Group, Inc.; AcSys Resources, Inc.; and ICON, which
have been accounted for under the pooling of interests method of accounting
(the "Pooling Acquisitions"). Additionally, the financial data set forth above
includes results operations of Infinity Enterprises, Inc., ICON and Cama of
Tampa, Inc. from March 1, 1994, September 12, 1994, and January 1, 1996,
respectively, the dates of their formation. The acquisitions of C.P.A.
Staffing, Inc.; C.P.A. Search, Inc.; Career Placement Associates (together "CPA
Staffing") in August 1997; TGS in March 1998; KPD in July 1998; and Staffing
Edge in August 1998 have been accounted for under the purchase method of
accounting and are included in the historical statements of operations from
their respective dates of acquisition (the "Purchase Acquisitions"). The
entities acquired in the Pooling Acquisitions and the Purchase Acquisitions are
collectively referred to as the "Acquired Companies." Prior to our IPO, we were
an S corporation; accordingly, certain financial data may not be comparable to
or indicative of our post-IPO results. The following table contains certain
financial and operating data and is qualified by the more detailed Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The Balance Sheet Data as of December 31, 1995, 1996 and 1997 and the
Statements of Operations Data for the years ended December 31, 1994, 1995, 1996
and 1997 were derived from the Consolidated Financial Statements and Notes
thereto that have been audited by Arthur Andersen LLP, independent public
accountants. The Balance Sheet Data as of December 31, 1993 and 1994 and
September 30, 1998 and the Statements of Operations Data for the years ended
December 31, 1993 and the nine months ended September 30, 1997 and 1998 have
been derived from our unaudited financial statements which, in the opinion of
management, have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring
adjustments, which management considers necessary for a fair presentation of
the selected financial data shown. The financial data shown for the nine months
ended September 30, 1998 are not necessarily indicative of the results to be
expected for the entire year ending December 31, 1998. The financial data shown
below should be read in conjunction with the Consolidated Financial Statements
and the related Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ ----------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1996 1997 1997 (2) 1997 1998 1998 (2)
------- ------- ------- ------- ------- --------- ------- -------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA (1):
Service revenues:
Temporary staffing..... $10,664 $21,153 $28,215 $44,556 $60,057 $ 84,608 $42,550 $69,564 $ 83,664
Permanent placement.... 4,338 6,258 8,269 12,186 18,071 23,196 13,742 19,807 24,112
------- ------- ------- ------- ------- -------- ------- -------- --------
Total service
revenues.............. 15,002 27,411 36,484 56,742 78,128 107,804 56,292 89,371 107,776
Direct cost of
services............... 7,679 14,036 18,284 30,616 42,583 59,095 29,863 48,768 58,304
------- ------- ------- ------- ------- -------- ------- -------- --------
Gross profit........... 7,323 13,375 18,200 26,126 35,545 48,709 26,429 40,603 49,472
Selling, general and
administrative
expenses............... 6,991 10,231 13,893 20,769 29,979 38,604 21,063 32,969 39,133
Combination expenses.... -- -- -- -- 1,797 -- 1,722 1,730 --
Amortization and
depreciation........... 33 547 682 693 715 2,109 459 1,059 1,777
Severance and franchise
termination costs...... -- 561 166 567 682 682 170 650 650
------- ------- ------- ------- ------- -------- ------- -------- --------
Operating income....... 299 2,036 3,459 4,097 2,372 7,314 3,015 4,195 7,912
Other income (expense).. (70) (853) (865) (811) (788) (1,878) (588) (466) (1,727)
------- ------- ------- ------- ------- -------- ------- -------- --------
Income before income
taxes.................. 229 1,183 2,594 3,286 1,584 5,436 2,427 3,729 6,185
Income taxes............ -- -- 133 419 438 2,392 580 5,185 2,635
------- ------- ------- ------- ------- -------- ------- -------- --------
Net income (loss)...... $ 229 $ 1,183 $ 2,461 $ 2,867 $ 1,146 $ 3,044 $ 1,847 $ (1,456) $ 3,550
======= ======= ======= ======= ======= ======== ======= ======== ========
Pro forma basic net
income per share
(2)(3)(4).............. $ 0.21 $ 0.25
======== ========
Pro forma diluted net
income per share
(2)(3)(4).............. $ 0.21 $ 0.24
======== ========
Weighted average shares
used in computing pro
forma basic net income
per share (4).......... 14,385 14,462
Weighted average shares
used in computing pro
forma diluted net
income per share (4)... 14,489 14,918
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
----- ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1):
Working capital............... 692 1,486 2,216 4,309 4,921 3,171
Total assets.................. 2,499 12,787 14,503 18,167 33,352 85,188
Long-term debt, including
current maturities........... 843 9,925 8,905 8,847 11,754 34,645
Redeemable Common Stock....... -- -- -- 288 1,220 --
Shareholders' equity.......... 266 927 2,670 4,175 10,801 33,696
</TABLE>
- --------
(1) All of the financial data set forth above have been restated to give effect
to the Pooling Acquisitions. The financial data includes results of
operations of Infinity Enterprises, Inc., ICON and Cama of Tampa, Inc. from
March 1, 1994, September 12, 1994, and January 1, 1996, respectively, the
dates of their formation. The Purchase Acquisitions are included in the
historical statements of operations from their respective dates of
acquisition. See Note 1 of Notes to Consolidated Financial Statements.
(2) The pro forma operations data reflect the Purchase Acquisitions as if they
had occurred on January 1, 1997. In addition, the pro forma operations data
reflect (i) the elimination of combination expenses incurred in connection
with the Pooling Acquisition, (ii) an adjustment to compensation expense
for the difference between actual compensation paid to certain owners and
key employees of the Acquired Companies and the compensation negotiated in
conjunction with such acquisitions, (iii) the elimination of a division of
Staffing Edge which was exited upon the acquisition of Staffing Edge and
(iv) income tax expense computed as if we had terminated our status as an S
corporation as of January 1, 1997. See Pro Forma Combined Financial
Statements.
(3) Prior to the IPO, we operated as an S corporation for income tax purposes
except for ICON which is a C Corporation. Accordingly, income tax expense
prior to the IPO was generated from the operating activities of ICON. In
connection with the IPO we terminated our S corporation status and recorded
a charge to income tax expense of approximately $3,000,000 in the nine
months ended September 30, 1998 representing the tax effect of differences
in the bases of assets and liabilities for financial reporting and income
tax purposes. Pro forma net income reflects income tax expense as if we had
terminated our status as an S Corporation as of January 1, 1997. See Note 2
of Notes to Consolidated Financial Statements for information concerning
the computation of the income taxes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(4) See Notes 3 and 4 of Notes to Pro Forma Combined Financial Statements for a
discussion of the pro forma net income (loss) per share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Results of Operations and
Financial Condition contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). These statements relate to future
economic performance, plans and objectives of management for future operations
and projections of revenues and other financial items that are based on the
beliefs of our management, as well as assumptions made by, and information
currently available to, our management. Actual results could differ materially
from those currently anticipated as a result of a number of factors, including
those listed in (a) the "Risk Factors" section of this Prospectus and (b) the
disclosure contained in the "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Disclosure Regarding Forward Looking
Statements" section of this Prospectus. These factors include, but are not
limited to, our brief combined operating history and our ability to identify
and acquire suitable acquisition candidates, to integrate acquired companies
into our operations, to implement internal control and management financial and
operational reporting systems, and to manage risks associated with opening new
offices and offering new services.
INTRODUCTION
Acsys is one of the leading specialty professional staffing and permanent
placement firms in the United States. We operate through 40 offices serving
major metropolitan markets across the United States, with a more significant
presence principally in the Eastern and Midwestern United States. We were
formed in March 1997 and since our formation have acquired 11 companies to
date.
Each of our acquisitions, other than the Purchase Acquisitions was accounted
for as a pooling of interests. Our historical financial statements have been
restated to reflect the results of operations and financial positions of the
Acquired Companies from their acquisition dates forward. Accordingly, the
results of operations of C.P.A. Staffing are included beginning August 12, 1997
(its date of acquisition). Additionally, the results of TGS, KPD and Staffing
Edge are included beginning March 31, 1998, July 1, 1998 and August 4, 1998
(their respective dates of acquisition). Additionally, the results of
operations of Cama of Tampa are included for periods beginning on January 1,
1996 (its date of formation). As a result, historical combined results may not
be comparable to or indicative of future performance. Our revenues and expenses
may be significantly affected by the number and timing of the acquisition of
additional businesses, the opening of additional offices or the introduction of
new services. The timing of such expansion activities may also affect period-
to-period comparisons.
Temporary staffing service revenues are recognized based on hours worked by
assigned personnel. Generally, we bill our clients a fixed sum per hour for the
hours our temporary employees work. Temporary personnel are generally Acsys
employees; accordingly, we are responsible for workers' compensation,
unemployment compensation insurance, Social Security and Medicare taxes and
general payroll expenses. These expenses are included within direct cost of
services. Because we pay our temporary employees only for the hours they
actually work, wages for our temporary personnel are a variable cost that
increase or decrease in proportion to service revenues. Our gross profit is
17
<PAGE>
determined by deducting these direct costs of services from our service
revenues. Some of the temporary employees may decide to accept an offer of
permanent employment from the client and thereby "convert" the temporary
position to a permanent position, and a fee is generally paid to Acsys. Such
fees are included in temporary staffing revenues.
Permanent placement service revenues are recognized when the employment offer
and acceptance have occurred and the candidate's employment start date has been
established. Acsys' fee is typically structured as a percentage of the placed
candidate's first-year annual compensation. Generally, if a candidate is
terminated or resigns during a specified guaranty period (typically 90-180
days), we either fill the position without additional charges or provide a
prorated refund.
The primary costs associated with permanent placement service revenues are
sales commissions to staffing consultants. Commissions vary proportionately
with permanent placement service revenues. Consistent with industry practices,
we classify all costs associated with permanent placement services as selling,
general and administrative expenses. Other selling, general and administrative
expenses include payroll for management and administrative employees, office
occupancy costs, sales and marketing expenses and other general and
administrative costs.
Prior to their acquisition by Acsys, the Acquired Companies were managed as
private companies with significant equity ownership by management. Our results
of operations reflect the S corporation tax structures of the Acquired
Companies (except for ICON which was a C corporation) which influenced, among
other things, the historical levels of their owners' compensation. The income
taxes related to ICON are included in the historical Consolidated Financial
Statements. The former owners of the Acquired Companies agreed to adjustments
in their compensation and benefits, effective as of the dates of the respective
acquisitions. The following results of operations do not include those
contractual compensation adjustments for periods prior to the dates of the
respective acquisitions.
RECENT DEVELOPMENTS
Growth Initiatives and Integration Activities. Beginning in the third quarter
of 1997, we undertook a number of different activities intended to support our
growth. These activities included the hiring of additional temporary and
permanent placement staffing consultants, the expansion of our IT and our Acsys
Business Consultants lines, the opening of new offices in Orlando, Florida and
Washington, D.C. and the augmentation of our corporate infrastructure to enable
us to operate as a public entity. In the first three quarters of 1998, we hired
many new temporary and permanent consultants and hired numerous corporate
office personnel in order to meet our revenue goals and to integrate the
Acquired Companies. We have worked and continue to work to integrate these
acquisitions into our Hub-Center approach.
Initial Public Offering. In February 1998, we completed our IPO of 2,842,500
shares of Common Stock at a price of $8.50 per share, realizing net cash
proceeds of approximately $20.2 million after deducting underwriting discounts
and offering expenses.
Distribution to S Corporation Shareholders. We terminated our S corporation
status and became a C corporation on February 5, 1998 in connection with our
initial public offering. During 1998, we made distributions to the persons who
were shareholders during the period we were an S corporation.
18
<PAGE>
The distributions approximated the amounts that such shareholders needed to
fund the payment of Federal and state income taxes payable on Acsys' taxable
income during that period. The amount of such distributions through September
30, 1998 were $545,000 and are reflected as a reduction in retained earnings.
Subsequent to September 30, 1998, upon completion of our final tax returns as a
S Corporation, we distributed an additional $293,000.
Deferred Tax Liability. In February, 1998, we recorded a deferred tax liability
of $3.0 million, primarily to recognize income tax expense on the cash to
accrual adjustment caused by our change from an S corporation to a C
corporation. We will pay the deferred tax liability over a four-year period.
Principally as a result of the deferred tax liability, we incurred a net loss
for the first quarter of 1998.
RESULTS OF OPERATIONS
The following table sets forth the consolidated statements of operations for
the indicated periods.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
----------------------- ---------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997 1998
------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Service revenues:
Temporary staffing...... $28,215 $44,556 $60,057 $42,550 $69,564
Permanent placement..... 8,269 12,186 18,071 13,742 19,807
------- ------- ------- ------- -------
Total service
revenues............. 36,484 56,742 78,128 56,292 89,371
Direct cost of services... 18,284 30,616 42,583 29,863 48,768
------- ------- ------- ------- -------
Gross profit.......... 18,200 26,126 35,545 26,429 40,603
Selling, general and
administrative expenses.. 13,893 20,769 29,979 21,063 32,969
Combination expenses...... -- -- 1,797 1,722 1,730
Amortization and
depreciation............. 682 693 715 459 1,059
Severance and franchise
termination costs........ 166 567 682 170 650
------- ------- ------- ------- -------
Operating income...... 3,459 4,097 2,372 3,015 4,195
Interest expense, net..... 865 811 788 588 466
------- ------- ------- ------- -------
Income before income
taxes.................... $ 2,594 $ 3,286 $ 1,584 $ 2,427 $ 3,729
======= ======= ======= ======= =======
</TABLE>
HISTORICAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
HISTORICAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Service Revenues. Total service revenues increased $33.1 million, or 58.8%, to
$89.4 million for the nine months ended September 30, 1998 from $56.3 million
for the corresponding period in 1997. Temporary staffing service revenues
increased $27.0 million, or 63.5%, to $69.6 million for the nine months ended
September 30, 1998 as compared to $42.6 million for 1997. The increase in
temporary staffing service revenues is primarily attributable to the growth of
IT contract staffing, the increase in billing rates and the impact of
acquisitions of C.P.A. Staffing, TGS, KPD and Staffing Edge. Permanent
placement service revenues increased $6.1 million, or 44.1%, to $19.8 million
for the nine months ended September 30, 1998 from $13.7 million for 1997.
Permanent placement service revenues increased primarily due to increases in
the number of permanent placements, the increase in placement fees and the
acquisitions completed in the nine months ended September 30, 1998 (the "1998
Acquisitions").
Gross Profit. Gross profit increased $14.2 million, or 53.6%, to $40.6 million
for the nine months ended September 30, 1998 from $26.4 million for 1997. Gross
profit as a percentage of service
19
<PAGE>
revenues for the nine months ended September 30, 1998 decreased to 45.4% of
revenues compared to 46.9% of revenues for 1997. The gross profit percentage
decline resulted from the decrease in 1998 of the higher margin permanent
placement revenues as a percentage of the total revenues and as a result of the
growth in 1998 of the information technology business which has higher bill
rates but lower margins than the rest of our business.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased $11.9 million, or 56.5%, to $33.0 million for
the nine months ended September 30, 1998 from $21.1 million for the nine months
ended September 30, 1997. As a percentage of revenues, selling, general and
administrative expenses were 36.9% for the nine months ended September 30, 1998
compared with 37.4% for the corresponding period in 1997. This decrease as a
percentage of revenues is primarily attributable to the fact that the nine
months ended September 30, 1997 had significant amounts of owners' compensation
costs. Also contributing to the lower percentage was increased efficiencies and
the spreading of overhead costs over a substantially larger revenue base.
Combination Expenses. Combination expenses for the nine months ended September
30, 1998 and 1997 were $1.7 million. These expenses included transaction costs
for our mergers which have been accounted for under the pooling of interests
method and include investment banking, legal, accounting and other fees.
Severance and Franchise Termination Costs. We recorded a charge of $650,000
during the nine months ended September 30, 1998 consisting principally of
severance obligations resulting from the decision to consolidate our corporate
offices in Atlanta. For the corresponding period in 1997, we recorded a charge
of $170,000 related to the termination of a franchise agreement.
Amortization and Depreciation. Amortization and depreciation for the nine
months ended September 30, 1998 increased $600,000 from the corresponding
period of 1997. Amortization and depreciation for the nine months ended
September 30, 1998 includes goodwill amortization expense as a result of the
C.P.A. Staffing acquisition in August 1997 and the 1998 Acquisitions.
Depreciation expense also increased as a result of capital expenditures in 1997
and 1998.
Interest Expense, net. For the nine months ended September 30, 1998, we
recorded net interest expense of $466,000, consisting principally of interest
on borrowings under our revolving credit facility with NationsBank, N.A., and
interest on noncompete and severance arrangements. For the nine months ended
September 30, 1997, we recorded net interest expense of $588,000 consisting
principally of interest expense on our credit facility and other long term
debt. In February 1998, we repaid the amount outstanding under this credit
facility with part of the proceeds of the IPO. We subsequently renewed
borrowings on our credit facility, primarily to fund our August 1998
acquisition of Staffing Edge. See "--Liquidity and Capital Resources."
Income Tax Expense. Prior to February 5, 1998, we were an S corporation and not
subject to income taxes. In connection with the IPO and the termination of our
S corporation status, we recorded a tax liability of approximately $3.0 million
in the nine months ended September 30, 1998 to recognize income tax expense
created by our change to a C corporation, which primarily relates to a change
from the cash to accrual method of accounting for income tax purposes. We will
pay the deferred tax liability over a four-year period. For 1997, the income
tax provision relates exclusively
20
<PAGE>
to ICON, which for federal income tax purposes was a C corporation subject to
corporate income taxes.
Net Income. On an historical basis, we recognized a net loss and a net loss per
share of $1.5 million and $0.10, respectively, for the nine months ended
September 30, 1998 compared to net income and net income per share of $1.8
million and $0.09, respectively, for the corresponding period of 1997. The
calculation of the net loss per share for the nine months ended September 30,
1997 reflects a reduction of $932,000 to net income available to common
shareholders for the accretion of the redeemable shares.
HISTORICAL RESULTS FOR 1997 COMPARED TO HISTORICAL RESULTS FOR 1996
Service Revenues. Total service revenues increased $21.4 million, or 37.7%, to
$78.1 million for the year ended December 31, 1997 from $56.7 million for the
year ended December 31, 1996. A total of $2.8 million of the increase is
attributable to revenues from C.P.A. Staffing from its acquisition date of
August 12, 1997. Temporary staffing service revenues increased $15.5 million,
or 34.8%, to $60.1 million for the year ended December 31, 1997 from $44.6 for
the year ended December 31, 1996. Temporary staffing service revenues increased
primarily as a result of growth in our IT business, increased billing rates,
and increased revenues from offices opened in 1996 and 1995. Permanent
placement service revenues increased $5.9 million or 48.3%, to $18.1 million
for the year ended December 31, 1997 from $12.2 million for the year ended
December 31, 1996. Permanent placement service revenues increased primarily due
to increases in permanent placements, in the number and productivity of
consultants and in billings to existing clients.
Gross Profit. Gross profit increased $9.4 million, or 36.1%, to $35.5 million
for the year ended December 31, 1997 from $26.1 million for the year ended
December 31, 1996. Gross profit as a percentage of service revenues decreased
to 45.5% for the year ended December 31, 1997 from 46.0% for the year ended
December 31, 1996. This decrease is primarily due to an increase in our IT
business in 1997 as compared to 1996 which is at a lower gross margin
percentage but at higher dollar amounts than the remainder of our business.
This decrease in gross margin percentage was not offset by the increase in the
percentage of service revenues derived from permanent placement services, which
increased to 23.1% of total service revenues for the year ended December 31,
1997 from 21.5% for the year ended December 31, 1996. Permanent placement
service revenues generate higher gross profits than temporary staffing service
revenues because sales commissions and other costs associated with permanent
placement services are included in selling, general and administrative
expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $9.2 million, or 44.3%, to $30.0 million for
the year ended December 31, 1997 from $20.8 million for the year ended December
31, 1996. Approximately $2.5 million of the increase was attributable to sales
commissions associated with the increase in service revenues. An additional
$2.2 million of the increase was the result of additional personnel costs. The
1997 results also reflect approximately $900,000 of C.P.A. Staffing-related
selling, general and administrative expenses from its date of acquisition. In
addition, we incurred expenses for the year ended December 31, 1997 in
connection with the introduction of Acsys Business Consulting staffing services
and IT temporary staffing services and with general integration-related
expenses. As a result of the above factors, selling, general and administrative
expenses as a percentage of revenues increased to 38.4% for the year ended
December 31, 1997 from 36.6% for the year ended December 31, 1996.
21
<PAGE>
Combination Expenses. For the year ended December 31, 1997, we recognized
expenses of $1.8 million, or 2.3% of service revenues, for legal, accounting
and other expenses related to the Pooling Acquisitions.
Amortization and Depreciation. The acquisition of C.P.A. Staffing and the
acquisition of certain assets of a predecessor by Infinity Enterprises, Inc.
originally generated most of the goodwill. Goodwill represents the excess cost
over the net tangible assets acquired and is being amortized over 40 years. We
periodically review the carrying value of intangible assets and impairments, if
any, when the expected future operating cash flows derived from such intangible
assets are less than their carrying value. Based upon our most recent analysis,
we believe that no material impairment of intangible assets existed at December
31, 1997. We fully amortized a non-compete agreement in 1996. The favorable
effect of the decrease in amortization due to the non-compete agreement was
offset by an increase in amortization of goodwill associated with the
acquisition of C.P.A. Staffing. In addition, depreciation increased due to an
increase in capital expenditures in 1997.
Severance and Franchise Termination Costs. During 1997, we recognized $512,000
of expense as a result of the restructured employment relationship with our
former President. Additionally during 1997, we recognized $170,000 related to
the termination of a franchise agreement by Cama of Tampa, Inc. During 1996, we
incurred $459,000 in severance payments to a former employee of AcSys
Resources, Inc. in connection with his employment termination. Also during
1996, we recorded $108,000 of franchise termination costs related to the
termination of the AcSys Resources, Inc. franchise agreement. We are not
currently a party to any franchise agreements. We could incur such costs in the
future in connection with future acquisitions.
Interest Expense, net. Interest expense, net is comparable for both periods
presented.
HISTORICAL RESULTS FOR 1996 COMPARED TO HISTORICAL RESULTS FOR 1995
Service Revenues. Service revenues increased $20.3 million, or 55.5%, to $56.7
million in 1996 from $36.5 million in 1995. Temporary staffing service revenues
increased $16.3 million, or 57.9%, to $44.6 million in 1996 from $28.2 million
in 1995. The increase in temporary staffing service revenues is primarily a
result of growth in our IT business and increases in billing rates and revenues
from offices opened in 1996 and 1995. Permanent placement service revenues
increased $3.9 million, or 47.4%, to $12.2 million in 1996 from $8.3 million in
1995. Permanent placement service revenue increased primarily due to an
increase in the number of permanent placements made in 1996, additional
permanent placement consultants and increased productivity. In addition, 1996
service revenues reflect $2.5 million in total service revenues from Cama of
Tampa, Inc. Due to a change in ownership of Cama of Tampa, Inc. as of January
1, 1996, our operating results for 1995 do not include the operating results of
that entity.
Gross Profit. Gross profit increased $7.9 million, or 43.5%, to $26.1 million
in 1996 from $18.2 million in 1995. Gross profit as a percentage of service
revenues decreased to 46.0% in 1996 from 49.9% in 1995, primarily because
permanent placement service revenues comprised a smaller portion of total
service revenues, decreasing to 21.5% of total service revenues in 1996 from
22.7% in 1995. Additionally, the gross profit percentage decline is due to an
increase in 1996 of our IT business which has a lower gross margin percentage
than our other temporary services businesses.
22
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.9 million, or 49.5%, to $20.8 million in
1996 from $13.9 million in 1995. Approximately $2.1 million of the increase was
attributable to sales commissions associated with the increase in permanent
placement revenues, and $1.4 million was the result of an increase in owners'
compensation of the entities acquired in the Pooling Acquisitions. In addition,
1996 selling, general and administrative expenses reflect the expenses of Cama
of Tampa, Inc. whereas 1995 selling, general and administrative expenses do
not. Selling, general and administrative expenses also increased as a result of
corporate expenses incurred in 1996 to support Acsys' growth. Selling, general
and administrative expenses as a percentage of service revenues decreased to
36.6% in 1996 from 38.1% in 1995, primarily due to startup expenses associated
with our IT business in 1995 which were not present in 1996.
Amortization and Depreciation. Amortization and depreciation increased $11,000,
or 1.6%, to $693,000 in 1996 from $682,000 in 1995.
Severance and Franchise Termination Costs. In 1996, we incurred $459,000 in
severance payments to a former employee of AcSys Resources, Inc. and $108,000
of costs related to the termination of the AcSys Resources, Inc. franchise
agreement. This compares to $166,000 of franchise termination costs in 1995.
Interest Expense, net. Interest expense, net decreased to $811,000 in 1996 from
$865,000 in 1995 principally due to lower average debt levels.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $3.5 million in the nine months
ended September 30, 1998. The use of cash is due to increases in accounts
receivable and in other working capital requirements. For the corresponding
period of 1997, cash provided by operations was $2.0 million, principally due
to increases in accrued expenses and other liabilities.
Net cash used in investing activities during the nine months ended September
30, 1998 was $36.6 million. Included in cash used for investing activities was
$34.3 million (net of cash acquired) paid in connection with the 1998
Acquisitions and $2.3 million used for capital expenditures for furniture,
fixtures and equipment. We will continue to make capital expenditures
throughout 1998 on information technology systems and equipment.
Net cash provided by financing activities was $40.9 million in the nine months
ended September 30, 1998. Upon completion of our IPO, we raised $20.2 million
net of expenses paid. We used approximately $11.1 million to immediately repay
our then current borrowings under our credit facility. We subsequently borrowed
approximately $31.5 million in connection with our acquisition of Staffing Edge
in August, 1998. Additionally, during the nine months ended September 30, 1998,
we used $545,000 for shareholder distributions related to certain pre-IPO S
corporation tax liabilities.
Principally as a result of the August 1998 acquisition of Staffing Edge, at
September 30, 1998 the outstanding balance under our $40.0 million revolving
credit facility was approximately $34.0 million. The amount available under our
credit facility will be reduced to $25.0 million on January 1, 1999.
Accordingly, at September 30, 1998, $9.0 million of the borrowings have been
classified as a current
23
<PAGE>
liability. We anticipate, as a result of our operating results and borrowing
capacity, that we will be able to refinance or replace the existing credit
facility with a larger borrowing facility. In the event that we are unable to
repay the amount necessary to reduce our obligations under the credit facility
to $25.0 million by January 1, 1999, in order to avoid default occurring under
the credit facility, we will attempt to negotiate with the lenders for a
modification of the credit facility. Additionally, we believe that funds
currently available on hand, funds to be provided by operations, funds
available under the existing credit facility and, after January 1, 1999, funds
available under the refinanced borrowing facility will be sufficient to meet
our anticipated needs for working capital for the next twelve months. There can
be no assurance that we will be able to replace, refinance or renegotiate our
credit facility. Our plan to replace, refinance or renegotiate our credit
facility, our estimate of the time that funds currently on hand, funds provided
by operations and funds available under the existing credit facility, and after
January 1, 1999, funds from the refinanced, replaced or renegotiated borrowing
facility will be sufficient to meet our working capital needs is a forward-
looking statement that is subject to risks and uncertainties. Actual results
and working capital needs could differ materially from those estimated due to a
number of factors, including the use of funds for acquisitions. In addition,
future acquisitions may require additional debt and equity financing.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." 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 15, 1997 and
is now currently being applied by Acsys. SFAS No. 130 requires comparative
financial statements provided for earlier periods to be reclassified to reflect
application of the provisions of this new standard. We have determined that for
the nine months ended September 30, 1997 and 1998 and for the years ended
December 31, 1995, 1996 and 1997, no items meeting the definition of
comprehensive income as specified on SFAS No. 130, except net income, existed
in the financial statements. As a result, no disclosure is necessary to comply
with the standard.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS 131"). This statement establishes
additional standards for segment reporting in the financial statements and is
effective for fiscal years beginning after December 15, 1997. Our management
believes that SFAS 131 will not have a material effect on our financial
statements.
YEAR 2000 COMPUTER ISSUES
Introduction. The Year 2000 issue refers to the problems that result from the
many existing computer software programs and operating systems that use only
two digits rather than four to define the applicable year in a date field.
These programs were designed and developed without considering the impact of
the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000.
Acsys' State of Readiness. Our key financial, informational and operational
systems are being assessed and detailed plans are being developed to address
system modifications required by March 1999. These systems include information
technology systems ("IT"). We have assessed our major IT vendors and technology
providers and are in the process of testing our systems to determine Year
24
<PAGE>
2000 compliance. In addition, we are in the process of assessing our non-IT
systems that utilize embedded technology such as microcontrollers and reviewing
them for Year 2000 compliance.
To operate our business, we rely upon government agencies, utility companies,
providers of telecommunication services, suppliers, and other third party
service providers ("Primary Service Providers"), over which we can assert
little control. Our ability to conduct our core business depends upon the
ability of these Primary Service Providers to fix their Year 2000 issues and to
the extent they cannot or do not fix their Year 2000 issues, our financial
condition could be materially and adversely affected. In addition, our
customers may experience Year 2000 issues that could have a material adverse
effect on their business and their need for our services, which in turn could
have a material adverse effect on our business.
We have begun an assessment of all Primary Service Providers to determine risk
and assist in the development of contingency plans. This effort is to be
completed by March 1, 1999. In particular, we use various software packages in
conducting and accounting for our temporary staffing, permanent placement and
general accounting operations. These packages, among other things, track and
accumulate temporary staff time and client billings, process staff payroll, and
produce financial statements and other financial data. We use software packages
and hardware in certain locations that may not be Year 2000 compliant. In
addition, certain of our Hub-Centers use software packages that may not be Year
2000 compliant. As discussed in "Business--Corporate Support Services;
Information Systems," we are implementing integrated staffing and accounting
software packages. We have the option either to purchase new Year 2000
compliant software from outside vendors or implement existing in-house Year
2000 compliant software, or to combine both approaches.
We expect that our information systems integration efforts will enable us to be
fully Year 2000 compliant although we cannot guarantee that software
represented by vendors as Year 2000 compliant will in fact be compliant.
Further, we use a third-party payroll processing company, and although we
expect that this company will be Year 2000 compliant, no assurances can be
given in that regard. In pursuing our acquisition strategy we could acquire an
entity that is not Year 2000 compliant. Depending on the size of the entity
acquired, noncompliance could negatively affect our results of operations.
Costs to Address Acsys' Year 2000 Issues. We expense costs associated with Year
2000 system changes as the costs are incurred except for system change costs
that we would otherwise capitalize. To date we have incurred costs of
approximately $500,000 in connection with our Year 2000 compliance plan (our
"Year 2000 Plan"), and we expect to spend an additional $500,000 to complete
our Year 2000 Plan.The financial impact of these expenses has not been
material, and we do not expect future remediation costs to be material to our
consolidated financial position or results of operations. We cannot estimate
the future costs incurred as a result of Year 2000 issues suffered by our
Primary Service Providers and customers, and we cannot assure you that we will
successfully address the Year 2000 issues present in our own systems.
Risks Presented by Year 2000 Issues. We have recently begun the system
integration testing phase of our Year 2000 Plan. However, until system
integration testing is substantially in process we cannot fully assess the
risks of our Year 2000 issue. As a result of system integration testing, we may
25
<PAGE>
identify areas of our business that are at risk of Year 2000 disruption. The
absence of any such determination at this point represents only the status
currently in the implementation of our Year 2000 Plan, and should not be
construed to mean that there is no area of our business which is at risk of a
Year 2000 related disruption. As noted above, many of our critical Primary
Service Providers and customers may not appropriately address their Year 2000
issues, the result of which could have a material adverse effect on our
financial condition and results of operations.
Acsys' Contingency Plans. Our Year 2000 Plan calls for the development of
contingency plans for areas of the business that are susceptible to a
substantive risk of a disruption resulting from a Year 2000 related event.
Because we have only recently begun system integration testing, and accordingly
have not fully assessed our risk from potential Year 2000 failures, we have not
yet developed detailed contingency plans specific to Year 2000 events for any
specific area of business. We do, however, maintain contingency plans, outside
of the scope of the Year 2000 issue, designed to address various other business
interruptions. We are prepared for the possibility that system integration
testing may hereafter identify certain areas of business at risk. Consistent
with our Year 2000 Plan, we will develop specific Year 2000 contingency plans
for such areas of business as and if such determinations are made.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. These
statements appear in a number of places in this report and include all
statements that are not historical facts. Some of the forward-looking
statements relate to the intent, belief or expectations of Acsys and our
management regarding our strategies and plans for: operations, including our
Hub-Center management model; growth, including current and potential new
services; acquisitions; recruiting; and sales and marketing strategies. Other
forward-looking statements relate to trends affecting our financial condition
and results of operations; our anticipated capital needs and expenditures; and
litigation in which we are involved. Forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and
actual results may differ materially from those that are anticipated in the
forward-looking statements as a result of:
. our relatively brief combined operating history;
. our ability to identify and acquire suitable acquisition candidates;
. our ability to integrate acquired businesses into its operations;
. our ability to implement internal control and management financial and
operational reporting systems;
. risks associated with opening new offices and offering new services;
. the availability of qualified personnel to staff and supervise new offices;
. the possible effects of a downturn in the economy, which may result in a
decline in the demand for our services;
. the strength of demand for temporary staffing and permanent placement
services in our markets;
. the general level of economic activity and unemployment;
. existing and emerging competition;
26
<PAGE>
. competing demands for the attention of our management;
. the availability of capital to fund acquisitions;
. our ability to maintain sufficient profit margins despite pricing pressures;
. the changing regulatory environment; and
. our ability to address the Year 2000 issue.
In addition, the market price of the Common Stock may from time to time be
significantly volatile as a result of, among other things:
. our operating results;
. the operating results of other staffing companies;
. changes in the performance of the stock market in general; and
. the trading volume of the Common Stock.
You should review the more detailed description of these and other possible
risks contained in the "Risk Factors" section of this Prospectus.
27
<PAGE>
BUSINESS
GENERAL
Acsys is one of the leading providers of specialty professional staffing
services in the United States. Since our formation as a Georgia corporation in
March 1997, we have acquired 11 companies to date. We operate 40 offices in
metropolitan markets across the United States, with a more significant presence
in the Eastern and Midwestern United States. Our goal is to build a national
specialty professional staffing business with offices in major United States
metropolitan markets and to become a leader in the fragmented IT services
industry through consolidation of complementary companies, expansion of our
service offerings and cross-selling to our combined customer base. We have
clients across a broad spectrum of industries, including communications,
consumer products, energy, financial services, health care, industrial,
insurance, media, professional services, retail and technology.
In February 1998, we completed our IPO of 2,842,500 shares of Common Stock at a
price of $8.50 per share, realizing net cash proceeds of approximately $20.2
million after deducting underwriting discounts and offering expenses.
Our operating strategy is based on a focus on client relationships and its
philosophy that the central function of corporate management is to support the
staffing consultants who directly interact with clients. We carry out our
strategy through a decentralized "Hub-Center" management model, which we
believe fosters an entrepreneurial environment. Hub-Centers, located in major
metropolitan markets, are managed by Division Presidents who are responsible
for achieving our operational and financial goals. Division Presidents are
supported by our corporate services which include marketing, public relations,
management information systems support, training, human resources, accounting
and other back office functions. We believe that our decentralized management
structure enables us to be more responsive to our clients' needs. Further, we
believe that our specialty professional focus makes us more attractive to
staffing consultants and temporary and permanent placement candidates.
Acsys' goal is to build a national specialty professional staffing business by
pursuing strategic acquisitions, enhancing and expanding existing offices,
introducing new services and opening new offices. We seek to acquire specialty
professional staffing businesses with strong management and a significant
presence in what we believe to be desirable, growing markets. We plan to
enhance and expand existing offices by adding quality personnel, pursuing new
clients, expanding relationships with our current clients and implementing
successful sales and marketing techniques. We may develop or expand new
services or acquire existing businesses that offer such new specialty
professional staffing services. Furthermore, we intend to grow by opening new
offices in both our current markets and new geographic markets.
THE STAFFING INDUSTRY
The staffing industry generally consists of companies which provide four basic
services to clients: temporary staffing, placement and search, professional
employer organization services and outplacement. Based on information from the
Staffing Industry Report, staffing industry revenues increased from
approximately $35.5 billion in 1992 to approximately $87.9 billion in 1997,
representing a compound annual growth rate of 18%. According to industry
sources, in 1997 the staffing industry employed approximately 5.5 million
people per day. While the industry has
28
<PAGE>
undergone consolidation in the last few years, it remains fragmented with over
9,300 temporary staffing firms and over 3,400 placement and search firms.
Within the overall staffing industry, the placement and search sector had 1997
revenues of $10.9 billion and grew from 1992 revenues of $4.0 billion also
representing a compound annual growth rate of 20%.
Acsys' temporary staffing services are currently focused on the accounting and
finance portion of the specialty professional segment, which had 1996 revenues
of $6.3 billion, representing 12% of the $54.5 billion temporary staffing
sector. The Staffing Industry Report recently estimated that the specialty
professional segment will grow 25% in 1998. In addition to accounting and
finance, the specialty professional segment, as defined by the Staffing
Industry Report, includes legal, laboratory and other professional staffing
services (excluding IT and technical services). The specialty professional
segment is one of the fastest growing segments of the temporary staffing
sector, with profit margins greater than those of the traditional clerical and
light industrial temporary staffing business. The IT/technical segment of the
temporary staffing sector had 1997 revenues of $14.8 billion, representing 27%
of the temporary staffing sector. This segment includes IT services such as
consulting systems and network integration and support, and IT supplemental
staffing.
A significant part of the IT segment is the implementation of ERP software. ERP
software helps companies better manage their business by redesigning their
business processes in such areas as product development, service delivery,
manufacturing, human resources, finance and accounting. Although these services
may be offered by ERP software developers, in most cases ERP implementation and
systems integration services are provided by third party service providers,
such as Acsys.
Temporary staffing has become widely accepted as a valuable tool for managing
personnel costs and for meeting specialized or fluctuating employment
requirements. Temporary staffing companies offer a means of dealing with uneven
or peak work loads caused by such predictable events as vacations, tax work,
month-end activities, special projects, and seasonal increases in work volume,
and such unpredictable events as illness, resignations and emergencies. In
addition, employees increasingly look to temporary assignments as a way to
build experience, make contacts, and receive training and valuable exposure to
a variety of work settings, as well as a means to gain full-time employment. We
believe that more companies are not only accepting the idea of using
professional temporary employees in traditional permanent professional roles,
but are planning to use such employees as a continuing corporate strategy.
Furthermore, traditional accounting services that were historically performed
internally are now being outsourced.
The placement and search sector of the staffing industry had 1997 revenues of
$10.9 billion, representing 10% of the staffing industry. This sector was
expected to grow 19% in 1998, according to the Staffing Industry Report.
Personnel placed by companies in this sector cover a wide range of industries
and a variety of position levels. Placement and search firms fulfill their
clients' needs by identifying, evaluating and recommending qualified candidates
for positions. Placement and search firms are generally characterized as either
retained search or contingency placement, depending upon how their fees are
determined. Retained search firms receive a retainer at the outset of an
assignment,while contingency firms, such as Acsys, receive compensation upon
successful completion of a search and placement of a recommended candidate.
Contingency firms typically fill mid-level positions for a fee equal to a
percentage of the candidates' first year annual salary.
29
<PAGE>
We believe that companies have become increasingly reliant on placement and
search firms for a number of reasons. The continued strength and growth of the
economy has reduced the pool of available specialty professionals and increased
the difficulty of finding talented candidates. Professional employee turnover
has increased as more employees spend their careers with a number of different
organizations in various locations. Many companies are outsourcing non-core
activities, such as recruiting, to reduce costs and increase efficiencies. A
permanent placement firm may also serve in a consultative role to the client by
providing objective feedback on candidates and advice regarding the appropriate
qualifications and compensation for a particular position.
We believe that a number of factors may increase demand for specialty
professional temporary staffing and permanent placement services. These factors
include:
. Use of temporary employees to fill higher-skilled positions.
. Employers' difficulty locating qualified employees.
. Desire of employer's to utilize candidates with the latest training and
current skill sets demanded in the increasingly technology-reliant business
environment.
. Trend to outsource non-core functions to reduce costs and increase
efficiencies.
. Employment candidates' attraction to industry-focused specialty service
providers.
. Employment candidates seeking more flexibility and opportunities to gain
experience in a variety of work settings.
OPERATING STRATEGY
The key elements of Acsys' operating strategy are as follows:
Focus on Specialty Professional Markets. We focus on staffing positions that
require specialized skills such as accounting and finance and SAP's ERP
software implementation. We believe that our years of experience, recognized
local brand names, reputation for client service and the industry expertise of
our staffing consultants give us a competitive advantage. For example, many of
our staffing consultants are certified public accountants. We believe that
these specialized characteristics also provide an opportunity for Acsys to
generate higher margins than those of traditional clerical and light industrial
staffing companies.
Establish and Leverage National Brand. Acsys is engaged in an ongoing
initiative to transition the brand names of the local and regional companies
that we have acquired to the Acsys brand name. We believe that we can develop
significant brand equity through our leadership as a specialty professional
staffing firm, thus enabling us to increase market share and achieve marketing
efficiencies and greater operating leverage.
Emphasize Client Relationships. We believe that client relationships and the
staffing consultants who develop and maintain those relationships are our most
important assets. These consultants are encouraged to respond directly and
innovatively to satisfy clients' staffing needs, and we are building our
corporate level services to support our consultants in that effort.
30
<PAGE>
Moreover, we believe that the central function of management, including our
senior executive team, is to support the consultants who directly interact with
the client.
Foster Entrepreneurial Environment with Hub-Center Management Model. We employ
a decentralized operating strategy which we have termed our Hub-Center
management model. Our operations in each market, including any satellite
offices in that market, are managed by local managers called Division
Presidents. We believe we have a strong market share in our major markets
largely due to the commitment, ability and creativity of the Division
Presidents who drive each local business. Division Presidents are responsible
for achieving operational and financial objectives.
Provide Corporate Level Support. Acsys' philosophy is that the central function
of corporate management is to support the staffing consultants who directly
interact with clients. We offer our Division Presidents corporate level support
to lessen their administrative burden and allow them to focus on servicing
clients and growing the business. These support functions include marketing,
public relations, management information systems support, training, human
resources, accounting and other back office functions. Our corporate management
continues to identify "best practices" for Division Presidents to use in their
day-to-day operations.
GROWTH STRATEGY
Acsys' goal is to build a national specialty professional staffing business
with offices in major United States metropolitan markets. The key elements of
its growth strategy in order of relative importance are as follows:
Pursue Strategic Acquisitions. We intend to acquire accounting and finance and
IT staffing and permanent placement businesses and other specialty professional
staffing businesses. We seek acquisition candidates with characteristics such
as attractive geographic market locations, strong market shares, recognized
local brand names and new or expanded specialties that we can add to our
existing services. We also focus on acquisition targets that have strong
management teams and complementary cultures. To accomplish acquisitions, we
plan to use equity, debt, available cash and combinations of all three as
consideration.
Enhance and Expand Existing Offices. We plan to develop and expand our current
offices by adding temporary staffing and permanent placement consultants,
pursuing new clients, expanding current client relationships, cross-marketing
temporary and permanent services, and replicating successful sales, marketing
and business techniques in offices that do not currently use those techniques.
We rely on Division Presidents to drive this internal growth and to determine
which sales, marketing and business techniques are most appropriate for their
respective local markets.
Introduce New Services. We plan to develop new specialty professional staffing
services internally by leveraging our existing expertise and reputation in
specialty professional staffing services, particularly in markets where our
clients have solicited us for those new services. Examples of our internal
development of new service offerings include the commencement of IT staffing
services in several offices in the third quarter of 1997, with plans to offer
IT services in other offices, and the development of Acsys Business Consulting,
a program that focuses on staffing higher-end positions on an interim basis. We
currently have several new service development projects in the process,
including:
31
<PAGE>
professional sales permanent placement, litigation support; outsourced internal
audit function; and vendor-on-premise, contract services or project management.
All of these potential new services are currently offered only on a limited
basis, and there can be no assurance that they will be offered throughout our
company. We may also acquire specialty staffing services firms with new or
expanded services and market those services through our existing offices.
Open New Offices. We have opened four offices since our formation and plan to
continue to grow our business by opening new offices. We will open two types of
new offices, spin-offs from existing offices and "de novo" offices. A spin-off
office is opened in an existing geographic market by breaking a branch office
in two. Such an office provides greater geographic coverage and increased
market penetration at a low marginal cost. We opened two spin-off offices in
1997, one in Alexandria, Virginia (a spin-off from our existing Tyson's Corner,
Virginia office), and one in Landover, Maryland (a spin-off from our
Washington, D.C. office). De novo offices represent an initial presence in new
geographic markets. We opened a de novo office in Orlando, Florida in December
1997, and a de novo office in New York City in July 1998. We are on target to
open another de novo office in Raleigh, North Carolina in the fourth quarter of
1998.
For a summary of certain important factors that may adversely affect Acsys'
growth strategy as described above, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Disclosure Regarding Forward-
Looking Statements."
SERVICES
Acsys currently offers the following services:
Accounting and Finance Temporary Staffing. We provide temporary staffing
services to clients in a variety of industries, such as telecommunications,
health care, banking, manufacturing and government. Our temporary staffing
clients are principally Fortune 1000 companies, middle market companies,
governmental agencies and nonprofit organizations. Some of our temporary
employees may decide to accept an offer of permanent employment from the client
and thereby "convert" the temporary position to a permanent position.
Information Technology. We began offering IT staffing services in the third
quarter of 1997 in our Philadelphia, New Jersey, Charlotte and Tampa Hub-
Centers. We significantly increased our IT business in the second quarter of
1998 through the acquisition of ICON. ICON provides companies with the
consultants that implement SAP's ERP software. ICON is a National
Implementation Partner for SAP's ERP software. We generally offer both IT
temporary staffing and IT permanent placement services. We intend to leverage
our existing client contacts in the accounting and finance area by seeking to
fill their IT staffing needs as well. We may expand our IT business into other
offices and also may acquire other IT staffing firms as we seek to diversify
our staffing services.
Accounting and Finance Permanent Placement. Our permanent placement business
specializes in placing mid-level accounting, financial, tax and banking
personnel in permanent positions with a
32
<PAGE>
diverse mix of companies ranging from small businesses and nonprofit
organizations to Fortune 1000 companies. Substantially all of our permanent
placement business is on a contingency basis; thus, we are not compensated for
a permanent placement assignment unless the candidate whom we recommend is
hired by a client. Fees for successful permanent placements are paid only by
the employer and are generally equal to a percentage of the new employee's
first-year annual compensation. Generally, if a candidate placed by Acsys is
terminated or resigns during a specified guaranty period (typically 90-180
days), we either fill the position without further charge or provide a prorated
refund.
Other Staffing Services. Our corporate staffing services place temporary office
and administrative personnel, ranging from executive assistants to office
managers. We began offering these services in its Washington, D.C. Hub-Center
in response to clients' desire to staff candidates with a stronger base of
skills than those typically available from other staffing providers. These
services are included under temporary staffing service revenues in the
consolidated financial statements included in this report.
ACQUISITIONS
A key element of our growth strategy is to acquire accounting, finance,
information technology and other specialty professional staffing businesses. To
accomplish acquisitions, we plan to use equity, debt, available cash and
combinations of all three as consideration. We believe that we have a strategic
advantage in competing for acquisitions as a result of: (i) our focus on the
specialty professional staffing segment of the staffing industry; (ii) the
personal relationships of our key executives with managers and owners of other
professional staffing firms; (iii) our decentralized entrepreneurial operating
environment and Hub-Center management model; (iv) our merger and acquisition
execution capabilities; and (v) our greater visibility and resources as a
public company.
We believe that our focus on the specialty professional segment of the staffing
industry gives us a strategic advantage in attracting acquisition candidates
that prefer to affiliate with a professionally-focused company rather than a
traditional clerical and light industrial-based staffing company. A number of
the members of our management have been active or currently hold leadership
positions in national and regional specialty professional staffing trade
associations, including the American Association of Finance and Accounting, a
national association of privately held accounting and finance staffing firms.
In addition, members of our management have previous work experience with
national staffing companies or "Big Five" accounting firms. As a result, these
persons have developed personal relationships with the owners of many
independent specialty professional staffing firms. Additionally, our position
as a National Implementation Partner for SAP's ERP software enables us to
attract competent IT consultants. We also believe that our commitment to
maintaining a strong professional permanent placement business will give us a
strategic advantage in attracting acquisition candidates whose businesses have
a permanent placement focus. Furthermore, we believe we can use our temporary
staffing expertise to build significant temporary staffing businesses from
these established professional permanent placement bases.
There can be no assurance that we will be able to successfully identify
suitable acquisition candidates, complete acquisitions or integrate acquired
businesses into our operations. Once integrated, acquired companies may not
achieve levels of revenues, profitability or productivity
33
<PAGE>
comparable to those of our existing locations or otherwise perform as expected.
Acquisitions also involve special risks, including risks associated with
unanticipated problems, liabilities and contingencies, diversion of management
attention and possible adverse effects on earnings resulting from increased
goodwill amortization, increased interest costs, the issuance of additional
securities and difficulties related to the integration of the acquired
business, some or all of which could have a material adverse effect on our
business, of operations, or financial conditions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Disclosure
Regarding Forward-Looking Statements."
CORPORATE SUPPORT SERVICES
Acsys offers the following corporate level support functions to the Hub-
Centers:
Training. We offer our staffing consultants and other employees a two week
orientation and training program as well as ongoing courses offering
instruction and training in client service and development, team building,
management techniques and employment law. The primary objective is to teach
employees how to build client relationships and manage others utilizing proven
business techniques. With respect to Division Presidents in particular, we
believe the entrepreneurial Hub-Center operating philosophy requires our
Division Presidents to be strong managers and leaders. We seek to cultivate
these qualities in Division Presidents by using both training materials
developed in-house and outside consultants to conduct training sessions. In
addition, we are creating a company-wide database of "best practices" for our
Division Presidents to use in their day-to-day operations.
Information Systems. We are developing an integrated management information
system that will encompass accounts payable, cash management, budgeting and
management reporting. This system is intended to provide up to date financial
information, eliminate duplicate functions, enhance internal controls, and
lower our costs. The systems include a corporate "Intranet" to facilitate the
sharing of corporate services. See also "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Computer Issues."
Marketing and Public Relations. We continue to develop a full range of
marketing and public relations services, including regional print advertising
campaigns, radio advertising, premiums, public relations, direct mail and
promotions. These programs focus on both clients and employment candidates.
Risk Management. We have centralized our risk management function. In addition,
as part of our training effort we conduct seminars on pertinent topics
(particularly employment law-related matters) for our employees to help educate
our work force and reduce our exposure to losses.
Human Resources. Our Human Resources department is full-service, with
responsibility for employee relations, compensation, training and development
and employee benefits. Because of the unique nature of the staffing industry,
Human Resources is also responsible for compliance issues in the recruitment
process.
34
<PAGE>
Legal Services. We have centralized our legal services function and are
developing detailed policies regarding the retention of legal counsel and
guidelines within which Division Presidents are limited in making decisions
related to legal issues.
Treasury Management. We have centralized our treasury management function by
establishing a lock box cash management system. In this system, all customer
payments are received at a central location maintained by our bank. We believe
this system results in better internal control by centralizing the cash
collection portion of the revenue cycle.
Accounting. All accounting functions, including management financial
information, are being centralized. The processing of customer invoices and
temporary employee payroll, which are critical to customer service, will remain
in the Hub-Centers.
RECRUITING
We use a variety of methods to recruit qualified temporary staffing and
permanent placement candidates. Our primary recruiting methods are networking
and direct solicitation by staffing consultants. We also have recruited
managers in several offices who are responsible for marketing our services to
potential candidates. Other recruiting methods include: advertising in
newspaper classified ads and various other print media, including Yellow Pages
and local and national trade journals; advertising on radio; maintaining an
Internet website; recruiting on college campuses; participating in job fairs;
offering referral bonuses for new temporary employees; conducting direct mail
campaigns; and maintaining a good reputation and high visibility within the
community through community service. We receive a significant number of
referrals from past candidates due to our professional reputation, quality
service and the reputation of our permanent placement practice. Furthermore, we
believe that candidates are attracted to Acsys by the number and quality of the
positions we have available, and that availability of qualified candidates also
increases our client base. Competition for individuals with proven skills in
finance and accounting is intense, and there can be no assurance that qualified
personnel will continue to be available in sufficient numbers and on economic
terms acceptable to Acsys.
LOCAL SALES AND MARKETING
We emphasize local sales and marketing efforts, which are generally conducted
by each Hub-Center. Our client-oriented advertising primarily consists of print
advertisements in newspapers, Yellow Pages, magazines and trade journals; and
radio advertisements. Direct marketing through mail and telephone solicitation
also constitutes a significant portion of our sales and marketing programs. We
also seek endorsements and affiliations with local and regional accounting and
finance professional organizations and conduct public relations activities
designed to enhance recognition of Acsys and our services. Local employees are
encouraged to be active in civic organizations and industry trade groups.
EMPLOYEES
We have 522 full-time internal staff employees as of October 31, 1998.
Temporary employees placed by us are our employees while they are working on
assignments. Neither our internal staff nor our temporary employees are
represented by a collective bargaining agreement. Hourly wages for our
35
<PAGE>
temporary employees are determined according to market conditions. We generally
pay mandated costs of employment, including the employer's share of Social
Security and Medicare taxes (FICA), federal and state unemployment taxes,
unemployment compensation insurance and workers' compensation insurance. We
offer access to various insurance programs and benefits to our temporary
employees. We believe our employee relations are satisfactory.
COMPETITION
The staffing industry is highly competitive, with limited barriers to entry. We
believe that availability and quality of employment candidates, reliability of
service and price of services are the most significant competitive factors in
the specialty professional staffing sector. We believe we derive a competitive
advantage from our extensive experience with and commitment to the specialty
professional staffing market, our strong local market presence and reputation,
and our various marketing activities. A number of firms offer services similar
to ours on a national, regional and local basis. We compete for our clients,
candidates and acquisitions with many local and regional companies and also
face competition from a number of international and national specialty
professional staffing companies including Robert Half International, Inc.,
Romac International, Inc., Accountants, Inc. and Accountants on Call, as well
as professional staffing divisions of larger general staffing firms, such as
Interim Services, Inc., Norrell, Inc. and Olsten Corporation. These firms have
materially greater financial and operating resources than Acsys.
SERVICE MARKS AND TRADENAMES
We currently operate under various tradenames and service marks, the most
significant of which are Acsys, Staffing Edge and several variations of Don
Richard Associates. Consistent with our strategy of establishing a nationwide
brand presence, we plan to eventually conduct all of our business under the
Acsys name.
FACILITIES
We own no real property. We lease our corporate office and all of our local
offices. We believe our facilities are adequate for our needs and do not
anticipate any material difficulty in replacing such facilities or securing
facilities for new offices.
LEGAL PROCEEDINGS
On November 13, 1997, a lawsuit was filed against Acsys, Cama of Tampa, Inc.
("Cama") and the former owner of Cama, Stephen S. Tutwiler by L. Robert Frank
and L. Robert Frank & Associates, Inc. in the Circuit Court of the thirteenth
Judicial District, Hillsborough County, Florida. The lawsuit alleges that the
plaintiffs and Mr. Tutwiler agreed to form a corporation to provide certain
staffing services; that such services were instead provided through a division
of Cama; and that the plaintiffs were entitled to a portion of the stock of
Cama and thus to a portion of the shares of common stock issued to Mr. Tutwiler
when we acquired Cama. The plaintiffs assert numerous claims, including breach
of contract, fraud, civil conspiracy and alleged misstatements and omissions
regarding Acsys' ownership of Cama in a prospectus filed by Acsys. The
plaintiffs seek to recover $27,000 allegedly due to the plaintiffs, their
alleged portion of Mr. Tutwiler's shares of common stock, and compensatory and
other damages. The plaintiffs also seek an accounting and employment by Acsys.
36
<PAGE>
The court has ordered the plaintiffs and Mr. Tutwiler to arbitrate the
allegations in the lawsuit, which relate to their dispute, and has stayed the
litigation of plaintiffs' claims against Cama and Acsys, pending resolution of
the arbitration between Mr. Tutwiler and plaintiffs. The plaintiffs have filed
an appeal of the order requiring them to arbitrate the claims against Mr.
Tutwiler. In the event the claims against Acsys and Cama proceed, Acsys intends
to vigorously defend against those claims. Due to the uncertainties of
litigation, we cannot predict the outcome of this matter. An adverse result
could have a material effect on our Company and result in a charge to the
statement of operations in the period in which the amount of litigation loss,
if any, is determinable and the likelihood of incurring such loss is deemed to
be probable. There is no other pending litigation which we consider material.
From time to time we may be involved in litigation incidental to our business.
There is currently no other pending litigation which we consider material.
37
<PAGE>
MANAGEMENT
Our directors and executive officers and their ages and positions as of October
31, 1998 are as follows:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David C. Cooper........... 42 Chairman of the Board
Timothy Mann, Jr.......... 33 Chief Executive Officer and Director
Edward S. Baumstein....... 43 President, Chief Operating Officer and Director
Beth Monroe Chase......... 47 Chief Development Officer, Executive Vice
President and Director
Barry M. Abelson.......... 51 Director
Paul J. Klaassen.......... 40 Director
Robert M. Kwatnez......... 34 Director
William Porter Payne...... 50 Director
Harry J. Sauer............ 46 Director
Brady W. Mullinax, Jr..... 45 Vice President--Finance, Chief Financial Officer
and Secretary
</TABLE>
BIOGRAPHICAL INFORMATION FOR EXECUTIVE OFFICERS AND DIRECTORS
David C. Cooper has served as the Chairman of the Board of Directors since our
formation and Division President--Atlanta since September 1997. Mr. Cooper
founded David C. Cooper & Associates, Inc. and DCCA Professional Temporaries,
Inc. in 1980 and served as their president until May 1997. Mr. Cooper received
his Bachelor of Business Administration degree in Accounting from the
University of Georgia. Mr. Cooper is a past president of the American
Association of Accounting and Finance, a national network of independently
owned accounting and finance permanent placement and temporary staffing
businesses.
Timothy Mann, Jr. has served as Chief Executive Officer since October 1997 and
a Director since our formation. Prior to his becoming Chief Executive Officer,
Mr. Mann served in various roles. From 1992 until 1997, Mr. Mann was an
attorney engaged in the private practice of law, most recently with Alston &
Bird LLP in Atlanta, Georgia. Mr. Mann has extensive staffing industry
experience, having served as issuer's counsel in a number of staffing industry
public equity offerings and as buyer's counsel in a number of staffing industry
mergers and acquisitions. Mr. Mann's experience also includes service in the
audit division of Arthur Andersen LLP. Mr. Mann received his J.D. cum laude
from the University of Georgia and his Bachelor of Science degree in Accounting
from the University of Florida.
Edward S. Baumstein has served as the Chief Operating Officer and a Director
since September 1997 and as President since October 1997. Mr. Baumstein served
as the president and chief executive officer of AcSys Resources, Inc. from 1994
until September 1997 and had served in various positions since he joined AcSys
Resources in 1983. Prior to joining AcSys Resources, Mr. Baumstein was with
Price Waterhouse. He received his B.B.A. in Accounting from Temple University
and is a certified public accountant.
38
<PAGE>
Beth Monroe Chase has served as a Director since our formation. She served as
Chief Operating Officer from our formation until September 1997, when she
became Chief Development Officer and Executive Vice President. Ms. Monroe Chase
was one of the founders of Infinity Enterprises, Inc. (d/b/a Don Richard
Associates of Washington) and from 1994 until our formation served as its
president. Ms. Monroe Chase served as the director of sales from 1992 to 1994
and as managing director from 1993 to 1994 for the predecessor of Don Richard
Associates of Washington (which also operated under that name). Her previous
staffing industry experience includes service as an area manager for Staff
Builders and as a regional manager with TeleSec Staffing.
Barry M. Abelson has served as a Director since the completion of an IPO in
February 1998. He has been a partner in the law firm of Pepper Hamilton LLP,
Philadelphia, Pennsylvania since May 1992 and has served as Chairman of its
Executive Committee since February 1995. Mr. Abelson received his Bachelor of
Arts degree in Sociology from Dartmouth College and his J.D. degree from the
University of Pennsylvania.
Paul J. Klaassen has served as a Director since February 1998. He is the co-
founder and has served as Chairman of the Board and Chief Executive Officer of
Sunrise Assisted Living, Inc. and its predecessor entities since 1981. He also
served as President of Sunrise Assisted Living, Inc. and its predecessor
entities from 1981 through July 1997. Mr. Klaassen is the founding Chairman of
the Assisted Living Facilities Association of America, the largest assisted
living industry trade association. He serves on the editorial advisory boards
of Contemporary Long Term Care, Retirement Housing Report, Assisted Living
Today and Assisted Living Briefing magazines.
Robert M. Kwatnez has served as a Director since May 29,1998. He co-founded
ICON Search and Consulting, Inc. in September 1994 and has served as Vice
President of Acsys IT since that time. His primary accomplishments include the
building of an internationally renowned SAP consulting practice with revenues
in excess of $12 million in three years as well as the securing of a National
Implementation Partnership with SAP America. Mr. Kwatnez's staffing business
experience spans over the last eleven years and he currently serves as director
of the SAP practice which employs over 65 consultants. He is also responsible
for management of a local Atlanta-based Client-Server consulting business with
over 60 consultants. Mr. Kwatnez received his Bachelor of Business
Administration from Indiana University in 1987.
William Porter Payne has served as a Director since the completion of our IPO
in February 1998. He is Chairman of Orchestrate.com. He previously served as
Vice Chairman of NationsBank Corporation from January 1997 until June 1998 and
was President and Chief Executive Officer of the Atlanta Committee for the
Olympic Games from 1991 to 1997. Mr. Payne is also a director of Anheuser-Busch
Companies, Inc., Cousins Properties, Inc. and Jefferson-Pilot Corporation. Mr.
Payne received his Bachelor of Arts in Political Science and J.D. degrees from
the University of Georgia.
Harry J. Sauer has served as a Director and as the Division President--
Philadelphia since September 1997. Mr. Sauer has worked in the staffing
industry since 1977, when he co-founded AcSys Resources. He served in various
positions with AcSys Resources, most recently as chief operating officer. Mr.
Sauer received his Bachelor of Arts degree in Political Science from American
University and his M.B.A. from Boston College. Mr. Sauer has served as the
president of Hillel of Greater Philadelphia and as a board member of several
nonprofit organizations.
39
<PAGE>
Brady W. Mullinax, Jr. has served as our Vice President--Finance, Chief
Financial Officer and Secretary since August 1998. From 1994 to 1997, Mr.
Mullinax served as chief financial officer and treasurer of Fuqua Enterprises,
Inc., a New York Stock Exchange listed company that operated a healthcare
equipment business and a leather tanning business that was sold to Graham-Field
Health Products, Inc. on December 30, 1997. From 1987 to 1993, he was a partner
with Price Waterhouse LLP. Mr. Mullinax received his Bachelor of Science degree
in Business Administration from the University of North Carolina and is a
certified public accountant.
BOARD ORGANIZATION
The number of directors on the Board of Directors is fixed at ten. Due to the
resignation of John R. Ficquette as a director in September 1998, there is
currently one vacancy on our Board of Directors. Our directors are elected at
the annual meeting of shareholders. Executive officers are appointed by the
Board of Directors. Directors and executive officers are elected or appointed
to serve until they resign or are removed or are otherwise disqualified to
serve, or until their successors are elected and qualified at the next annual
meeting of shareholders. During 1997, the Board of Directors held five
meetings. Each director attended at least 75% of the aggregate of all regular,
annual and special meetings of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
In February 1998 after we completed our IPO, the Board of Directors established
a Compensation Committee and an Audit Committee. The Board of Directors does
not have a nominating committee because nominating functions are performed by
the Board of Directors as a group.
The Audit Committee was established to review our internal controls, review the
objectivity of its financial reporting and meet with our appropriate financial
personnel and our independent auditors in connection with these reviews. The
Audit Committee is also charged with recommending to the Board the appointment
of independent auditors to serve as our auditors for the following year. The
members of the Audit Committee are Messrs. Abelson, Klaassen, Payne and Mann.
The Compensation Committee was established to advise and make recommendations
to the Board with respect to salaries and bonuses to be paid to the Chairman of
the Board and the Chief Executive Officer. The Compensation Committee also
administers our 1997 Stock Option Plan and our other stock option plans. It
also recommends to the Board of Directors adoption of any compensation plans in
which our officers and directors are eligible to participate. The members of
the Compensation Committee are Messrs. Abelson, Klaassen and Payne.
DIRECTOR COMPENSATION
Directors who are also our employees do not receive additional compensation for
serving as directors. Each director who is not an employee (an "Outside
Director") receives $1,000 for each meeting of the Board of Directors attended
and $500 for each meeting of a committee of the Board of Directors. All
directors are reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or its committees and for other expenses
incurred in their capacity as Directors.
40
<PAGE>
We have adopted a policy of granting to each Outside Director, upon his or her
initial appointment to the Board of Directors, a stock option to purchase
50,000 shares of Common Stock pursuant to the Option Plan. Pursuant to this
policy the Board granted options to purchase 50,000 shares of Common Stock to
each of Messrs. Abelson and Payne at the IPO price of $8.50 per share and
granted options to purchase 50,000 shares of Common Stock to Mr. Klaassen at
$13.00 per share. In addition, we have adopted a policy of granting to each
Outside Director, once each quarter during the Outside Director's term as a
director, options to purchase 4,000 shares, with a lifetime cap of 150,000
shares per Outside Director. The option price will be equal to the fair market
value at the date of each grant, and each option will have a 10-year term. One
third of the options will vest on each of the first three anniversaries of the
date of grant, provided that all unvested options will vest upon a change in
control of Acsys (as defined in the option agreement) or the death of the
Outside Director.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation. Acsys was incorporated in March
1997 and conducted no operations in 1996. Our most highly compensated executive
officers in 1997 were Messrs. Cooper, Mann, Baumstein, Gallagher and Mark E.
Strassman and Ms. Monroe Chase (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SARS (#) ($)
- --------------------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David C. Cooper,........... 1997 $ 83,333 $ -- $ -- $--
Chairman of the Board of
Directors(1)
Timothy Mann, Jr.,......... 1997 110,128 -- 135,198 --
Chief Executive Officer(2)
Edward S. Baumstein,....... 1997 66,666 -- -- --
President and Chief
Operating Officer(3)
Mark E. Strassman,......... 1997 107,590 -- -- --
former President(4)
Beth Monroe Chase,......... 1997 107,590 -- -- --
Chief Development
Officer(5)
Lester E. Gallagher, III,.. 1997 41,666 $1,000 18,771 $400(7)
Chief Financial Officer(6)
</TABLE>
- --------
(1) Reflects compensation paid by Acsys to Mr. Cooper beginning on May 16,
1997, the date that Acsys employed Mr. Cooper as its Chairman of the Board
of Directors.
(2) Reflects compensation paid by Acsys to Mr. Mann in all capacities beginning
on March 12, 1997, the date that Acsys employed Mr. Mann. Mr. Mann served
in various executive positions with Acsys before becoming Chief Executive
Officer in October 1997.
(3) Reflects compensation paid by Acsys to Mr. Baumstein in all capacities
beginning on September 3, 1997, the date that Acsys employed Mr. Baumstein.
Mr. Baumstein has served as Chief Operating Officer since September 1997
and as President since October 1997.
(4) Reflects compensation paid by Acsys to Mr. Strassman in all capacities from
May 16, 1997, the date that Acsys employed Mr. Strassman. Mr. Strassman
served as the President of Acsys from May 1997 to October 1997 and no
longer is an executive officer. See "Certain Transactions--Acquisitions--
Don Richard Associates of Washington."
(5) Reflects compensation paid by Acsys to Ms. Monroe Chase beginning on May
16, 1997, the date that Acsys employed Ms. Monroe Chase, who initially
served as Chief Operating Officer and became Chief Development Officer in
September 1997.
(6) Reflects compensation paid by Acsys to Mr. Gallagher beginning on September
3, 1997, the date that Acsys employed Mr. Gallagher as its Chief Financial
Officer. Mr. Gallagher resigned from Acsys effective September 15, 1998.
(7) Matching contributions by Acsys to Mr. Gallagher's account under Acsys'
401(k) pension plan.
41
<PAGE>
Employment Agreements, Termination of Employment and Change in Control
Arrangements. Each of Messrs. Cooper, Mann, Baumstein and Ms. Monroe Chase
entered into employment agreements with Acsys that provide for an annual base
salary of $200,000. Each executive officer (except Mr. Mann and, prior to his
resignation, Gallagher) is also contractually entitled to a bonus to be agreed
upon and based upon certain performance criteria as set forth in his or her
agreement, although no executive bonuses were paid in or for 1997 other than to
Mr. Gallagher. Mr. Mann's agreement provides for an annual bonus equal to 2.0%
of the year-to-year increase in our earnings before interest, taxes,
depreciation and amortization, and the grant of stock options as described
under "--Option/SAR Grants in Last Fiscal Year." Mr. Gallagher's agreement
which terminated effective upon Mr. Gallagher's resignation as of September 15,
1998 provided for an annual base salary of $125,000, such bonus as the Board of
Directors may determine up to an amount equal to 15% of his then-current base
salary (he received a $1,000 holiday bonus in 1997), and the grant of stock
options as described under "--Option/SAR Grants in Last Fiscal Year." None of
our executive officers has received or is expected to receive perquisites the
value of which exceeds the lesser of $50,000 or 10% of the salary and bonus of
such executive.
Each employment agreement for the Named Executive Officers (other than Mr.
Strassman and Mr. Gallagher, who no longer serve as executive officers) is for
a term of three years and continues thereafter for additional one year terms
until either Acsys or the executive officer elects not to renew the agreement.
Each of these agreements provides that, in the event of a termination of
employment either (i) by Acsys without cause (as defined in the agreement) or
(ii) by the employee following a change in control (as defined in the
agreement) or a breach by Acsys of such executive's employment agreement or
registration rights agreement, such executive officer will be entitled to
receive from Acsys a lump sum severance payment equal to three times the sum of
his or her then-current annual salary plus the amount of his or her bonus
calculated using the results of the operations of Acsys for the twelve months
prior to such termination. In such event, the non-compete provisions discussed
below would not apply to such executive officer. If an executive officer
resigns for any other reason, such executive officer will be entitled to
receive from Acsys a lump sum severance payment equal to his or her then
current annual salary. If an executive is terminated upon a determination by
the Board of Directors that such executive officer failed to meet performance
expectations, then such executive officer will be entitled to receive a lump
sum severance payment equal to his or her base salary for the greater of the
remainder of the term of his or her employment agreement or one year.
Brady W. Mullinax, Jr. entered into an employment agreement on August 21, 1998
with Acsys that provides for an annual base salary of $200,000. The term of Mr.
Mullinax's agreement is effective until December 31, 2000 and continues
thereafter for additional one-year terms until either Acsys or Mr. Mullinax
elects not to renew the agreement. The agreement provides that, in the event of
termination of employment either (i) by Acsys without cause (as defined in the
agreement) or a breach by Acsys of Mr. Mullinax's employment agreement or
registration rights agreement, Mr. Mullinax will be entitled to receive from
Acsys a lump sum severance payment equal to three times the sum of his then-
current annual salary plus the amount of his bonus as defined in his agreement.
In such event, the non-compete provisions discussed below would not apply to
Mr. Mullinax. If Mr. Mullinax resigns for any other reason, he will be entitled
to receive from Acsys a lump sum severance payment equal to his then current
annual salary. If Mr. Mullinax is terminated upon a determination by the Board
of Directors that he failed to meet performance expectations, then he will
42
<PAGE>
be entitled to receive a lump sum severance payment equal to his base salary
for the greater of the remainder of the term of his employment agreement or one
year. Mr. Mullinax is also contractually entitled to an annual bonus in the
discretion of the Chief Executive Officer, provided, however, he shall receive
a minimum bonus of $20,000 for the period ended December 31, 1998 and a minimum
annual bonus to 20% of his base salary then in effect for calendar years
subsequent to 1998.
Each of the above employment agreements contains a covenant not to compete with
Acsys for a period of two years immediately following termination of employment
and an obligation not to solicit any employees or customers of Acsys for a
period of one year following termination of employment.
Option/SAR Grants in Last Fiscal Year. The following table sets forth
information concerning our 1997 grants of stock options to Timothy Mann, Jr.
and Lester E. Gallagher, III, the only Named Executive Officers who were
granted stock options in 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
--------------------- ----------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
GRANTED (#) FISCAL YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
------------ ------------ -------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Timothy Mann, Jr. ...... 135,198(2) 54.8% $8.00 2007 $ -- $ 680,202 $ 1,723,766
Lester E. Gallagher,
III.................... 18,771(3) 7.6% $2.66 2006 $ 100,237(4) $ 71,699 $ 171,730
</TABLE>
- --------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC. There can be no assurance provided to any
executive officer or any other holder of our securities that the actual
stock price appreciation over the term will be at the assumed 5% and 10%
levels or at any other defined level. Unless the market price of the Common
Stock appreciates over the option term, no value will be realized from
options granted to the Named Executive Officers.
(2) Options were granted at the fair market value of the Common Stock on the
date of grant as determined by the Board. These stock options are fully
vested and have a 10-year term.
(3) In January 1997 AcSys Resources, Inc. granted options to Mr. Gallagher that
were converted into options to purchase 18,771 shares of Common Stock at a
price of $2.66 per share in connection with the acquisition of AcSys
Resources. These options are fully vested and expire in 2006.
(4) Based upon an assumed grant-date market value of $8.00 per share.
In addition to the options granted in 1997 to Messrs. Mann and Gallagher, in
1997 we also agreed in each of their respective employment agreements to grant
stock options to them upon Acsys' IPO as described below. On February 5, 1998,
the effective date of our registration statement for our IPO (the "IPO Date"),
we granted to Mr. Mann options to purchase 113,357 shares of Common Stock (an
amount equal to 1% of the shares of Common Stock outstanding on the date of the
offering, assuming the underwriters' over-allotment option was exercised in
full, as in fact occurred), at an exercise price equal to the initial public
offering price of $8.50 per share. One-half of these options vest on each of
the first two anniversaries of the IPO Date, and the options have a 10-year
term. All of Mr. Mann's unvested options vest immediately if he is terminated
without cause or resigns for good reason or upon a change in control (as such
terms are defined in his employment agreement). We also granted to Mr.
Gallagher, upon the IPO Date, options to purchase 66,229 shares of Common Stock
at an exercise price equal to the initial public offering price of $8.50 per
share. One third of these options vest on each of first, second and third
anniversaries of the effective date. All of
43
<PAGE>
Mr. Gallagher's unvested options vest immediately if he is terminated without
cause or resigns for good reason or upon a change in control (as such terms are
defined in his employment agreement).
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values. The following table gives information with respect to options held by
Mr. Mann and Mr. Gallagher, the only Named Executive Officers who held
unexercised options at December 31, 1997. We have never issued any SARs, and
none of the Named Executive Officers exercised any stock options during 1997.
There was no market for the Common Stock until it began trading on the Nasdaq
National Market on February 6, 1998. The fiscal year-end market value of $8.50
per share is equal to the IPO price of $8.50 per share.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS/SARS
UNEXERCISED OPTIONS/SARS AT FISCAL YEAR-
AT FISCAL YEAR-END (#) END ($) (1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
Timothy Mann, Jr........... 135,198/0 $ 67,599/--
Lester E. Gallagher, III... 18,771/0 $109,623/--
</TABLE>
- --------
(1) Based upon an assumed fiscal year-end market value of $8.50 per share.
1997 STOCK OPTION PLAN
The Board of Directors and our shareholders approved our 1997 Stock Option Plan
(the "Option Plan"), which became effective in May 1997. We granted options to
purchase 1,148,586 shares of Common Stock to certain employees and executive
officers on February 5, 1998, the IPO Date, an exercise price equal to the IPO
price of $8.50 per share. Awards under the Option Plan were granted by the
Board of Directors but will in the future be granted by the Compensation
Committee. In addition, pursuant to our policy of granting options to Outside
Directors as explained in "Management--Director Compensation," we granted
100,000 options to two directors at an exercise price equal to the IPO price of
$8.50 per share, and granted 50,000 options to a director who subsequently
joined the Board at an exercise price of $13.00, the closing price on the date
of the grant.
Awards under the Option Plan may include incentive stock options ("ISOs")
and/or non-qualified stock options ("NQSOs"). The Compensation Committee
administers the Option Plan and generally has discretion to determine the terms
of an option grant, including the number of option shares, option price, term,
vesting schedule, the post-termination exercise period and whether the grant
will be an ISO or NQSO, subject to certain limitations in the Option Plan. The
maximum number of shares of Common Stock that currently may be subject to
outstanding options, determined immediately after the grant of any option, is
2,000,000 shares. The Option Plan provides that the number of shares of Common
Stock available for issuance thereunder shall be automatically increased on the
first trading day of each calendar year by the lesser of (i) three percent of
the number of shares outstanding on the preceding trading day or (ii) 500,000
shares. Shares of Common Stock which are attributable to awards which have
expired, terminated or been canceled or forfeited during any calendar year are
available for issuance or use in connection with future awards during such
calendar year. The Option Plan will remain in effect until terminated by the
Board of Directors. No ISO may be granted after May 2007. The Option Plan may
be amended by the Board of Directors
44
<PAGE>
without the consent of our shareholders, except that any amendment, although
effective when made, will be subject to shareholder approval within one year
after approval by the Board of Directors if the amendment increases the total
number of shares issuable pursuant to ISOs or changes the class of employees
eligible to receive ISOs that may participate in the Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors did not have a Compensation Committee until February
1998. The officers and employees of Acsys who participated in deliberations of
the Board in 1997 concerning executive officer compensation were Edward S.
Baumstein, David C. Cooper, Timothy Mann, Jr., Beth Monroe Chase, Harry J.
Sauer and Mark E. Strassman, each of whom is currently a director; Kevin W.
Cole, Patricia J. Homrich, Edward K. Turner and Stephen S. Tutwiler, each of
whom was a director for a portion of 1997; and John R. Fiquette, who resigned
as a director in September 1998.
PRINCIPAL AND SELLING SHAREHOLDERS
The shares offered hereby are owned by and offered for the account of Robert
Bailey, Gary Campbell, Robert M. Kwatnez, and Steven M. Sutton (the "Selling
Shareholders"). We will not receive any of the proceeds from the sale of the
Shares. The Selling Shareholders acquired the Shares from Acsys pursuant to an
Agreement and Plan of Merger, dated as of March 31, 1998, by and among Acsys,
ICON Merger Subsidiary, Inc., ICON and the Selling Shareholders (the "ICON
Merger Agreement"). If all 423,056 of the shares offered by the Selling
Shareholders were sold, the Selling Shareholders would beneficially own
2,397,304 shares (approximately 16.6%) of our Common Stock. Robert Bailey
serves as President of Acsys IT (formerly ICON Search & Consulting, Inc.); Gary
Campbell is the Vice Chairman of Acsys IT; Steve M. Sutton is Chief Operating
Officer of Acsys IT and Robert M. Kwatnez is Vice President of Acsys IT and a
director of Acsys, Inc.
In connection with the execution of the ICON Merger Agreement, Acsys and the
Selling Shareholders have entered into the Registration Rights Joinder
Agreement (the "Joinder Agreement"), pursuant to which we agreed to register
15% of the shares of Common Stock received by the Selling Shareholders in
connection with the acquisition of ICON. Accordingly, we have caused to be
prepared and have filed with the SEC the Registration Statement of which this
Prospectus forms a part, with respect to the sale by the Selling Shareholders
from time to time of the shares in accordance with the intended methods of
distribution described under "Plan of Distribution." We have agreed to use our
reasonable best efforts to keep the Registration Statement continuously
effective for a period of two years following the effective time of the ICON
acquisition. In addition, we have agreed to pay all expenses incurred by us and
the Selling Shareholders in connection with the Securities Act registration of
the shares, including, without limitation, registration and filing fees of the
SEC, reasonable fees and disbursements of our counsel and counsel to the
Selling Shareholders, any applicable state securities and "blue sky" law
registration and qualification fees, accountants' fees and expenses, transfer
taxes, and fees of transfer agents and registrars.
The Joinder Agreement also provided that the Selling Shareholders were to
become parties to that certain Amended and Restated Registration Rights
Agreement, dated as of September 3, 1997 (the
45
<PAGE>
"Registration Rights Agreement"), which previously existed between Acsys and
certain of our shareholders. See "Description of Capital Stock--Registration
Rights."
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of October 31, 1998 by: (i) each of our
directors and Named Executive Officers; (ii) all of our executive officers and
directors as a group; (iii) each person known by us to own beneficially more
than 5% of the Common Stock; and (iv) each of the Selling Shareholders. Each of
the holders listed below has sole voting power and investment power over the
shares beneficially owned. Each of the persons known by us to beneficially own
more than 5% of the Common Stock has an address in care of our principal
offices.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING (1) SHARES AFTER OFFERING (1)
----------------------- BEING -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE(%) OFFERED NUMBER PERCENTAGE(%)
- ------------------------ --------- ------------- ------- --------- -------------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE
OFFICERS AND 5%
SHAREHOLDERS:
David C. Cooper......... 1,573,714 10.9 -- 1,573,714 10.9
Timothy Mann, Jr. (2)... 138,548 1.0 -- 135,548 1.0
Edward S. Baumstein..... 943,521 6.5 -- 943,521 6.5
Beth Monroe Chase....... 651,143 4.5 -- 651,143 4.5
Brady W. Mullinax, Jr... 20,000 * -- 20,000 *
Barry M. Abelson........ -- -- -- -- --
Paul J. Klaassen........ -- -- -- -- --
William Porter Payne.... -- -- -- -- --
Harry J. Sauer.......... 993,521 6.9 -- 993,521 6.9
Robert M. Kwatnez....... 705,090 4.8 105,764 599,326 4.2
All directors and
executive officers as a
group (11 persons)
(3)(4)................. 5,110,537 34.9 5,110,537 34.9
SELLING SHAREHOLDERS:
Robert Bailey........... 705,090 4.8 105,764 599,326 4.2
Gary Campbell........... 705,090 4.8 105,764 599,326 4.2
Robert M. Kwatnez....... 705,090 4.8 105,764 599,326 4.2
Steven M. Sutton........ 705,090 4.8 105,764 599,326 4.2
</TABLE>
- --------
* Less than 1%.
(1) Shares Beneficially Owned is calculated assuming 14,421,518 shares of
Common Stock were outstanding on the date stated above. This percentage
also includes Common Stock of which such individual has the right to
acquire beneficial ownership within sixty days of such date, including but
not limited to the exercise of an option; however, such Common Stock shall
not be deemed outstanding for the purpose of computing the percentage owned
by any other individual.
(2) Includes currently exercisable options held by Mr. Mann to purchase a total
of 135,198 shares of Common Stock.
(3) Includes currently exercisable options to purchase a total of 235,198
shares of Common Stock.
(4) Includes options to purchase 85,000 shares owned by Lester E. Gallagher,
III our former Chief Financial Officer, who resigned effective September
15, 1998.
46
<PAGE>
CERTAIN TRANSACTIONS
ACQUISITIONS
Since our formation in March 1997, we have acquired eleven accounting, finance
and information technology professional staffing companies. All of these
companies now operate as wholly owned subsidiaries. In certain of these
acquisitions persons who were previously shareholders of the companies, and who
are now executive officers, directors or holders of at least 5% of our
outstanding Common Stock, received consideration from Acsys in connection with
the applicable acquisition. These acquisitions are described in more detail
below:
David C. Cooper & Associates. We issued 1,573,714 shares of Common Stock to
David C. Cooper in connection with the mergers of wholly owned subsidiaries of
Acsys with and into David C. Cooper & Associates, Inc. and DCCA Professional
Temporaries, Inc. in May 1997.
Don Richard Associates of Washington. We issued a total of 2,237,142 shares of
Common Stock in connection with the merger of a wholly owned subsidiary of
Acsys with and into Infinity Enterprises, Inc. d/b/a Don Richard Associates of
Washington in May 1997. In that merger, Beth Monroe Chase, a director, received
671,143 shares of Common Stock. Other Don Richard Associates of Washington
shareholders who are not directors, executive officers and/or 5% shareholders
received the balance of 1,565,797 shares issued by Acsys.
AcSys Resources. We issued a total of 3,206,316 shares of Common Stock in
connection with the merger of a wholly owned subsidiary of Acsys with and into
AcSys Resources, Inc. in September 1997. The following directors, executive
officers and/or 5% shareholders received shares of Common Stock in that merger:
Edward S. Baumstein--993,521 shares and Harry J. Sauer--993,521 shares Other
AcSys Resources shareholders who are not directors, executive officers and/or
5% shareholders received the balance of 1,219,274 shares issued by Acsys.
ICON. We issued a total of 2,820,360 shares of Common Stock in connection with
the merger of a wholly owned subsidiary of Acsys with and into ICON in May
1998. Robert M. Kwatnez, a director, received 705,090 shares of Common Stock in
that merger. Other ICON shareholders who are not directors, officers and/or 5%
shareholders received the balance of the 2,115,270 shares. ICON optionholders
who are not directors, executive officers and/or 5% shareholders received
options to purchase shares of Acsys Common Stock in exchange for their ICON
options. In connection with this acquisition, we granted Mr. Kwatnez and the
other Selling Shareholders, Messrs. Bailey, Campbell and Sutton, the right to
register 15% of the shares they received as consideration in the acquisition.
This Prospectus relates to the registration of these shares.
Prior to their acquisition by Acsys, certain companies incurred indebtedness
that was personally guaranteed by their shareholders. We borrowed an aggregate
of approximately $11.1 million under our credit facility to repay such
indebtedness upon the acquisition of such acquired companies. Obligations which
are guaranteed by certain of our current shareholders having a principal
balance of approximately $1.1 million remain outstanding.
47
<PAGE>
PRIOR S CORPORATION STATUS
We terminated our S corporation status and became a C corporation on February
5, 1998 in connection with the IPO. We made a distribution to the persons who
were shareholders during the period we were an S corporation, which included
David C. Cooper, Beth Monroe Chase, Edward S. Baumstein and Harry J. Sauer. The
distribution approximated the amount that such shareholders needed to fund the
payment of Federal and state income taxes payable on our taxable income during
1997. The total amount of such distributions completed in 1998 was $838,000 and
were reflected as a reduction in retained earnings.
Also in connection with the termination of our S corporation status, we
recorded a deferred tax liability of $3.0 million to recognize income tax
expense on the cash to accrual adjustment caused by our change from an S
corporation to a C corporation. We will pay this deferred tax liability over a
four-year period.
RENTAL OF AIRCRAFT OWNED BY MR. COOPER
We from time to time use an aircraft owned by Aviation Leasing Corporation
("Aviation"), a company that is wholly owned by David C. Cooper, our Chairman
of the Board. We have used the aircraft for business purposes, and until the
completion of our IPO in February 1998, we paid Aviation for the actual
operating costs associated with our use of the aircraft. Since that date we
have paid Aviation a amount equal to the regular commercial coach fare for each
person on the flight. We paid Aviation a total of $28,144 in 1997 and have paid
$71,962 as of November 9, 1998 in 1998 for such use. We anticipate that we will
continue this arrangement in the future.
COMPANY POLICY
All transactions with our shareholders, officers and directors or their
affiliates, if any, are subject to the approval of a majority of the
independent and disinterested Outside Directors and will be conducted on terms
no less favorable than could be obtained from unaffiliated third parties on an
arm's-length basis.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of Acsys consists of 45,000,000 shares of Common
Stock without par value and 5,000,000 shares of Preferred Stock without par
value. The following description of the terms and provisions of the shares of
stock of Acsys and certain other matters does not purport to be complete and is
subject to and qualified in its entirety by reference to the applicable
provisions of the Georgia Business Corporation Code (the "GBCC") and our
Articles of Incorporation and Bylaws.
COMMON STOCK
Each holder of shares of Common Stock is entitled to one vote at shareholders'
meetings for each share held. Our Articles of Incorporation do not provide for
cumulative voting. Subject to the prior rights of any series of Preferred Stock
that may be issued, holders of shares of Common Stock are entitled to receive,
pro rata, such dividends as may be declared by the Board of Directors out of
funds legally available therefor, and are also entitled to share, pro rata, in
any other distributions to the shareholders. We anticipate that for the
foreseeable future our earnings will be retained for the operation and
expansion of our business and that we will not pay cash dividends. See
"Dividend Policy." There are no redemption or sinking fund provisions
applicable to the Common Stock. Our credit facility prohibits the payment of
dividends without the lender's prior consent. Holders of shares of Common Stock
do not have any preemptive rights or other rights to subscribe for additional
shares. The outstanding shares of Common Stock are fully paid and non-
assessable.
PREFERRED STOCK
Under our Articles of Incorporation, the Board of Directors may issue, without
any further action by the shareholders, up to 5,000,000 shares of Preferred
Stock of one or more series, including any preferences, conversion and other
rights, voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption as shall be set forth in resolutions adopted by the
Board of Directors. The designation of any Preferred Stock with greater rights,
privileges and preferences than those applicable to the Common Stock may
adversely affect the voting power, market price and other rights and privileges
of the Common Stock, and may hinder or delay the removal of directors,
attempted tender offers, proxy contests or takeovers, or other attempts to
change control of Acsys, some or all of which may be desired by holders of the
Common Stock.
Articles of amendment must be filed with the Georgia Secretary of State prior
to the issuance of any shares of Preferred Stock of the applicable series.
REMOVAL OF THE BOARD OF DIRECTORS; NO CLASSIFICATION OF THE BOARD
The entire Board of Directors or any individual director may be removed with
cause by the shareholders. Directors may not be removed without cause. The
Board of Directors is not divided into classes, and the terms of office of all
of the Directors expire at the next annual meeting of shareholders.
49
<PAGE>
SPECIAL MEETINGS
Under our Bylaws, special meetings of the shareholders may be called by
shareholders only if such shareholders hold outstanding shares representing a
majority of all votes entitled to be cast on any issue proposed to be
considered at any such special meeting.
ADVANCE NOTICE OF NEW BUSINESS AND DIRECTOR NOMINATIONS
Our Bylaws provide that, with respect to an annual meeting of shareholders, the
proposal of business to be considered by shareholders and nominations of
persons for election to the Board of Directors may be made only (i) by or at
the direction of the Board of Directors, the Chairman of the Board or the
President, or (ii) by a shareholder who has complied with the advance notice
procedures set forth in our Bylaws.
INDEMNIFICATION AND LIMITATION OF LIABILITY
Our Articles of Incorporation eliminate, subject to certain exceptions, the
personal liability of a director to Acsys or its shareholders for monetary
damage for breaches of such director's duty of care or other duties as a
director. The Articles do not provide for the elimination of or any limitation
on the personal liability of a director for (i) any appropriation, in violation
of the director's duties, of any business opportunity of Acsys, (ii) acts or
omissions that involve intentional misconduct or a knowing violation of law,
(iii) unlawful corporate distributions, or (iv) any transactions from which the
director derived an improper personal benefit. Our Articles of Incorporation
further provide that if the GBCC is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of Acsys shall be eliminated or limited to the fullest
extent permitted by the GBCC, as amended, without further action by the
shareholders. These provisions of our Articles of Incorporation will limit the
remedies available to a shareholder in the event of breaches of any director's
duties to such shareholder or Acsys.
Our Bylaws require us to indemnify and hold harmless any director who was or is
a party or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (including any action or suit by or in the right of Acsys)
because he or she is or was a director of Acsys, against expenses (including,
but not limited to, attorney's fees and disbursements, court costs and expert
witness fees), and against judgments, fines, penalties, and amounts paid in
settlement incurred by him or her in connection with the action, suit or
proceeding. Indemnification would be disallowed under any circumstances where
indemnification may not be authorized by action of the Board of Directors, the
shareholders or otherwise.
We have entered into separate indemnification agreements with each of our
directors and executive officers, whereby we agreed, among other things, to
provide for indemnification and advancement of expenses in a manner and subject
to terms and conditions similar to those set forth in our Bylaws. These
agreements also provide that we must purchase and maintain liability insurance
for the benefit of our directors and executive officers. These agreements may
not be abrogated by action of the shareholders. There is no pending litigation
or proceeding involving a director, officer, employee or other agent of Acsys
as to which indemnification is being sought, nor are we aware of any pending or
threatened litigation that may result in claims for indemnification by any
director, officer,
50
<PAGE>
employee or other agent. We have also agreed to hold the shareholders harmless
from, against and in respect of federal income tax liabilities, including
interest and penalties imposed thereon (and any state and local income tax
liabilities as provided by applicable law), if any, incurred by the
shareholders as a result of a final determination of an adjustment (by reason
of an amended return, claim for refund, audit, judicial decision or otherwise)
to the taxable income of Acsys for any period during the time Acsys was treated
as an S Corporation for federal and state income tax purposes which results in
a decrease for any such period in our taxable income and a corresponding
increase for any such period in the taxable income of the shareholders. See
"Prior S Corporation Status."
REGISTRATION RIGHTS
Certain of our current shareholders have the right in the event Acsys proposes
to register under the federal securities laws any Common Stock for our own
account or for the account of others, subject to certain exceptions, to require
us to include their shares in the registration, subject to the right of any
managing underwriter of any such offering to exclude some or all of the shares
for marketing reasons. In addition, through September 3, 1999, and upon the
affirmative vote of the holders of at least 2,884,895 shares of Common Stock,
these shareholders have certain limited demand registration rights to cause
Acsys to register shares held by them, provided that the aggregate estimated
public offering price of all shares to be sold in the offering is at least
$5,000,000 and that any such demand must be accompanied by either (i) the
written consent of (a) David C. Cooper, (b) either Mark E. Strassman or Beth
Monroe Chase and (c) either Edward S. Baumstein or Harry J. Sauer to a
registration pursuant to such request, or (ii) a written valuation from a
reputable investment banking firm that is a member of the New York Stock
Exchange which opines that the value of Acsys in an offering made pursuant to
such request would be at least $100 million.
We generally are required to bear the expense relating to the sale of the
shareholders' securities under these registration rights, except for
underwriting discounts and commissions, and in certain cases the fees and
expenses of the shareholders' counsel and filing fees related to the
registration statement. We also are obligated to indemnify the shareholders
whose shares are included in any of our registrations against certain losses
and liabilities, including liabilities under the federal and state securities
laws.
ANTI-TAKEOVER PROVISIONS AND GEORGIA LAW
Our Articles of Incorporation contain provisions that could have the effect
delaying, deferring or preventing an unsolicited change in control of Acsys.
Issuance of Preferred Stock. The Board of Directors has the power to issue
5,000,000 shares of Preferred Stock, in one or more classes or series and with
such rights and preferences as determined by the Board of Directors, all
without shareholder approval. Because the Board of Directors has the power to
establish the preferences and rights of each class or series of Preferred
Stock, it may afford the holders in any series of Preferred Stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
Common Stock. The Board of Directors has no present plans to issue any shares
of Preferred Stock.
51
<PAGE>
Georgia Anti-Takeover Statutes. The GBCC generally restricts a company from
entering into certain business combinations with an interested shareholder
(which is defined as any person or entity that is the beneficial owner of at
least 10% of the company's voting stock) or its affiliates for a period of five
years after the date on which such shareholder became an interested
shareholder, unless (i) the transaction is approved by the Board of Directors
of the company prior to the date such person became an interested shareholder,
(ii) the interested shareholder acquires 90% of the company's voting stock in
the same transaction in which it exceeds 10%, or (iii) subsequent to becoming
an interested shareholder, such shareholder acquires 90% of the company's
voting stock and the business combination is approved by the holders of a
majority of the voting stock entitled to vote thereon (the "Business
Combination Statute"). The GBCC provides that the Business Combination Statute
will not apply unless the bylaws of the corporation specifically provide that
the Business Combination Statute is applicable to the corporation. We have not
elected to be covered by such statute, but we could do so by action of the
Board of Directors at any time.
The GBCC also contains provisions that impose certain fair price and other
procedural requirements applicable to certain business combinations (the "Fair
Price Statute") with any person who owns 10% or more of the Common Stock (an
"interested shareholder"). These statutory requirements restrict business
combinations with, and accumulations of shares of voting stock of, certain
Georgia corporations. The Fair Price Statute will apply to a company only if
the company elects to be covered by the restrictions imposed by these statutes.
We have elected to be covered by the Fair Price Statute.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta, Georgia.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 13, 1998, we had 14,431,518 shares of Common Stock outstanding.
The 2,842,500 shares sold in the IPO are freely tradable by persons other than
affiliates of Acsys, without restriction. In addition, a total of 213,142
shares have been sold pursuant to Rule 144 and are now freely transferable. The
423,056 shares offered by the Selling Shareholders under this Prospectus will
be freely transferable. The remaining 10,952,820 shares of Common Stock are
currently "restricted" securities within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
exemptions contained in Rule 144. Of this amount, 4,870,339 shares are
beneficially owned by persons who are affiliates of Acsys and, are eligible for
public sale pursuant to Rule 144, subject to the volume restrictions discussed
below. Certain shareholders, however, have the right in the event we propose to
register under the Securities Act any Common Stock for our own account or for
the account of others, subject to certain exceptions, to require us to include
their shares in the registration, subject to the right of any managing
underwriter of any such offering to exclude some or all of the shares for
marketing reasons. In addition, through September 3, 1999, and upon the
affirmative vote of the holders of at least 2,884,895 shares of Common Stock,
these shareholders have certain limited demand registration rights to require
us to register shares held by them, provided that the aggregate estimated
public offering price of all shares to be sold in the offering is at least
$5,000,000 and that any such demand must be accompanied by either (i) the
written consent of (a)
52
<PAGE>
David C. Cooper, (b) either Mark E. Strassman or Beth Monroe Chase and (c)
either Edward S. Baumstein or Harry J. Sauer to a registration pursuant to
such request, or (ii) a written valuation from a reputable investment banking
firm that is a member of the New York Stock Exchange which opines that the
value of Acsys in an offering made pursuant to such request would be at least
$100 million.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned his or her shares of Common
Stock for at least one year (including the prior holding period of any prior
owner other than an affiliate) is entitled to sell within any three-month
period that number of shares which does not exceed the greater of 1% of the
outstanding shares of Common Stock and the average weekly trading volume
during the four calendar weeks preceding each such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about Acsys. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of Acsys
for at least three months and who has beneficially owned shares for at least
two years (including the holding period of any prior owner other than an
affiliate) would be entitled to sell such shares under Rule 144 without regard
to the limitations described above. Rule 144 defines "affiliate" of a company
as a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such company.
Affiliates of a company generally include its directors, officers and
principal shareholders.
The Option Plan allows us to grant options to purchase up to an aggregate of
2,000,000 shares of Common Stock. We have registered the shares issuable upon
exercise of options granted under the Option Plan and otherwise outstanding
prior to the IPO and intend to register the 39,480 shares issuable upon
exercise of options outstanding as a result of our acquisition of ICON. As of
November 13, 1998, we had outstanding options to purchase a total of 2,000,269
shares of Common Stock. Upon such registration, such shares will be eligible
for resale in the public market without restrictions by persons who are not
affiliates of Acsys, and to the extent they are held by affiliates, pursuant
to Rule 144 without observance of the holding period requirements.
There has only been a public market for the Common Stock since February 1998,
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
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices and our ability to raise equity capital in the future.
53
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of Common Stock on behalf of the Selling
Shareholders. For purposes of this discussion regarding the plan of
distribution, "Selling Shareholders" includes donees and pledgees selling
shares received from a named Selling Shareholders after the date of this
prospectus. We will bear all costs, expenses and fees in connection with the
registration of the shares of Common Stock offered hereby. The Selling
Shareholders will bear brokerage commissions and similar selling expenses, if
any, attributable to the sale of shares of Common Stock. The Selling
Shareholders may sell shares of Common Stock from time to time in one or more
types of transactions (which may include block transactions);
. on the Nasdaq National Market;
. in the over-the-counter market;
. in negotiated transactions;
. through put or call options transactions relating to the shares of Common
Stock; and
. through short sales or a combination of such methods of sale.
Such transactions may be made at market prices prevailing at the time of sale
or at negotiated prices, and may or may not involve brokers or dealers. The
Selling Shareholders have advised Acsys that they have not entered into any
agreements, understandings or arrangements with any underwriters or broker-
dealers regarding the sale of their securities, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of shares of
Common Stock by the Selling Shareholders.
The Selling Shareholders may sell shares of Common Stock directly to purchasers
or to or through broker-dealers, which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Shareholders and/or the purchasers of shares of
Common Stock from whom such broker-dealers may act as agents or to whom they
sell as principal, or both. Any compensation as to a particular broker-dealer
might be in excess of customary commissions.
The Selling Shareholders and any broker-dealers that act in connection with the
sale of shares of Common Stock might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act. Any commissions received by
such broker-dealers and any profit on the resale of the shares of Common Stock
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act. We have agreed to indemnify
each Selling Shareholder against certain liabilities, including liabilities
arising under the Securities Act. The Selling Shareholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares of Common Stock against certain liabilities,
including liabilities arising under the Securities Act.
Because the Selling Shareholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the Selling Shareholders will
be subject to the prospectus delivery requirements of the Securities Act. We
have informed the Selling Shareholders that the anti-manipulative provisions of
Regulation M promulgated under the Exchange Act may apply to their sales in the
market.
54
<PAGE>
Selling Shareholders also may resell all or a portion of the shares of Common
Stock in open market transactions in reliance upon Rule 144 under the
Securities Act, providing they meet the criteria and conform to the
requirements of Rule 144.
If we are notified by a Selling Shareholder that any material arrangement has
been entered into with a broker-dealer for the sale of shares of Common Stock
through:
. a block trade;
. a special offering;
. a secondary distribution; or
. a purchase by a broker or dealer;
then a supplement to this prospectus will be filed, if required, pursuant to
Rule 424(b) under the Act, disclosing:
. the name of each such selling stockholder and of the participating broker-
dealer(s);
. the number of shares involved;
. the price at which such shares were sold;
. the commissions paid or discounts or concessions allowed to such broker-
dealer(s), where applicable;
. that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this Prospectus; and
. other facts material to the transaction.
In addition, upon our being notified by a Selling Shareholder that a donee or
pledgee intends to sell more than 500 shares, a supplement to this Prospectus
will be filed.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed upon
for Acsys by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The audited financial statements and schedule of Acsys, Inc. and Subsidiaries
and the audited combined financial statements of C.P.A. Staffing, Inc., C.P.A.
Search, Inc. and Career Placement Associates, Inc. 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.
The financial statements of Staffing Edge, Inc. as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
55
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other
documents with the SEC. You may read and copy any document we file at the SEC's
public reference room at Judiciary Plaza Building, 450 Fifth Street, N.W., Room
1024, Washington, D.C., 20549. You should call 1-800-SEC-0330 for more
information on the public reference room. The SEC maintains an internet site at
http://www.sec.gov where certain information regarding issuers (including
Acsys) may be found.
This Prospectus is part of the registration statement that we filed with the
SEC. The registration statement contains more information than this Prospectus
regarding Acsys and its Common Stock, including certain exhibits and schedules.
You can get a copy of the registration statement from the SEC at the address
listed above or from its internet site.
We maintain various sites on the Internet's world wide web. Information
contained on our world wide web sites is not a part of this Prospectus.
Industry information presented is based on sources that we believe are
reliable, although we have not independently verified this information.
56
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACSYS, INC. AND SUBSIDIARIES:
Unaudited Pro Forma Combined Financial Statements:
Basis of Presentation................................................... F-2
Pro Forma Combined Statements of Operations............................. F-3
Notes to Pro Forma Combined Financial Statements........................ F-5
Consolidated Financial Statements:
Report of Independent Public Accountants................................ F-8
Consolidated Balance Sheets............................................. F-9
Consolidated Statements of Operations................................... F-10
Consolidated Statements of Redeemable Common Stock and Shareholders'
Equity................................................................. F-11
Consolidated Statements of Cash Flows................................... F-12
Notes to Consolidated Financial Statements.............................. F-13
C.P.A. STAFFING, INC. AND AFFILIATES:
Report of Independent Public Accountants................................ F-29
Combined Balance Sheets................................................. F-30
Combined Statements of Operations....................................... F-31
Combined Statements of Shareholders' Equity............................. F-32
Combined Statements of Cash Flows....................................... F-33
Notes to Combined Financial Statements.................................. F-34
STAFFING EDGE, INC.:
Financial Statements:
Report of Independent Public Accountants................................ F-38
Balance Sheets.......................................................... F-39
Statements of Income.................................................... F-40
Statements of Stockholders' Equity...................................... F-41
Statements of Cash Flows................................................ F-42
Notes to Financial Statements........................................... F-43
Condensed Financial Statements (Unaudited):
Balance Sheet........................................................... F-51
Statements of Income.................................................... F-52
Statements of Cash Flows................................................ F-53
Notes to Condensed Financial Statements................................. F-54
</TABLE>
F-1
<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.
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.
PRO FORMA PRESENTATION
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 results of operations would
actually have been if such transactions had occurred on those dates and are not
necessarily representative of the Company's 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 Registration Statement.
F-2
<PAGE>
ACSYS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
C.P.A. STAFFING PRO FORMA PRO
ACSYS STAFFING EDGE TGS KPD ADJUSTMENTS FORMA
-------- -------- -------- ------- ------- ----------- --------
(NOTE 1) (NOTES 1 AND 2) (NOTE 3)
-------- --------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing..... $ 60,057 $ 4,016 $ 16,872 $ 1,084 $ 2,579 $ -- $ 84,608
Permanent placement.... 18,071 541 3,937 496 151 -- 23,196
Other.................. -- -- 502 -- -- (502)(g) --
-------- ------- -------- ------- ------- ------- --------
Total service
revenues.............. 78,128 4,557 21,311 1,580 2,730 (502) 107,804
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and in-
surance costs for tem-
porary employees....... 42,583 2,833 11,344 663 1,672 -- 59,095
OTHER COST OF SERVICES.. -- -- 494 -- -- (494)(g) --
-------- ------- -------- ------- ------- ------- --------
Gross profit........... 35,545 1,724 9,473 917 1,058 (8) 48,709
SELLING, GENERAL AND
ADMINISTRATIVE EX-
PENSES................. 29,979 1,680 8,921 726 1,040 (3,742)(a)(e)(g) 38,604
COMBINATION EXPENSES.... 1,797 -- -- -- -- (1,797)(b) --
AMORTIZATION AND DEPRE-
CIATION................ 715 20 274 7 4 1,088 (d) 2,108
SEVERANCE AND FRANCHISE
TERMINATION COSTS...... 682 -- -- -- -- -- 682
-------- ------- -------- ------- ------- ------- --------
Operating income....... 2,372 24 278 184 14 4,443 7,315
INTEREST EXPENSE, NET... 788 -- 253 1 -- 837(f) 1,879
-------- ------- -------- ------- ------- ------- --------
INCOME BEFORE INCOME
TAXES.................. 1,584 24 25 183 14 3,606 5,436
Income taxes........... 438 -- 11 -- -- 1,943 (c) 2,392
-------- ------- -------- ------- ------- ------- --------
NET INCOME.............. $ 1,146 $ 24 $ 14 $ 183 $ 14 $ 1,663 $ 3,044
======== ======= ======== ======= ======= ======= ========
PRO FORMA BASIC AND DI-
LUTED NET INCOME PER
SHARE.................. $ 0.21
========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA BASIC NET INCOME
PER SHARE (Note 4)..... 14,385
========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA DILUTED NET IN-
COME PER SHARE (Note
4)..................... 14,489
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
ACSYS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------- PRO FORMA
ACSYS STAFFING EDGE TGS KPD ADJUSTMENTS PRO FORMA
-------- ------------- ---- ------ ----------- ---------
(NOTE 1) (NOTES 1 AND 2) (NOTE 3)
-------- ------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing....... $ 69,564 $11,779 $344 $1,977 $ -- $ 83,664
Permanent placement...... 19,807 4,012 208 85 -- 24,112
Other.................... -- 940 -- -- (940)(g) --
-------- ------- ---- ------ ------- --------
Total service revenues... 89,371 16,731 552 2,062 (940) 107,776
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and
insurance costs for
temporary employees...... 48,768 8,221 237 1,078 -- 58,304
OTHER COST OF SERVICES.... -- 825 -- -- (825)(g) --
-------- ------- ---- ------ ------- --------
Gross profit............. 40,603 7,685 315 984 (115) 49,472
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.. 32,969 7,842 167 576 (2,421)(a)(g) 39,133
COMBINATION EXPENSES...... 1,730 -- -- -- (1,730)(b) --
AMORTIZATION AND
DEPRECIATION............. 1,059 205 3 2 508 (d) 1,777
SEVERANCE AND FRANCHISE
TERMINATION COSTS........ 650 -- -- -- -- 650
-------- ------- ---- ------ ------- --------
Operating income......... 4,195 (362) 145 406 3,528 7,912
INTEREST EXPENSE, NET 466 277 -- -- 984 (f) 1,727
-------- ------- ---- ------ ------- --------
INCOME (LOSS) BEFORE
INCOME TAXES............. 3,729 (639) 145 406 2,544 6,185
Income taxes............. 5,185 (255) -- -- (2,295)(c) 2,635
-------- ------- ---- ------ ------- --------
NET INCOME (LOSS)......... $ (1,456) $ (384) $145 $ 406 $ 4,839 $ 3,550
======== ======= ==== ====== ======= ========
PRO FORMA BASIC NET INCOME
PER SHARE................ $ 0.25
========
PRO FORMA DILUTED NET
INCOME PER SHARE......... $ 0.24
========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA BASIC NET INCOME
PER SHARE (Note 4).......... 14,462
========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA DILUTED NET INCOME
PER SHARE (Note 4)....... 14,918
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The accompanying pro forma information presents the pro forma results of
operations of the Company for the year ended December 31, 1997 and the nine
months ended September 30, 1998.
The historical financial statements of the Company were derived from the
historical statements of operations for the year ended December 31, 1997 and
the nine months ended September 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, KPD and Staffing Edge
were derived from the historical statements of operations of TGS, KPD and
Staffing Edge for the year ended December 31, 1997 and for the period from
January 1, 1998 through their respective dates of acquisition by the Company on
March 31, 1998, July 1, 1998 and August 4, 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.
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 $32,306,000 and
consisted of cash of $22,510,000, 81,766 shares of common stock with a fair
market value of $838,000, transaction costs of $1,918,000 and assumption of
debt of $7,040,000. The purchase price was allocated to the assets acquired and
liabilities assumed. The $31,800,000 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 $7,500,000 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,
F-5
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1997 and the nine months ended September 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 had 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 the fixed assets and certain other assets
used in the Training Division.
3. ADJUSTMENTS TO THE PRO FORMA COMBINED STATEMENTS OF OPERATIONS:
The following represents the pro forma adjustments to the Combined Statements
of Operations (in thousands):
(a) Reflects an adjustment of $2,328,000 and $1,605,000 for the year ended
December 31, 1997 and the nine months ended September 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.
(b) Reflects the elimination of the combination expenses.
(c) Reflects the provision for income taxes as if the Company was a C
corporation during the periods presented.
(d) 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.
(e) Reflects the elimination of the non-recurring, non-cash charge of
$702,000 related to the acquisition of C.P.A. Staffing.
(f) 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.
(g) Reflects an adjustment to eliminate the Training Business of Staffing
Edge. The adjustment to service revenues, cost of services, and selling,
general and administrative expenses for the year ended December 31, 1997 was
$502,000, $494,000 and $712,000 respectively and for the nine months ended
September 30, 1998 was $940,000 $825,000 and $816,000 respectively.
F-6
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. 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>
NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Average outstanding shares of Common
stock of the Company................. 10,440 13,878
Elimination of certain Common stock
redemption rights in connection with
the Offering......................... 122 --
Incremental shares issued in
connection with the acquisitions of
C.P.A. Staffing, TGS, KPD, and
Staffing Edge........................ 980 139
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....... 2,843 445
------ ------
Pro forma, basic shares............. 14,385 14,462
Common stock equivalents for stock
options granted...................... 104 456
------ ------
Pro forma, diluted shares........... 14,489 14,918
====== ======
</TABLE>
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Acsys, Inc.:
We have audited the accompanying consolidated balance sheets of Acsys, Inc. (a
Georgia corporation) and Subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, redeemable common stock and
shareholders' 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Acsys, Inc. and
Subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, PA,
May 22, 1998
F-8
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 1,102 $ 370 $ 1,175
Restricted cash............................... 117 -- --
Accounts receivable, net of allowances of
$313, $503 and $856.......................... 8,359 12,343 23,170
Prepaid expenses and other.................... 270 1,455 1,391
------- ------- -------
Total current assets........................ 9,848 14,168 25,736
PROPERTY AND EQUIPMENT, net..................... 941 1,928 4,380
GOODWILL AND OTHER INTANGIBLE ASSETS, net....... 7,126 15,783 54,567
DEFERRED INITIAL PUBLIC OFFERING COSTS.......... -- 1,200 --
DEFERRED INCOME TAXES........................... -- 103 --
OTHER ASSETS.................................... 252 170 230
------- ------- -------
Total assets................................ $18,167 $33,352 $84,913
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts............................... $ 265 $ 1,489 $ --
Lines of credit............................... 1,108 -- --
Current portion of long-term debt............. 722 47 9,003
Accounts payable.............................. 463 774 1,391
Accrued liabilities........................... 2,429 5,844 11,769
Deferred income taxes......................... 552 1,093 402
------- ------- -------
Total current liabilities................... 5,539 9,247 22,565
LONG-TERM DEBT.................................. 8,125 11,707 25,642
DEFERRED INCOME TAXES........................... -- -- 2,726
OTHER LONG-TERM LIABILITIES..................... 41 377 284
COMMITMENTS AND CONTINGENCIES (Note 5)
REDEEMABLE COMMON STOCK, no par value, 122,012,
122,012 and 0 shares issued and outstanding,
respectively................................... 288 1,220 --
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, 9,972,294, 11,191,568 and
14,422,038 shares issued and outstanding,
respectively................................. 530 7,597 29,377
Retained earnings............................. 4,233 3,204 4,319
Treasury stock, at cost....................... (589) -- --
------- ------- -------
Total shareholders' equity.................. 4,174 10,801 33,696
------- ------- -------
Total liabilities and shareholders' equity.. $18,167 $33,352 $84,913
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS--EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
-------------------------------- -------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing..... $ 28,215 $ 44,556 $ 60,057 $ 42,550 $ 69,564
Permanent placement.... 8,269 12,186 18,071 13,742 19,807
---------- ---------- ---------- --------- ---------
Total service
revenues............ 36,484 56,742 78,128 56,292 89,371
DIRECT COST OF SERVICES,
consisting of
payroll, payroll taxes
and benefit costs for
temporary employees..... 18,284 30,616 42,583 29,863 48,768
---------- ---------- ---------- --------- ---------
Gross profit......... 18,200 26,126 35,545 26,429 40,603
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 13,893 20,769 29,979 21,063 32,969
COMBINATION EXPENSES..... -- -- 1,797 1,722 1,730
AMORTIZATION AND
DEPRECIATION............ 682 693 715 459 1,059
SEVERANCE AND FRANCHISE
TERMINATION COSTS....... 166 567 682 170 650
---------- ---------- ---------- --------- ---------
Operating income..... 3,459 4,097 2,372 3,015 4,195
INTEREST EXPENSE, NET: 865 811 788 588 466
---------- ---------- ---------- --------- ---------
INCOME BEFORE INCOME
TAXES................... 2,594 3,286 1,584 2,427 3,729
Income taxes........... 133 419 438 580 5,185
---------- ---------- ---------- --------- ---------
NET INCOME (LOSS)........ $ 2,461 $ 2,867 $ 1,146 $ 1,847 $ (1,456)
========== ========== ========== ========= =========
NET INCOME (LOSS) PER
SHARE:
Basic and diluted net
income (loss) per
share................. $ 0.24 $ 0.27 $ 0.02 $ 0.09 $ (0.10)
========== ========== ========== ========= =========
Shares used in
computing basic net
income (loss) per
share................. 10,094 9,972 10,440 10,233 13,878
========== ========== ========== ========= =========
Shares used in
computing diluted net
income (loss) per
share................. 10,094 9,972 10,544 10,321 13,878
========== ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
-----------------------------------------------
REDEEMABLE COMMON
STOCK COMMON STOCK
------------------ ------------------- RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK TOTAL
--------- ------- ---------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1995................... -- $ -- 10,094,306 $ 144 $ 913 $(131) $ 926
Distributions to
shareholders.......... -- -- -- -- (718) -- (718)
Net income............. -- -- -- -- 2,461 -- 2,461
--------- ------- ---------- ------- ------- ----- -------
BALANCE, DECEMBER 31,
1995................... -- -- 10,094,306 144 2,656 (131) 2,669
Assumption of debt
accounted for as a
distribution.......... -- -- -- -- (300) -- (300)
Push down of new
accounting basis in
purchase transaction.. -- -- -- 300 -- -- 300
Contributions from
shareholders.......... -- -- -- 150 -- -- 150
Distributions to
shareholders.......... -- -- -- -- (766) -- (766)
Purchase of Common
Stock in connection
with redemption
agreement (Note 10)... 122,012 64 (122,012) (64) -- (458) (522)
Accretion of redeemable
Common Stock to
redemption value...... -- 224 -- -- (224) -- (224)
Net income............. -- -- -- -- 2,867 -- 2,867
--------- ------- ---------- ------- ------- ----- -------
BALANCE, DECEMBER 31,
1996................... 122,012 288 9,972,294 530 4,233 (589) 4,174
Distributions to
shareholders.......... -- -- -- -- (1,243) -- (1,243)
Issuance of Common
Stock in connection
with acquisition...... -- -- 1,219,274 7,067 -- 589 7,656
Accretion of redeemable
Common Stock to
redemption value...... -- 932 -- -- (932) -- (932)
Net income............. -- -- -- -- 1,146 -- 1,146
--------- ------- ---------- ------- ------- ----- -------
BALANCE, DECEMBER 31,
1997................... 122,012 1,220 11,191,568 7,597 3,204 -- 10,801
Issuance of Common
Stock upon initial
public offering, net
of offering costs
(unaudited)........... -- -- 2,842,500 20,170 -- -- 20,170
Resetting of retained
earnings in connection
with the termination
of S Corporation
status (unaudited).... -- -- -- (2,737) 2,737 -- --
Termination of
redemption rights in
connection with the
initial public
offering (unaudited).. (122, 012) (1,220) 122,012 1,220 -- -- 1,220
Issuance of Common
Stock in connection
with acquisitions
(unaudited)........... -- -- 229,337 3,031 -- -- 3,031
Exercise of employee
stock options
(unaudited)........... -- -- 36,621 96 -- -- 96
Tax Benefit of Non-
qualified Stock option
exercises
(unaudited)........... -- -- -- -- 136 -- 136
Distributions to
shareholders
(unaudited)........... -- -- -- -- (302) -- (302)
Net loss (unaudited)... -- -- -- -- (1,456) -- (1,456)
--------- ------- ---------- ------- ------- ----- -------
BALANCE, SEPTEMBER 30,
1998 (unaudited)....... -- $ -- 14,422,038 $29,377 $ 4,319 $ -- $33,696
========= ======= ========== ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
---------------------- ---------------
1995 1996 1997 1997 1998
------ ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $2,461 $2,867 $1,146 $1,847 $(1,456)
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating ac-
tivities--
Amortization and depreciation........ 682 693 715 459 1,059
Imputed interest..................... 73 71 74 58 47
Non-cash severance charge............ -- 458 -- -- --
Deferred tax expense................. 133 419 438 616 1,899
Other................................ (31) (45) 8 95 --
Changes in operating assets and lia-
bilities net of effect of purchase
acquisitions--
Accounts receivable, net............. (1,378) (3,085) (2,860) (3,286) (7,001)
Prepaid expenses and other........... 7 (190) (1,200) (377) 475
Other assets......................... -- -- 99 15 15
Accounts payable..................... 231 104 242 759 (67)
Accrued liabilities and other........ 635 547 1,490 1,783 1,718
Other long-term liabilities.......... -- -- 336 -- (140)
------ ------ ------ ------ -------
Net cash provided by (used in) oper-
ating activities................... 2,813 1,839 488 1,969 (3,451)
------ ------ ------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for business acquisi-
tions............................... -- -- (1,996) (1,874) (34,260)
Capital expenditures................. (310) (562) (1,214) (446) (2,341)
------ ------ ------ ------ -------
Net cash used in investing activi-
ties............................... (310) (562) (3,210) (2,320) (36,601)
------ ------ ------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public of-
fering.............................. -- -- -- -- 20,170
Changes in bank overdrafts........... (121) 217 1,224 (133) (1,489)
Net borrowings (repayments) on lines
of credit........................... 162 508 (1,108) (1,108) --
Net borrowings (repayments) on re-
volving credit facility............. -- -- 12,207 12,207 22,910
Proceeds from long-term debt......... 80 326 -- -- --
Repayments of long-term debt......... (1,236) (1,811) (9,374) (9,243) (19)
Distributions to shareholders........ (717) (766) (843) (845) (545)
Deferred financing costs............. -- -- (232) -- (266)
Proceeds from exercise of employee
stock options....................... -- -- -- -- 96
Changes in restricted cash........... -- (89) 116 116 --
Net repayments of notes payable to
shareholders........................ -- (150) -- -- --
Shareholder contributions............ -- 150 -- -- --
------ ------ ------ ------ -------
Net cash provided by (used in) fi-
nancing activities................. (1,832) (1,615) 1,990 994 40,857
------ ------ ------ ------ -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... 671 (338) (732) 643 805
CASH AND CASH EQUIVALENTS, beginning
of year.............................. 769 1,440 1,102 1,102 370
------ ------ ------ ------ -------
CASH AND CASH EQUIVALENTS, end of
year................................. $1,440 $1,102 $ 370 $1,745 $ 1,175
====== ====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS:
Acsys, Inc. and Subsidiaries (the "Company") is a specialty professional
staffing firm that operates offices primarily located in major metropolitan
areas in the eastern and midwestern United States.
The Company was formed on March 10, 1997 and effected a business combination on
May 16, 1997 in which it 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 4,240,283 shares
of the Company's Common Stock (the "May 16 Pooling"). Subsequent to the May 16
Pooling, the Company acquired all of the issued and outstanding common stock of
the following companies, in the same manner:
<TABLE>
<CAPTION>
NAME ACQUISITION DATE SHARES ISSUED
---- ---------------- -------------
<S> <C> <C>
Cama of Tampa, Inc. ......................... May 19, 1997 131,143
Rylan Forbes Consulting Group, Inc. ......... July 25, 1997 462,292
Acsys Resources, Inc. ....................... September 3, 1997 3,659,502
ICON Search and Consulting, Inc. ............ May 22, 1998 2,820,360
</TABLE>
The business combinations referred to above have been accounted for under the
pooling of interests method of accounting. Thus, the accompanying financial
statements have been restated to include the accounts and operating results of
the combined companies for all dates and periods prior to the combinations,
except for Cama of Tampa, Inc. ("Cama") which is reflected only from its
respective date of formation of January 1, 1996 (see Note 3).
Upon closing these acquisitions, the Company entered into employment agreements
with certain officers and employees (see Note 5). Those agreements provide for
reduced compensation from amounts previously charged to expense. The reduction
in compensation was approximately $2,341,000 for the year ended December 31,
1997 and $1,330,000 for the nine months ended September 30, 1998. The following
is an unaudited supplemental pro forma presentation of the year ended December
31, 1997 and the nine months ended September 30, 1998 statements of operations
to reflect this adjustment:
F-13
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------------- ------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Income loss before
income taxes, as
reported............... $ 1,584 $ 3,729
Supplemental pro forma
adjustment to
compensation expense... 2,341 1,330
------------------ ------------------
Supplemental pro forma
income, before pro
forma income taxes..... 3,925 5,059
Supplemental pro forma
income taxes........... 2,329 2,479
------------------ ------------------
Supplemental pro forma
net income after
contractual reduction
in salaries............ $ 1,596 $ 2,580
================== ==================
Net income/(loss) per
diluted share as
reported............... $ 0.02 $ (0.10)
================== ==================
Supplemental pro forma
net income per diluted
share, as adjusted for
reduction in salaries.. $ 0.06 $ 0.18
================== ==================
Shares used in computing
supplemental pro forma
net income per diluted
share, as adjusted for
reduction in salaries.. 10,544 14,334
</TABLE>
This supplemental pro forma presentation is shown solely as a result of the
significant change in the Company's compensation arrangements following the
mergers, in order to assess the impact on the Company's results of operations.
This presentation assumes that the duties and responsibilities of the officers
and employees will not be diminished given the reduction in compensation and,
as such, that other costs will not be incurred that offset this pro forma
adjustment to compensation expense.
2. INITIAL PUBLIC OFFERING:
In February 1998, the Company completed its initial public offering ("IPO") of
2,842,500 shares of Common Stock at a price of $8.50 per share, generating net
cash proceeds of approximately $20.2 million after deducting underwriters'
discount and offering costs of approximately $2.3 million.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Risks and Uncertainties
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations include, but are
not limited to, the Company's brief operating history, the competitive market
for temporary staffing services, dependence on availability of qualified
personnel, dependence on key personnel, dependence on key client and other
relationships successful integration of acquisitions, and risks associated with
opening new offices and offering new services.
Credit risk with respect to accounts receivable is dispersed due to the nature
of the business, the large number of customers, and the diversity of industries
serviced. At December 31, 1996 and 1997 and September 30, 1998, no one customer
represented greater than 10% of accounts receivable or greater than 10% of
revenues for the periods then ended.
F-14
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant intercompany
transactions and accounts have been eliminated.
Cash and Cash Equivalents
The Company considers cash on deposit with financial institutions and all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. The Company generally limits its investments in
cash equivalents to money market funds and certificates of deposit.
Restricted Cash
Restricted cash represents funds previously held by a financing institution as
collateral for a line of credit.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are depreciated using the straight-line method over the shorter of
the estimated useful life of the asset or the remaining term of the lease.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
SEPTEMBER 30,
USEFUL LIVES 1996 1997 1998
------------ ------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Office equipment................. 3-7 years $1,197 $1,806 $4,225
Office furniture and fixtures.... 3-7 years 420 960 1,952
Leasehold improvements........... 7 years 158 343 375
------ ------ ------
1,775 3,109 6,552
Less--Accumulated depreciation... (834) (1,181) (2,172)
------ ------ ------
$ 941 $1,928 $4,380
====== ====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and 1997 and
the nine months ended September 30, 1997 and 1998 was $124,000, $284,000
$386,000 $259,000 and $501,000, respectively.
F-15
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
SEPTEMBER 30,
1996 1997 1998
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill...................................... $7,643 $16,397 $55,252
Deferred financing costs...................... -- 232 468
Other......................................... 8 8 259
------ ------- -------
7,651 16,637 55,979
Less--Accumulated amortization................ (525) (854) (1,412)
------ ------- -------
$7,126 $15,783 $54,567
====== ======= =======
</TABLE>
Goodwill was recorded in connection with the acquisition on February 28, 1994
of certain assets of a predecessor by Infinity Enterprises, Inc., the
acquisition on January 1, 1996 of common stock from the previous shareholders
of Cama of Tampa, Inc., the acquisition on August 12, 1997 of C.P.A. Staffing
and the acquisitions on March 31, 1998, July 1, 1998 and August 4, 1998 of TGS
Resource Group, Inc., KPD Systems Inc. and Staffing Edge, Inc., respectively
(see Note 11). Goodwill is being amortized on a straight-line basis over 40
years.
Deferred financing costs are being amortized over the three-year term of the
credit facility (see Note 4).
Amortization expense for the intangible assets for the years ended December 31,
1995, 1996 and 1997 and the nine months ended September 30, 1997 and 1998 was
$558,000, $409,000, $329,000, $200,000 and $558,000, respectively.
Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles held and used by the Company be reviewed for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If changes in
circumstances indicate that the carrying amount of an asset that an entity
expects to hold and use may not be recoverable, future cash flows expected to
result from the use of the asset and its disposition will be estimated. If the
undiscounted value of the future cash flows is less than the carrying amount of
the asset, an impairment will be recognized. Management believes that there has
been no impairment of long-lived assets as of December 31, 1997.
F-16
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accrued Liabilities
<TABLE>
<CAPTION>
DECEMBER 31
------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and commissions..................... $1,067 $2,722 $ 5,202
Acquisition transaction cost and other
acquired liabilities........................ -- -- 2,504
Combination costs............................ -- 1,612 103
Payroll taxes................................ 463 308 857
Shareholder distributions.................... -- 400 --
Accrued severance costs...................... -- 164 428
Income taxes payable......................... -- -- 1,314
Other........................................ 899 638 1,361
------ ------ -------
$2,429 $5,844 $11,769
====== ====== =======
</TABLE>
Revenue Recognition
The Company recognizes permanent placement revenues when the employment offer
and acceptance has occurred and the candidate's employment start date has been
established. Revenues from permanent placements are reported in the
consolidated statements of operations net of estimated adjustments due to
placed candidates that terminate employment within the Company's guarantee
period (generally 90-180 days). The net adjustment in each of the periods
presented is immaterial. The Company recognizes temporary staffing revenues
when the services are performed.
Gross Profit
Gross profit is determined by deducting the direct cost of services for
temporary staffing revenues (temporary and contract personnel payroll, payroll
taxes and benefit costs) from total service revenues. The primary costs
associated with permanent placement revenues are sales commissions, which
increase in proportion with service revenue from permanent placements.
Consistent with industry practice, these costs are included in selling, general
and administrative expenses.
Supplemental Cash Flow Information
For the years ended December 31, 1995, 1996 and 1997 and the nine months ended
September 30, 1997 and 1998, the Company paid interest of $919,000, $873,000,
$867,000, $370,000 and $602,000 respectively. The Company financed equipment
purchases under capital leases of $61,000 and $100,000 for the years ended
December 31, 1995 and 1996, respectively, and purchased Common Stock for debt
in the amount of $443,000 for the year ended December 31, 1996.
F-17
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table displays the net noncash assets that were acquired in 1997
and the nine months ended September 30, 1998. The 1997 assets acquired are from
the Company's August 1997 acquisition of C.P.A. Staffing. The 1998 assets
acquired are from the Company's acquisitions of TGS, KPD and Staffing Edge on
March 31, 1998, July 1, 1998 and August 4, 1998, respectively. These
transactions are described in Note 11:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ -------------------
(IN THOUSANDS)
<S> <C> <C>
Noncash assets (liabilities)
Accounts receivable................... $1,124 $ 3,826
Prepaid expenses and other............ 1 1,007
Property and equipment................ 167 568
Other assets.......................... -- 324
Goodwill.............................. 8,754 38,826
Accounts payable...................... (69) (684)
Accrued liabilities................... (325) (6,336)
Deferred tax liabilities.............. -- (240)
------ -------
Net noncash assets acquired........... 9,652 37,291
Common stock issued................... (7,656) (3,031)
------ -------
Net cash paid for acquisitions........ $1,996 $34,260
====== =======
</TABLE>
Income Taxes
The Company follows SFAS No. 109, "Accounting for Income Taxes." Under SFAS No.
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates that are expected to be in effect when the
differences reverse.
Prior to the IPO in February 1998 (see Note 2), the Company and its
subsidiaries were S corporations for federal and state income tax reporting
purposes except for ICON Search and Consulting, Inc. ("ICON") which is a C
Corporation. Accordingly, income tax expense and deferred taxes reflected in
the Company's financial statements prior to February 1998 were generated from
the operating activities of ICON.
In connection with the IPO, the Company and its subsidiaries terminated their S
corporation status and recorded income tax expense and a corresponding net
deferred tax liability of approximately $3,000,000, representing the tax effect
of differences in bases of assets and liabilities for financial reporting and
income tax purposes.
F-18
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net Income (Loss) Per Share
The Company has presented net income (loss) per share pursuant to SFAS No. 128,
"Earnings Per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98.
Basic net income (loss) per share is computed by dividing the net income (loss)
for each year by the weighted average number of common shares outstanding for
each year. Diluted net income (loss) per share is computed by dividing net
income (loss) for each year by the weighted average number of common shares and
Common Stock equivalents outstanding during each year. The average number of
common shares outstanding excludes the redeemable common shares, as the
accretion on the redeemable Common Stock of $224,000, $932,000 and $932,000 for
the years ended December 31, 1996 and 1997 and the nine months ended September
30, 1997, respectively, is deducted in arriving at the net income (loss)
available to Common shareholders. The average number of shares outstanding has
been retroactively restated to include the shares issued for the business
combinations accounted for as poolings of interests (see Note 1).
Fair Value of Financial Instruments
Management believes that the carrying amounts of certain financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses approximate their fair values as of each balance sheet date
given the relatively short maturity of these instruments. The fair values of
long-term debt instruments have been estimated by discounting future cash flows
based on the current interest rate environment and remaining term to maturity.
The carrying amount of long-term debt approximates the fair value.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." 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 15, 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 nine months ended September 30, 1997 and
1998 and for the years ended December 31, 1995, 1996 and 1997, no items meeting
the definition of comprehensive income as specified in SFAS No. 130, except net
income, existed in the financial statements. As a result, no disclosure is
necessary to comply with the standard.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective
for fiscal years beginning after December 15, 1997. Management believes that
SFAS No. 131 will not have a material effect on the Company's financial
statements.
Reclassifications
Certain amounts from prior years have been reclassified to conform with the
current year presentation.
F-19
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. DEBT:
<TABLE>
<CAPTION>
DECEMBER 31
--------------- SEPTEMBER 30,
1996 1997 1998
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving Credit Facility.................... $ -- $11,050 $33,959
Note payable to former shareholder of
Infinity Enterprises, Inc., repaid in May
1997........................................ 6,445 -- --
Non-compete agreements with former
shareholders of Infinity Enterprises, Inc.,
maturing February 2009, with monthly
payments of $8,333.......................... 1,217 1,116 1,042
Non-compete agreements with former owners of
EKT, Inc., repaid in May 1997............... 111 -- --
Term notes payable to former shareholders of
Cama of Tampa, Inc., repaid in May 1997..... 300 -- --
Term loans payable to a bank, repaid in
September 1997.............................. 256 -- --
Amount Due to former shareholders of Acsys
Resources, Inc., repaid in September 1997... 717 -- --
Loans due to shareholders of Acsys Resources,
Inc......................................... 93 -- --
Other........................................ 204 10 19
------ ------- -------
9,343 12,176 35,020
Less--Unamortized discount................... (496) (422) (375)
------ ------- -------
8,847 11,754 34,645
Less--Current portion........................ (722) (47) (9,003)
------ ------- -------
$8,125 $11,707 $25,642
====== ======= =======
</TABLE>
On May 16, 1997, the Company entered into an agreement with a bank which
provides for a $15,000,000 Revolving Credit Facility (the "Credit Facility") to
be repaid on May 31, 2000. At December 31, 1997, the Company had outstanding
borrowings under the Credit Facility of $11,050,000 and for the year ended
December 31, 1997 incurred $443,272 of interest expense under the Credit
Facility. The Company can elect on a monthly basis to pay interest at either:
(A) the greater of (i) the bank's prime rate or (ii) the federal funds rate
plus 0.5%, plus a margin which ranges up to 0.75%; or (B) at LIBOR plus a
margin, which ranges from 1.25% to 2.50%. Borrowings under the Credit Facility
are collateralized by all of the assets of the Company and a pledge of all of
the stock of its subsidiaries. Borrowings are also guaranteed by each of the
subsidiaries. The Credit Facility also contains various financial and non-
financial covenants and prohibits the payment of dividends without the lender's
consent. At December 31, 1997, the Company was in default under certain
covenants in the Credit Facility which were subsequently waived by the bank
through December 31, 1997. In February 1998, the Credit Facility was repaid
with proceeds from the IPO (see Note 2).
On June 29, 1998, the Company amended the Credit Facility, increasing the
amount available to be borrowed from $15.0 million to $25.0 million and
extending its maturity date from May 31, 2000 to June 30, 2002. In August 1998,
in connection with the acquisition of Staffing Edge (see Note 11), the Company
amended its Credit Facility increasing the available borrowings from $25.0
million to
F-20
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$40.0 million through January 1, 1999, after which availability under the
Credit Facility will be reduced to $25.0 million. As of September 30, 1998, the
Company had borrowed approximately $34.0 million under the credit facility, of
which $9.0 million, representing the amount which must be repaid or refinanced
by January 1, 1999, has been reclassified as current.
The Company has discounted the non-compete obligations and certain other notes
payable to reflect their fair market value based on average borrowing rates
available to the Company. The rate used to determine the discount was
approximately 9.25%. The discount is being amortized over the term of the notes
using the effective interest rate method. Amortization expense included in
interest expense in the accompanying statements of operations for the years
ended December 31, 1995, 1996 and 1997 and for the nine months ended September
30, 1997 and 1998 was approximately $73,000, $71,000, $74,000, $58,000 and
$47,000, respectively.
The obligations under the non-compete agreements with former shareholders are
secured by certain property and equipment and Common Stock of the Company, and
are personally guaranteed by certain shareholders of the Company.
Future maturities of long-term debt as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.......................................................... $ 47
1999.......................................................... 41
2000.......................................................... 11,095
2001.......................................................... 49
2002.......................................................... 54
Thereafter.................................................... 468
-------
$11,754
=======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
In connection with the business combinations (see Notes 1 and 11), the Company
entered into employment agreements with certain shareholders who are also
officers or employees of the Company. Each employment agreement provides for a
guaranteed base salary over a three-year period and a discretionary bonus to be
determined by the Board of Directors. As of September 30, 1998, for the last
three months of 1998, and for the years ending December 31, 1999, 2000 and
2001, the Company is obligated to pay $926,000, $3,705,000, $2,474,000 and
$456,000 respectively, in salaries under these agreements. The agreements
contain non-compete covenants and can be terminated based on certain events, as
defined. In addition, the agreements provide for lump sum payments equal to
three times current salary upon certain triggering events such as a change in
control, among other events.
The Company leases office space under noncancelable operating leases. Certain
leases require additional payments for taxes and operating expenses and provide
for renewal options. Future minimum payments required under operating leases
that have an initial or remaining noncancellable lease term in excess of one
year at December 31, 1997 are as follows:
F-21
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.......................................................... $1,653
1999.......................................................... 1,574
2000.......................................................... 1,469
2001.......................................................... 1,325
2002.......................................................... 976
Thereafter.................................................... 146
------
$7,143
======
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and 1997 and the nine
months ended September 30, 1997 and 1998 was $733,000, $969,000, $863,000,
$772,000 and $1,895,000, respectively.
On November 13, 1997, a lawsuit was filed against the Company, Cama and the
former owner of Cama, Stephen S. Tutwiler by L. Robert Frank, Jr. and L. Robert
Frank & Associates, Inc. in the Circuit Court of the Thirteenth Judicial
Circuit, Hillsborough County, Florida. The lawsuit alleges that the plaintiff
and Mr. Tutwiler agreed to form a corporation to provide certain staffing
services; that such services were instead provided through a division of Cama;
and that the plaintiff was entitled to a portion of the stock of Cama and thus
to a portion of the shares of Common Stock issued to Mr. Tutwiler when it
acquired Cama. The plaintiff asserts numerous claims, including breach of
contract, fraud, civil conspiracy and alleged misstatements and omissions
regarding the Company's ownership of Cama in a prospectus filed by the Company.
The plaintiff seeks to recover $27,000 allegedly due to the plaintiff, his
alleged portion of Mr. Tutwiler's shares of Common Stock, and compensatory and
other damages. The plaintiff also seeks an accounting and employment by the
Company. The Company intends to vigorously defend the plaintiff's allegations.
An adverse result could have a material effect on the Company and result in a
charge to the statement of operations in the period in which the litigation is
resolved. There is no other pending litigation which the Company considers
material.
In February 1998, the Company entered into a tax indemnification agreement with
the then current shareholders which provides for indemnification by the Company
to the shareholders and by the then shareholders to the Company for tax
consequences of any adjustments made to taxable income (loss) prior to or after
the termination of the S Corporation election that may impact previously
reported amounts.
6. TERMINATION OF FRANCHISE AGREEMENTS AND SEVERANCE COSTS:
Prior to May 31, 1994, Acsys Resources operated as a franchisee under a
franchise agreement, which provided for various marketing and royalty payments
to the franchisor based on revenues. Effective May 31, 1994, Acsys Resources
and the franchisor terminated the agreement. The termination agreement provided
for payments to the franchisor of $360,000, which were made and recorded as an
expense in 1994. In addition, Acsys Resources was required to pay to the
franchisor 1% of revenues for the period June 1, 1994 through May 31, 1995, and
2% of revenues for the period June 1, 1995
F-22
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
through May 31, 1996, resulting in an expense of $201,000 in 1994, $166,000 in
1995, and $108,000 in 1996. In May 1997, Cama of Tampa, Inc. terminated its
franchise agreement and made a one-time payment to the franchisor of $170,000,
which was recorded as an expense for the year ended December 31, 1997.
The Company recorded a $512,000 charge in 1997 as a result of the termination
of employment of a former executive, representing the present value of future
severance payments due under his employment agreement. The severance obligation
will be paid in 36 monthly installments of $16,667 beginning December 1997, and
is recorded in other current and long-term liabilities in the accompanying
balance sheet.
The Company recorded a charge of $650,000 during the nine months ended
September 30, 1998 consisting of severance obligations resulting from the
Company's decision to consolidate its corporate offices in Atlanta, Georgia.
Costs under the franchise termination agreements and severance expense have
been separately recorded in the accompanying consolidated statements of
operations.
7. RETIREMENT SAVINGS PLAN:
Acsys Resources and ICON have defined contribution retirement plans for the
benefit of all eligible employees. The plans qualify under Section 401(k) of
the Internal Revenue Code and allow for eligible employees to contribute to the
plans up to 15% and 10%, respectively, of their pretax compensation, subject to
the maximum contributions allowed by the Internal Revenue Code. The plans
provide for discretionary matching contributions by Acsys Resources and ICON
based on a percentage of the participant's contributions to the plan and a
discretionary profit sharing contribution based on employee compensation. Acsys
Resources made $23,000, $30,000 and $35,000 during the years ended December 31,
1995, 1996 and 1997, respectively, in matching contributions and no
discretionary contributions were made to the plan. Acsys Resources did not make
matching contributions during the nine months ended September 30, 1997 and
1998. ICON has not made contributions to the plan since the plan's inception.
F-23
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES:
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31
---------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current................................................... $(18) $ 27 $(96)
Deferred.................................................. 130 326 464
---- ---- ----
112 353 368
---- ---- ----
State:
Current................................................... $ (3) $ 5 (17)
Deferred.................................................. 24 61 87
---- ---- ----
21 66 70
---- ---- ----
$133 $419 $438
==== ==== ====
</TABLE>
The tax effect of significant temporary differences is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
GROSS DEFERRED TAX ASSETS:
Reserves not currently deductible for tax............... $ 12 $ 72
Operating loss carryforwards............................ -- 103
------ --------
12 175
GROSS DEFERRED TAX LIABILITY:
Difference between cash basis of
accounting (tax) and accrual basis of
accounting (book)...................................... (564) (1,165)
Amortization and depreciation........................... -- --
------ --------
Net deferred income tax liability..................... $ (552) $ (990)
====== ========
</TABLE>
The federal statutory income tax rate is reconciled to the effective tax rate
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal statutory rate................... 34.0% 34.0% 34.0%
State income taxes, net of federal
benefit................................. 4.0 4.0 4.0
Income allocated to S-corporation
earnings................................ (33.0) (25.8) (12.3)
Expenses not deductible for tax
purposes................................ 0.1 0.5 1.9
---------- ---------- ----------
5.1% 12.7% 27.6%
========== ========== ==========
</TABLE>
F-24
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTIES:
At December 31, 1996, Acsys Resources had loans due from its shareholders of
$62,000 at an interest rate of 5%. The loans are due on demand. These loans are
included in other assets in the accompanying consolidated balance sheets. In
addition, Acsys Resources owes three shareholders a total of $178,000 at
December 31, 1997 for compensation earned but not paid.
At December 31, 1997, the Company had outstanding advances to two of its
shareholders in the amount of $281,000, which are recorded within prepaid and
other current assets in the accompanying balance sheet.
10. CAPITAL TRANSACTIONS:
Stock Option Plan
In May 1997, the Company established the 1997 Stock Option Plan (the "Option
Plan"). The maximum number of shares of Common Stock that currently may be
subject to outstanding options, determined immediately after the grant of any
option, is 2,000,000 shares. The Option Plan provides that the number of shares
of Common Stock available for issuance thereunder shall be automatically
increased on the first trading day of each calendar year by the lesser of (i)
three percent of the number of shares outstanding on the preceding trading day
or (ii) 500,000 shares. Shares of Common Stock which are attributable to awards
which have expired, terminated or have been canceled or forfeited during any
calendar year are available for issuance or use in connection with future
awards during such calendar year.
In January 1997, Acsys Resources issued stock options under the Acsys Resources
1996 Equity Compensation Plan (the "Acsys Resources Plan") to its officers and
employees. In September 1997, the Acsys Resources Plan stock options were
exchanged for 111,687 stock options at an exercise price of $2.66 per share.
The exchange ratio was based on the exchange ratio used to effect the merger
between Acsys Resources and the Company on September 3, 1997. In connection
with this merger, these options became fully vested in accordance with the
change of control provision included in the Acsys Resources Plan. In May 1997,
the Company issued 97,698 non-qualified stock options and 37,500 qualified
stock options to an officer of the Company at an exercise price of $8.00 per
share.
As of December 31, 1997, there were 244,820 stock options outstanding and
exercisable under the Option Plan and the Acsys Resources Plan with a weighted
average exercise price of $5.61 per share. These options consist of 135,198 at
$8.00 per share and 109,622 at $2.66 per share.
From February to August 1998, the Company issued options to purchase 1,748,432
shares of Common Stock to certain employees and executive officers of the
Company at exercise prices that range from $8.50 to $18.50 per share.
F-25
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In May 1997, ICON issued stock options to certain employees. In May 1998, the
ICON stock options were exchanged for 39,480 stock options at an exercise price
of $7.09 per share. In connection with the merger, these options became fully
vested.
The Company accounts for its option plan under APB Opinion No. 25, "Accounting
for Stock Issued to Employees." In 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123). SFAS 123 established a fair value
based method of accounting for stock-based compensation plans. SFAS 123
requires that an employer's financial statements include certain disclosures
about stock-based employee compensation arrangements regardless of the method
used to account for the plan. Had the Company recognized compensation cost for
its stock option plans consistent with the provisions of SFAS 123, the
following pro forma net loss per Common share for the year ended December 31,
1997 would have resulted:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
---------------
(IN THOUSANDS--
EXCEPT PER
SHARE DATA)
<S> <C>
Net income:
As reported.............................................. $ 1,146
=======
As calculated in accordance with SFAS 123................ $ 871
=======
Net income/(loss) per Common Share:
As reported.............................................. $ 0.02
=======
As calculated in accordance with SFAS 123................ $ (0.01)
=======
Shares used in calculating net income per diluted common
share................................................... 10,440
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model, with a risk-free interest rate of 6.5%, no
expected dividend yield and an expected life of five years. A volatility of 0%
was assumed for the year ended December 31, 1997. As of December 31, 1997, the
weighted average fair value of the options outstanding was $1.61 per option.
Redemption and Severance Agreements
In September 1996, Acsys Resources, entered into a Stock Redemption Agreement
with one of its shareholders. Under this agreement, Acsys Resources repurchased
a portion of the shares owned by this shareholder for $458,500. This agreement
initially required Acsys Resources, Inc. to repurchase 122,012 shares of Common
Stock at a price based on an earnings formula defined in the Stock Redemption
Agreement. The Owner of these 122,012 shares of redeemable common stock entered
into a contractual waiver of all redemption rights effective upon the IPO.
Accordingly, subsequent to the IPO, these shares have been reclassified as
common stock.
In connection with the Stock Redemption Agreement, Acsys Resources and the
shareholder also entered into a severance agreement. Under this agreement, the
shareholder received $458,500, which was charged to expense in 1996.
F-26
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company paid $200,000 and $717,000 in September 1996, and September 1997,
respectively in settlement of amount under these agreements.
11. ACQUISITIONS:
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 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 an estimated fair value of
$7,700,000 and transaction costs of $144,000. The purchase price was allocated
to the assets acquired and liabilities assumed. The excess of approximately
$8,750,000 of the purchase price over the estimated fair value of the net
assets acquired was recorded as goodwill and is being amortized on a straight-
line basis over 40 years.
On March 31, 1998, the Company acquired all of the outstanding stock of TGS
Resource Group, Inc. ("TGS"), an accounting and finance staffing firm located
in Richmond, Virginia. The Company has accounted for this transaction under
the purchase method of accounting. The results of operations of TGS are
included from the date of acquisition only.
On May 22, 1998, the Company acquired all of the outstanding stock of ICON, an
Atlanta-based information technology staffing company, in a stock-for-stock
merger. As noted earlier, this transaction has qualified as a pooling of
interests for accounting purposes and as a tax-free reorganization. Under the
terms of the merger agreement, ICON shareholders received 2,820,360 shares of
Common Stock in exchange for all of the equity interests in ICON. In
connection with the merger, the Company recorded a charge for combination
expenses of $1,730,000 in the nine months ended September 30, 1998, including
investment banking, legal and accounting fees, and other transaction costs
associated with the merger.
On July 1, 1998, the Company acquired all of the outstanding stock of KPD
Systems, Inc. ("KPD"), an information technology staffing firm located on Long
Island, New York. The Company accounted for this transaction under the
purchase method of accounting. The results of operations for KPD are included
from the date of acquisition only.
On August 4, 1998, the Company acquired all of the outstanding stock of
Staffing Edge, Inc. ("Staffing Edge"), a specialty professional staffing firm
with offices throughout the Midwestern United States, for $22,510,000 in cash,
$838,000 in Common Stock, transaction costs of $1,918,000 and assumption of
debt of $7,040,000. The Company will account for this transaction under the
purchase method of accounting. The results of operations for Staffing Edge are
included from the date of acquisition only.
F-27
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the unaudited pro forma results of operations of
the Company for the years ended December 31, 1996 and 1997 and the nine months
ended September 30, 1998, assuming that the acquisitions of C.P.A. Staffing,
TGS, KPD and Staffing Edge had occurred on January 1, 1996:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------ SEPTEMBER 30,
1996 1997 1998
------------------ -------------
(IN THOUSANDS--EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Service revenues......................... $ 80,835 $ 107,805 $107,776
Pro forma net income..................... 694 15 1,330
Pro forma diluted net income/(loss) per
share................................... $ 0.04 $ (0.08) $ 0.09
Shares used in computing pro forma
diluted net income per share amounts.... 11,421 11,420 14,473
</TABLE>
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C.P.A. Staffing, Inc., C.P.A. Search, Inc.
and Career Placement Associates, Inc.:
We have audited the accompanying combined balance sheets of C.P.A. Staffing,
Inc., C.P.A. Search, Inc. and Career Placement Associates, Inc. (Georgia
corporations) as of December 31, 1996 and August 12, 1997, and the related
combined statements of operations, shareholders' equity and cash flows for the
year ended December 31, 1996, and for the period from January 1, 1997 to
August 12, 1997. These financial statements are the responsibility of the
Companies' 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 combined financial position of C.P.A. Staffing,
Inc., C.P.A. Search, Inc. and Career Placement Associates, Inc. as of December
31, 1996 and August 12, 1997, and the results of their operations and their
cash flows for the year ended December 31, 1996 and for the period from January
1, 1997 to August 12, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Philadelphia, PA,
October 3, 1997
F-29
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 12,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 3,627 $ 40,246
Accounts receivable, net of allowances of $25,000.... 884,985 1,123,504
Prepaid expenses..................................... -- 1,143
---------- ----------
Total current assets............................... 888,612 1,164,893
PROPERTY AND EQUIPMENT, net............................ 138,387 166,852
---------- ----------
$1,026,999 $1,331,745
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 25,198 $ 68,659
Accrued salaries, commissions, and benefits.......... 161,363 180,615
---------- ----------
Total current liabilities.......................... 186,561 249,274
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (Note 8):
Common stock......................................... 1,900 1,900
Additional paid in capital........................... -- 702,465
Retained earnings.................................... 853,258 392,826
Treasury stock, at cost.............................. (14,720) (14,720)
---------- ----------
Total shareholders' equity......................... 840,438 1,082,471
---------- ----------
$1,026,999 $1,331,745
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
FOR THE JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, AUGUST 12,
1996 1997
------------ ----------
<S> <C> <C>
SERVICE REVENUES:
Temporary staffing................................... $5,653,164 $4,015,890
Permanent placement.................................. 849,404 540,620
---------- ----------
Total service revenues............................. 6,502,568 4,556,510
DIRECT COSTS OF SERVICES, consisting of payroll, pay-
roll taxes and insurance costs for temporary employ-
ees................................................... 4,051,962 2,832,357
---------- ----------
Gross profit....................................... 2,450,606 1,724,153
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 1,378,626 1,679,590
DEPRECIATION........................................... 22,663 20,995
---------- ----------
NET INCOME............................................. $1,049,317 $ 23,568
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID IN RETAINED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------ ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1996................... $1,900 $ -- $ 518,941 $ (14,720) $ 506,121
Distributions to
shareholders......... -- -- (715,000) -- (715,000)
Net income............ -- -- 1,049,317 -- 1,049,317
------ -------- ---------- --------- ----------
BALANCE, DECEMBER 31,
1996................... 1,900 -- 853,258 (14,720) 840,438
Contribution from
shareholders......... -- 702,465 -- -- 702,465
Distributions to
shareholders......... -- -- (484,000) -- (484,000)
Net income............ -- -- 23,568 -- 23,568
------ -------- ---------- --------- ----------
BALANCE, AUGUST 12,
1997................... $1,900 $702,465 $ 392,826 $ (14,720) $1,082,471
====== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, AUGUST 12,
1996 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $1,049,317 $ 23,568
Adjustments to reconcile net income to net cash
provided by
operating activities--
Depreciation........................................ 22,663 20,995
Non-cash compensation charge (Note 7)............... -- 702,465
Changes in assets and liabilities--
Accounts receivable................................ (347,967) (238,519)
Prepaid expenses................................... -- (1,143)
Accounts payable................................... 5,922 43,461
Accrued salaries, commissions, and benefits........ 65,467 19,252
---------- ---------
Net cash provided by operating activities......... 795,402 570,079
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (86,139) (49,460)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders........................ (715,000) (484,000)
---------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (5,737) 36,619
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 9,364 3,627
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 3,627 $ 40,246
========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest............................... $ 4,424 $ 4,886
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
C.P.A. Staffing, Inc., C.P.A. Search, Inc. and Career Placement Associates,
Inc. (together, the "Company"), specialize in the placement of temporary and
permanent employees in the accounting, banking, finance and information
technology fields. The Company's primary market is Atlanta, Georgia.
On August 12, 1997, an agreement and plan of merger was entered into among
AcSys Resources, Inc. ("AcSys"), the Company and the shareholders of the
Company, whereby AcSys agreed to purchase all of the outstanding common stock
of the Company for approximately $9,600,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION
The financial statements reflect the combined financial position, results of
operations and cash flows of C.P.A. Staffing, Inc., C.P.A. Search, Inc. and
Career Placement Associates, Inc. The companies are engaged in related
operations and are owned, in the same percentages, by the same shareholders.
The financial statements reflect the elimination of all significant
intercompany accounts and transactions.
REVENUE RECOGNITION
The Company recognizes permanent placement revenues when the employment offer
and acceptance has occurred and the candidate's employment start date has been
established. Revenue from permanent placements is reported in the combined
statements of operations net of estimated adjustments due to placed candidates
that terminate employment within the Company's guarantee period (generally 90
days). The net adjustment in each of the periods presented is immaterial. The
Company recognizes temporary staffing revenues when the services are performed.
GROSS PROFIT
Gross profit is determined by deducting the direct cost of services for
temporary staffing revenues (temporary and contract personnel payroll, payroll
taxes and insurance costs) from total service revenues. The primary costs
associated with permanent placement revenues are sales commissions, which
increase in proportion with service revenue from permanent placements.
Consistent with industry practice, these costs are included in selling, general
and administrative expenses.
CASH AND CASH EQUIVALENTS
The Company considers cash on deposit with financial institutions and all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. At December 31, 1996 and August 12, 1997, cash
equivalents consisted primarily of investments in money market funds.
F-34
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets, which are
generally five to seven years for furniture, computer and office equipment.
INCOME TAXES
The Company is an S corporation and, as such, the Company is not subject to
federal and state income taxes and all taxable income and loss of the Company
is included in the shareholders' tax returns.
In the event of the termination of the S corporation status, the Company
would be required to record a deferred tax liability of approximately $367,000
as of August 12, 1997, in accordance with the provisions of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be reviewed
for possible impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If changes in
circumstances indicate that the carrying amount of an asset that an entity
expects to hold and use may not be recoverable, future cash flows expected to
result from the use of the asset and its disposition must be estimated. If the
undiscounted value of the future cash flows is less than the carrying amount of
the asset, an impairment will be recognized.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 12,
1996 1997
------------ ----------
<S> <C> <C>
Computer equipment................................... $113,783 $155,044
Furniture and office equipment....................... 63,007 71,206
-------- --------
176,790 226,250
Less--Accumulated depreciation....................... (38,403) (59,398)
-------- --------
$138,387 $166,852
======== ========
</TABLE>
F-35
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
4. LINE OF CREDIT:
The Company has a revolving line of credit with a bank, which provides for
maximum borrowings of $250,000. Borrowings under the line are limited to 75% of
accounts receivable, as defined. The line is collateralized by substantially
all of the assets of the Company and is personally guaranteed by the Company's
shareholders. Interest on borrowings is payable monthly and accrues at prime
plus 1.50%. The line of credit expires in April 1998. At December 31, 1996 and
August 12, 1997, there were no borrowings on the line. The maximum borrowed
under the line in 1996 was $30,000 and the average amount outstanding was
approximately $4,000. The maximum borrowed under the line during the period
ended August 12, 1997 was $150,000 and the average amount outstanding during
this period was approximately $8,500. Interest expense for the year ended
December 31, 1996 and for the period ended August 12, 1997 was not material.
5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT:
For the year ended December 31, 1996, the Company had three customers which
accounted for 22%, 17% and 11% of total service revenues. For the period from
January 1, 1997 to August 12, 1997, the same three customers accounted for 17%,
17% and 11% of revenues. At December 31, 1996, the Company had two customers
which accounted for 31% and 12% of accounts receivable. At August 12, 1997, the
Company had two customers which accounted for 24% and 13% of accounts
receivable.
6. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and equipment under operating leases through
October 31, 2001. Rent expense, was approximately $32,000 and $34,000, for the
year ended December 31, 1996 and for the period from January 1, 1997 to August
12, 1997, respectively. Future minimum lease payments under the Company's
operating leases for the years ended December 31 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $52,559
1998.............................................................. 77,562
1999.............................................................. 92,850
2000.............................................................. 94,503
2001.............................................................. 80,556
</TABLE>
The Company is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
7. EMPLOYEE AGREEMENT:
In July 1996, the Company entered into an agreement with an employee which
provides for a cash payment in the event of the sale of the Company, as
defined. The cash payment is based on performance criteria and is limited to
10% of the staffing company's sale price, less any amount paid to the employee
under the termination clause of the agreement. As a result of the sale of the
F-36
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Company's common stock on August 12, 1997 (see Note 1), the Company issued a
$280,000 demand note and a $422,465 note, payable over seven years with 8%
interest, as full consideration under this agreement. Both notes were assumed
by the shareholders of the Company. This assumption was recorded as a capital
contribution by the shareholders in the accompanying financial statements.
8. COMMON STOCK:
<TABLE>
<CAPTION>
PAR VALUE AUTHORIZED ISSUED OUTSTANDING
--------- ---------- ------ -----------
<S> <C> <C> <C> <C>
C.P.A. Staffing, Inc................ $ 1 10,000 200 200
C.P.A. Search, Inc.................. $ 1 10,000 200 200
Career Placement Associates, Inc.... $ -- 10,000 1,500 1,000
</TABLE>
In 1993, the Company repurchased 500 shares of Career Placement Associates,
Inc. common stock for $14,720.
F-37
<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-38
<PAGE>
STAFFING EDGE, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
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-39
<PAGE>
STAFFING EDGE, INC.
STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
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
=========== =========== ==========
</TABLE>
See notes to financial statements.
F-40
<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-41
<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-42
<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-43
<PAGE>
STAFFING EDGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
F-44
<PAGE>
STAFFING EDGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
1997 1996
---------- ----------
<S> <C> <C>
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-45
<PAGE>
STAFFING EDGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1998.............................................................. $ 378,542
1999.............................................................. 1,447,119
2000.............................................................. 381,014
2001.............................................................. 249,272
2002.............................................................. 272,656
Thereafter........................................................ 222,696
----------
$2,951,299
==========
</TABLE>
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:
<TABLE>
<S> <C>
1998.............................................................. $ 806,000
1999.............................................................. 820,000
2000.............................................................. 794,000
2001.............................................................. 729,000
2002.............................................................. 462,000
Thereafter........................................................ 1,633,000
----------
$5,244,000
==========
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995 was $523,948,
$185,659 and $112,438, respectively.
F-46
<PAGE>
STAFFING EDGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
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
========= ========
</TABLE>
Proforma net income and earnings per share for 1995, assuming the Company was a
C Corporation, is approximated as follows:
<TABLE>
<S> <C>
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
=========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
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
======= ========
</TABLE>
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 these temporary differences representing
significant portion of deferred tax assets and deferred tax liabilities are as
follows as of December 31, 1997 and 1996:
F-47
<PAGE>
STAFFING EDGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
NET EARNINGS
INCOME PER SHARE
------- ---------
<S> <C> <C>
As reported................................................ $14,460 $0.29
======= =====
Pro forma.................................................. $ 4,341 $0.09
======= =====
</TABLE>
A summary of the Company's outstanding Common Stock options as of December 31,
1997 is presented below:
<TABLE>
<CAPTION>
EXERCISE EXPIRATION
OPTIONS PRICE DATE
------- -------- -------------
<S> <C> <C>
608 $982 June 30, 2007
</TABLE>
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.
F-48
<PAGE>
STAFFING EDGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of the activity regarding the Company's outstanding options as of
December 31, 1997 is presented below:
<TABLE>
<CAPTION>
1997
---------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
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
=====
</TABLE>
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.
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
F-49
<PAGE>
STAFFING EDGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-50
<PAGE>
STAFFING EDGE, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
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-51
<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-52
<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-53
<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:
<TABLE>
<CAPTION>
JUNE 30,
1998
-----------
<S> <C>
Term loans................................................... $ 6,054,367
Note Payable to majority stockholder......................... 1,000,000
Less--Current portion........................................ (3,018,762)
-----------
$ 4,035,605
===========
</TABLE>
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. 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.
F-54
<PAGE>
STAFFING EDGE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
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 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
F-55
<PAGE>
STAFFING EDGE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
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
$7,040,000.
F-56
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS.
IF ANY SUCH INFORMATION IS GIVEN OR ANY SUCH REPRESENTATIONS ARE MADE, THEY
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ACSYS OR THE SELLING
SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OF ACSYS COMMON STOCK
OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ACSYS SINCE SUCH DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 2
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 13
Price Range of Common Stock.............................................. 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 28
Management............................................................... 38
Principal and Selling Shareholders....................................... 45
Certain Transactions..................................................... 47
Description of Capital Stock............................................. 49
Shares Eligible for Future Sale.......................................... 52
Plan of Distribution..................................................... 54
Legal Matters............................................................ 55
Experts.................................................................. 55
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
423,056 SHARES OF COMMON STOCK
[LOGO OF
ACSYS APPEARS HERE]
----------------
PROSPECTUS
----------------
NOVEMBER , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
offering described in the Registration Statement:
<TABLE>
<S> <C>
SEC registration fee.................................................. $ 1,010
Printing, materials and postage....................................... 35,000
Legal fees and expenses............................................... 50,000
Accounting fees and expenses.......................................... 50,000
Transfer Agent fees and expenses...................................... 1,000
Miscellaneous......................................................... 2,990
--------
Total............................................................... $140,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of Acsys, Inc. (the "Company") eliminate, subject
to certain limited exceptions, the personal liability of a director to the
Company or its shareholders for monetary damage for any breach of duty as a
director. There is no elimination of liability for (i) a breach of duty
involving appropriation of a business opportunity of the Company; (ii) an act
or omission which involves intentional misconduct or a knowing violation of
law; (iii) any transaction from which the director derives an improper personal
benefit; or (iv) as to any payments of a dividend or any other type of
distribution that is illegal under Section 14-2-832 of the Georgia Business
Corporation Code (the "GBCC"). In addition, if at any time the GBCC is amended
to authorize further elimination or limitation of the personal liability of a
director, then the liability of each director of the Company shall be
eliminated or limited to the fullest extent permitted by such provisions, as so
amended, without further action by the shareholders, unless the provisions of
the GBCC require such action. The provision does not limit the right of the
Company or its shareholders to seek injunctive or other equitable relief not
involving payments in the nature of monetary damages.
The Company's bylaws contain certain provisions which provide indemnification
to directors of the Company that is broader than the protection expressly
mandated in Sections 14-2-852 and 14-2-857 of the GBCC. To the extent that a
director or officer of the Company has been successful, on the merits or
otherwise, in the defense of any action or proceeding brought by reason of the
fact that such person was a director or officer of the Company, Sections 14-2-
852 and 14-2-857 of the GBCC would require the Company to indemnify such
persons against expenses (including attorney's fees) actually and reasonably
incurred in connection therewith. The GBCC expressly allows the Company to
provide for greater indemnification rights to its officers and directors,
subject to shareholder approval.
The indemnification provisions in the Company's bylaws require the Company to
indemnify and hold harmless any director who was or is a party or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (including
any action or suit by or in the right of the Company) because he or she is or
was a director of the Company, against expenses (including, but not limited to,
attorney's fees and
II-1
<PAGE>
disbursements, court costs and expert witness fees), and against judgments,
fines, penalties, and amounts paid in settlement incurred by him or her in
connection with the action, suit or proceeding. Indemnification would be
disallowed under any circumstances where indemnification may not be authorized
by action of the Board of Directors, the shareholders or otherwise. The Board
of Directors of the Company also has the authority to extend to officers,
employees and agents the same indemnification rights held by directors, subject
to all the accompanying conditions and obligations. Indemnified persons would
also be entitled to have the Company advance expenses prior to the final
disposition of the proceeding. If it is ultimately determined that they are not
entitled to indemnification, however, such amounts would be repaid. Insofar as
indemnification for liability arising under the Securities Act may be permitted
to officers and directors of the Company pursuant to the foregoing provisions,
the Company has been informed that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
The Company has entered into separate indemnification agreements with each of
its directors and executive officers, whereby the Company agreed, among other
things, to provide for indemnification and advancement of expenses in a manner
and subject to terms and conditions similar to those set forth in the Bylaws.
These agreements also provide that the Company shall purchase and maintain
liability insurance for the benefit of its directors and executive officers.
These agreements may not be abrogated by action of the shareholders. There is
no pending litigation or proceeding involving a director, officer, employee or
other agent of the Company as to which indemnification is being sought, nor is
the Company aware of any pending or threatened litigation that may result in
claims for indemnification by any director, officer, employee or other agent.
The Company has also agreed to hold the shareholders harmless from, against and
in respect of federal income tax liabilities, including interest and penalties
imposed thereon (and any state and local income tax liabilities as provided by
applicable law), if any, incurred by the shareholders as a result of a final
determination of an adjustment (by reason of an amended return, claim for
refund, audit, judicial decision or otherwise) to the taxable income of the
Company for any period which results in a decrease for any period in the
Company's taxable income and a corresponding increase for any period in the
taxable income of the shareholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities which were not registered under the Securities Act have been sold
by the Company within the past three years except for the following:
(i) The Company entered into that certain Agreement and Plan of Reorganization
dated as of April 16, 1997 by and among the Company, and David C. Cooper &
Associates, Inc. ("Cooper"), DCCA Professional Temporaries, Inc. ("DCCA"), EKT,
Inc. ("EKT"), Infinity Enterprises, Inc. ("Infinity"), certain subsidiaries of
the Company, and the shareholders of Cooper, DCCA, EKT, and Infinity. Pursuant
to such agreement, four wholly-owned subsidiaries of the Company were merged
with and into each of Cooper, DCCA, EKT and Infinity. Upon the effectiveness of
each such merger on May 16, 1997, all of the issued and outstanding stock of
each of Cooper, DCCA, EKT, and Infinity was converted into stock of the
Company, and the Company issued an aggregate of 4,240,283 shares of Common
Stock to the shareholders of Cooper, DCCA, EKT, and Infinity.
II-2
<PAGE>
(ii) The Company entered into that certain Agreement and Plan of Reorganization
dated as of April 24, 1997 by and among the Company, Cama of Tampa, Inc., Cama
Acquisition, Inc. and Stephen S. Tutwiler. Pursuant to such agreement, Cama
Acquisition, Inc., a wholly-owned subsidiary of the Company, merged with and
into Cama of Tampa, Inc. Upon the effectiveness of such merger on May 19, 1997,
all of the issued and outstanding stock of Cama of Tampa was converted into
stock of the Company, and the Company issued 131,143 shares of Common Stock to
the sole shareholder of Cama of Tampa.
(iii) The Company entered into that certain Agreement and Plan of Merger dated
as of July 25, 1997 by and among the Company, Rylan Forbes Consulting Group,
Inc. and the shareholders of Rylan Forbes Consulting Group, Inc. named therein.
Pursuant to such agreement, the Company acquired all of the equity interest of
Rylan Forbes in exchange for 462,292 shares of Common Stock.
(iv) The Company entered into that certain Agreement and Plan of Merger dated
as of September 3, 1997 by and among the Company, AcSys Resources and the
shareholders of AcSys Resources named therein. Pursuant to such agreement, the
Company acquired all of the equity interest of AcSys Resources in exchange for
3,659,502 shares of Common Stock (including 129,005 shares currently in escrow
to secure certain representations and warranties of the former AcSys Resources
shareholders). Also pursuant to such agreement, the Company issued options to
acquire an aggregate of 111,687 shares of Common Stock to holders of options to
acquire AcSys Resources' common stock.
(v) The Company entered into an employment agreement dated March 10, 1997 with
the Company's Chief Executive Officer pursuant to which the Company has granted
options to acquire an aggregate of 248,555 shares of Common Stock. The Company
also entered into an employment agreement dated September 3, 1997 with the
Company's Chief Financial Officer pursuant to which the Company granted options
to acquire 66,229 shares of Common Stock.
(vi) The Company entered into that certain Agreement and Plan of Merger dated
as of August 3, 1998, by and among the Company, SE Merger Subsidiary, Inc.,
Staffing Edge, Inc. and certain shareholders of Staffing Edge, Inc. Pursuant to
such agreement, Staffing Edge shareholders received an aggregate of $22,500,000
in cash, and 81,766 shares of the Company's Common Stock plus a contingent
earnout based upon the future performance of Staffing Edge, Inc. In addition,
the Company paid outstanding debt in the amount of $7,040,000 owed by Staffing
Edge, Inc. to certain of its creditors.
(vii) The Company entered into that certain Agreement and Plan of Merger dated
as of March 31, 1998 by and among the Company, Dramondi, Inc., TGS Resource
Group, Inc. (doing business as Dan Richard Associates of Richmond) ("TGS") the
shareholders of TGS. Pursuant to such agreement, the Company issued a total of
66,731 shares of Common Stock to the TGS shareholders.
(viii) The Company entered into that certain Agreement and Plan of Merger dated
as of March 31, 1998 by and among the Company, Icon Merger Subsidiary, Inc.,
Icon Search and Consulting, Inc., and the shareholders of Icon named therein.
Pursuant to such agreement, a wholly-owned subsidiary of the Company merged
with and into Icon. Also pursuant to such agreement, the Company issued a total
of 2,820,360 shares of Common Stock to Icon, Inc. Shareholders. Others received
options to purchase shares of Company Common Stock in exchange for Icon, Inc.
options.
II-3
<PAGE>
(vix) The Company entered into that certain Agreement and Plan of Merger dated
as of July 1, 1998 by and among the Company, Acsys NY, Inc., KPD Systems, Inc.
and Howard Sapolsky, the sole shareholder of KPD Systems, Inc. Pursuant to such
agreement, a wholly-owned subsidiary of the Company merged with and into KPD,
and the Company issued a total of 77,504 shares of Common Stock to Mr.
Sapolsky.
The issuance of securities described above was made in reliance on one or more
of the exemptions from registration under the Securities Act, including those
provided for by Section 4(2), Regulation D and Rule 701 thereunder. The
recipients of the securities in the above transactions represented their
intention to acquire the securities for investment purposes only and not with a
view to or for the sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. The recipients of these securities had adequate access, through
their relationship with the Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of April 16, 1997 by and
among the Company and David C. Cooper & Associates, Inc., DCCA
Professional Temporaries, Inc., EKT, Inc., and Infinity Enterprises,
Inc., and Cooper Acquisition, Inc., DCCA Acquisition, Inc., EKT
Acquisition, Inc., and Infinity Acquisition, Inc., and the
shareholders named therein. (Filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-1, File No. 333-38465 (the "February
1998 S-1") and incorporated herein by reference.)
2.2 Agreement and Plan of Reorganization dated as of April 24, 1997 by and
among the Company, Cama of Tampa, Inc., Cama Acquisition, Inc. and
Stephen S. Tutwiler. (Filed as Exhibit 2.2 to the February 1998 S-1,
and incorporated herein by reference.)
2.3 Agreement and Plan of Merger by and among the Company, RFCG Merger
Subsidiary, Inc., Rylan Forbes Consulting Group, Inc., and the
shareholders of Rylan Forbes Consulting Group, Inc. dated as of July
25, 1997. (Filed as Exhibit 2.3 to the February 1998 S-1, and
incorporated herein by reference.)
2.4 Agreement and Plan of Merger by and among the Company, the
shareholders of the Company, AcSys Resources, Inc., ASRI Merger
Subsidiary, Inc. and the shareholders of AcSys Resources, Inc. dated
as of September 3, 1997. (Filed as Exhibit 2.4 to the February 1998 S-
1, and incorporated herein by reference.)
2.5 Agreement and Plan of Merger among AcSys Resources, Inc., Acsys
Staffing Acquisition Corp., Acsys Search Acquisition Corp., Acsys
Career Acquisition Corp., and C.P.A. Staffing, Inc., C.P.A. Search,
Inc., Career Placement Associates, Inc. and John Ficquette and Louis
Boohaker dated as of August 12, 1997. (Filed as Exhibit 2.5 to the
February 1998 S-1, and incorporated herein by reference.)
2.6 Agreement and Plan of Merger by and among the Company, Icon Merger
Subsidiary, Inc., Icon Search and Consulting, Inc. ("Icon"), and the
shareholders of Icon named therein dated as of March 31, 1998. (Filed
as Exhibit 2.6 to the Quarterly Report on Form 10-Q dated May 15,
1998, File No. 000-23711 (the "May 15 10-Q"), and incorporated herein
by reference.)
2.7 Agreement and Plan of Merger, dated as of August 3, 1998, by and among
AcSys, Inc., SE Merger Subsidiary, Inc., Staffing Edge, Inc. and
certain stockholders of Staffing Edge, Inc. (Filed as Exhibit 2.1 to
the Current Report on Form 8-K dated August 19, 1998, File No. 000-
23711, and incorporated herein by reference.)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Articles of Incorporation of the Company. (Filed as Exhibit 3.1 to
February 1998 S-1, and incorporated herein by reference.)
3.1.1 Amendments to Articles of Incorporation
3.2 Bylaws of the Company. (Filed as Exhibit 3.2 to February 1998 S-1, and
incorporated herein by reference.)
*5.1 Legal opinion of Alston & Bird LLP.
10.1 Amended and Restated 1997 Stock Option Plan of the Company. (Filed as
Exhibit 10.1 to February 1998 S-1, and incorporated herein by
reference.)
10.2 Employment Agreement by and between the Company and Timothy Mann, Jr.
dated March 12, 1997. (Filed as Exhibit 10.3 to February 1998 S-1, and
incorporated herein by reference.)
10.3 Amendment No. 1 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated September 3, 1997. (Filed as Exhibit 10.4 to
February 1998 S-1, and incorporated herein by reference.)
10.4 Amendment No. 2 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated October 14, 1997. (Filed as Exhibit 10.5 to
February 1998 S-1, and incorporated herein by reference.)
10.5 Employment Agreement by and between the Company and Edward S.
Baumstein dated September 3, 1997. (Filed as Exhibit 10.6 to February
1998 S-1, and incorporated herein by reference.)
10.6 Amendment No. 1 to Employment Agreement by and between the Company and
Edward S. Baumstein dated as of October 14, 1997. (Filed as Exhibit
10.7 to February 1998 S-1, and incorporated herein by reference.)
10.7 Stock Option Agreement by and between the Company and Timothy Mann,
Jr. dated May 19, 1997. (Filed as Exhibit 10.8 to February 1998 S-1,
and incorporated herein by reference.)
10.8 Stock Option Agreement by and between the Company and Timothy Mann,
Jr. dated May 19, 1997. (Filed as Exhibit 10.9 to February 1998 S-1,
and incorporated herein by reference.)
10.9 Employment Agreement by and between the Company and Lester E.
Gallagher dated September 3, 1997. (Filed as Exhibit 10.10 to February
1998 S-1, and incorporated herein by reference.)
10.10 Form of Employment Agreement between the Company and key employees.
(Filed as Exhibit 10.11 to February 1998 S-1, and incorporated herein
by reference.)
10.11 Amended and Restated Registration Rights Agreement dated as of
September 3, 1997 by and among the Company and certain holders of the
capital stock of the Company. (Filed as Exhibit 10.12 to February 1998
S-1, and incorporated herein by reference.)
10.11.1 Registration Rights Joinder Agreement dated May 22, 1998 by and among
the Company and certain holders of the capital stock of the Company.
(Filed as Exhibit 10.12.1 to Quarterly Report on Form 10-Q dated
August 14, 1998, File No. 000-23711 (the "August 14 10-Q"), and
incorporated herein by reference.)
10.11.2 Registration Rights Joinder Agreement dated July 1, 1998 by and among
the Company and Howard Sapolsky. (Filed as Exhibit 10.1 to Quarterly
Report on Form 10-Q dated November 16, 1998, File No. 000-23711 (the
"November 16 10-Q"), and incorporated herein by reference.)
10.11.3 Registration Rights Joinder Agreement dated August 3, 1998 by and
among the Company and certain holders of capital stock of the Company.
(Filed as Exhibit 10.2 to the November 16 10-Q and incorporated herein
by reference.)
10.11.4 Registration Rights Joinder Agreement dated March 31, 1998 by and
among the Company and certain holders of capital stock of the Company.
10.12 Revolving Credit Agreement dated May 16, 1997 by and among the Company
and certain lenders. (Filed as Exhibit 10.13 to February 1998 S-1, and
incorporated herein by reference.)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12.1 Amendment No. 1 to Credit Agreement dated January 29, 1998 by and
among the Company, NationsBank, National Association as Lender, and
NationsBank, National Association as Agent for the Lenders. (Filed as
Exhibit 10.13.1 to the August 14 10-Q, and incorporated herein by
reference.)
10.12.2 Amendment No. 2 to Credit Agreement dated August 3, 1998 by and among
the Company, NationsBank, National Association as Lender and
NationsBank, National Association as Agent for the Lenders. (Filed as
Exhibit 10.3 to the November 16 10-Q, and incorporated herein by
reference.)
10.13 Form of Indemnification Agreement entered into between the Company and
its directors and officers. (Filed as Exhibit 10.14 to February 1998
S-1, and incorporated herein by reference.)
10.14 Form of S Corporation Tax Allocation and Indemnification Agreement
entered into between the Company and certain of its shareholders.
(Filed as Exhibit 10.15 to February 1998 S-1, and incorporated herein
by reference.)
10.15 Nonqualified Stock Option Grant dated as of January 30, 1997 by AcSys
Resources, Inc. to Les Gallagher. (Filed as Exhibit 10.16 to February
1998 S-1, and incorporated herein by reference.)
10.16 Employment Agreement between the Company and Robert M. Kwatnez dated
as of March 31, 1998 and effective on May 22, 1998. (Filed as Exhibit
10.18 to the August 14 10-Q, and incorporated herein by reference.)
10.17 Non-Solicitation and Non-Competition Agreement between the Company and
Robert M. Kwatnez dated as of March 31, 1998 and effective on May 22,
1998. (Filed as Exhibit 10.19 to the August 14 10-Q, and incorporated
herein by reference.)
10.18 Employment Agreement between the Company and Brady W. Mullinax, Jr.,
dated as of August 21, 1998. (Filed as Exhibit 10.4 to Quarterly
Report on Form 10-Q dated November 16, 1998, File No. 000-23711, and
incorporated herein by reference.)
10.19 Non-Qualified Stock Option Agreement by and between the Company and
Brady W. Mullinax, Jr. dated August 21, 1998. (Filed as Exhibit 10.5
to the November 16 10-Q, and incorporated herein by reference.)
10.20 Incentive Stock Option Agreement by and between the Company and Brady
W. Mullinax, Jr. dated August 21, 1998. (Filed as Exhibit 10.6 to the
November 16 10-Q, and incorporated herein by reference.)
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney [included on signature page].
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II: Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement (other than as provided in
the proviso and instructions to Item 512(a) of Regulation S-K): (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1993) (the
"Securities Act"); (ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-6
<PAGE>
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, 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.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the registrant 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 Act and will be governed by the final adjudication
of such issue.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ATLANTA, STATE OF
GEORGIA, ON NOVEMBER 17, 1998.
Acsys, Inc.
/s/ Timothy Mann, Jr.
By:
__________________________________
TIMOTHY MANN, JR.
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
ON NOVEMBER 17, 1998. EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY
CONSTITUTES AND APPOINTS DAVID C. COOPER, TIMOTHY MANN, JR. AND BRADY W.
MULLINAX, JR., OR ANY OF THEM, AS SUCH PERSON'S TRUE AND LAWFUL ATTORNEY-IN-
FACT AND AGENT WITH FULL POWER OF SUBSTITUTION FOR SUCH PERSON AND IN SUCH
PERSON'S NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN AND TO FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION, ANY AND ALL AMENDMENTS AND POST-
EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, INCLUDING ANY REGISTRATION
STATEMENT FILED PURSUANT TO RULE 462(B) OF THE SECURITIES ACT, AS AMENDED, WITH
EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, GRANTING UNTO
SAID ATTORNEYS-IN-FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT
THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS SUCH PERSON MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-
FACT AND AGENTS, OR ANY SUBSTITUTE THEREFOR, MAY LAWFULLY DO OR CAUSE TO BE
DONE BY VIRTUE THEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David C. Cooper Chairman of the Board of November 17, 1998
______________________________________ Directors
DAVID C. COOPER
/s/ Timothy Mann, Jr. Chief Executive Officer November 17, 1998
______________________________________ and Director (Principal
TIMOTHY MANN, JR. Executive Officer)
/s/ Edward S. Baumstein President, Chief Operating November 17, 1998
______________________________________ Officer and Director
EDWARD S. BAUMSTEIN
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Beth Monroe Chase Chief Development Officer, November 17, 1998
______________________________________ Executive Vice President
BETH MONROE CHASE and Director
/s/ Barry M. Abelson Director November 17, 1998
______________________________________
BARRY M. ABELSON
/s/ Paul J. Klaassen Director November 17, 1998
______________________________________
PAUL J. KLAASSEN
/s/ Robert M. Kwatnez Director November 17, 1998
______________________________________
ROBERT M. KWATNEZ
/s/ William Porter Payne Director November 17, 1998
______________________________________
WILLIAM PORTER PAYNE
/s/ Harry J. Sauer Director November 17, 1998
______________________________________
HARRY J. SAUER
/s/ Brady W. Mullinax, Jr. Vice President--Finance, November 17, 1998
______________________________________ Chief Financial Officer
BRADY W. MULLINAX, JR. and Secretary, (Principal
Financial and Accounting
Officer)
</TABLE>
II-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Acsys, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Acsys, Inc. and Subsidiaries included in
this Registration Statement and have issued our report thereon dated May 22,
1998. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 16(b) of the
Registration Statement is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
_____________________________________
Philadelphia, Pa.
May 22, 1998
SCH-I
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
BEGINNING COSTS AND ENDING
DESCRIPTION BALANCE EXPENSES DEDUCTIONS BALANCE
----------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
1995
Allowance for doubtful accounts........ $ 87 153 (74) $166
1996
Allowance for doubtful accounts........ $166 318 (171) $313
1997
Allowance for doubtful accounts........ $313 345 (155) $503
SEPTEMBER 30, 1998 (UNAUDITED)
Allowance for doubtful accounts........ $503 607 (254) $856
</TABLE>
SCH-II
<PAGE>
EXHIBIT 3.1.1
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ACSYS, INC.
ARTICLE I
The name of the corporation is Acsys, Inc.
ARTICLE II
Effective the date hereof, Article VIII of the Articles of Incorporation
of ACSYS, Inc. is deleted in its entirety. All other Articles shall remain in
full force and effect.
ARTICLE III
This amendment to the Articles of Incorporation was duly approved by the
Board of Directors of ACSYS, Inc. on October 13, 1997 in accordance with Section
14-2-1002 of the Georgia Business Corporation Code (the "Code") and by all of
the shareholders of ACSYS, Inc. as of November 25, 1997 in accordance with
Section 14-2-1003 of the Code.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed and attested by its duly authorized officer as of
February 11, 1998.
ACSYS, Inc.
/s/ Timothy Mann, Jr.
----------------------------
Timothy Mann, Jr.
Chief Executive Officer
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF ALSTON & BIRD LLP APPEARS HERE]
November 16, 1998
Acsys, Inc.
75 14th Street
Suite 2200
Atlanta, Georgia 30309
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to Acsys, Inc., a Georgia corporation (the
"Company"), in connection with the filing of the above-referenced Registration
Statement (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") to register under the Securities Act of 1933, as
amended (the "Act"), 423,056 shares of the Company's Common Stock, no par value
(the "Common Stock"), for sale by certain shareholders (the "Selling
Shareholders") of the Company (the "Shelf Shares"). The Selling Shareholders
intend, following the effectiveness of the Registration Statement, to sell the
Shelf Shares from time to time in the manner set forth in the Registration
Statement. This opinion letter is rendered pursuant to Item 16 of Form S-1 and
Item 601(b)(5) of Regulation S-K.
We have examined the Articles of Incorporation of the Company, as amended,
the Bylaws of the Company, records of proceedings of the Board of Directors, or
committees thereof, and the shareholders of the Company deemed by us to be
relevant to this opinion letter, and the Registration Statement. We also have
examined originals or copies, certified or otherwise identified to our
satisfaction, of such other corporate records of the Company, such other
agreements and instruments, such certificates of public officials, officers of
the Company and other persons, and such other documents as we have deemed
necessary or appropriate as a basis for the opinions hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity and completeness of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, photostatic or facsimile
copies, and the authenticity of the originals of such copies, and we have
assumed all certificates of public officials to have been properly given and to
be accurate.
As to factual matters relevant to this opinion letter, we have relied upon
the representations and warranties contained in certificates and statements of
officers of the Company and certain public officials. Except to the extent
expressly set forth herein, we have made no independent investigations with
regard thereto, and, accordingly, we do not express any opinion as to matters
that might have been disclosed by independent verification.
<PAGE>
Acsys, Inc.
November 16, 1998
Page 2
On the basis of the foregoing, and subject to the limitations set forth
herein, we are of the opinion that, the Shelf Shares, when issued, were validly
issued, fully paid and nonassessable by the Company.
Members of this firm are licensed to practice law in the State of Georgia
and before the federal courts having jurisdiction in the State of Georgia, and
we express no opinion with regard to any law other than the laws of the State of
Georgia.
We consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus constituting a part thereof. In giving such consent,
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the
Commission thereunder.
This opinion letter is being furnished by us to the Company solely for the
benefit of the Company in connection with the Registration Statement and is not
to be used, circulated, quoted or otherwise relied upon by any other person, or
by the Company for any other purpose, without our express written consent. The
only opinion rendered by us consists of those matters set forth in the fourth
paragraph hereof, and no opinion may be implied or inferred beyond those
expressly stated. This opinion letter is rendered as of the date hereof, and we
have no obligation to update this opinion letter.
Sincerely,
ALSTON & BIRD LLP
By: /s/ Bryan E. Davis
------------------
Bryan E. Davis
<PAGE>
EXHIBIT 10.11.4
REGISTRATION RIGHTS JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "Agreement") is made and entered into as of March
31, 1998, by and among ACSYS, Inc., a Georgia corporation (the "Company"), and
the shareholders thereof whose signature appears below (the "New Shareholders").
Premises
--------
The New Shareholders are shareholders of the Company and as such desire
to derive the benefits and burdens associated with being a shareholder of the
Company.
The Company is party to an Amended and Restated Registration Rights
Agreement, dated as of September 3, 1997 (as the same may be further amended
from time to time, the "Registration Rights Agreement"), with the Company's
existing shareholders ("Existing Shareholders") governing certain rights and
obligations of the Existing Shareholders as shareholders of the Company, a copy
of which has been delivered to the New Shareholders and is attached hereto.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the New Shareholder hereby agree as
follows:
1. The Company and the New Shareholders agrees that, from and after
the purchase of the Company's common stock, no par value per share (the "Company
Common Stock"), by virtue of such New Shareholder's execution of this Agreement,
(i) each of the New Shareholders shall, without any further action on the part
of the Company or either of the New Shareholders, become parties to the
Registration Rights Agreement subject to and bound by all the terms and
provisions of the Registration Rights Agreement, (ii) the shares of Company
Common Stock received by the New Shareholders in such purchase shall be "Merger
Shares" for all purposes under the Registration Rights Agreement, and (iii) each
of the New Shareholders shall be a "Shareholder" for purposes of the
Registration Rights Agreement.
2. A legend in substantially the form required by Section 3.2 of the
Registration Rights Agreement shall appear on each certificate representing
shares of Company Common Stock issued to the New Shareholders pursuant to the
purchase of Company Common Stock.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed or caused
this Agreement to be executed by its duly authorized representative as an
agreement under seal as of the date first above written.
ACSYS, INC.
By: /s/ Timothy Mann, Jr.
-----------------------------------------
Name: Timothy Mann, Jr.
---------------------------------------
Title: Chief Executive Officer
--------------------------------------
NEW SHAREHOLDERS:
/s/ Thomas L. Visotsky
--------------------------------------------
Thomas L. Visotsky
/s/ Jimmy Foshee
--------------------------------------------
Jimmy Foshee
/s/ Charles E. Greene
--------------------------------------------
Charles E. Greene
-2-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
------------
<TABLE>
<CAPTION>
STATE OF
COMPANY INCORPORATION TRADE NAMES
- ------- ------------- -----------
<S> <C> <C>
Infinity Enterprises, Inc. Maryland Don Richard Associates of Washington
Signature Staffing
David C. Cooper & Georgia David C. Cooper & Associates
Associates, Inc. DCCA
DCCA Professional Georgia DCCA Professional Temporaries
Temporaries, Inc.
EKT, Inc. North Carolina Don Richard Associates of Charlotte
Cama of Tampa, Inc. Florida Don Richard Associates of Tampa
Rylan Forbes Consulting New Jersey Rylan Forbes Consulting Group
Group, Inc.
AcSys Resources, Inc. Pennsylvania AcSys Resources
AcSys IT
C.P.A. Staffing, Inc. Georgia C.P.A. Staffing
C.P.A. Search
Career Placement Associates
Acsys IT, Inc. Georgia
Dramondi, Inc. Virginia Don Richard Associates of Richmond
KPD Systems, Inc. New York
Accounting Systems New York
Incorporated
Staffing Edge, Inc. Delaware
</TABLE>
<PAGE>
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 S-1
Registration Statement.
Arthur Andersen LLP
Philadelphia, PA
November 16, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement of Acsys, Inc. on Form S-1
of our report dated April 30, 1998 (relating to the financial statements of
Staffing Edge, Inc. as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997) appearing in the Prospectus, which
is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Des Moines, Iowa
November 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACSYS,
INC. REGISTRATION STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 370 1,102
<SECURITIES> 0 0
<RECEIVABLES> 12,846 8,672
<ALLOWANCES> 503 313
<INVENTORY> 0 0
<CURRENT-ASSETS> 14,168 9,848
<PP&E> 3,109 1,775
<DEPRECIATION> 1,181 834
<TOTAL-ASSETS> 33,352 18,167
<CURRENT-LIABILITIES> 9,247 5,539
<BONDS> 0 0
0 0
1,220 288
<COMMON> 7,597 530
<OTHER-SE> 3,204 3,644
<TOTAL-LIABILITY-AND-EQUITY> 33,352 18,167
<SALES> 78,128 56,742
<TOTAL-REVENUES> 78,128 56,742
<CGS> 42,583 30,616
<TOTAL-COSTS> 42,583 30,616
<OTHER-EXPENSES> 33,173 22,029
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 788 811
<INCOME-PRETAX> 1,584 3,286
<INCOME-TAX> 438 419
<INCOME-CONTINUING> 1,146 2,867
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,146 2,867
<EPS-PRIMARY> .02 .27
<EPS-DILUTED> .02 .27
</TABLE>
