<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1999
REGISTRATION STATEMENT NO. 333-63909
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 6 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IT STAFFING LTD.
(Name of small business issuer as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
ONTARIO 7370 52-2099027
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. No.)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------
55 UNIVERSITY AVENUE
TORONTO, ONTARIO, CANADA M5J 2H7
(416) 364-8800
(Address and telephone number of principal executive offices and principal place
of business)
------------------------------
<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. DECLAN A. FRENCH, PRESIDENT
ARTHUR S. MARCUS, ESQ. IT STAFFING LTD.
GERSTEN, SAVAGE, KAPLOWITZ & FREDERICKS, 55 UNIVERSITY AVENUE
LLP TORONTO, ONTARIO, CANADA M5J 2H7
101 EAST 52ND STREET, 9TH FLOOR (416) 364-8800
NEW YORK, NEW YORK 10022
(212) 752-9700
(212) 752-9713 (FAX)
(Name, address and telephone number of agents for service)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. JAMES R. TANENBAUM, ESQ.
ARTHUR S. MARCUS, ESQ. STROOCK & STROOCK & LAVAN LLP
GERSTEN, SAVAGE, KAPLOWITZ 180 MAIDEN LANE
& FREDERICKS, LLP NEW YORK, NEW YORK 10038
101 EAST 52ND STREET, 9TH FLOOR (212) 806-5400
NEW YORK, NEW YORK 10022 (212) 806-6006 (FAX)
(212) 752-9700
(212) 752-9713 (FAX)
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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/
------------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
SECURITIES BEING REGISTERED REGISTERED PER SECURITY PRICE FEE
<S> <C> <C> <C> <C>
Common Shares, no par value...................... 1,265,000(1) $5.00 $6,325,000 $1,739.38
Representatives' Warrants........................ 110,000 $.001 $110 -- (2)
Common Shares, no par value, issuable on Exercise
of Representatives' Warrants(3)................ 110.000 $8.25 $907,500 $249.56
Total Registration Fee........................... $7,232,620 $1,988.97(4)
</TABLE>
(1) Includes up to 165,000 Common Shares, no par value issuable upon exercise of
the Underwriters' over- allotment option.
(2) No fee due pursuant to Rule 457(g).
(3) To be acquired by the Representatives.
(4) $1,808.15 of which has been previously paid.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 26, 1999
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
IT STAFFING LTD.
1,100,000 COMMON SHARES
IT Staffing Ltd., an Ontario, Canada corporation (the "Company"), hereby
offers 1,100,000 Common Shares (the "Shares"), no par value (the "Common
Shares").
Prior to this offering, there has been no market for the Common Shares, and
there can be no assurance that a market will develop for the Company's
securities in the future or that, if developed, it will be sustained. The Common
Shares will be quoted on the Nasdaq SmallCap-Registered Trademark-Market under
the symbol "ITSTF" and listed on the Boston Stock Exchange under the symbol
"ITI."
The initial public offering price of the Shares will be determined by
negotiation between the Company and the Representatives and will not necessarily
bear any direct relationship to the Company's assets, earnings, book value per
share or other generally accepted indicia of value. See "Underwriting." It is
currently contemplated that the initial public offering price per Share will be
$5.00.
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. INVESTORS WILL EXPERIENCE
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY(2)
<S> <C> <C> <C>
Per Share....................................... $5.00 $.50 $4.50
Total(3)........................................ $5,500,000 $550,000 $4,950,000
</TABLE>
(1) Does not include additional consideration to be received by Strasbourger
Pearson Tulcin Wolff Incorporated, Win Capital Corp., Nutmeg Securities,
Ltd. and Mason Hill & Co., Inc. as the representatives (the
"Representatives") of the several underwriters (the "Underwriters"),
consisting of: (i) a non-accountable expense allowance; (ii) warrants (the
"Representatives' Warrants") to purchase an aggregate of 110,000 Common
Shares (the "Warrant Shares"); and (iii) a 24-month consulting agreement. In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of this offering payable by the Company, including
the Representatives' non-accountable expense allowance (estimated to be
$810,000), and assuming no exercise of the Underwriters' over-allotment
option.
(3) The Company has granted the Underwriters a 45-day option from the date of
this Prospectus to purchase up to an additional 165,000 Common Shares, on
the same conditions as set forth above, solely to cover over-allotments, if
any (the "Over-Allotment Option"). If the Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $6,235,000, $632,500 and $5,692,500,
respectively. See "Underwriting."
------------------------------
The Shares are being offered by the several Underwriters, subject to prior
sale, when, as and if delivered to, and accepted by, them and subject to their
right to reject orders in whole or in part and to certain other conditions. It
is expected that delivery of the certificates representing the Shares will be
made against payment therefor at the offices of Strasbourger Pearson Tulcin
Wolff Incorporated, New York, New York on or about , 1999.
<TABLE>
<S> <C> <C>
STRASBOURGER PEARSON TULCIN WOLFF NUTMEG SECURITIES,
INCORPORATED WIN CAPITAL CORP. LTD.
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
THE COMPANY INTENDS TO FURNISH TO ITS SHAREHOLDERS ANNUAL REPORTS CONTAINING
AUDITED FINANCIAL STATEMENTS AND TO MAKE AVAILABLE QUARTERLY REPORTS FOR THE
FIRST THREE QUARTERS OF EACH FISCAL YEAR CONTAINING UNAUDITED INTERIM FINANCIAL
STATEMENTS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING PURCHASES OF COMMON SHARES TO STABILIZE THEIR MARKET PRICE, PURCHASES
OF COMMON SHARES TO COVER SOME OR ALL OF A SHORT POSITION IN COMMON SHARES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN, AND WILL NOT BE, QUALIFIED FOR
SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company's headquarters are located in, and its officers, directors and
auditors are residents of, Canada and a substantial portion of the Company's
assets are, or may be, located outside the United States. Accordingly, it may be
difficult for investors to effect service of process within the United States
upon non-resident officers and directors, or to enforce against them judgments
obtained in the United States courts predicated upon the civil liability
provision of the Securities Act or state securities laws. The Company has been
advised by its Canadian legal counsel, McMillan Binch, that there is doubt as to
the enforceability in Canada against the Company or against any of its
directors, controlling persons, officers or the experts named herein, who are
not residents of the United States, in original actions or in actions for
enforcement of judgments of U.S. courts, of liabilities predicated solely upon
U.S. federal securities laws. Service of process may be effected, however, upon
the Company's duly appointed agent for service of process, Gersten, Savage,
Kaplowitz & Fredericks, LLP, New York, New York. If investors have questions
with regard to these issues, they should seek the advice of their individual
counsel. The Company has also been informed by its legal counsel, McMillan
Binch, that pursuant to the Currency Act (Canada), a judgment by a court in any
Province of Canada may only be awarded in Canadian currency. Pursuant to the
provision of the Courts of Justice Act (Ontario), however, a court in the
Province of Ontario shall give effect to the manner of conversion to Canadian
currency of an amount in a foreign currency, where such manner of conversion is
provided for in an obligation enforceable in Ontario.
2
<PAGE>
EXCHANGE RATE DATA
The Company maintains its books of account in Canadian dollars ("CND$"), but
has provided the financial data in this Prospectus in United States dollars
("US$" or "$") and on the basis of generally accepted accounting principles as
applied in the United States, and its audit has been conducted in accordance
with generally accepted auditing standards in the United States. All references
to dollar amounts in this Prospectus, unless otherwise indicated, are to United
States dollars.
The following table sets forth, for the periods indicated, certain exchange
rates based on the noon buying rate in New York City for cable transfers in
Canadian dollars. Such rates are the number of United States dollars per one
Canadian dollar and are the inverse of the rates quoted by the Federal Reserve
Bank of New York for Canadian dollars per US$1.00. The average exchange rate is
based on the average of the exchange rates on the last day of each month during
such periods. On December 31, 1998, the exchange rate was CDN$1.00 per
US$0.6436.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
Rate at end of period.................. $ 0.7323 $ 0.7301 $ 0.6999 $ 0.7241 $ 0.6531
Average rate during period............. 0.7305 0.7332 0.7220 0.7265 0.6832
High................................... 0.7527 0.7513 0.7487 0.7487 0.7043
Low.................................... 0.7023 0.6945 0.6945 0.7145 0.6376
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED HEREIN, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE
EFFECT TO (I) THE REPRESENTATIVES' WARRANTS OR THE EXERCISE THEREOF; (II) THE
UNDERWRITERS' OVER-ALLOTMENT OPTION OR THE EXERCISE THEREOF; (III) UP TO 435,000
COMMON SHARES RESERVED FOR ISSUANCE UPON THE EXERCISE OF OPTIONS WHICH MAY BE
GRANTED PURSUANT TO THE COMPANY'S 1998 STOCK OPTION PLAN (THE "PLAN"), INCLUDING
OPTIONS EXERCISABLE FOR 50,000 COMMON SHARES OF WHICH HAVE BEEN GRANTED TO DATE;
(IV) 40,000 SHARES TO BE ISSUED TO THE SELLER OF CERTAIN ASSETS OF SOUTHPORT
CONSULTING CO. IN CONNECTION WITH THE ACQUISITION THEREOF AND (V) UP TO 222,125
COMMON SHARES ISSUABLE UPON THE EXERCISE OF OPTIONS AND WARRANTS OUTSTANDING ON
THE DATE OF THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED HEREIN, THE
INFORMATION HEREIN REFLECTS A 1.31 FOR ONE STOCK SPLIT EFFECTED PRIOR TO THE
DATE OF THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM
"COMPANY" REFERS TO IT STAFFING LTD., AN ONTARIO CORPORATION, AND ITS WHOLLY
OWNED SUBSIDIARIES SYSTEMSEARCH CONSULTING SERVICES INC., AN ONTARIO CORPORATION
("SCI"), SYSTEMS PS INC., AN ONTARIO CORPORATION ("SPSI" AND COLLECTIVELY WITH
SCI, "SYSTEMS"), AND INTERNATIONAL CAREER SPECIALISTS LTD., AN ONTARIO
CORPORATION ("ICS"). THE OPERATIONS OF THE COMPANY EXCLUSIVE OF ICS AND SYSTEMS
SHALL BE REFERRED TO AS THE "IT STAFFING DIVISION."
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND
ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
The Company is a provider of information technology ("IT") staffing
services, primarily in Toronto, Ontario, Canada, supplying qualified IT
professionals to its customers as independent contractors for short and long
term assignments and for permanent placement within such enterprises. The
Company's customers include financial service companies, software and other
technology companies, Canadian governmental entities and large multinational
companies, including Merrill Lynch Canada Inc., Bank of Montreal, Bell Sygma
Inc., Revlon Canada Inc., IBM Corporation and American Express Company. The
Company has recently expanded its operations into the United States and intends
to develop a network of offices to provide IT staffing services throughout North
America.
The Company has focused on the recruitment of highly qualified IT
professionals and utilizes established testing methods to ensure that its IT
professionals satisfy the Company's internal criteria. The Company also reviews
candidates' technical backgrounds and conducts preliminary interviews prior to
referring candidates to its customers. By attracting the most qualified IT
professionals, the Company believes that it will be able to attract high quality
customers who require the services of such professionals.
Since inception, the Company has pursued a strategy of developing and
utilizing technology that it believes will provide it with a competitive
advantage. As a result, the Company believes that one of its primary competitive
strengths is its utilization of technology. The Company maintains a database of
over 35,000 IT professionals and advertises on the Internet to attract both
candidates and customers. The Company uses HR Workbench, software developed by
the Company in conjunction with Great Lakes Research and Development ("Great
Lakes"), an unaffiliated entity, to locate the IT professionals in the Company's
database with the technical skills and job interests that best satisfy the
requirements of the position that the Company is attempting to staff. The
database allows all of the Company's recruiters immediate access to active
candidates. Candidates can register themselves directly into the database
through the Internet or be entered into the system by the Company's recruiters.
The Company and Great Lakes have developed, and are in the process of
testing, an additional software product called AppTracker, which the Company,
through a joint venture with Great Lakes, intends to market to human resource
departments during the year ending December 31, 1999. The
4
<PAGE>
software is designed to aid human resources departments in performing numerous
recruitment tasks, such as scheduling interviews and evaluating candidates.
Statistics about the recruitment process, including the costs and expenses, are
tabulated in various databases. The Company believes that it will have an
advantage in marketing its staffing services to companies using AppTracker
because of the Company's familiarity with the software and the ease of
electronic data interchange ("EDI") with the Company.
According to the STAFFING INDUSTRY REPORT, a leading industry publication,
revenue for the year ended December 31, 1997 for IT staffing services (which
includes fees earned for permanent placement services and revenues generated by
supplying contract services) in the United States is estimated to have been
approximately $14.8 billion, an increase of 27% over such revenues for the year
ended December 31, 1996. According to a 1998 IDC Canada survey, an independent
Canadian industry publication, the Canadian Information Technology services
industry grew by more than 11% in 1997, reaching CDN$11.5 billion in revenues,
an increase of 11.5% over such revenues for the year ended December 31, 1996,
and is expected to grow at a compounded annual rate of 12.1% through 2001.
Although there can be no assurance that growth in the industry will continue at
such rates, or at all, the Company believes that such growth will continue as a
result of the following factors: (i) the hiring of the proper IT professional
for a particular project may require technical knowledge that many human
resource departments do not possess; (ii) there exists a shortage of IT
professionals in the United States and Canada and many companies lack the time
and resources to conduct a proper search; (iii) increased specialization and
sophistication of IT requirements; (iv) costs associated with termination of
employees, as compared to independent contractors, following the completion of a
project; and (v) the costs associated with the benefits received by employees,
as compared to independent contractors.
The Company's business objectives are to increase its share of the IT
staffing services market in Canada and the United States, as well as to
establish a network of offices throughout such countries which, when linked by
means of the Internet, will allow the Company to provide its customers with an
array of IT staffing services. The primary components of the Company's strategy
to achieve such objectives are as follows:
- LEVERAGE CLIENT BASE TO ATTRACT AND RETAIN HIGHLY QUALIFIED IT
PROFESSIONALS;
- FOCUS ON NICHE MARKETS;
- EXPAND INTO NEW REGIONAL MARKETS BY OPENING NEW OFFICES OR ACQUIRING
COMPETITIVE OR COMPLEMENTARY COMPANIES;
- CONTINUE TO UTILIZE THE INTERNET AND INFORMATION TECHNOLOGY TO PROVIDE A
COMPETITIVE ADVANTAGE;
- DEVELOP AND PROMOTE A MANAGED SERVICES PRACTICE; AND
- CAPITALIZE ON THE YEAR 2000 AND OTHER OPPORTUNITIES.
The Company's headquarters are located at 55 University Avenue, Suite 505,
Toronto, Ontario, Canada M5J 2H7. The Company also maintains offices in New
York, New York; Tampa, Florida; Etobicoke, Ontario; Scarborough, Ontario; Indian
Wells, California and Ottawa, Ontario. The Company was incorporated under the
laws of the Province of Ontario, Canada in February 1994. The Company maintains
its Web site at http://www.itstaff.com and has registered the Internet domain
name of itstaff.org and itstaff.net. Information contained on the Company's Web
site is not a part of this Prospectus and must not be relied upon in evaluating
an investment in the Common Shares offered hereby. This Prospectus contains
trade names, service marks and trademarks of the Company and others, all of
which are the property of their respective owners.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered by the Company............ 1,100,000 Common Shares
Common Shares outstanding prior to this
offering................................... 1,677,875
Common Shares outstanding immediately
following this offering.................... 2,777,875
Use of Proceeds.............................. To expand into new regional markets by
opening new offices and acquiring
complementary or competitive companies, to
capitalize a joint venture to develop and
market the AppTracker software, and for
general corporate and working capital
purposes. See "Use of Proceeds."
Nasdaq SmallCap-Registered Trademark- Market
Trading Symbol(1).......................... ITSTF
Boston Stock Exchange Trading Symbol(1)...... ITI
</TABLE>
- ------------------------
(1) The symbols do not imply that a liquid and active market will develop or be
sustained for the Shares upon completion of this offering.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following financial information is qualified in its entirety by the more
detailed information in the financial statements appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED, DECEMBER
31, SEPTEMBER 30,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue...................................................... $ 764 $ 4,705 $ 3,419 $ 8,756
Gross profit................................................. 505 1,816 1,303 3,745
Operating Expenses........................................... 469 1,622 1,102 3,201
Income from operations....................................... 36 194 201 544
Net income................................................... 30 138 135 326
Earnings per share........................................... .03 .11 .10 .20
Weighted Average Number of Shares Outstanding................ 1,021 1,309 1,309 1,650
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED(1)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA
Working capital........................................................................... 609 4,534
Total assets.............................................................................. 3,493 7,768
Long-term debt............................................................................ 382 382
Total liabilities......................................................................... 1,904 1,904
Shareholders' equity...................................................................... 1,589 5,864
</TABLE>
- ------------------------
(1) As adjusted to reflect the sale by the Company of the 1,100,000 Shares
offered hereby at an assumed initial public offering price of $5.00 per
Share and the initial application of the net proceeds therefrom. See "Use of
Proceeds."
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY IS HIGHLY SPECULATIVE,
INVOLVES A HIGH DEGREE OF RISK, AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO
MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE
OTHER MATTERS REFERRED TO HEREIN, INCLUDING THE CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO, THE FOLLOWING RISK FACTORS. PROSPECTIVE
INVESTORS SHOULD BE IN A POSITION TO RISK THE LOSS OF THEIR ENTIRE INVESTMENT.
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE
IN THIS PROSPECTUS.
POSSIBLE INABILITY TO ATTRACT AND RETAIN QUALIFIED IT PROFESSIONALS. The
Company's future success will depend on its ability to attract qualified IT
professionals with the technical skills and experience necessary to meet its
customers' requirements for technical personnel and to retain a sufficient
number of professionals to fulfill its customers needs for contract workers.
Competition for individuals with proven technical skills, particularly in the
Windows, UNIX, computer aided design, distributed computing and other technology
environments for which the Company provides services, is intense, and the
Company expects that competition for IT professionals will increase in the
future. Furthermore, IT professionals typically provide services on an
assignment-by-assignment basis and can terminate an assignment with the Company
at any time. The Company competes for such individuals with other providers of
IT staffing services, systems integrators, providers of outsourcing services,
computer consultants, employment listing services and temporary personnel
agencies. There is a possible shortage of IT professionals proficient in the
most current computer languages and applications. Many of the IT professionals
who have been placed by the Company accept assignments from the Company's
competitors, and there can be no assurance that such IT professionals will not
choose to work for competitors on future assignments. There also can be no
assurance that the Company will be able to attract and retain qualified IT
professionals in sufficient numbers in the future. The Company's revenue in any
period is a function of, among other things, the number of IT professionals it
has on staff and engaged on assignments. In the event that the Company is unable
to attract or retain such personnel when required and on terms acceptable to the
Company, the Company's business, prospects, financial condition and results of
operations would be materially adversely affected. See "Business--Business
Strategy" and "Business--Competition."
HIGHLY COMPETITIVE MARKET. The IT staffing industry is highly competitive
and fragmented and is characterized by low barriers to entry. The Company
competes for potential customers with other providers of IT staffing services,
systems integrators, providers of outsourcing services, computer consultants,
employment listing services, and temporary personnel agencies. The Company does
not have long-term contracts with most of its customers. Many of the Company's
current and potential competitors have longer operating histories, significantly
greater financial, marketing and human resources, greater name recognition and a
larger base of IT professionals and customers than the Company, which may give
such competitors a competitive advantage when compared to the Company. In
addition, many of these competitors, including numerous smaller privately held
companies, may be able to respond more quickly to customer requirements and to
devote greater resources to the marketing of services than the Company. Because
there are relatively low barriers to entry in the staffing industry, the Company
expects that competition will increase in the future. Increased competition
could result in price reductions, reduced margins or loss of market share, any
of which could materially adversely affect the Company's business, prospects,
financial condition and results of operations. Further, there can be no
assurance that the Company will be able to compete successfully against current
and future competitors or that competitive pressures faced by the Company will
not have a material adverse effect on its business, prospects, financial
condition and results of operations. See "Business--Competition."
RISKS INHERENT IN EXPANSION INTO NEW MARKETS AND OPERATIONS. The Company's
expansion plans depend on its ability to enter new regional markets,
successfully expand existing operations and add
8
<PAGE>
additional areas of expertise within its existing regional markets. This
expansion is dependent on a number of factors, including the Company's ability
to: attract, hire, integrate and retain qualified employees, such as experienced
recruiters; develop, recruit and maintain a base of qualified IT professionals
within each regional market in which the Company conducts or commences to
conduct operations; accurately assess the level of demand for the Company's
services in such markets; and initiate, develop and sustain corporate client
relationships in each new regional market. There can be no assurance that the
addition of qualified employees and entrance into new regional markets will
occur on a timely basis or achieve anticipated financial results. The addition
of qualified employees and entrance into new regional markets typically results
in increases in operating expenses, primarily as a result of increased salaries
and related expenses. Expenses are incurred in advance of forecasted revenue,
and there is typically a delay before the Company's newly hired recruiters and
sales employees reach full productivity. If the Company is unable to hire
additional qualified employees or enter new regional markets in a cost-effective
manner or if those employees and offices in regional markets do not achieve
anticipated financial results, the Company's business, prospects, financial
condition and results of operations could be materially adversely affected.
Failure to expand into new markets could hinder the Company's ability to attract
multinational and other large corporations which could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Business Strategy."
RISK OF PAYROLL TAX LIABILITY; INCREASED COSTS FOR CONTRACT WORKERS. The
Company has determined to classify its IT professionals providing contract
services in the United States as independent contractors rather than employees.
Accordingly, the Company has not withheld payroll taxes, social security taxes,
unemployment taxes and workers compensation insurance, with respect to such IT
professionals or recorded a reserve on its financial statements for such taxes
and payments. Although such determination is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), the rules and regulations thereunder, and
the publicly available interpretations of the United States Internal Revenue
Service (the "IRS"), such determination is not free from doubt. In the event
that the Code, such rules and regulations or such interpretations should be
amended or otherwise require the Company to classify such IT professionals as
employees, the Company would be subject to a material liability for failure to
withhold and pay such taxes and insurance, which could have a material adverse
effect on the business, prospects, financial condition and results of operation
of the Company. In addition, in such event, the Company's costs of revenues
would increase materially, which would have a material adverse effect on the
business, prospects, financial condition and results of operations of the
Company.
Similarly, the Company has determined to classify its IT professionals
providing contract services in Canada as independent contractors rather than
employees. Accordingly, the Company has not withheld or remitted to Canadian
revenue authorities, with respect to such IT professionals, any amounts on
account of employee payroll taxes and other payroll obligations including income
taxes, employment insurance premiums, Canada Pension Plan contributions,
employer health tax and worker's compensation contributions, nor has it created
a reserve on its financial statements for such taxes and obligations. Although
the Company has made its determination respecting the classification of such IT
professionals based upon its understanding of the existing Canadian law and is
not aware of any proposed changes to such law which would alter its
determination, the proper classification of such IT professionals is not free
from doubt. In the event the applicable law requires the Company to classify its
Canadian IT professionals as employees, the Company could be subject to a
significant liability for failure to withhold and remit required employee
payroll taxes and other obligations. The classification of its Canadian IT
professionals as employees would increase the Company's cost of revenues which
would have a material adverse effect on the business, prospects, financial
condition and results of operations of the Company.
BROAD DISCRETION BY MANAGEMENT IN APPLICATION OF PROCEEDS; UNSPECIFIED
ACQUISITIONS. Approximately $725,000, or 16.9%, of the estimated net proceeds
of this offering will be allocated to general corporate and working capital
purposes. Additionally, $3,200,000, or 74.9%, of the net proceeds of this
offering have
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been allocated to the Company's proposed expansion into new markets. The
foregoing represents the Company's best estimate of its allocation of the net
proceeds of the sale of the Shares based upon the Company's currently
contemplated operations, the Company's business plan and current economic and
industry conditions and is subject to reapportionment among the categories
listed above in response to, among other things, changes in its plans,
regulations, industry conditions and future revenues and expenditures. The
amount and timing of expenditures will vary depending on a number of factors,
including changes in the Company's contemplated operations or business plan and
changes in economic and industry conditions. Those proceeds may be utilized to
open new offices or to acquire existing companies in such markets. Accordingly,
management of the Company will have broad discretion over the application of
such net proceeds. Although the Company may utilize a portion of the net
proceeds for potential investments in, or acquisitions of, complementary or
competitive companies, as of the date hereof, the Company has no agreements,
plans or arrangements with respect to any such investment or acquisition.
Depending upon, among other things, the structure of the acquisition or
investment, the Shareholders of the Company may have no opportunity to approve
specified acquisitions or to review the financial condition of any potential
acquisition or investment candidate. See "Use of Proceeds."
FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly operating
results have in the past, and may in the future, fluctuate significantly
depending on a number of factors, including, but not limited to, the rate of
hiring and the productivity of revenue-generating personnel; the availability of
qualified IT professionals; changes in the Company's relative mix of contract
services and permanent placement services; changes in the pricing of the
Company's services; the timing and rate of commencement of operations in new
regional markets; departures or temporary absences of key sales people or
recruiters; the structure and timing of acquisitions; changes in the demand for
IT professionals; and general economic and industry conditions. In addition,
because the Company often provides services on an assignment-by-assignment
basis, which customers can terminate at any time, there can be no assurance that
existing customers will continue to use the Company's services at historical
levels. As a result, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as any indication of future performance. In the event the Company's
operating results fall below the expectations of public market analysts and
investors, the market price of the Common Shares would likely be materially
adversely affected. Although the Company has experienced substantial revenue
growth in recent years, there can be no assurance that, in the future, the
Company will be able to sustain revenue growth or profitability on a quarterly
or annual basis at historical levels. See "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS OF ACQUISITIONS. A component of the Company's expansion strategy is
the acquisition of complementary or competitive companies. The successful
implementation of this strategy is dependent upon the Company's ability to
identify suitable acquisition candidates, obtain requisite financing, acquire
such companies on suitable terms and integrate their operations successfully
with those of the Company. This strategy will entail reviewing and potentially
reorganizing acquired business operations, corporate infrastructure and systems
and financial controls. Unforseen expenses, difficulties, complications and
delays frequently encountered with acquisitions could inhibit the Company's
growth and have a material adverse effect on the business, prospects, financial
condition and results of operation of the Company.
To date, the Company has completed three acquisitions. There can be no
assurance that the Company will be able to identify additional suitable
acquisition candidates or that the Company will be able to acquire such
candidates on favorable terms. Moreover, other providers of IT professional
services are also competing for acquisition candidates, which could result in an
increase in the price of acquisition targets and a diminished pool of companies
available for acquisition. Acquisitions also involve a number of other risks,
including adverse effects on the Company's reported operating results from
increases in amortized goodwill and interest expense, the diversion of
management attention and the subsequent integration of acquired companies.
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To the extent the Company seeks to acquire complementary or competitive
companies for cash, the Company may be required to obtain additional financing,
and there can be no assurance such financing will be available when required, on
favorable terms or at all. In addition, if the Company issues Common Shares to
complete any future acquisitions, existing shareholders will experience further
dilution in ownership. As a result of the foregoing, acquisitions may have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Business--Business Strategy."
INTEGRATION OF ICS, SYSTEMS AND SOUTHPORT. In May 1998, the Company
completed the acquisition of ICS, in April 1998, the Company completed the
acquisition of Systems and in November 1998 the Company completed the
acquisition of certain assets of Southport Consulting Inc. ("Southport") ICS and
Systems now operate as separate divisions within the Company. The integration of
ICS, and Systems, their respective customers, IT professionals and employees has
required a substantial portion of management's time and attention, and has
resulted in integration related expenses. The Company anticipates that the
integration of the assets from Southport will also require a substantial portion
of management's time and attention and will result in certain integration
related expenses. The Company expects that it may incur additional integration
related expenses in future periods, and there can be no assurance that the
integration of ICS, Systems and Southport will not involve disruptions or
difficulties, such as departures of customers, IT professionals or employees,
any of which may have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISK OF IT SYSTEM CAPACITY CONSTRAINTS; RISK OF SYSTEM FAILURE. A key
element of the Company's expansion strategy is to utilize the Internet (i) to
link its regional offices to its central database, (ii) to offer its staffing
services to existing and potential customers, (iii) to attract and recruit
qualified technical personnel, and (iv) to promote the Company. The Company
anticipates that its expansion will require a high volume of traffic on, and use
of, its Web site. Accordingly, the satisfactory performance, reliability and
availability of the Company's Web site and network infrastructure are and will
be critical to the Company's reputation and its ability to attract and retain
customers and technical personnel and to maintain adequate customer service
levels. Any system interruptions that result in the reduced availability of the
Company's Web site or reduced performance of such site would interfere
substantially with the communications between the Company's offices and would
materially adversely affect the ability of the Company to attract new customers
and technical personnel. While the Company has not experienced any system
interruptions, it believes that such interruptions may occur from time to time.
Any substantial increase in the volume of traffic on the Company's Web site will
require the Company to expand and further upgrade its network infrastructure,
including the purchase or development of additional computer hardware and
software. There can be no assurance that the Company will be able to accurately
project the rate or timing of increases, if any, in the use of its Web site or
timely expand and upgrade its systems and infrastructure to accommodate such
increases. The Company's inability to add required additional software and
hardware or to develop and upgrade its technology or network infrastructure to
accommodate increased traffic on its Web site may cause unanticipated system
disruptions, slower response times, impediments to attracting additional
customers and delays in locating required technical personnel. In addition,
although the Company takes safeguards, including data encryption and firewalls,
to prevent unauthorized access to Company data, it is impossible to completely
eliminate this risk. Any of the foregoing events could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. See "Business--Business Strategy."
DEPENDENCE ON HR WORKBENCH. The Company is substantially dependent on HR
Workbench, a software product recently developed in conjunction with Great
Lakes, for the day to day operation of its business, including the operation and
maintenance of its database. Although the Company has operated and tested such
software extensively, there can be no assurance that such software will function
as intended or that it will provide the Company with any competitive advantage.
In the event that such software does not function as intended, the business,
prospects, financial condition and results of operations of the
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Company could be materially, adversely affected. The Company and Great Lakes
jointly own the HR Workbench software product. See "Business--Information
Technology and the Internet."
RISKS ASSOCIATED WITH THE APPTRACKER SOFTWARE. The Company, through a joint
venture with Great Lakes, has developed AppTracker and intends to market such
software to the human resources markets. AppTracker is still in the testing
stage, and there can be no assurance that the Company and Great Lakes will be
able to produce a fully functioning product or that such software will function
as intended. The AppTracker development program was launched as a result of the
positive response observed during its first test-marketing session. A working
prototype was demonstrated at the annual Human Resources Professional
Association Conference in Toronto in February 1998. The Company performed more
than 40 one-on-one demo sessions with companies and received a positive
response. The first customer for the AppTracker is the Toronto Stock Exchange.
Neither the Company nor Great Lakes has any experience in marketing software
products and, even if the product is fully developed, there can be no assurance
that there will be a market for such a product. The success of AppTracker is
substantially dependent on the Company's relationship with Great Lakes and
subject to the risk that the parties may disagree on strategy or other issues,
causing delays in the project. There can be no assurance that AppTracker will
ever be completed, will ever provide the Company with revenue, or that the joint
venture regarding AppTracker will ever be profitable. Furthermore, there can be
no assurance that AppTracker will create opportunities for the Company to
promote the Company's IT staffing services, that the use of AppTracker by the
Company's customers will not result in a reduction in the use of the Company's
services, or that the Company's competitors will not be able to utilize EDI and
other benefits of AppTracker to also provide enhanced services to customers.
Other companies may have similar software products. See "Business-- Information
Technology and the Internet."
LIABILITY RISKS. Although the Company's customer agreements disclaim
responsibility for the conduct of IT professionals provided by the Company, the
Company may be exposed to liability with respect to actions taken by its IT
professionals while on assignment, such as damages caused by errors of IT
professionals, misuse of client proprietary information or theft of client
property. Although the Company maintains insurance coverage, due to the nature
of the Company's assignments, and in particular the access by IT professionals
to client information systems and confidential information and the potential
liability with respect thereto, there can be no assurance that such insurance
coverage will continue to be available on reasonable terms, or at all, or that
it will be adequate to cover any such liability. Although the IT professionals
providing the Company's contract services are independent contractors, the
Company employs recruiters, sales personnel and others and is therefore exposed
to possible claims of wrongful discharge and violations of immigration laws.
Employment related claims may result in negative publicity, litigation and
liability for money damages and fines.
The staffing industry in Ontario is subject to the provisions of the
provincial EMPLOYMENT AGENCIES ACT. Administered by the Ministry of Labour, the
EMPLOYMENT AGENCIES ACT requires that all employment agencies operating in the
province must be licenced by the supervisor of employment agencies. The Company
currently holds a Class A licence under the provisions of the Act. In addition
to this specific provincial regulatory regime, federal and provincial laws of
general application relating to employment standards, labor relations,
immigration and taxation apply to employed personnel of staffing companies in
the same manner as other employers. The Company believes that it complies in all
material respects with such regulations.
DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend to a
significant extent on the efforts of its key management personnel, particularly
Declan French, the Company's Chairman of the Board of Directors, President and
Chief Executive Officer; John A. Irwin, President of ICS; and John R. Wilson,
President of Systems. The loss or unavailability of any of these key employees
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. The Company has entered into
employment agreements with each of Messrs. French, Irwin and Wilson.
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Mr. French's employment agreement expires two years from the date of this
Prospectus. Mr. Irwin's employment agreement is for a term of three years
expiring on January 1, 2001. Mr Wilson's employment agreement is for a term of
three years expiring on February 11, 2001. The Company maintains key-man life
insurance on the life of Declan French with a death benefit payment of $200,000.
Additionally, the Company believes that its future success will depend in large
part upon its continued ability to attract and retain highly qualified
recruiters, who often serve as the contact person for the Company's customers.
There can be no assurance that the Company will be able to attract and retain
the qualified personnel necessary for its business. See "Risk Factors--Possible
Inability to Attract and Retain Qualified IT Professionals" and "Management."
CONTROL BY EXISTING MANAGEMENT. Upon the completion of this offering, the
current directors and executive officers of the Company will, in the aggregate,
beneficially own approximately 1,396,413 Common Shares, or 50.3% of the
outstanding Common Shares, or approximately 47.7% of such outstanding Common
Shares if the Underwriters' over-allotment option is exercised in full. As a
result, the current executive officers and directors of the Company will have
the ability to substantially control the outcome of all matters on which
shareholders are entitled to vote, including the elections of the Company's
directors and the approval of significant corporate transactions. See "Principal
Shareholders."
POTENTIAL ANTI-TAKEOVER EFFECT OF PREFERRED SHARES. The Company's
Certificate of Incorporation, as amended, authorizes the Board of Directors to
issue up to 1,000,000 preferred shares, which may be issued in one or more
series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. No preferred shares are currently outstanding, and
the Company has no present plans for the issuance of any preferred shares.
However, the issuance of any such preferred shares could materially adversely
affect the rights of holders of Common Shares and, therefore, could reduce the
value of the Common Shares. In addition, specific rights granted to future
holders of preferred shares could be used to restrict the Company's ability to
merge with, or sell its assets to, a third party. The ability of the Board of
Directors to issue preferred shares could discourage, delay or prevent a
takeover of the Company, thereby preserving control of the Company by the
current shareholders. See "Description of Securities--Preferred Shares."
INDUSTRY AND GEOGRAPHIC CONCENTRATION. The Company's business is dependent
on the trends prevalent in, and the continued growth and rate of change of, the
high technology industry. Furthermore, for the year ended December 31, 1997 and
nine months ended September 30, 1998, 96% and 99% of the Company's revenue,
respectively, was derived by providing services to customers in the metropolitan
Toronto region. A substantial deterioration in general economic conditions in
such region or in the high technology industry as a whole would have a material
adverse affect on the Company's business, prospects, financial condition and
results of operations. See "Business--Customers."
INTELLECTUAL PROPERTY; ABSENCE OF PATENT PROTECTION. The Company's ability
to compete effectively will depend on its ability to maintain the proprietary
nature of its technology, including its proprietary software developed in
conjunction with Great Lakes. The Company holds no patents and relies on a
combination of trade secrets and copyright laws, non-disclosure and other
contractual agreements and technical measures to protect its rights in its
technological know-how and proprietary services. The Company currently has no
registered trademarks or service marks for the HR Workbench and AppTracker names
and may not be able to obtain such protection due to the familiarity of the
names in the IT industry. If possible, the Company hopes to secure copyright
protection on the content of the HR Workbench and AppTracker by December 31,
1999.
The Company depends upon confidentiality agreements executed by its
officers, employees, consultants and customers to maintain the proprietary
nature of its technology. These measures may not afford the Company sufficient
or complete protection, and there can be no assurance that others will not
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independently develop technologies similar to those of the Company, otherwise
avoid the confidentiality agreements of the Company or produce patents and
copyrights that would materially adversely affect the Company's business,
prospects, financial condition and results of operations.
The Company believes that its know-how and technologies do not infringe upon
the patents or copyrights of any third parties; however, there can be no
assurance that the Company's know-how and technology will not be found to
infringe upon the rights of third parties. The Company is aware of another
company in its industry that uses a name which may be deemed to be confusingly
similar to the Company. Others may assert infringement claims against the
Company, and if the Company should be found to infringe upon the patents or
copyrights, or otherwise impermissibly utilize the intellectual property, of
others, the Company's ability to utilize the technology referred to herein could
be materially restricted or prohibited. If such an event occurs, the Company may
be required to obtain licenses from such third parties, enter into royalty
agreements or redesign its products so as not to utilize such intellectual
property, each of which may prove to be uneconomical or otherwise impossible.
There can be no assurance that any licenses or royalty agreements required with
respect to any such proprietary rights could be obtained on terms acceptable to
the Company or such third party, or at all. Such claims could result in
litigation, which could materially adversely affect the Company's business,
prospects, financial condition and result of operations. See
"Business--Information Technology and the Internet."
UNTESTED MARKETING STRATEGY. To date, the Company has engaged in limited
marketing efforts in the United States. The Company currently only generates
approximately $100,000 of its revenues from operating in the United States.
Achieving market penetration will require significant efforts by the Company to
create awareness of, and demand for, the Company's staffing services. The
Company intends to upgrade its marketing efforts to include advertising on the
Internet, e-mail and an expanded sales and recruiting staff. Internet and e-mail
marketing efforts have been largely untested in the marketplace, and there can
be no assurance that such efforts will result in the increased provision by the
Company of staffing services. The failure of the Company to develop its
marketing capabilities or successfully market its staffing services would have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Use of Proceeds," "Business--Business
Strategy," and "Business-- Customers."
LACK OF MAJOR CUSTOMER CONTRACTS AND/OR WRITTEN AGREEMENTS. As is common in
the staffing industry, the Company does not have long-term written contracts
with most of its clients. There can be no assurance that such customers will
generate significant revenues for the Company in the future. The loss of any
significant customers would have a material adverse affect on the Company's
business, prospects, financial condition and results of operations.
FOREIGN EXCHANGE RISK. During the years ended December 31, 1996 and 1997,
and the nine months ended September 30, 1998, approximately 100%, 96% and 99%,
respectively, of the Company's revenue was in Canadian dollars. Accordingly, the
relationship of the Canadian dollar to the value of the United States dollar may
materially affect the Company's operating results. Since 1995, the value of the
Canadian dollar, expressed in U.S. dollars, has declined by approximately 7%. In
the event that the Canadian dollar were materially devalued against the United
States dollar, the Company's financial condition and results of operations could
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CONTINUING INFLUENCE OF REPRESENTATIVES. The Representatives may be able to
exert continuing influence on the Company in light of the fact that they have
the right to (i) appoint a board member or advisor for a three year period
following the date of this Prospectus; (ii) receive the Representatives'
Warrants to purchase up to 110,000 shares; (iii) exercise their registration
rights and (iv) act as financial consultant to the Company for a two year period
whereby they will receive aggregate fees of $150,000 and shall provide advisory
services related to mergers and acquisitions, corporate finance and other
matters and will be entitled to a finder's fee if they act as an investment
banker on certain transactions. In addition, the
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Company has agreed, for a period of two years from the date of this Prospectus,
not to issue any Common Shares, warrants, options or other rights to purchase
Common Shares, without the prior consent of Strasbourger Pearson Tulcin Wolff
Incorporated ("Strasbourger"), subject to certain exceptions. As a result of the
above rights and/or restrictions, the Representatives may have significant
influence over certain activities of the Company.
ABSENCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE;
VOLATILITY. Prior to this offering, there has been no public market for the
Shares, and there can be no assurance that any active trading market will
develop or, if any such market develops, that it will be sustained. Accordingly,
unless and until a public market develops, purchasers of the Shares may
experience difficulty selling or otherwise disposing of such securities.
The initial public offering price of the Shares was arbitrarily determined
by negotiations between the Company and the Representatives, and does not
necessarily bear any relationship to the Company's assets, book value, results
of operations, or any other generally accepted indicia of value. See
"Underwriting." From time to time after this offering, there may be significant
volatility in the market price of the Common Shares. Quarterly operating results
of the Company or other developments affecting the Company, such as
announcements by the Company or its competitors regarding acquisitions or
dispositions, new procedures or technology, changes in general conditions in the
economy and general market conditions could cause the market price of the Common
Shares to fluctuate substantially. The equity markets have, on occasion,
experienced significant price and volume fluctuations that have affected the
market prices for many companies' securities and have often been unrelated to
the operating performance of these companies.
NASDAQ MAINTENANCE REQUIREMENTS. Under the currently effective criteria for
listing of securities on the Nasdaq SmallCap-Registered Trademark- Market, for
initial listing, a company must have at least $4,000,000 in net tangible assets,
a minimum bid price of $4.00 per share, and a public float of at least
$5,000,000. For continued listing, a company must maintain $2,000,000 in net
tangible assets, a minimum bid price of $1.00, and a public float of at least
$1,000,000. In the event that the Company should be unable to maintain the
standards for continued listing, the Common Shares could be subject to delisting
from the Nasdaq SmallCap-Registered Trademark- Market. Trading, if any, in the
Common Shares would thereafter be conducted in the over-the-counter market on
the OTC Bulletin Board established for securities that do not meet the Nasdaq
SmallCap-Registered Trademark- Market listing requirements or in what are
commonly referred to as the "pink sheets." As a result, investors, in the Common
Shares may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Shares.
RISK OF LOW PRICED STOCKS; PENNY STOCKS. In the event that the Company is
unable to satisfy the maintenance requirements for the Nasdaq SmallCap Market
and the bid price of the Common Shares falls below $5.00 per share for the
initial quotation, trading would be conducted in the "pink sheets" or the OTC
Bulletin Board. In the absence of the Common Shares being quoted in Nasdaq, or
listed on an exchange, trading in the Common Shares would be covered by Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), if the Common Stock is a "penny stock." Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors (generally defined as investors with net
worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with a spouse) must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is at
least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on the Nasdaq Stock Market, and an equity security issued by an issuer that has
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an
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exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. Consequently, such
delisting, if it were to occur, could materially adversely affect the ability of
broker-dealers to sell the Common Shares and the ability of purchasers in this
offering to sell their Shares in the secondary market.
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Shares offered
hereby will experience immediate and substantial dilution of $3.33 per share,
assuming an initial public offering price of $5.00 per Share, or approximately
67%, in the net tangible book value of the Shares purchased thereby. Additional
dilution to future net tangible book value per share may occur upon exercise of
outstanding stock options and warrants (including the Representatives' Warrants)
and may occur, in addition, if the Company issues additional equity securities
in the future. See "Dilution."
NEED FOR ADDITIONAL FINANCING. Based on the Company's operating plan, the
Company believes that the net proceeds of this offering, together with available
cash and anticipated revenues from operations, will be sufficient to finance the
Company's working capital requirements for a period of at least 18 months
following the completion of this offering. This belief is based on certain
assumptions, which may prove to be incorrect. In addition, the Company's
expansion strategy contemplates acquisitions of, and investments in,
complementary and competitive companies and use of such companies by the Company
to expand into new markets, although the Company presently has no agreements,
plans or arrangements with respect to any such investment or acquisition.
Accordingly, there can be no assurance that the Company's financial resources
will be sufficient to satisfy the Company's capital requirements for such
period. If the Company's financial resources are insufficient and, in any case,
after such 18 month period, the Company will require additional financing in
order to meet its plans for expansion. Additional financing may take the form of
the issuance of common or preferred equity securities or debt securities, or may
involve bank financings. There can be no assurance that the Company will be able
to obtain the necessary additional capital on a timely basis or on acceptable
terms, if at all. In any of such events, the Company may be unable to implement
its current plans for expansion or to repay its debt obligations as they become
due. In the event that any such financing should take the form of equity
securities, the holders of the Common Shares may experience additional dilution.
See "Risk Factors--Immediate and Substantial Dilution," "Use of Proceeds,"
"Dilution," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Business Strategy."
POTENTIAL NEGATIVE EFFECT ON PRICE OF THE COMPANY'S SECURITIES AS A RESULT
OF SHARES ELIGIBLE FOR FUTURE SALE. The sale, or availability for sale, of a
substantial number of Common Shares in the public market subsequent to this
offering, pursuant to Rule 144 under the Securities Act ("Rule 144") or
otherwise, could materially adversely affect the market price of the Common
Shares and could impair the Company's ability to raise additional capital
through the sale of its equity securities or debt financing. The availability of
Rule 144 to the holders of restricted securities, as defined in Rule 144, of the
Company would be conditioned on, among other factors, the availability of
certain public information concerning the Company. All of the 1,677,875 Common
Shares currently outstanding are "restricted securities" as that term is defined
in Rule 144 and may, under certain circumstances, be sold without registration
under the Securities Act. In addition, any shares issuable upon exercise of
options granted under the Plan could be sold publicly commencing 90 days after
the Company becomes a reporting company under the Exchange Act, pursuant to Rule
701 under the Securities Act. However, officers, directors and certain
shareholders of the Company (owning all of the 1,677,875 shares) and option
holders under the Plan have executed agreements ("Lock-Up Agreements") pursuant
to which they have agreed not to, directly or indirectly, issue, offer, agree to
sell, sell, grant an option for the purchase or sale of, transfer, pledge,
assign, hypothecate, distribute or otherwise dispose of or encumber any Common
Shares or options, rights, warrants or other securities convertible into, or
exercisable or exchangeable for, or evidencing any right to purchase or
subscribe for, Common Shares, whether or not beneficially owned by such person,
or any beneficial interest therein, for a period of 18 months from the date of
this Prospectus. See "Underwriting."
16
<PAGE>
REGISTRATION RIGHTS. For a period of 18 months from the date of this
Prospectus, the Company has agreed that it will not sell or otherwise dispose of
any securities of the Company without the prior written consent of Strasbourger,
which consent shall not be unreasonably withheld. Notwithstanding the foregoing,
during such period, the Company shall be entitled to issue (i) Common Shares in
connection with mergers and acquisitions, (ii) up to 435,000 Common Shares
issuable upon exercise of options which may be granted under the Plan, (iii) up
to 22,125 Common Shares issuable upon the exercise of currently outstanding
options and warrants which will, except in certain circumstances, be issued for
an aggregate exercise price of $1.00, (iv) 200,000 Common Shares issuable upon
the exercise of currently exercisable options, the holder of which has agreed
not to sell, transfer, assign, hypothecate or otherwise dispose of such Common
Shares for a period of two years after he exercises such options without the
consent of the Company and (v) up to 110,000 Common Shares issuable upon the
exercise of the Representatives' Warrants.
The holders of the Representatives' Warrants will have certain demand
registration rights with respect to such warrants, the Common Shares underlying
such warrants and the "Warrant Shares" commencing one year after the date hereof
and for four years thereafter. If the Representatives should exercise their
respective registration rights to effect a distribution of the Representatives'
Warrants or the Warrant Shares, the Representatives, prior to and during such
distribution, may be unable to make a market in the Company's securities. If the
Representatives cease to make a market in the Common Shares, the market and
market prices of the Common Shares may be materially adversely affected, and
holders thereof may be unable to sell or otherwise dispose thereof. See "Shares
Eligible for Future Sale" and "Underwriting."
NO DIVIDENDS. The Company does not intend to pay dividends on the Common
Shares in the foreseeable future, but rather intends to retain future earnings,
if any, for reinvestment in the development and expansion of its business.
Pursuant to the Company's agreement with the Business Development Bank of Canada
("BDC"), the Company will not pay dividends so long as any portion of the
Company's loan from BDC remains outstanding. September 30, 1998, the outstanding
balance on such loan was $488,730. Such loan is due in August 2003, and the
Company has no plans to pre-pay such loan. Dividend payments in the future may
also be limited by other loan agreements or covenants contained in other
securities which the Company may issue. Dividend payments from the Company are
subject to Canadian withholding tax requirements. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and will
be dependent upon the Company's financial condition, results of operations,
capital and legal requirements and such other factors as the Board of Directors
deems relevant. See "Dividend Policy," "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources," "Description of Securities -- Common Shares" and "Certain United
States and Canadian Federal Income Tax Considerations."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
PROSPECTUS. This Prospectus contains certain forward-looking statements
regarding the plans and objectives of management for future operations. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. The Company's plans and
objectives are based on a successful execution of the Company's expansion
strategy and are based upon a number of assumptions, including assumptions
relating to the growth in the use of the Internet and that there will be no
unanticipated material adverse change in the Company's operations or business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, political, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that its assumptions underlying such forward-looking statements
are reasonable, any of the assumptions could prove to be inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this Prospectus will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Shares
offered hereby are estimated to be $4,275,000 ($4,992,750 if the Underwriters'
over-allotment option is exercised in full) assuming an initial public offering
price of $5.00 per Share, after deducting underwriting commissions and offering
expenses to be paid by the Company. The Company expects to apply the net
proceeds of this offering as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS APPROXIMATE AMOUNT PERCENTAGE OF NET PROCEEDS
- ------------------------------------------------------------------ ------------------- ---------------------------
<S> <C> <C>
Expansion into new regional markets (1)........................... $ 3,200,000 74.9%
Funding of the joint venture regarding AppTracker (2)............. 350,000 8.2%
General corporate and working capital purposes.................... 725,000 16.9%
------------------- -----
Total............................................................. $ 4,275,000 100.0%
------------------- -----
------------------- -----
</TABLE>
- ------------------------
(1) Such funds will primarily be used for expenses incurred in the opening of
new offices, including leasing office space, purchasing or leasing office
equipment and computer hardware and related expenses prior to the
commencement of operations in new locations. The Company estimates that
opening a new office will cost approximately $200,000 to $500,000 per
location, which costs will vary depending on the size of the office and the
cost of doing business in the location in question. The Company expects to
open the majority of its new offices in the United States. As part of its
expansion plan, the Company may utilize a portion of these proceeds for the
acquisition of, or investment in, complementary or competitive companies in
these new locations. The Company has not currently identified any
acquisition or investment candidates and has no agreements, plans or
arrangements with respect to any such acquisition or investments.
(2) Such funds will represent the Company's capital contribution to a joint
venture with Great Lakes for the continued development and commercialization
of AppTracker. Such capital contribution will be utilized for continued
development and testing costs and, if such testing is successful, to provide
funds for the initial marketing of the product. See "Business--Information
Technology and the Internet."
The net proceeds to the Company from the exercise of the Underwriters'
over-allotment option, if any, will be utilized for general corporate and
working capital purposes.
Pending their use, the net proceeds of this offering will be invested in
high-quality, short-term, interest bearing U.S. government obligations.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the sale of the Shares based upon the Company's currently
contemplated operations, the Company's business plan and current economic and
industry conditions and is subject to reapportionment among the categories
listed above in response to, among other things, changes in its plans,
regulations, industry conditions and future revenues and expenditures. The
amount and timing of expenditures will vary depending on a number of factors,
including changes in the Company's contemplated operations or business plan and
changes in economic and industry conditions.
Based on the Company's operating plans, the Company believes that the net
proceeds of this offering, together with available cash and anticipated revenues
from operations, will be sufficient to satisfy the Company's working capital
requirements for a period of at least the next 18 months following the
completion of this Offering. This belief is based on certain assumptions, which
may prove to be incorrect. After such 18-month period, or sooner if the
Company's assumptions prove to be incorrect, the Company may require additional
capital in order to meet its then current plans for expansion and capital
requirements. Such financing may take the form of public or private common or
preferred equity securities or debt securities, or may involve bank financing.
There can be no assurance that the Company will be able to obtain additional
capital on a timely basis, on favorable terms, or at all. In any of such events,
the Company may be unable to implement its current plans for expansion. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
18
<PAGE>
DIVIDEND POLICY
The Company does not intend to pay dividends on the Common Shares in the
foreseeable future, but rather intends to retain future earnings, if any, for
reinvestment in the development and expansion of its business. Pursuant to the
Company's agreement with the Business Development Bank of Canada ("BDC"), the
Company will not pay dividends so long as any portion of the Company's loan from
BDC remains outstanding. At September 30, 1998, the outstanding balance on such
loan was $488,730. Such loan is due in August 2003, and the Company has no plans
to pre-pay such loan. Dividend payments in the future may also be limited by
other loan agreements or covenants contained in other securities which the
Company may issue. Dividend payments from the Company are subject to Canadian
withholding tax requirements. Any future determination to pay cash dividends
will be at the discretion of the Board of Directors and will be dependent upon
the Company's financial condition, results of operations, capital and legal
requirements and such other factors as the Board of Directors deem relevant. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources, "Description of Securities--Common
Shares" and "Certain United States and Canadian Federal Income Tax
Considerations."
19
<PAGE>
DILUTION
At September 30, 1998, the net tangible book value of the Company was
approximately $351,595, or $0.21 per Common Share, based on 1,677,875 Common
Shares outstanding. The net tangible book value per Share represents the amount
of the Company's total assets less the amount of its intangible assets and
liabilities, divided by the number of Common Shares outstanding. After giving
effect to the receipt of net proceeds (estimated to be approximately $4,275,000,
from the sale of the Shares at an assumed initial public offering price of $5.00
per Share), the pro forma net tangible book value of the Company at September
30, 1998 would be approximately $4,626,595, or $1.67 per Share. This would
result in dilution to the public investors (i.e., the difference between the
assumed initial public offering price per Share and the net tangible book value
thereof after giving effect to this offering) of approximately $3.33 per share
(or 67%). The following table illustrates the per Share dilution:
<TABLE>
<CAPTION>
PER COMMON
SHARE
-------------
<S> <C> <C>
Assumed initial public offering price................................. $ 5.00
Net tangible book value at September 30, 1998....................... $ 0.21
Increase in net tangible book value attributable to new investors... 1.46
---------
Net tangible book value after this offering (1)....................... 1.67
-----
Dilution of net tangible book value to new investors (1).............. $ 3.33
-----
-----
</TABLE>
- ------------------------
(1) If the Underwriters' over-allotment option is exercised in full, the net
tangible book value per share would be $1.82 and the dilution per Share to
new investors in this offering would be $3.18.
The following table sets forth, as of the date of this Prospectus, the
number of Common Shares purchased, the percentage of the total number of Common
Shares purchased, the total consideration paid, the percentage of total
consideration paid, and the average price per Common Shares paid by the
investors in this offering and the current shareholders of the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER(1) PERCENTAGE AMOUNT(1) PERCENTAGE SHARE
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Current Shareholders............................... 1,677,875 60% $ 1,248,368 18% $ 0.74
New Investors(1)................................... 1,100,000 40% $ 5,500,000 82% $ 5.00
---------- ----- ------------ -----
Total.......................................... 2,777,875 100.0% $ 6,748,368 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
- ------------------------
(1) Assuming an initial public offering price of $5.00 per Share.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 and as adjusted to reflect the sale of the Shares offered
hereby at the assumed initial public offering price per share of $5.00, after
deducting estimated underwriting discounts and commissions, estimated offering
expenses and the initial application of the net proceeds of this offering as set
forth in "Use of Proceeds." The information provided below should be read in
conjunction with the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------
<S> <C> <C>
AS ADJUSTED
ACTUAL (1)
------------ --------------
Long-term debt, less current maturities............................................ $ 381,630 $ 381,630
Shareholders' equity
Common Shares, no par value, 1,677,875 issued and outstanding; and 2,777,875
issued and outstanding, as adjusted............................................ 1,248,368 5,523,368
Foreign currency translation adjustment.......................................... (111,139) (111,139)
Retained earnings................................................................ 451,949 451,949
Total shareholders' equity......................................................... 1,589,178 5,864,178
Total capitalization............................................................... 1,970,808 6,245,808
</TABLE>
- ------------------------
(1) As adjusted to reflect the sale by the Company of the 1,100,000 shares
offered hereby at an assumed initial public offering price of $5.00 per
share.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data for the years ended
December 31, 1996 and 1997 are derived from the Financial Statements of the
Company and Notes thereto included elsewhere herein audited by Schwartz Levitsky
Feldman, Chartered Accountants, the independent accountants for the Company. The
unaudited statement of operations data presented for the nine month periods
ended September, 1997 and 1998, and the unaudited balance sheet data at
September 30, 1998, are derived from the unaudited Consolidated Financial
Statements of the Company, which have been prepared on a basis consistent with
the audited Consolidated Financial Statements of the Company, and, in the
opinion of management, include all adjustments consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
condition and results of operations of the Company as of the dates and for the
periods presented.
This information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the Notes thereto,
each included elsewhere herein. The results of operations for any interim period
are not necessarily indicative of results to be expected the entire year.
<TABLE>
<CAPTION>
YEAR ENDED, DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
--------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
Contract services........................................................ 296 3,730 2,673 6,558
Permanent placements..................................................... 468 975 746 2,198
--------- --------- --------- ---------
764 4,705 3,419 8,756
COST OF CONTRACT SERVICES.................................................. 259 2,889 2,116 5,011
Gross profit............................................................... 505 1,816 1,303 3,745
Expenses
Selling.................................................................. 273 1,123 796 2,104
Administrative........................................................... 182 373 264 968
Financial................................................................ 14 126 42 129
--------- --------- --------- ---------
469 1,622 1,102 3,201
Income Before Income Taxes................................................. 36 194 201 544
Income Taxes............................................................. 6 56 66 218
--------- --------- --------- ---------
Net income................................................................. 30 138 135 326
Earnings per share......................................................... 0.03 .11 .10 .20
Weighted Average Number of Shares Outstanding.............................. 1,021 1,309 1,309 1,650
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED(1)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA
Working capital.......................................................................... $ 609 $ 4,534
Total assets............................................................................. 3,493 7,768
Long-term debt........................................................................... 382 382
Total liabilities........................................................................ 1,904 1,904
Shareholders' equity..................................................................... 1,589 5,864
</TABLE>
- ------------------------
(1) As adjusted to reflect the sale by the Company of the 1,100,000 Shares
offered hereby at an assumed initial public offering Price of $5.00 per
Share and the initial application of the net proceeds therefrom. See "Use of
Proceeds."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE OTHER FINANCIAL
DATA INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS REGARDING THE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS. THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN ARE BASED ON
CURRENT EXPECTATIONS AND ASSUMPTIONS THAT INVOLVE NUMEROUS RISKS AND
UNCERTAINTIES. ALTHOUGH MANAGEMENT BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE TO
BE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING
STATEMENTS INCLUDED HEREIN WILL PROVE TO BE ACCURATE. IN LIGHT OF THE
SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED
HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS
OF THE COMPANY WILL BE ACHIEVED.
GENERAL
The Company is a provider of IT staffing services, primarily in Toronto,
Ontario, Canada, supplying qualified IT professionals to its customers as
independent contractors for short and long term assignments and for permanent
placement within such enterprises. The Company's customers include financial
service companies, software and other technology companies, Canadian
governmental entities and large multinational companies, including Merrill Lynch
Canada Inc., Bank of Montreal, Bell Sygma Inc., Revlon of Canada, Inc., IBM
Corporation and American Express Company. The Company has recently expanded its
operations into the United States and intends to develop a network of offices to
provide IT staffing services throughout North America.
For the year ended December 31, 1997 and the nine months ended September 30,
1998, the Company derived 96% and 99%, respectively, of its revenue in Canada
and the remainder in the United States. The Company's books and records are
recorded in Canadian dollars. For purposes of financial statement presentation,
the Company converts balance sheet data to U.S. dollars using the exchange rate
in effect at the balance sheet date. Income and expense accounts are translated
using an average exchange rate prevailing during the relevant reporting period.
There can be no assurance that the Company would have been able to exchange
currency on the rates used in these calculations. The Company does not engage in
exchange rate hedging transactions. A material change in exchange rates between
U.S. and Canadian dollars could have a material effect on the reported results
of the Company.
The Company's services are generally classified as either contract services
or permanent placement services. In the case of contract services, the Company
provides its customers with independent contractors or "contract workers" who
usually work under the supervision of the customer's management. Generally, the
Company enters into a time-and-materials contract with its customer whereby the
customer pays the Company an agreed upon hourly rate for the contract worker.
The Company pays the contract worker pursuant to a separate consulting
agreement. The contract worker generally receives between 75% and 80% of the
amount paid by the customer to the Company; however, such payment is usually not
based on any formula and may vary for different engagements. The Company has
been seeking to gain "preferred supplier status" with its larger customers to
secure a larger percentage of those customers' business. While such status is
likely to result in increased revenue and gross profit, it is likely to reduce
gross margin percentage because the Company is likely to accept a lower hourly
rate from its customers and there can be no assurance that it will be able to
reduce the hourly rate paid to its consultants.
Revenue from contract services is recognized as services are provided.
Similarly, expenses for contract services, which usually consist solely of
consulting fees paid to contract workers, are recognized as services are
provided. For the year ended December 31, 1997 and the nine months ended
September 30, 1998, the gross margin on contract services revenue was
approximately 23% and 24%, respectively. Contract services
23
<PAGE>
accounted for 79% of revenue and 46% of gross profit for the year ended December
31, 1997 and approximately 75% of revenue and 41% of gross profit for the nine
months ended September 30, 1998.
In the future, the Company may perform contract services for customers on a
project by project basis whereby the Company will be engaged to complete a
particular, specified project. The Company may hire full time employees to
supervise these projects. These projects may be billed on a time-and-materials
basis or the Company may charge a fixed price for the project. If the Company
charges a fixed price for a project, it will be required to estimate the total
costs involved in the project and formulate a bid that contains an adequate
profit margin. If the Company is unable to accurately predict the costs of such
a project, or the costs of the project change due to unanticipated
circumstances, which may be circumstances that are beyond the control of the
Company, the Company may earn lower profit margins or suffer a loss on a given
project. Currently, the Company is not providing any IT professionals pursuant
to fixed price contracts.
In the case of permanent placement services, the Company identifies and
provides candidates to fill a permanent position for its customer. The Company
recognizes revenue when the IT professional commences employment. The Company
performs permanent placement services pursuant to three invoicing policies.
Contingency services are engagements in which the Company is only paid if it is
successful in placing a candidate in a position. Contingency exclusive services
are similar to contingency services; however, the Company is the only firm
engaged to fill the position. Retained search services are similar to
contingency exclusive services, except that the Company receives a
non-refundable portion of the fee prior to performing any services, with the
remainder paid if the position is filled. Contingency, contingency exclusive and
retained search services accounted for approximately 71%, 18% and 11%,
respectively, of the Company's permanent placement services for the year ended
December 31, 1997 and 83%, 15% and 2% for the nine months ended September 30,
1998.
The Company calculates gross profit by subtracting the fees paid to
contractors from net revenue. The Company does not attribute any direct costs to
permanent placement services; therefore the gross profit margin on such services
is 100% of revenue. As a result, the addition of permanent placement revenue to
contract services revenue has a significant effect on the gross profit margin of
the Company as a whole. Permanent placement services accounted for 21% of
revenue and 54% of gross profit for the year ended December 31, 1997 and 25% of
revenue and 59% of gross profit for the nine months ended September 30, 1998.
The Company anticipates expanding into new regional markets by establishing
new offices or by acquiring or investing in complementary or competitive
companies. The Company has not yet identified any acquisition candidates and has
no agreements, plans, or arrangements with respect to such acquisitions or
investments. The Company expects the cost of opening and funding a new office to
range from $200,000 to $500,000, depending on the size of the office and the
costs of doing business in the city in which the office is to be located. Such
costs will primarily consist of leasing office space, purchasing or leasing
office equipment and computer hardware and other related expenses incurred prior
to the commencement of operations in new locations. Such costs also include
operating expenses, such as payroll and advertising, prior to such time that the
new office is able to generate significant cash flow from operations. The
opening of new offices in new regional markets results in increased operating
expenses including, but not limited to, salaries, equipment, insurance,
marketing and public relations. Senior management also devotes resources to
training and management support. Based on the experience of the Company's
principals, the Company expects newly opened offices to become productive within
6 to 12 months of opening. Although there can be no assurance that such
expectations will be satisfied, the Company's expectations in terms of
productivity for new offices by the 12th month of operations are: 30 contractors
and between $30,000 to $50,000 in permanent placement sales per month with
annual revenues of approximately $450,000. The Company is likely to utilize
acquisitions as an attempt to avoid or limit these costs, but the Company will
incur other costs as a result of any acquisitions, including funding the
purchase price and expenses related to the integration of operations and
training of new employees. With regard to previous acquisitions,
24
<PAGE>
integration costs were expensed in the period that they were incurred and the
Company expects to continue to do so with future acquisitions. The Company
intends its acquisition targets to be small companies who can benefit from the
Company's advanced IT and other operating systems. There can be no assurance
that integrating the Company's operations with those of acquired companies will
result in improvements in such companies' operations or increased revenue from
such operations.
In April 1998, the Company completed the acquisition of all the issued and
outstanding shares of SCI and SPSI for aggregate consideration of $100,007 and
174,551 Common Shares. In addition, the Company issued 113,459 Common Shares to
Globe Capital Corporation for services in connection with the acquisition. SPSI
is inactive but holds certain assets utilized by Systems in its operations. The
acquisition was effective as of January 2, 1997. Declan French, the President
and Chairman of the Board of the Company, participated in the management of
Systems during 1997 and the Company and Systems shared data and operating
information during the year ended December 31, 1997. Accordingly, the Company's
Consolidated Financial Statements incorporate the operations of Systems since
January 1, 1997.
On May 19, 1998, the Company completed the acquisition of all the issued and
outstanding shares of capital stock of ICS for $303,555 in cash and 130,914
Common Shares to John A. Irwin, who was not affiliated with the Company prior to
this acquisition. In connection with the acquisition, ICS made a distribution to
Mr. Irwin of certain ICS assets that were not necessary for the operation of the
business. The transaction was effective as of January 1, 1998. Declan French and
other officers of the Company participated in the management of ICS during the
nine months ended September 30, 1998. Accordingly, the Company's Consolidated
Financial Statements incorporate the operation of ICS since January 1, 1998.
In November 1998, the Company completed the acquisition of certain assets of
Southport from
Mr. Michael Carrazza for $50,000 in cash and an amount of Common Shares with a
value of $200,000 based on the offering price. If at the time Mr. Carrazza is
eligible to sell shares under Rule 144 (subject to the Representatives lock-up),
the price of the Common Shares is less than the initial public offering price
the Company will be required to either issue additional shares or fund the
difference in cash.
Each acquisition was accounted for using the purchase method of accounting,
which requires that the purchase price be allocated to the assets of the
acquired entity based on fair market value. In connection with the acquisitions
of Systems, ICS and certain assets of Southport the Company recorded $434,657,
$851,763 and $100,000, respectively, in goodwill, which is being amortized over
thirty years in accordance with generally accepted accounting principles as
applied in the United States.
RESULTS OF OPERATIONS
The following table presents certain financial data of the Company as a
percentage of the Company's revenue based on information derived from the
Company's financial statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED, DECEMBER 31,
SEPTEMBER 30,
------------------------ ------------------------
1996 1997 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales........................................... 100% 100% 100% 100%
Contractor Costs................................ 34% 61% 62% 57%
Gross profit.................................... 66% 39% 38% 43%
Operating Expenses.............................. 61% 34% 32% 37%
Income from operations.......................... 5% 4% 6% 6%
Net income...................................... 4% 3% 4% 4%
</TABLE>
25
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
REVENUE. Revenue for the nine months ended September 30, 1998 increased by
$5.3 million, or 199%, to $8.7 million, as compared to $3.4 million for the nine
months ended September 30, 1997. The increase is primarily attributable to the
acquisition effective January 1, 1998 of ICS, which had sales of $3.4 million
for the nine months ended September 30, 1998. Also contributing to the increase
was an increase of $530,000 in the sales of Systems as a result of improvements
in operations since it was acquired by the Company effective January 2, 1997,
and growth in the contract sales in the Toronto office. Revenue from contract
services and permanent placement services accounted for 75% and 25%,
respectively, of revenue for the nine months ended September 30, 1998 as
compared to 78% and 22%, respectively, for the nine months ended September 30,
1997.
CONTRACTOR COSTS. Contractor costs for the nine months ended September 30,
1998 increased by $2.9 million, or 137%, to $5.0 million, as compared to $2.1
million for the nine months ended September 30, 1997. This increase was due to
the increased volume of contract services. As a percentage of revenue from
contract services, contractor costs remained constant at 77%.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1998
increased by $2.4 million, or 187%, to $3.7 million, as compared to $1.3 million
for the nine months ended September 30, 1997. This increase was attributable to
the aforementioned increase in revenue during the nine months ended September
30, 1998. As a percentage of revenue, gross profit increased to 43% for the nine
months ended September 30, 1998 as compared to 38% for the nine months ended
September 30, 1997. This increase was due to the slight decrease in the
percentage of revenue which was derived from contract services.
OPERATING EXPENSES. Operating expenses for the nine months ended September
30, 1998 increased by $2.1 million, or 190%, to $3.2 million, as compared to
$1.1 million for the nine months ended September 30, 1997. This increase was
primarily attributable to increases of $928,000 in selling expenses and $431,000
in administrative expenses at ICS during the nine months ended September 30,
1998. Administrative expenses at the IT Staffing Division also increased as the
Company expanded its infrastructure to support operations from multiple
locations and operated additional offices. As a percentage of revenue, operating
costs increased to 37% for the nine months ended September 30, 1998 from 32% for
the nine months ended September 30, 1997 due to an increase in the number of
locations and volume of transactions.
ACCOUNTS RECEIVABLE. The Company had accounts receivable of $1,838,633 for
the nine months ended September 30, 1998 as compared to $698,046 for the
comparable period of the previous year. Since September 30, 1998, the Company
has collected approximately $1,822,600 of such amount. Accounts receivable
represented 21% of revenues for the nine months ended September 30, 1998 as
compared to 20.4% in the comparable period of the previous year.
NET INCOME. Net income for the nine months ended September 30, 1998
increased by $190,000, or 140% to $326,000, as compared to $135,000 for the nine
months ended September 30, 1997 due to, among other things, the reasons
enumerated above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUE. Revenue for the year ended December 31, 1997 increased by $3.9
million, or 510%, to $4.7 million, as compared to $764,000 for the year ended
December 31, 1996. The increase is primarily attributable to the acquisition of
Systems, which had revenue for the year ended December 31, 1997 of $2.0 million,
effective January 2, 1997, and an increase of $1.7 million of revenue during
such period from contract services at the IT Staffing Division as a result of
internal growth. Revenue from contract services and permanent placement services
accounted for 79% and 21%, respectively, of revenue for the year ended December
31, 1997 as compared to 39% and 61%, respectively, for the year ended December
31, 1996.
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CONTRACTOR COSTS. Contractor costs for the year ended December 31, 1997
increased by $2.6 million, or 1000%, to $2.9 million, as compared to $260,000
for the year ended December 31, 1997. This increase was attributable to the
increased volume of contract services. As a percentage of revenue from contract
services, contractor costs decreased to 78% for the year ended December 31, 1997
from 88% for the year ended December 31, 1996 primarily as a result of an
increase in average hourly billing rates for the Company's contract services.
GROSS PROFIT. Gross profit for the year ended December 31, 1997 increased
by $1.3 million, or 256%, to $1.8 million, as compared to $505,000 for the year
ended December 31, 1996. This increase was atttributable to the aforementioned
increase in revenue. As a percentage of revenue, gross profit decreased to 38%
for the year ended December 31, 1997 as compared to 66% for the year ended
December 31, 1996. This decrease was due to the increase in the percentage of
revenue which was derived from contract services.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1997
increased $1.2 million, or 234%, to $1.6 million, as compared to $470,000 for
the year ended December 31, 1997. This increase was primarily attributable to
the acquisition of Systems, which incurred operating expenses of $515,000 during
the year ended December 31, 1997, and an increase of $442,000 in selling
expenses at the IT Staffing division due to increased volume of sales.
Administrative expenses at the IT Staffing Division also increased as the
Company expanded infrastructure to support operations from multiple locations.
As a percentage of revenue, operating costs decreased to 34% for the year ended
December 31, 1997 from 61% for the year ended December 31, 1996 as a result of
increased revenue since many administrative costs are relatively fixed and do
not vary with revenue.
ACCOUNTS RECEIVABLE. The Company had accounts receivable of $761,570 for
the year ended December 31, 1997, as compared to $211,928 for the year ended
December 31, 1996. Accounts receivable represented 16.2% of revenues for the
year ended December 31, 1997, as compared to 27.7% for the year ended December
31, 1996. The decrease as a percentage of revenues stems from the fact that a
large portion of 1996 revenues were in the last part of the year and were not
yet paid at December 31, 1996.
NET INCOME. Net income for the year ended December 31, 1997 increased by
$108,000, or 360%, to $138,000 for the year ended December 31, 1997 as compared
to $30,000 for the year ended December 31, 1996 as a result of, among other
things, the reasons enumerated above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are cash flow from operations and a
credit line with the Toronto-Dominion Bank ("TDB").
At September 30, 1998, the Company had cash of $150,000 and working capital
of $609,000. During the nine months ended September 30, 1998, the Company had a
cash flow deficiency from operations of $28,000, due primarily to an increase in
accounts receivable of $1,178,000, which was partially offset by net income of
$326,000 and an increase in accounts payable of $727,000. The increase in
accounts receivable is primarily due to the increase in revenue in the months
prior to September 30, 1998 as compared to the months prior to December 31,
1997. At December 31, 1997, the Company had cash and cash equivalents of
$10,000, and a working capital deficiency of $10,000. For the year ended
December 31, 1997, the Company had a cash flow deficiency from operations of
$70,000, due primarily to an increase in accounts receivable of $577,000, which
was partially offset by increase in accounts payable of $317,000 and net income
of $138,000.
For the nine months ended September 30, 1998, the Company had cash flow from
financing activities of $896,000, attributable primarily to proceeds from the
issuances of Common Shares. For the year ended December 31, 1997, the Company
had cash flow from financing activities of $250,000 attributable primarily
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to the increase in Notes payable and bank indebtedness. During the nine months
ended September 30, 1998, the Company received $620,944 for the issuance of
281,464 Common Shares.
The Company's arrangement with TDB, which was revised in October 1998,
allows for an operating line, payable on demand, of up to $650,000. Outstanding
balances bear interest at 1.75% over TDB's prime rate. The line is secured by
substantially all of the Company's assets, an assignment of life insurance on
the life of Declan French to the extent of $200,000, and is personally
guaranteed by Declan French and his wife to the extent of $130,000. The loan is
subject to certain financial covenants including a minimum net worth of
$562,065. At September 30, 1998, there was $156,746 outstanding on this line.
As of September 30, 1998, the Company had a total of $488,730 due to BDC
pursuant to four separate loans. The loans bear interest at the BDC's prime rate
plus 4% to 5% and are being repaid in monthly installments which currently
aggregate $8,800. In addition to interest, the Company granted BDC an option to
acquire 22,125 Common Shares for an aggregate exercise price of $1.00 and to pay
BDC a royalty equal to .063% of gross sales until August 2003. The Company is
restricted from paying dividends until these loans have been repaid to BDC. On
December 1, 1998 the Company obtained an additional loan of $196,800 from BDC.
The loan bears interest at 11% and is to be repayable in 60 equal payments
commencing on April 23, 1999. In addition, the Company shall pay BDC additional
interest in the form of a royalty on sales equal to .0184% of the Company's
gross sales consolidated beginning in the month following the initial
disbursement of the loan or on January 23, 1999, whichever comes later.
During the nine months ended September 30, 1998, the Company had a cash flow
deficit from investing activities of $721,000, primarily attributable to the
aforementioned acquisition of ICS. During the year ended December 31, 1997, the
Company had a cash flow deficit from investing activities of $184,000, primarily
attributable to the aforementioned acquisition of Systems.
During the fourth quarter of 1997, the Company experienced a financial loss
of $7,000. This loss was a function of two issues relating to operations. In
October 1997, the Company had begun operations in a New York office and incurred
approximately $67,000 of expenses relating to the start-up. While this type of
expense is a re-occurring item with each office opening, the costs will vary
depending upon the size and location of each new office. The second issue
relates to significant management time, commitment and effort invested in the
development of HR Workbench and AppTracker software programs. These are key
strategic initiatives for the internet oriented nature of the Company's
operations.
The Company has entered into employment and consulting agreements with
certain of its key employees. These agreements provide for significant salaries
and/or bonuses based on the Company and/or certain of its divisions' financial
performance. These agreements could affect the Company's liquidity. See
"Management--Employment Agreements" and "--Consulting Agreements."
The Company believes that cash flow from operations, together with the
proceeds of the offering, will be sufficient to satisfy the Company's working
capital needs for at least the next 18 months.
YEAR 2000 PREPARATION
Many computer systems and software products worldwide and throughout all
industries will not function properly, unless upgraded, as the year 2000
approaches, due to a once common programming standard that represents years
using two-digits. This is the "Year 2000 problem" that has received considerable
media coverage. The Company believes that it is Year 2000 compliant with respect
to its internal systems, including its HR Workbench software. AppTracker is also
designed to be Year 2000 compliant.
SEASONALITY
The Company also experiences a minor decrease in contract billings in the
second half of December as workers take their holidays; there also tends to be a
sluggish start to new billings in January due to lack of hiring momentum from
managers newly returned from holidays. Beyond these two instances, the Company
does not experience much seasonal fluctuation in its level of business.
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BUSINESS
The Company is a provider of IT staffing services, primarily in Toronto,
Ontario, Canada, supplying qualified IT professionals to its customers as
independent contractors for short and long term assignments and for permanent
placement within such enterprises. The Company's customers include financial
service companies, software and other technology companies, Canadian
governmental entities and large multinational companies, including Merrill Lynch
Canada Company, Inc., Bank of Montreal, Bell Sygma Inc., Revlon Canada Inc., IBM
Corporation and American Express Company. The Company has recently expanded its
operations into the United States and intends to develop a network of offices to
provide IT staffing services throughout North America.
The Company has focused on the recruiting of quality IT professionals. The
Company utilizes established testing methods to ensure that its IT professionals
are properly qualified. The Company also reviews a candidates' technical
backgrounds and conducts preliminary interviews prior to referring candidates to
its customers. By attracting the most qualified IT professionals, the Company
believes that it will be able to attract high quality customers who require the
services of such professionals.
Since inception, the Company has pursued a strategy of developing and
utilizing technology that it believes will provide it a competitive advantage.
As a result, the Company believes that one of its primary competitive strengths
is its utilization of technology. The Company maintains a database of over
35,000 IT professionals and advertises on the Internet to attract both
candidates and customers. The Company uses HR Workbench, software developed by
the Company in conjunction with Great Lakes Research and Development ("Great
Lakes"), an unaffiliated entity, to locate the IT professionals in the Company's
database with the technical skills and job interests that best satisfy the
requirements of the position that the Company is attempting to staff. The
database allows all of the Company's recruiters immediate access to active
candidates. Candidates can register themselves directly into the database
through the Internet or be entered into the system by the Company's recruiters.
The Company and Great Lakes have developed, and are in the process of
testing, an additional software product called AppTracker, which the Company,
through a joint venture with Great Lakes, intends to market to human resource
departments during the year ending December 31, 1999. The software is designed
to aid human resources departments in performing numerous recruitment tasks,
such as scheduling interviews and evaluating candidates. Statistics about the
recruitment process, including the costs and expenses, are tabulated in various
databases. The Company believes that it will have an advantage in marketing its
staffing services to companies using AppTracker because of the Company's
familiarity with the software and the ease of electronic data interchange
("EDI") with the Company.
The Company was incorporated under the laws of the Province of Ontario,
Canada in 1994.
INDUSTRY BACKGROUND
The staffing industry has experienced significant growth in recent years in
response to the increased popularity of outsourcing of many staffing
requirements. This growth has been driven by employers who have sought to
convert personnel costs from fixed to variable in nature by reducing their
permanent staff and supplementing their workforce with contract employees for
specific projects, peak work loads and other needs. The use of flexible staffing
services has allowed employers to improve productivity, outsource specialized
skills and avoid the negative effects of layoffs. This trend has accelerated
with the pace of technological change and greater global competitive pressures.
Regulations governing employee benefits, insurance and retirement plans, as well
as the high cost of hiring, laying off and terminating permanent employees, have
prompted many employers to take advantage of the flexibility offered through
contract staffing arrangements. According to the STAFFING INDUSTRY REPORT, a
leading industry publication, revenue for the year ended December 31, 1997 for
IT staffing services in the United States is estimated to have been $14.8
billion, a 27% increase over such revenues for the year ended December 31, 1996.
According to an 1998 IDC Canada survey, an independent Canadian industry
publication, the Canadian Information
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Technology services industry grew by more than 11% in 1997, reaching CDN$11.5
billion in revenues, an increase of 11.5% over such revenues for the year ended
December 31, 1996, and is expected to grow at a compounded annual rate of 12.1%
through 2001.
The high technology industry as a whole continues to experience substantial
growth as constant innovations, such as open and distributed computing,
client/server technology, the Internet, relational databases and object-oriented
programming, shortens product lifecycles and accelerates the demand for
computer-related products. These trends, combined with the intense competition
faced by high technology companies, have put considerable pressure on such
companies to shorten the time-to-market of their products. The development of
these next generation products often requires highly specialized technical
talent which may not be available internally. This need for IT professionals is
particularly critical during the period prior to the release of new software or
hardware products. As a result, these high technology companies are frequently
utilizing supplemental sources of IT professionals with expertise in current
technologies.
As new technologies are developed and introduced, businesses are attempting
to integrate and implement these technologies into their already complex IT
systems. As these systems are being deployed on an enterprise-wide basis and on
multiple hardware and software platforms, the process of systems design and
implementation has become more complex. As a result, businesses are forced to
find qualified IT professionals to design, develop, deploy and maintain their
systems. Frequently, however, qualified IT professionals do not exist internally
or it may be impractical to redeploy and retrain internal personnel.
Consequently, these businesses are increasingly seeking to augment their staffs
with IT professionals skilled in the management and operation of such systems.
The Company believes that the growth of the Internet is likely to contribute
to the demand for IT professionals. North American companies are increasingly
establishing or maintaining a presence on the Internet. Although many companies
outsource to web site maintenance companies, others retain direct control of
their web sites and may utilize contract workers to establish and maintain such
sites.
Despite increased demand for IT professionals, there is a shortage of IT
professionals proficient in the most current computer languages and
applications. According to the Information Technology Association of America,
recent studies indicate that the United States has a shortage of approximately
346,000 IT professionals. According to a study performed by the KPMG/CATA
Alliance, Canada has a shortage of between 20,000 and 30,000 IT professionals.
The studies also suggests that the shortfall is growing. Due to the high demand
for their services, many IT professionals have a variety of opportunities in the
job market and an increasing number are attracted to the benefits of working on
a contract basis. Such benefits include more flexible work schedules and the
opportunity to work with emerging and challenging technologies in a variety of
industries.
The Company believes that to address their increasing demand for contract
and permanent IT professionals, both research and development departments of
technology companies and IT departments of large corporations are turning to IT
staffing companies to augment their existing operations. Technology-dependent
companies are increasingly utilizing outside consultants to: (i) meet critical
production deadlines; (ii) focus on their core business and avoid devoting
valuable time to the recruiting and hiring processes; (iii) access specialized
technical skills; (iv) better match staffing levels to current needs; and (v)
reduce the costs of recruiting, training and terminating employees.
BUSINESS STRATEGY
The Company's business objectives are to increase its share of the IT
staffing services market in Canada and the United States, as well as to
establish a network of offices throughout such countries which, when linked by
means of the Internet, will allow the Company to provide its customers with an
array of IT staffing services. The primary components of the Company's strategy
to achieve such objectives are as follows:
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LEVERAGE CLIENT BASE TO ATTRACT AND RETAIN HIGHLY QUALIFIED IT PROFESSIONALS
A key element of the Company's success has been its ability to attract and
retain highly qualified IT professionals. The Company believes that the primary
reason that it can attract such professionals is due to its high quality
customer base, which allows the Company the opportunity to identify and deliver
high quality assignments involving leading-edge technologies. Additionally, the
Company believes that it has developed a reputation among IT professionals for
efficient and high quality placements by focusing on an IT professional's
particular field of technical specialization and providing access for IT
professionals to cash compensation levels comparable to, or higher than, that of
similarly skilled, full-time employees.
As the Company's high quality clients have allowed it to attract a large
number of qualified IT professionals, the Company's database of IT
professionals, in turn, has allowed the Company to increase its number of
clients. The Company believes that this cyclical phenomenon in the recruiting
business creates the opportunity for significant growth as the Company expands
and implements the other facets of its business plan.
FOCUS ON NICHE MARKETS
The Company believes that its expertise in the IT industry provides it a
competitive advantage over recruiting firms that do not utilize IT specialists
in their recruiting. The Staffing Report On-Line, an on-line magazine for the
employment and temporary service industry, views the IT staffing business as
distinctly different from traditional staffing businesses. The Company's
recruiters follow IT industry trends, are usually knowledgeable in the IT area
and have access to the Company's databases of IT professionals, all of which
enables them to provide their customers with candidates who will satisfy a
particular client's requirements.
Although the Company recruits professionals in all aspects of the IT
business, the Company places added emphasis on certain areas, such as Enterprise
Resource Planning ("ERP") software products produced by Oracle Corporation, SAP
AG, Peoplesoft, Inc. and the BAAN Company. The Company is often discussed in Web
sites for Oracle product users and believes it can develop a reputation as one
of the premier sources of IT professionals with skills and experience relating
to Oracle Corporation and other ERP products. The Company has also developed an
excellent reputation for recruiting IT professionals who specialize in network
management. The Company believes that developing niche specialties will enhance
the reputation of the Company as a whole and create opportunities for the
Company to establish relationships with new customers who then may utilize the
Company to locate IT professionals with other skills.
EXPAND INTO NEW REGIONAL MARKETS
As opportunities arise, the Company intends to expand into certain markets
by means of acquisition, but believes that most expansion will come from the
establishment of new offices. The Company intends to establish such offices by
hiring experienced recruiters familiar with the local markets and providing them
access to the Company's existing group of IT professionals and customers by
means of the Internet. By hiring local recruiters the Company believes that it
will be able to attract local clients and IT professionals who may not have been
previously familiar with the Company. The Company believes that such recruiters
will find the Company to be an attractive place to work because of the Company's
existing relationships with multinational and other large corporate clients, the
Company's good reputation among IT professionals, the Company's quality
information technology system and the Company's incentive based compensation
package which will generally combine base salary, bonuses, commissions and
incentive stock options.
Where the Company deems it more cost effective, or a particular acquisition
candidate will provide the Company with a competitive advantage, the Company may
enter a new regional market by acquiring an existing IT staffing company. The
Company intends to focus on small acquisition targets who will be able to
benefit from the Company's strong IT and operating systems.
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CONTINUE TO UTILIZE THE INTERNET AND INFORMATION TECHNOLOGY
The Company believes that its use of technology provides it a competitive
advantage over many of its competitors. The Company utilizes its HR Workbench
software to operate its database and allow recruiters to use a query based
system that matches the skill set and employment preferences of the IT
professionals with the needs of the customer. This system also tracks other
information, such as average salaries of a particular position, which enables
the Company to provide valuable advice to its clients in selecting the proper IT
professional. The Company's IT professional database and recruiting software is
available to its employees in other cities through its fully secure intranet
system. For example, a recruiter in a new office in Austin, Texas could have
complete access to the Company's information technology in Toronto, Ontario. The
Company believes that this will enable it to open new offices that are quickly
ready to provide services to customers without incurring significant IT start-up
costs. In smaller markets, the Company intends to utilize its IT system to
create lightly staffed "virtual offices" that rely on the Toronto, Ontario
office for all administrative and many operating functions.
The Company utilizes the Internet to promote its services and to provide IT
professionals with a complete listing of available employment opportunities. IT
professionals can e-mail their resumes to the Company's recruiters and, by
completing an on-line form, enter themselves into the Company's database.
Currently, the Company is upgrading its Web site so that it will more
effectively promote the Company's services to potential customers.
The Company, in conjunction with Great Lakes, is developing software that
will enable human resources departments to perform numerous recruitment tasks,
such as scheduling interviews and evaluating candidates. Statistics related to
the recruitment process, including the costs and expenses, are tabulated in
various databases. The Company believes that it will have an advantage in
marketing its recruitment services to companies that are using AppTracker
because of the Company's familiarity with the software and the ease of EDI with
the Company.
DEVELOP AND PROMOTE A MANAGED SERVICES PRACTICE
The Company intends to form a team of consultants who will aid the Company's
customers in determining their IT staffing needs. The Company believes that this
will provide it with a competitive advantage when compared with traditional
recruiting firms. Furthermore, the Company believes that Managed Services could
provide it with an additional source of revenue, which could be particulary
important if companies utilize AppTracker and Internet sources to reduce their
reliance on recruiting firms.
CAPITALIZE ON YEAR 2000 AND OTHER OPPORTUNITIES
Due to a once-common programming standard that represents years using
two-digits, many computer systems and software products, unless upgraded, will
not function properly as the year 2000 approaches. The problem will result in
the inability of computer systems to properly recognize date-sensitive data and
will result in the production of erroneous information or system failure.
The Company believes that many companies will turn to contract workers to
review their computer systems and make necessary changes to avoid Year 2000
problems. For example, the Company assembled a group of specialists to remedy
the potential Year 2000 problems at the Canadian offices of a large financial
services firm. Contract workers are ideal for this task because it is likely to
be a time consuming and complicated, yet temporary, project. Although the
increase in revenues from Year 2000 related projects will be temporary, the
Company intends to use the Year 2000 as an opportunity to develop additional
customer relationships and to expand the scope of its contract work on a
project-by-project basis. The Company intends to assemble teams of Year 2000
specialists and aggressively market their services to the Company's customers.
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The Company believes that there will be opportunities for projects like Year
2000 projects as the Dow Jones Industrial Average, which is often recorded in
data fields designed to read four digits, approaches 10,000, and when the
European Union adopts a single currency. Computer systems will require
modifications to be able to properly record these data changes, and companies
may rely on contract workers and consulting teams to implement these changes.
The Company intends to capitalize on the need for a quick response to such
provisions by assembling teams of specialists to address such problems which the
Company intends to use as an opportunity to establish additional customer
relationships.
As the state of the economy fluctuates, so too do expenditures on new IT
systems. This is particularly true of the financial services industry, where
there is a higher amount of discretionary spending for IT systems. The Company
has guarded against being adversely affected by a curb in spending from the
financial services sector by diversifying its client base to include
manufacturing, distributing and telecommunications firms, and software
companies.
Currently there is a high demand for IT people to tackle the Year 2000 and
European Currency conversion projects. There has been some speculation that
demand for IT workers will decline dramatically after these projects have been
completed. More accurately, however, the level of demand will not change
significantly. New projects that are currently on hold in order to focus finite
resources on the pressing Year 2000 issue, will come alive and will keep
requirements for IT workers at a consistently high level.
The Company has been focusing its infrastructure development and marketing
initiatives on niche market areas, such as ERP and network management. The
Company believes that by doing so it has positioned itself in the lowest
possible risk sector for market fluctuations.
The niche IT specialists mentioned above will be in strong demand for new
system initiatives currently on hold while resources are focused on the more
critical Year 2000 issue.
CONTRACT SERVICES
The Company's contract services revenue is derived from time and materials
contracts in which the Company supplies a contract worker to perform under the
supervision of the client. The Company's contract services generally consist of
providing contract workers to customers for short and long term assignments.
These assignments generally last from three to twelve months, but can sometimes
last much longer. The assignments may be for specified projects or general IT
consulting work. Although the Company currently bills the clients only on a time
and materials basis at an agreed upon hourly rate, in the future it may assemble
teams that will perform projects for an agreed upon fixed price for the project.
The Company pays the contract worker an agreed upon rate, pursuant to the
Company's standard consulting services agreement. The contract worker generally
receives between 75% and 80% of the amount paid by the customer to the Company,
however such payment is usually not based on any formula and may vary for
different engagements. This agreement, which is terminable by the Company at any
time, obligates the contract worker to provide notice prior to leaving the
position, contains a confidentiality clause, and prohibits the worker from going
to work directly for the customer for a period of six months from the date that
the worker no longer works for such customer without the consent of the Company.
At September 30, 1998, approximately 160 contract workers placed by the Company
were performing services for the Company's customers.
The Company intends to increase the amount of project services work it is
doing by assembling teams specializing in particular projects, such as Year 2000
problem resolution. See "Business--Business Strategy--Focus on Niche Markets."
In the future, the Company may hire project leaders as salaried employees to
lead teams of consultants on certain projects. The Company believes that this
will enable the Company to earn higher margins on its project work. Furthermore,
such teams would enable the Company to market itself as a full-service provider
of IT staffing services with a wide array of services that can be tailored to
meet a customer's particular needs.
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PERMANENT STAFFING PLACEMENT SERVICES
The Company's permanent placement services generally consist of the
placement of an IT professional in a position for the Company's customers. The
Company identifies and provides candidates to its customers who its recruiters
believe, based on the Company's data, have the technical skills and job interest
to best satisfy the requirements of the position. The Company recognizes revenue
when the IT professional commences employment. However, the Company is required
to find a replacement free of charge if the employee does not remain in the
position for at least 90 days. This placement fee is usually structured as a
percentage of the IT professional's first-year annual compensation. This
percentage ranges from 20% to 30%, although the Company expects to reduce the
fee to 15% for customers utilizing the Company's Internet technology because
those placements will require less time and input from the Company's recruiters.
Salaries for the IT professionals that the Company places generally range from
$45,000 to $125,000.
The Company performs permanent placement services pursuant to three
invoicing policies. Contingency services are engagements in which the Company is
only paid if it is successful in placing a candidate in a position. Contingency
exclusive services are similar to contingency engagements, however, the Company
is the only firm engaged to fill the position. Retained search services are
similar to contingency exclusive services, except that the Company receives a
non-refundable portion of the fee prior to performing any services, with the
remainder paid if the position is filled.
SALES AND MARKETING
The Company's primary target markets are software, telecommunications and
other technology companies, financial service companies and multinational and
other large corporations. The Company maintains a database of human resource
administrators and IT department heads at these firms and utilizes its sales
forces to build relationships with these individuals by stressing the quality of
IT professionals that the Company recruits. As the Company expands into new
regional markets it intends to hire local sales people who are familiar with
local customers. Because many of the Company's customers maintain offices in
more than one city, the Company believes that it will have an advantage in
establishing relationships with these additional offices as the Company expands
into new regional markets.
The Company markets its services via the Internet. The Company is in the
process of upgrading its web site, which previously has been used primarily as a
tool to advertise job opportunities to IT professionals and to promote its
services to its customers. The Company also utilizes traditional advertising
outlets and trade shows to promote its services to potential customers.
CUSTOMERS
The Company provides staffing services to customers in a wide array of
industries. Software development, telecommunications, and other technology
companies utilize the Company's services to locate programmers in the
development of new products. The Company also provides services to financial
services companies, such as Bank of Montreal and Merrill Lynch Canada Inc.,
which are extremely reliant on their IT systems. Large consulting firms, such as
Deloitte & Touche Tohmatsu, are also beginning to utilize the Company to meet
their need for IT professionals.
The Company's customers include the Canadian units of Fortune 1000
companies, such as American Express Company, Revlon Canada Inc. and IBM
Corporation. The Company believes that it will be able to provide services to
other multinational and large companies and expand services provided to these
existing customers by expanding into new regional markets. These multinational
and other large companies have indicated to the Company that they desire to use
fewer suppliers to meet their needs and the Company believes that it will be
able to utilize relationships in one market to establish relationships with such
companies in other markets. Additionally, the Company believes that its high
profile customer base
34
<PAGE>
provides it credibility when pursuing other customers. The following is a list
of certain of the larger companies who utilize the Company's services.
<TABLE>
<CAPTION>
FINANCIAL SERVICES SOFTWARE, TECHNOLOGY AND TELECOMMUNICATIONS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Bank of Montreal Bell Sygma Inc.
Merrill Lynch Canada Inc. Bell Canada
CIBC Wood Gundy Securities Inc. SHL Systemhouse Co.
First American Title Insurance Company Star Data Systems, Inc.
Harris Trust and Savings Bank IBM Corporation
<CAPTION>
GOVERNMENT AND EDUCATIONAL OTHER
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Revenue Canada American Express Company
Environment Canada Imperial Oil Limited
University of Toronto Deloitte & Touche Tohmatsu
National Grocers Co. Ltd.
SolCorp
Revlon Canada Inc.
</TABLE>
As is common in the staffing industry, the Company does not have long-term
written contracts with most of its customers. The Company, however, generally
enters into a standard form agreement with its customers that indicates which
parties are responsible for taxes and other expenses, and provides that all
intellectual property and other proprietary information will remain confidential
and the property of the customer. Some customers, such as the Canadian
government, Dow Jones and CIBC Wood Gundy Securities Inc., require the Company
to use another form of agreement which is similar in all material respects to
the Company's standard form. With certain clients, most significantly, Bank of
Montreal, the Company enters into an agreement allocating other
responsibilities, such as the supervision of the IT professionals it recruits.
Other customers, such as Bell Sygma Inc., enter into annual contracts with the
Company pursuant to which the Company will supply contract workers during the
year as required by the customer at fees to be negotiated.
STRATEGIC ALLIANCES
The Company has entered into a strategic alliance with Great Lakes which has
resulted in the development of HR Workbench and AppTracker. See
"Business--Information Technology and the Internet." The Company has also
established relationships with other job search resources on the Internet to
promote the Company's services. For example, the job listing page of the Toronto
Star newspaper's Web site displays the Company's name and has a hyperlink to the
Company's Web site.
The Company intends to utilize strategic alliances to promote its staffing
services. The Company may enter into arrangements with consulting firms to staff
major IT projects. Alternatively, the Company may enter into arrangements with
software companies whereby the Company's contract workers will be trained to
perform customer support services. Lastly, the Company may enter into agreements
with other staffing companies in geographic regions in which the Company does
not intend to expand. Such arrangements will allow the Company to provide its
existing large corporate clients with services in areas where the Company is not
familiar with the local market. Currently, the Company is not a party to any
agreements to enter into arrangements such as these, and there can be no
assurance that the Company will find entities with which to enter into strategic
alliances on terms acceptable to the Company, or at all.
RECRUITING
The Company believes that its technology and experienced recruiting staff of
52 individuals enables it to recruit qualified IT professionals whose skills
match the needs of its customers. Many of the Company's recruiters have strong
IT backgrounds and are required by the Company to take a two week training
35
<PAGE>
course when hired by the Company. The Company maintains a database of over
35,000 IT professionals. The Company's recruiters maintain ongoing relationships
with certain IT professionals and are aware of their particular skills and
employment status. Using the Company's database and its recruiters' knowledge of
available IT professionals, the Company is often able to quickly locate a number
of suitable candidates for a position, which is particularly important for
positions in which the Company does not have an exclusive engagement. The
database also contains reference and employment history information which
accelerates the screening process.
The Company tests the computer skills of all of its IT professionals
utilizing TeckChek software. This software provides recruiters with a consistent
rating system and a reliable method of evaluating candidates, which aids
recruiters in matching candidates with positions requiring their skill set. This
software also allows the Company to provide evidence to its customers that
potential employees have sufficient technical skills. Additionally, the Company
screens candidates by telephone and in-person interviews and by reference
checks.
If the Company is unable to locate suitable candidates for a position by
means of its databases, the Company may utilize advertisements in newspapers and
trade magazines. The Company often prepares and places advertisements on behalf
of its clients. The Company has been approved by the Canadian Newspaper
Association as an advertising agency, which allows the Company to earn a
commission on any advertisements it places. Additionally, the Company posts job
openings on its Web site and invites IT professionals to submit their resumes to
the Company by e-mail.
The Company intends to recruit IT professionals from other countries, such
as Singapore and India, where there are a number of IT professionals and the job
opportunities are inferior to those in North America. United States and Canadian
immigration laws contain preferences for immigrants who can fill skilled labor
positions for which there is a shortage of native applicants.
The Company believes that turbulent economic and political situations in
other parts of the world, as well as the general lack of opportunities for top
IT professionals in countries such as Russia and India, make Canada and the
United States an appealing choice for immigration. According to a recent KPMG/
CATA Alliance High Tech Labor Survey, there is a shortage of IT workers in
Canada. Bringing in foreign workers helps to alleviate this shortage. The
Canadian government, in recognition of this fact, has relaxed entrance
requirements for IT professionals, allowing such workers to enter the country
more quickly than ever before.
The Company is dedicated to maximizing the value of overseas recruitment
through a variety of methods. The first is through the extensive use of the
Internet and its Internet-based products, WorkBench and AppTracker. By using a
combination of its Web site and e-mail, it is able to communicate with IT
professionals around the globe, making them aware of the opportunities it has
available, and discussing immigration options.
Internally, the Company has started to build a knowledge base around the
particular issues of bringing IT workers to Canada. The Company has also been
building a library of information about the legal technicalities surrounding
work visas and immigration for Canadian workers migrating to the United States.
To complement this knowledge that the Company is building internally, it has
also developed strategic relationships with legal counsel specializing in
immigration and visa issues.
Another strategy the Company is employing in the area of foreign recruitment
is the establishment of lightly staffed virtual offices in different parts of
the world. Recruiters with country-specific contacts and knowledge are given
access to the Company's database and job postings. They then carry this
information into the field where they screen and select foreign candidates who
they feel would be appropriate for the opportunities that the Company has
available. The Company then takes these pre-screened candidates and continues
with the evaluation process.
36
<PAGE>
INFORMATION TECHNOLOGY AND THE INTERNET
The Company has established an extensive IT system which it believes
provides it with a competitive advantage over less technologically advanced
competitors. The primary components of the Company's IT system and its use of
technology are described below.
THE HR WORKBENCH SOFTWARE AND PROPRIETARY DATABASES
The HR Workbench software is an Internet-based software application that is
used by the Company in the administration and tracking of internal processes
relating to the recruitment and placement of IT professionals. This software was
developed by the Company in conjunction with Great Lakes, and they will share in
all intellectual property rights to the software equally. The HR Workbench
software is a query based software program that allows the Company's recruiters
to locate the IT professional in the Company's database with the technical
skills and job interests that best satisfy the requirements of the position that
the Company is attempting to staff. This system also tracks other information,
such as average salaries of a particular position, which enables the Company to
provide valuable advice to its clients in selecting the proper IT professional.
The software also incorporates the Company's database of over 35,000 IT
professionals. The Company continually updates its database and occasionally
accesses other databases of IT professionals that are available for sale or over
the Internet. HR Workbench allows information entered into the database by a
Company employee, or directly by an IT professional by means of the Internet, to
be shared by all of the Company's recruiters and salespeople.
UTILIZATION OF THE INTERNET
The Company utilizes the Internet to promote its services and to enable
customers and IT professionals to utilize its services. The descriptions of the
employment opportunities are segregated among permanent and contract positions,
describe the necessary skills required by IT professional candidates, and
provides a phone number and e-mail address for the Company's recruiter who works
with the relevant client. Alternatively, IT professionals can e-mail their
resumes to the Company or can enter themselves into the Company's database by
means of the Internet. The Company also utilizes the Internet to connect its
offices to its Toronto, Ontario office. This results in substantial savings in
software and hardware costs in the maintenance of the Company's IT system and
allows for the creation of lightly staffed regional virtual offices.
THE APPTRACKER SOFTWARE
The Company and Great Lakes have developed a software package called
AppTracker. The software is designed to aid a human resources department in
performing numerous recruitment tasks, such as scheduling interviews and
evaluating candidates. The software has a feature that allows a human resources
department to have a description of any job openings sent automatically to
selected e-mail addresses, such as those of recruiting firms or previous
applicants. Statistics about the recruitment process, including the costs and
expenses, are tabulated in various databases. Additionally, the software allows
the human resource department to compile their own database of prospective
employees and contract workers.
Traditionally, recruiters acquire new candidates using as many sources as
possible. Normally the number of sources would be limited to the recruiting
office's ability to handle the logistics of communicating job specifications to
those sources and handling the incoming responses. Therefore, their ability to
hire quality IT candidates is directly related to the size of the group of
candidates they can attract and the speed with which they can assimilate,
contact, interview, evaluate, file for future use and/or hire those candidates.
AppTracker, the process through which recruiters post or communicate job
specifications to applicant sources, is fully automated. Once the hiring manager
and the recruiter have constructed the job specification using AppTracker, they
use the AppTracker Broadcast facility to communicate this job specification to
all designated sources. With a click of the mouse the recruiter defines and
chooses the broadcast strategy.
37
<PAGE>
The information can be communicated/posted simultaneously and automatically to
appropriate employment agencies, web news groups, web job posting sites,
archived candidates, internal candidates (as per policy) and personal referral
sources.
AppTracker consolidates and automates the communication process for all
sources. Each unique information source is provided with a web interface. All
out-going and in-coming communications/ applications are managed using this web
interface. No specialized client software is required. All transactions are
initiated through a web browser. Recruiters, hiring managers and applicants now
use a common medium for communication. This type of common-interface messaging
reduces significantly the reliance on hard-copy mail, phone communication and
fax transmission. Additionally, a Website address is provided for all candidates
that are informed of the job requirements by means of trade journals or
newspapers. This further centralizes the incoming applicant response.
The joint venture between the Company and Great Lakes is primarily designed
to market AppTracker to human resources departments commencing during the year
ending December 31, 1999, but also governs ownership of HR Workbench and any
future software developed by the Company. The AppTracker development program was
launched as a result of the positive response observed during its first test-
marketing session. A working prototype was demonstrated at the annual Human
Resources Professional Association Conference in Toronto, Ontario in February
1998. The Company performed more than 40 one-on-one demo sessions with
companies, currently, the product is being test marketed by the human resources
departments of two of the Company's customers. The first customer for the
AppTracker is the Toronto Stock Exchange, which is viewed as a Canadian leader
in the development and deployment of application software. The Company believes
that it will be able to provide assistance in the marketing of the software as a
result of its existing relationships with management in the human resources and
IT departments of its customers, although there can be no assurance thereof. The
Company's joint venture allocates costs and responsibilities in marketing
Apptracker. The Company has spent approximately $235,000 on research and
development related to the HR Workbench and the Apptracker software. The joint
venture agreement provides that all costs of development and marketing will be
shared equally between the Company and Great Lakes as will all profits and
losses. The initial contribution of the Company was the macro design, marketing
and all recruitment needs of Great Lakes. Great Lakes' initial contribution was
the establishment of a team of programmers to design and implement HR Workbench
and AppTracker.
Although there can be no assurance thereof, the Company believes that it
will have an advantage in marketing its recruitment services to companies using
AppTracker because of its familiarity with the software and the ease of EDI with
the Company. There is a possibility, however, that utilization of the software
will reduce reliance of certain customers on recruiting firms, including the
Company. Notwithstanding the foregoing, the Company does not anticipate any
material reduction in such reliance as a result of the utilization of this
software due to the difficulty of hiring IT professionals. Furthermore, the
Company intends to offer lower commission rates to customers using AppTracker
software to make it less likely that they will reduce the level of utilization
of the services of recruiting firms. The Company believes that the use of
AppTracker and its familiarity with the software will enable it to aid customers
in finding suitable, professionals in a more timely and cost efficient manner,
allowing for the decrease in prices charged by the Company.
EXPANSION AND ACQUISITIONS
The Company believes that it can leverage its database of IT professionals,
reputation, and IT system to achieve revenue growth by establishing new offices
in other regional markets. Such offices may be established by opening new
offices and staffing them with local recruiters and sales people or by acquiring
complimentary or competitive companies.
38
<PAGE>
The Company primarily intends to focus its expansion in large United States
cities, such as Atlanta, Chicago, San Francisco and Austin. The Company is
selecting locations that have other offices of its existing customers, such as
Chicago, the headquarters of Harris Bank & Trust, or areas with numerous
technology companies, such as Austin. In addition to attracting local IT
professionals, the Company intends to attempt to recruit Canadian and other
foreign IT professionals for these positions in the United States. Due to the
strength of the U.S. dollar against the Canadian dollar and other currencies,
the Company believes that foreign IT professionals will find the economic
opportunities in the United States attractive. The Company is currently
endeavoring to expand its operations in the northeastern United States. In July
1998, the Company hired John J. Silver as Senior Vice President and placed him
in charge of the New York office. Mr. Silver has existing relationships with
numerous potential customers in the New York market. The Company believes that
recruiters in other markets will find the Company to be an attractive place to
work because of its existing relationships with multinational and other large
corporate clients, the Company's good reputation among IT professionals, quality
information technology system and the Company's incentive based compensation
package, which will generally combine base salary, bonuses, commissions and
incentive stock options.
The Company has also expanded in Ontario, Canada in order to obtain
additional business from large Canadian customers. For example, the Company has
opened an office in Ottawa in order to expand its relationship with Bell Canada.
The Company believes that other large customers with offices or affiliated
offices in Ottawa will consider using the Company's services in that city,
providing the Company's sales force an advantage in building relationships when
compared with other companies opening new offices.
The Company may seek to establish offices in smaller markets that contain
desirable customers. The Company believes that it can do so in a cost effective
manner because of the strength of its IT system. A single recruiter/sales person
can operate a "virtual office" by utilizing the Toronto, Ontario office's
database and other operational systems by means of the Company's intranet. For
example, the Company has opened a "virtual office" in Indian Wells, California
to provide services to U.S. Filters and Armtech Incorporated.
Based on the experience of the Company's principals who, prior to forming
the Company, have been involved in the opening of several offices throughout
Ontario and most recent experience with the opening of its New York office, the
Company expects newly opened offices to become productive within 6 to 12 months
of opening. The delay in productivity can be attributed to the following
factors:
- Recruiting, hiring, training and orientation of new staff with
recruitment/sales methodologies and practices, as well as technology
(databases, software, Internet, e-mail, etc.);
- Recruiting and developing a base of qualified IT professionals
(advertising, open houses, career fairs);
- Attracting and building client relations; and
- Getting on preferred supplier lists.
Although there can be no assurance that such expectations will be satisfied,
the Company's expectations in terms of productivity for new offices by the 12th
month of operations are: 30 contractors and between $30,000 to $50,000 in
permanent placement sales per month with annual revenues of approximately
$450,000.
The opening of new offices with the addition of qualified employees and
entrance into new regional markets results in increased operating expenses
including:
- Salaries and payroll costs;
- Infrastructure (office equipment, office space, office supplies,
telephone, insurance) including an elaborate technological infrastructure;
39
<PAGE>
- Advertising (print and career fairs);
- Marketing and public relations; and
- Travel and business development costs.
There are also the related head office expenses associated with opening new
offices, including:
- Time spent by management and technical personnel on training (recruitment
sales; HR Workbench, databases, e-mail, Internet, job postings to user
groups); and
- Time spent by management and support personnel on implementing and
maintaining reporting procedures (financial and administration).
The Company may also expand by acquiring complementary or competitive
companies, including existing IT staffing companies, which will provide an
immediate increase to the Company's customer base and in some circumstances,
provide a more cost effective method of expansion than opening a new office. The
Company intends to target companies who have a strong customer base or group of
IT professionals, but do not utilize an advanced internal IT system. The Company
believes that providing an acquired company access to the Company's IT system
will allow the acquired company to provide better service without substantially
increasing costs, which may also lead to increased revenue. Although, due to
consolidation in the industry, there is competition for the acquisition of
companies in the IT staffing industry, the Company intends to avoid competing
for acquisition candidates by focusing on smaller companies.
The Company may also utilize acquisitions or hiring of new employees to
achieve growth in its existing markets. The Company utilized the acquisitions of
Systems and ICS in the metropolitan Toronto, Ontario area to acquire access to
experienced recruiters with an existing customer base.
With regard to customer services, the Company plans to implement a
decentralized management plan. The Company believes that allowing existing
management of an acquired company to remain an important part of its operations
will be beneficial in retaining customers, recruiters and IT professionals.
Similarly, local recruiters and sales people hired to staff new offices will
have the flexibility to continue relationships with customers and IT
professionals. The Company's intranet will provide all offices full access to
the Company's databases and operating software, promoting uniformity in certain
functions. The Company intends to hold monthly meetings of its Operations
Committee, which will consist of the heads of each regional office and
subsidiary, to exchange information on industry trends and promote "best
practices" among the offices. With regard to financial controls, the Company
plans to have a fully integrated system which will allow control of cash flows
and accounting and payroll functions from the Toronto, Ontario office.
COMPETITION
The IT staffing industry is highly competitive and fragmented and is
characterized by low barriers to entry. The Company competes for potential
clients with other providers of IT staffing services, systems integrators,
providers of outsourcing services, computer consultants, employment listing
services and temporary personnel agencies. Many of the Company's current and
potential competitors have longer operating histories, significantly greater
financial, marketing and human resources, greater name recognition and a larger
base of IT professionals and clients than the Company which may provide such
competitors with a competitive advantage when compared to the Company. In
addition, many of these competitors, including numerous smaller privately held
companies, may be able to respond more quickly to customer requirements and to
devote greater resources to the marketing of services than the Company. Because
there are relatively low barriers to entry, the Company expects that competition
will increase in the future. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which could
materially and adversely affect the Company's business, prospects, financial
condition and results of operations. Further, there can be no assurance that the
Company will be able to compete
40
<PAGE>
successfully against current and future competitors or that competitive
pressures faced by the Company will not have a material adverse effect on its
business, prospects, financial condition and results of operations. The Company
believes that the principal factors relevant to competition in the IT staffing
services industry are the recruitment and retention of highly qualified IT
professionals, rapid and accurate response to client requirements and, to a
lesser extent, price. The Company believes that it competes favorably with
respect to these factors.
The Company believes that its competitive advantage is not only in their use
of technology, but also in the accessibility of this technology to all of the
Company's employees. The building and maintenance of the Company's database of
over 35,000 has been a combined effort of employees in Toronto, New York and
Ottawa. The Company also has Internet access and membership to over 25 local,
national and international databases for IT professionals.
PROPERTY AND FACILITIES
The Company maintains its headquarters in a 8,076 square foot office located
at 55 University Avenue in Toronto, Ontario. The Company has leased such
facility for a term of ten years terminating in November 2007. The Company pays
annual rent of $30,307, which will increase to $36,080 commencing in December
2002. The Company leases additional offices at the following locations:
<TABLE>
<CAPTION>
LEASE
LOCATION SQUARE FEET EXPIRATION CURRENT RENT PER ANNUM
- ---------------------------------------------------------- ------------- --------------- -----------------------
<S> <C> <C> <C>
Etobicoke, Ontario........................................ 1,610 4/13/03 $ 22,300
New York, New York........................................ 1,214 10/31/01 $ 47,352
Tampa, Florida............................................ 188 2/28/99 $ 4,355
Scarborough, Ontario...................................... 6,000 5/31/01 $ 39,000
Ottawa, Ontario........................................... 1,291 9/30/03 $ 14,739
</TABLE>
EMPLOYEES AND CONSULTANTS
EMPLOYEES
The Company's corporate staff at December 31, 1998 consisted of 88 full-time
employees, including 52 recruiters, 19 account managers/salespeople and 17
administrative employees. The Company is not a party to any collective
bargaining agreements covering any of its employees, has never experienced any
material labor disruption and is unaware of any current efforts or plans to
organize its employees. The Company considers its relationships with its
employees to be good.
CONSULTANTS
The Company enters into consulting agreements with the IT professionals at
hourly rates negotiated with each IT professional based on such individuals
technical and other skills. The agreements provide that the IT professional is
responsible for taxes and all other expenses and that the IT professional is not
an employee of the Company for tax or other legal purposes. At December 31,
1998, approximately 180 contract workers placed by the Company were performing
services for the Company's customers.
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
41
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Declan French........................................ 54 Chairman of the Board of Directors, President and
Chief Executive Officer
John R. Wilson....................................... 45 President--Systems
John A. Irwin........................................ 46 President--ICS
John J. Silver....................................... 41 Senior Vice President
Lloyd Maclean........................................ 46 Chief Financial Officer and Director
William J. Neill..................................... 37 Director Nominee
John Dunne........................................... 59 Director Nominee
Blair Taylor......................................... 46 Director Nominee
James Reddy.......................................... 59 Director Nominee
Robert M. Rubin...................................... 58 Director Nominee
Michael Carrazza..................................... 33 Director Nominee
</TABLE>
Each director is elected for a period of one year at the Company's annual
meeting of shareholders and serves until the next such meeting and until his or
her successor is duly elected and qualified. Directors may be re-elected
annually without limitation. Officers are appointed by, and serve at the
discretion of, the Board of Directors. The Company's directors do not presently
receive any compensation for their services as directors, but it is contemplated
that directors will be granted options pursuant to the Plan. In addition, for a
period of three years following the date of this Prospectus, the Representative
shall have the right, at its option, to designate one director or observor to
the Board of Directors, which director shall be reasonably acceptable to the
Board of Directors. The Director-Nominees will assume office as of the effective
date of this Registration Statement.
Set forth below is a biographical description of each director and executive
officer of the Company based on information supplied by each of them.
DECLAN FRENCH has served as the Company's Chairman of the Board of
Directors, President and Chief Executive Officer since the inception of the
Company in February 1994. Prior to founding the Company, Mr. French was
President and Chief Executive Officer of TEC Partners Ltd., a IT recruiting firm
in Toronto, Ontario. Mr. French has a diploma in Psychology and Philosophy from
the University of St. Thomas in Rome, Italy.
JOHN R. WILSON has served as President of Systems since 1982 and was its
sole shareholder prior to its sale to the Company in April 1998. Mr. Wilson is a
member of the Company's Operations Committee.
JOHN A. IRWIN has served as President of ICS since 1980 and was its sole
shareholder prior to its sale to the Company in May 1998. Mr. Irwin has a degree
in Computer Programming from Cambridge College of Arts and Technology. Mr. Irwin
is a member of the Company's Operations Committee.
JOHN J. SILVER has served as a Senior Vice President of the Company since
July 1998. From April 1995 until July 1998, Mr. Silver served as Director of
Professional Services Volt Technical Services, a New York based IT staffing
firm, where he was in charge of managed services for major accounts. From
November 1994 until March 1995, he was a regional manager for ADIA Personnel
Services in Santa Monica, California. From July 1992 until November 1994, Mr.
Silver was a regional Vice President for Spectrum Information Technolgies/Data
One in Lancaster, California. Mr. Silver has a marketing degree from Suffolk
College. Mr. Silver is a member of the Company's Operations Committee.
LLOYD MACLEAN has served as the Company's Chief Financial Officer since
September 1997 and as a Director since June 1998. Mr. Maclean is the sole
officer and director of Globe Capital Corporation. From
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<PAGE>
1996 to 1997, Mr. Maclean was Vice President and Chief Financial Officer of ING
Direct Bank of Canada. From 1994 until 1996, he was Vice President and Chief
Financial Officer of North American Trust, Inc., where he also served as a Vice
President from 1990 until 1994. Mr. Maclean has an MBA from Harvard University
and is a member of the Canadian Institute of Chartered Accountants.
WILLIAM J. NEILL has been nominated and has agreed to join the Board of
Directors after the closing of this offering. Mr. Neill is currently a senior
executive at Sun Media Corp. From October 1997 to October 1998 he served as
Publisher and Chief Executive Officer of the Financial Post. From 1996 until
1997, Mr. Neill was Publisher of the Ottawa Sun. From 1993 until 1996, he was a
Vice President of the Financial Post. Mr. Neill has an MBA from Queens
University in Kingston, Ontario.
BLAIR TAYLOR has been nominated and has agreed to join the Board of
Directors after the closing of this offering. Since July 1997, Mr. Taylor has
served as Director of Finance and Operations for Phoenix Research and Trading
Corporation. From 1993 to 1997, he was a managing director of CIBC Wood Gundy
Securities, Inc. Mr. Taylor has a degree in computer science from the University
of Waterloo and is a member of the Canadian Institute of Chartered Accountants.
JOHN DUNNE has been nominated and has agreed to join the Board of Directors
after the closing of this offering. Mr. Dunne has been Chairman and Chief
Executive Officer of the Great Atlantic & Pacific Company of Canada, Ltd ("Great
Atlantic") since August 1997, where he also served as President and Chief
Operating Officer from September 1996 until August 1997. From November 1995
until September 1996, Mr. Dunne was Chairman and Chief Executive Officer of Food
Basics Ltd. Prior to that, he had served as Vice Chairman and Chief
Merchandising Officer of Great Atlantic.
JAMES REDDY has been nominated and has agreed to join the Board of Directors
after the closing of this offering. Mr. Reddy has served as Chief Financial
Officer of Gemstar Communications, Inc. since July 1998. From July 1997 to July
1998, Mr. Reddy was an independent management consultant. He is a member of the
Canadian Institute of Chartered Accountants. From 1989 to 1997, he was employed
by DFI Securities, Inc., most recently as Chief Financial Officer.
ROBERT M. RUBIN has been nominated and has agreed to join the Board of
Directors after the closing of this offering. Mr. Rubin has served as Chairman
of the Board of Directors of Diplomat Direct Marketing Corporation since 1994.
From October 1990 to the present, Mr. Rubin has served as the Chairman of the
Board of Directors and Chief Executive Officer of American United Global Inc., a
telecommunications and software company ("AUGI"). Mr. Rubin was formerly a
Director and Vice Chairman of the Board of Directors, and is a minority
stockholder of American Complex Care, Incorporated ("ACCI"). In April 1995, the
principal operating subsidiaries of ACCI petitioned in the Circuit Court of
Broward County, Florida for an assignment for the benefit of creditors. Mr.
Rubin is also a Director of Help At Home, Inc., Western Power and Equipment
Corporation, IDF International Inc., Response USA, Inc. and Med-Emerg
International, Inc., each of which are public companies. Mr. Rubin was Chairman
of the Board of Directors, Chief Executive Officer and remains a Director and a
principal stockholder of ERD Waste Corp., which filed for bankruptcy protection
in 1997. Mr. Rubin was the founder, President, Chief Executive Officer and a
Director of Superior Care, Inc. ("SCI") from its inception in 1976 until May
1986 and continued as a Director of SCI (now known as Olsten Corporation
("Olsten")) until the latter part of 1987. Olsten, a New York Stock Exchange
listed company, is engaged in providing home care and institutional staffing
services and health care management services.
MICHAEL CARRAZZA has been nominated and has agreed to join the Board of
Directors after the closing of this offering. From September 1991 to November
1998 Mr. Carrazza was the Managing Director and sole shareholder of Southport
Consulting Corp. Southport provided IT workers to clients, in the New York area,
primarily in the financial sector. He is currently the Managing Director of
Craven Street Capital Partners, a privately owned equity investment and
management company which specializes in acquisitions. Since 1997, Mr. Carrazza
has held a Senior Corporate Finance advisory position and has been the assistant
to the Chief Financial Officer of Mitchell Madison Group, a global management
consultant. From 1995 to 1997, he served as Vice-President of South Street
Capital Group, a company specializing in turnarounds
43
<PAGE>
for middle market public and private companies. From 1989 to 1995, Mr. Carrazza
was an associate and an advisor to Goldman, Sachs & Co. where he was involved in
automating operations within the Investment Banking, Finance and Treasury
Divisions. Mr. Carrazza is a Certified Management Consultant and a member of the
Turnaround Management Association. Mr. Carrazza has a B.S. in Electrical
Engineering from the Pennsylvania State University and an MBA from the Stern
School of Business at New York University. Mr. Carrazza is the brother of James
Carrazza, an employee of the Underwriter.
COMMITTEES OF THE BOARD
In July 1998, the Board of Directors formalized the creation of a
Compensation Committee, which will be comprised of Blair Taylor, William J.
Neill and Declan French. The Compensation Committee has (i) full power and
authority to interpret the provisions of, and supervise the administration of,
the Plan and (ii) the authority to review all compensation matters relating to
the Company. The Compensation Committee has not yet met and has not yet
formulated compensation policies for senior management and executive officers.
However, it is anticipated that the Compensation Committee will develop a
Company-wide program covering all employees and that the goals of such program
will be to attract, maintain and motivate the Company's employees. It is further
anticipated that one of the aspects of the program will be to link an employee's
compensation to his or her performance, by granting stock options, or other
awards to employees who reach certain objectives. It is expected that salaries
will be set competitively relative to the IT staffing industry and that
individual experience and performance will be considered in setting salaries.
In July 1998, the Board of Directors also formalized the creation of an
Audit Committee, which is comprised of two or more directors of the Company
designated by a majority vote of the entire Board of Directors. A majority of
the Audit Committee are Directors who are not officers of the Company and who
are not and have not been employed by the Company or any affiliates thereof. The
Audit Committee, after the consummation of the Offering will be comprised of
Lloyd Maclean, James Reddy and John Dunne and is charged with reviewing the
following matters and advising and consulting with the entire Board of Directors
with respect thereto: (i) the preparation of the Company's annual financial
statements in collaboration with the Company's chartered accountants; (ii)
annual review of the financial statements and annual report of the Company; and
(iii) all contracts between the Company and the officers, directors and other
affiliates thereof. The Audit Committee, like most independent committees of
public companies, does not have explicit authority to veto any actions of the
entire Board of Directors relating to the foregoing or other matters; however,
the Company's senior management, recognizing their own fiduciary duty to the
Company and its shareholders, is committed not to take any action contrary to
the recommendation of the Audit Committee in any matter within the scope of its
review.
OPERATIONS COMMITTEE
The Company has established an Operations Committee in order for the
Company's officers to exchange information on industry trends and promote "best
practices" among the officers. The head of each regional office and subsidiary
will serve on the Operations Committee. Currently, the Operations Committee
consists of Declan French, Lloyd Maclean, John A. Irwin, John R. Wilson and John
J. Silver.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Bylaws of the Company provide that the Company shall indemnify to the
fullest extent permitted by Canadian law directors and officers (and former
officers and directors) of the Company. Such indemnification includes all costs
and expenses and charges reasonably incurred in connection with the defense of
any civil, criminal or administrative action or proceeding to which such person
is made a party by reason of being or having been an officer or director of the
Company if such person was substantially successful on the merits in his or her
defense of the action and he or she acted honestly and in good faith with a view
to the best interests of the Company, and if a criminal or administrative action
that is enforced by a monetary penalty, such person had reasonable grounds to
believe his or her conduct was lawful.
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Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
and the Underwriters pursuant to the foregoing provisions, or otherwise, the
Company has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses,
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person or by the Underwriters 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 of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last three fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
earned in excess of $100,000 during the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
YEAR/ OTHER
ENDED ANNUAL COM-
NAME AND PRINCIPAL POSITION DECEMBER COMPENSATION BONUS PENSATION
- ------------------------------------------------------------------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Declan French...................................................... 1998 $ 98,000 -- $ 8,342
Chairman of the Board of Directors 1997 104,275 -- 8,342
President and Chief Executive Officer 1996 108,350 -- 8,668
John A. Irwin...................................................... 1998 130,580 -- 35,888
President-ICS 1997 195,000 -- 8,342
1996 -- -- --
--
John R. Wilson..................................................... 1998 90,000 -- 77,282
President-System 1997 83,420 -- 20,855
1996 80,659 -- 10,113
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Declan French
whereby he will serve as the Company's Chairman of the Board of Directors,
President and Chief Executive Officer for a period of five years commencing on
the effective date of the Registration Statement of which this Prospectus forms
a part. Mr. French shall be paid a base salary of $97,900 (CDN$150,000) and a
bonus based on a percentage of the Company's net income.
On May 19, 1998, in connection with the acquisition of ICS, the Company
entered into an employment agreement for John A. Irwin whereby he will serve as
President of ICS. The employment agreement is for a term of three years
commencing on January 1, 1998, the effective date of the acquisition of ICS. Mr.
Irwin receives a salary of $130,580 (CDN$200,000) plus a quarterly bonus of 2%
of all permanent placement service revenue and 2% of the gross profit all
contract services revenue.
In February 1998, in connection with the acquisition of Systems, the Company
entered into a three year employment agreement with John R. Wilson whereby he
will serve as President of Systems at a salary of $90,000 (CDN$137,195) per
year. The agreement was effective as of January 2, 1997. Mr. Wilson receives a
commission of 10% of the permanent placement revenue of Systems. Additionally,
he receives $0.65 for every hour of contract services provided by IT
professionals placed by Systems, provided that the
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<PAGE>
gross margin on such hour exceeds $6.50. Pursuant to the agreement, Mr. Wilson
will have control of the day-to-day management of Systems.
In August 1998, the Company entered into a one year employment with John J.
Silver whereby he will serve as a Senior Vice President. Mr. Silver is to be
paid an annual salary of $175,000 plus a bonus of 4% of the net income of the
Company's New York office. The agreement also requires the Company to grant Mr.
Silver 50,000 stock options exercisable at the initial public offering price.
The agreement is terminable by either party upon three months notice.
CONSULTING AGREEMENTS
In November 1998, in connection with the acquisition of certain assets of
Southport, the Company entered into a consulting agreement with Michael
Carrazza, the owner of Southport. Mr. Carrazza is the brother of an employee of
Strasbourger. Southport was engaged in the business of providing IT workers to
corporations in the New York, tri-state region. The consulting agreement is for
a term of two years and provides for an annual salary of $125,000. Mr. Carrazza
has committed to join the Company's Board of Directors upon the closing of this
offering.
In May 1998, the Company entered into a consulting agreement with Robert M.
Rubin, a director-nominee of the Company, pursuant to which Mr. Rubin will aid
the Company in structuring and negotiating acquisitions, strategic partnerships
and other expansion opportunities. In exchange for such services, Mr. Rubin has
been granted an option to purchase 200,000 Common Shares at a purchase price of
$2.10 per share and a consulting fee of $80,000 per year. The consulting
agreement is for a term of five years. Mr. Rubin has agreed not to sell,
transfer, assign, hypothecate or otherwise dispose of the Common Shares issuable
upon exercise of the options for a period of two years after exercise without
the consent of the Company.
STOCK OPTION PLAN
The Plan will be administered by the Compensation Committee or the Board of
Directors, which will determine among other things, those individuals who shall
receive options, the time period during which the options may be partially or
fully exercised, the number of Common Shares issuable upon the exercise of the
options and the option exercise price.
The Plan is effective for a period for ten years, expiring in 2008. Options
to acquire an aggregate of 435,000 Common Shares may be granted to officers,
directors, consultants, key employees, advisors and similar parties who provide
their skills and expertise to the Company. The Plan is designed to enable
management to attract and retain qualified and competent directors, employees,
consultants and independent contractors. Options granted under the Plan may be
exercisable for up to ten years, generally require a minimum two year vesting
period and shall be at an exercise price all as determined by the Board of
directors provided that pursuant to the terms of the Underwriting Agreement
between the Company and the Underwriters, the exercise price of any options may
not be less than the fair market value of the Common Shares on the date of the
grant. Options are non-transferable, and are exercisable only by the participant
(or by his or her respective guardian or legal representative) during his or her
lifetime or by his or her legal representatives following death.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 65, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant 90 days to
exercise the option, except for termination for cause which results in immediate
termination of the option.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan, subject to applicable securities regulation.
The Plan may be terminated or amended at any time by the Board of Directors,
except that the number of Common Shares reserved for issuance upon the exercise
of options granted under the Plan may not be increased without the consent of
the shareholders of the Company.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of the date hereof,
and as adjusted to give effect to this offering and the transactions
contemplated thereby, with respect to the beneficial ownership of the Common
Shares by (i) each person known to the Company to beneficially own more than 5%
of the outstanding shares of Common Shares, (ii) each executive officer and
director of the Company and (iii) all executive officers and directors of the
Company as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE
COMMON SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER(1) OWNED OFFERING OFFERING
- --------------------------------------------------------------- ------------------- --------------------- -----------
<S> <C> <C> <C>
Declan French(2)............................................... 1,021,126 60.9% 36.8%
John R. Wilson................................................. 130,914 7.8% 4.7%
John A. Irwin.................................................. 130,914 7.8% 4.7%
Lloyd Maclean (3).............................................. 113,459 6.8% 4.1%
Robert M. Rubin (4)............................................ 200,000 10.7% 6.7%
William J. Neill............................................... 19,637 1.2% *
John Dunne (5)................................................. 13,091(5) * *
Blair Taylor (6)............................................... 19,637(6) 1.2% *
James Reddy.................................................... 19,637 1.2% *
All executive officers and directors as a group (five
persons)..................................................... 1,668,415 88.8% 56.0%
</TABLE>
- ------------------------
* Less than 1.0%
(1) Unless otherwise indicated, the address of the referenced individual is c/o
IT Staffing Ltd., 55 University Avenue, Suite 505, Toronto, Ontario M5J 2H7.
(2) Includes 510,563 Common Shares owned by Christine French, the wife of Declan
French.
(3) Such Common Shares are owned by Globe Capital Corporation, an Ontario
corporation that is wholly owned by Lloyd Maclean.
(4) Consists of currently exercisable options to acquire 200,000 Common Shares
at an exercise price of $2.10 per share for a period of seven years.
(5) Consists of 13,091 Common Shares owned by Mr. Dunne's spouse.
(6) Includes 9,818 Common Shares owned by Mr. Taylor's spouse.
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<PAGE>
CERTAIN TRANSACTIONS
In April 1998, the Company acquired all the issued and outstanding capital
stock of SCI and SPSI from John R. Wilson for aggregate consideration of
$100,007 and 174,551 Common Shares. The acquisition was effective as of January
2, 1997. SPSI is inactive but holds certain assets utilized by Systems in its
operations. Mr. Wilson was not affiliated with the Company prior to the
acquisition.
On May 19, 1998, the Company completed the acquisition of all the issued and
outstanding capital stock of ICS for $303,955 in cash and 130,914 shares of
Common Shares to John A. Irwin. In connection with the acquisition, ICS made a
distribution to Mr. Irwin of certain ICS assets that were not necessary for the
operation of the business. The transaction was effective as of January 1, 1998.
Mr. Irwin was not affiliated with the Company prior to the acquisition.
The Company, through ICS, leases its Scarborough, Ontario office facility
from 1242541 Ontario Ltd., a corporation owned by John A. Irwin, President of
ICS, and certain other ICS employees. The three year lease, which expires in May
2001, requires annual rental payments of $39,000, which the Company believes is
as least as favorable as could be obtained from a non-affiliated third party.
In October 1997, in consideration for business consulting services,
including identifying, structuring and effecting the acquisitions of Systems and
ICS, the Company issued 113,459 Common Shares to Globe Capital Corporation,
which is controlled by Lloyd Maclean, the Company's Chief Financial Officer and
a Director.
In May 1998, the Company entered into a consulting agreement with Robert M.
Rubin, a director of the Company, pursuant to which Mr. Rubin will aid the
Company in structuring and negotiating acquisitions, strategic partnerships and
other expansion opportunities. In exchange for such services, Mr. Rubin received
an option to purchase 200,000 Common Shares at a purchase price of $2.10 per
share and a consulting fee of $80,000 per year. The consulting agreement is for
a term of five years. Mr. Rubin has agreed not to sell, transfer, assign,
hypothecate or otherwise dispose of the Common Shares issuable upon exercise of
the options for a period of two years after exercise without the consent of the
Company.
In November 1998, the Company purchased certain assets of Southport from
Michael Carrazza for $50,000 in cash and an amount of Common Shares with a value
of $200,000 based on the offering price. Mr. Carrazza will join the Company's
Board of Directors upon the closing of the offering. In connection with the
acquisition, Mr. Carrazza entered into a consulting agreement with the Company
for a period of two years. Mr. Carrazza shall be paid $250,000 in consideration
for his consulting services. Certain payments under such consulting agreement
are secured by a lien, secured in priority on the accounts receivable of the
Company. Mr. Carrazza is the brother of James Carrazza, an employee of the
Underwriter.
While the Company was a private company, the Company lacked sufficient
independent directors to ratify the foregoing transactions. However, management
believes that the foregoing transactions were on terms no less favorable to the
Company than could have been obtained from unaffiliated third parties. All
future transactions between the Company and its officers, directors or 5%
shareholders, and their respective affiliates, will be on terms no less
favorable than could be obtained from unaffiliated third parties. In the event
that the Company enters into future affiliated transactions they will be
approved by the Company's independent directors who do not have an interest in
the transactions and who have access, at the Company's expense, to the Company's
counsel or independent legal counsel.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 2,777,875 Common
Shares outstanding (2,927,875 Common Shares outstanding if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 1,100,000
Common Shares offered hereby (1,265,000 shares if the Underwriters' over-
allotment option is exercised in full) and 1,265,499 of the 1,677,875 Common
Shares outstanding immediately prior to this offering will be freely tradeable
commencing 90 days after the effective date of the registration statement of
which this Prospectus is a part, without further registration thereunder,
subject to compliance with the volume requirements, the holding period and other
requirements of Rule 144. All executive officers and directors of the Company,
and all the holders of Common Shares outstanding immediately prior to the
offering, and all the option holders under the Plan have agreed (i) not to
publicly sell, or otherwise dispose of, any Common Shares or Common Shares
issuable upon exercise of options or warrants for a period of 18 months from the
date of this offering without Strasbourger's prior written consent, which
consent will not be unreasonably withheld, and (ii) not to privately sell or
otherwise dispose of any such shares during such period unless the proposed
transferee agrees to be bound by such restrictions on transfer. Strasbourger
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to the above described restrictions on sale.
All of the 1,677,875 Common Shares outstanding prior to this offering are
"restricted securities" within the meaning of Rule 144 of the Securities Act
and, if held for at least one year, would be eligible for sale in the public
market in reliance upon, and in accordance with, the provisions of Rule 144
following the expiration of such one year period. As of October 31, 1998,
1,368,958 Common Shares had been held for at least one year. In general, under
Rule 144 as currently in effect, beginning 90 days after the date of this
Prospectus, a person or persons whose shares are aggregated, including a person
who may be deemed to be an "affiliate" of the Company, as the term is defined
under the Securities Act (an "Affiliate"), would be entitled to sell within any
three month period a number of shares beneficially owned for at least one year
that does not exceed the greater of (i) 1% of the then outstanding Common
Shares, or (ii) the average weekly trading volume in the Common Shares during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. However, a person
who is not deemed to have been an affiliate of the Company during the 90 days
preceding a sale by such person and who has beneficially owned Common Shares for
at least two years may immediately sell such shares without regard to the
volume, manner of sale or notice requirements of Rule 144.
Rule 701 under the Securities Act provides that the Common Shares acquired
on the exercise of options granted under a written compensatory plan of the
Company or contract with the Company prior to the date of this Prospectus may be
resold by persons, other than Affiliates, beginning 90 days after the date of
this Prospectus, subject only to the manner of sale provisions of Rule 144 and
by Affiliates under Rule 144 without compliance with its one-year minimum
holding period, subject to certain limitations. There are 435,000 Common Shares
issuable upon the exercise of options which may be granted under the Plan prior
to the date of this Prospectus (the "Option Shares") and 200,000 options. Except
as otherwise provided above, beginning 90 days after the date of this
Prospectus, the Option Shares, if any, would be eligible for sale in reliance on
Rule 701, subject to certain vesting provisions. All of such shares are subject
to the 18 month lock-up.
For a period of 18 months from the date of this Prospectus, the Company has
agreed that it will not sell or otherwise dispose of any securities of the
Company without the prior written consent of Strasbourger, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, during such period,
the Company shall be entitled to issue (i) Common Shares in connection with
mergers and acquisitions, (ii) up to 435,000 Common Shares issuable upon
exercise of options which may be granted under the Plan, (iii) up to 22,125
Common Shares issuable upon the exercise of currently outstanding warrants which
will, except in certain circumstances, be issued for an aggregate exercise price
of $1.00,
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<PAGE>
(iv) 200,000 Common Shares issuable upon the exercise of currently exercisable
options, the holder of which has agreed not to sell, transfer, assign,
hypothecate or otherwise dispose of such Common Shares for a period of two years
after he exercises such options without the consent of the Company, which
consent will not be unreasonably withheld, and (v) up to 110,000 Common Shares
issuable upon the exercise of the Representatives' Warrants.
Prior to this offering, there has been no public market for the Company's
securities. Following this offering, the Company cannot predict the effect, if
any, that sales of Common Shares pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, will have on the market price prevailing
from time to time. Nevertheless, sales by the current shareholders of a
substantial number of Common Shares in the public market could materially
adversely affect prevailing market prices for the Common Shares. In addition,
the availability for sale of a substantial number of Common Shares acquired
through the exercise of the Representatives' Warrants or the outstanding options
under the Plan could materially adversely affect prevailing market prices for
the Common Shares. See "Risk Factors--Shares Eligible for Future Sale."
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<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital of the Company consists of 15,000,000 Common Shares
and 1,000,000 preferred shares, issuable in series, of which 1,677,875 Common
Shares and no preferred shares were issued and outstanding as of the date of
this Prospectus. The following is a summary of the material provisions attaching
to each class of shares of the Company and is qualified in all respects by
reference to the Articles of Incorporation, as amended, and Bylaws of the
Company, copies of which have been filed as Exhibits to the Registration
Statement of which this Prospectus is a part.
Pursuant to the Business Corporations Act (Ontario) ("BCA"), a shareholder
of an Ontario corporation has the right to have the corporation pay the
shareholder the fair market value for its shares of the corporation in the event
such shareholder dissents from certain actions have been taken by the
corporation, such as amalgamation or the sale of all or substantially all of the
assets of the corporation, and such shareholder follows the procedures set forth
in the BCA.
COMMON SHARES
The holders of Common Shares are entitled to receive, as and when declared
by the Board of Directors of the Company, dividends in such amounts and in such
form as the Board of Directors of the Company may determine from time to time.
The holders of Common Shares are entitled to receive notice of and to attend all
meetings of shareholders of the Company and have one vote for each Common Share
held at all such meetings, except for meetings at which only the holders of
another class or series of shares of the Company are entitled to vote separately
as a class or series. The Common Shares rank junior to the preferred shares with
respect to dividends and distributions of assets in the event of the
liquidation, dissolution or winding-up of the Company.
PREFERRED SHARES
The preferred shares may be issued from time to time in one or more series,
each series having such number of shares and such designations, rights,
privileges, restrictions and conditions as the Board of Directors of the Company
may determine. Accordingly, the Company's Board of Directors may, without
shareholder approval, issue preferred shares with dividend, liquidation,
conversion or other rights that could materially adversely affect the rights of
the holders of the Common Shares. In addition, specific rights granted to future
holders of preferred shares could be used to restrict the Company's ability to
merge with, or sell its assets to, a third party. The ability of the Board of
Directors to issue preferred shares could discourage, delay or prevent a
takeover of the Company, thereby preserving control of the Company by the
current shareholders. Except as required by law or where the rights, privileges,
restrictions and conditions attaching to a series of preferred shares provide
for voting rights for the holders of that series of preferred shares, the
holders of preferred shares are not entitled as such to receive notice of, to
attend at or to vote at, a meeting of the shareholders of the Company. The
preferred shares rank prior to the Common Shares with respect to dividends and
distributions of assets in the event of the liquidation, dissolution or
winding-up of the Company. Although the Company has no present intention to
issue any preferred shares, there can be no assurance that it will not do so in
the future. In the event that the Company issues preferred shares in a
transaction with an affiliate, the issuance will be approved by a majority of
the Company's independent directors who do not have an interest in the
transaction and who have access, at the Company's expense, to the Company's
counsel or independent legal counsel.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Continental Stock
Transfer & Trust Company.
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<PAGE>
CERTAIN UNITED STATES AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
UNITED STATES
The following describes the principal United States federal income tax
consequences of the purchase, ownership and disposition of the Common Shares by
a shareholder that is a citizen or resident of the United States or a United
States domestic corporation or that otherwise will be subject to United States
federal income tax (a "U.S. Holder"). This summary is based on the United States
Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, changes to any of which subsequent to the date of this Prospectus
may affect the tax consequences described herein. This summary discusses only
the principal United States federal income tax consequences to those beneficial
owners holding the securities as capital assets within the meaning of Section
1221 of the Code and does not address the tax treatment of a beneficial owner
that owns 10% or more of the Common Shares. It is for general guidance only and
does not address the consequences applicable to certain specialized classes of
taxpayers such as certain financial institutions, insurance companies, dealers
in securities or foreign currencies or United States persons whose functional
currency (as defined in Section 985 of the Code) is not the United States
dollar. Persons considering the purchase of these securities should consult
their tax advisors with regard to the application of the United States and other
income tax laws to their particular situations. In particular, a U.S. Holder
should consult his tax advisor with regard to the application of the United
States federal income tax laws to his situation.
A U.S. Holder generally will realize, to the extent of the Company's current
and accumulated earnings and profits, foreign source ordinary income on the
receipt of cash dividends, if any, on the Common Shares equal to the United
States dollar value of such dividends determined by reference to the exchange
rate in effect on the day they are received by the U.S. Holder (with the value
of such dividends computed before any reduction for any Canadian withholding
tax). U.S. Holders should consult their own tax advisors regarding the treatment
of foreign currency gain or loss, if any, on any dividends received which are
converted into United States dollars on a date subsequent to receipt. Subject to
the requirements and limitations imposed by the Code, a U.S. Holder may elect to
claim Canadian tax withheld or paid with respect to dividends on the Common
Shares as a foreign credit against the United States federal income tax
liability of such holder. Dividends on the Common Shares generally will
constitute "passive income" or, in the case of certain U.S. Holders, "financial
services income," for United States foreign tax credit purposes. U.S. Holders
who do not elect to claim any foreign tax credits may claim a deduction for
Canadian income tax withheld. Dividends paid on the Common Shares will not be
eligible for the dividends received deduction available in certain cases to
United States corporations.
Upon a sale or exchange of a Common Share, a U.S. Holder will recognize gain
or loss equal to the difference between the amount realized on such sale or
exchange and the tax basis of such Common Share.
Generally, any gain or loss recognized as a result of the foregoing will be
a capital gain or loss and will either be long-term or short-term depending upon
the period of time the Common Shares sold or exchanged, as the case may be, were
held.
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD
NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR AND NO
REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR
IS MADE.
CANADA
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to the acquisition, holding and disposition
of Common Shares purchased pursuant to this Prospectus by a holder (a "U.S.
holder") who, for the purposes of the INCOME TAX ACT (Canada) (the "ITA") and
the CANADA-UNITED STATES INCOME TAX CONVENTION (the "Convention"), as applicable
and at all relevant times, (i) is resident in the United States and not resident
in Canada, (ii) holds Common Shares as
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<PAGE>
capital property, (iii) does not have a "permanent establishment" or "fixed
base" in Canada (as defined in the Convention), and (iv) deals at arm's length
with the Company. Special rules, which are not discussed in this summary, may
apply to "financial institutions" (as defined in the ITA) and to non-resident
insurers carrying on an insurance business in Canada and elsewhere.
This summary is based on the current provisions of the ITA and the
regulations thereunder and the Convention, all specific proposals to amend the
ITA or the regulations thereunder announced by the Canadian Minister of Finance
prior to the date of this Prospectus and the current published administrative
practices of Revenue Canada. This summary does not otherwise take into account
or anticipate any changes in law or administrative practice nor does it take
into account income tax laws or considerations of any province or territory of
Canada or any jurisdiction other than Canada, which may differ from the federal
income tax consequences described herein. This summary is of a general nature
only and is not intended to be, and should not be interpreted as, legal or tax
advice to any particular purchaser of Common Shares.
DIVIDENDS
Under the ITA and the Convention, dividends paid or credited, or deemed to
be paid or credited, on the Common Shares to a U.S. holder who owns less than
10% of the Company's voting shares will be subject to Canadian withholding tax
at the rate of 15% of the gross amount of such dividends or deemed dividends.
Under the Convention, dividends paid or credited to certain religious,
scientific, charitable and similar tax exempt organizations and certain pension
organizations that are resident, and exempt from tax, in the United States and
that have complied with certain administrative procedures are exempt from this
Canadian withholding tax.
DISPOSITION OF COMMON SHARES
A capital gain realized by a U.S. holder on a disposition or deemed
disposition of Common Shares will not be subject to tax under the ITA unless
such Common Shares constitute taxable Canadian property within the meaning of
the ITA at the time of the disposition or deemed disposition. In general, the
Common Shares will not be "taxable Canadian property" to a U.S. holder unless
they are not listed on a prescribed stock exchange (which includes the Nasdaq
SmallCap Market-Registered Trademark-) or at any time within the five year
period immediately preceding the disposition the U.S. holder, persons with whom
the U.S. holder did not deal at arm's length, or the U.S. holder together with
such persons owned or had an interest in or a right to acquire more than 25% of
any class or series of the Company's shares. A deemed disposition of Common
Shares will arise on the death of a U.S. holder.
If the Common Shares are taxable Canadian property to a U.S. holder, any
capital gain realized on a disposition or deemed disposition of such Common
Shares will generally be exempt from tax under the ITA by virtue of the
Convention if the value of the Common Shares at the time of the disposition or
deemed disposition is not derived principally from real property (as defined by
the Convention) situated in Canada. The Company is of the view that the Common
Shares do not now derive their value principally from real property situated in
Canada; however, the determination as to whether Canadian tax would be
applicable on a disposition or deemed disposition of Common Shares must be made
at the time of the disposition or deemed disposition.
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD
NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR AND NO
REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR
IS MADE.
53
<PAGE>
INVESTMENT CANADA ACT
The Investment Canada Act, a Canadian federal statute, regulates the
acquisition of control of existing Canadian businesses by any "non-Canadian" (as
that term is defined in the Investment Canada Act).
The Company is currently a "Canadian Business" (as that term is defined in
the Investment Canada Act). If a non-Canadian seeks to acquire control of the
Company, such acquisition will be subject to the Investment Canada Act. In
general, any transaction which is subject to the Investment Canada Act is a
reviewable transaction if the book value of the Company's assets, as set out in
its most recent financial statements, exceeds the applicable threshold. If the
potential acquiror is a "WTO Investor", acquiring control of the Company would
only be reviewable if the book value of the Company assets exceeded Cdn$179
million. (This number is the threshold amount for 1998 and this amount is
increased each year by a factor equal to the increase in the rate of Canadian
inflation for the previous year). A WTO Investor is defined in the Investment
Canada Act as an investor ultimately controlled by nationals of World Trade
Organization member states, such as the United States of America.
If the book value of the Company's assets exceeds the applicable threshold
for review, the potential acquiror must file an application for review and
obtain the approval of the Minister of Industry before acquiring control of the
Company. In deciding whether to approve the reviewable transaction, the Minister
considers whether the investment "is likely to be of net benefit to Canada."
This determination is made on the basis of economic and policy criteria set out
in the Investment Canada Act.
The approval process begins with an initial review period of 45 days from
the date the completed application is received. However, the Minister of
Industry has authority to extend the review period unilaterally for an
additional 30 days. Any further extensions requires the potential acquiror's
consent.
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for which Strasbourger
Pearson Tulcin Wolff Incorporated, Win Capital Corp., Nutmeg Securities, Ltd.
and Mason Hill & Co., Inc. are acting as Representatives, has severally, and not
jointly, agreed, to purchase the number of Shares offered hereby set forth
opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Strasbourger Pearson Tulcin Wolff Incorporated.......................................................
Win Capital Corp.....................................................................................
Nutmeg Securities, Ltd...............................................................................
Mason Hill & Co., Inc................................................................................
----------
Total................................................................................................ 1,100,000
</TABLE>
A copy of the Underwriting Agreement has been filed as an exhibit to the
Registration Statement, to which reference is hereby made. The Underwriting
Agreement provides that the obligations of the Underwriters to purchase the
Shares is subject to certain conditions. The Underwriters shall be obligated to
purchase all of the Shares (other than those covered by the Underwriters'
over-allotment option described below), if any are purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the Shares to the public at the initial public offering price set forth
on the cover page of this Prospectus and that they may allow to certain dealers
who are members of the National Association of Securities Dealers, Inc. (the
"NASD"), and to certain foreign dealers, concessions not in excess of $
per Share, of which amount a sum not in excess of $ per Share may in
turn be reallowed by such dealers to other dealers who are members of the NASD
and to certain foreign dealers. After completion of the offering, the offering
price, the concession to selected dealers, and the reallowance to other dealers
may be changed by the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
The Company has agreed to pay to the Representatives an expense allowance,
on a non-accountable basis, equal to 3% of the gross proceeds derived from the
sale of 1,100,000 Shares offered hereby (or 1,265,000 Shares if the
Underwriters' over-allotment option is exercised in full). The Company paid an
advance on such allowances in the amount of $75,000. The Company has also agreed
to pay certain of the Representatives' expenses in connection with this
offering, including expenses in connection with qualifying the Shares offered
hereby for sale under the laws of such states as the Representatives may
designate and the placement of tombstone advertisements. In addition, the
Company has paid the expenses in connection with the "road shows."
In connection with this offering, the Company has granted the
Representatives the right, for the three-year period commencing on the closing
date of this offering, to appoint an observer to attend all meetings of the
Company's Board of Directors. This designee has the right to notice of all
meetings of the Board of Directors and to receive reimbursement for all
out-of-pocket expenses incurred in attending such meetings. In addition, such
designee will be entitled to indemnification to the same extent as the Company's
directors.
55
<PAGE>
The Company has agreed to retain the Representatives as financial
consultants for a period of two years to commence on the closing of this
offering at an aggregate fee of $150,000, $100,000 of which shall be payable at
the closing of this offering and the remainder of which shall be due on the date
one year and one day after such closing. Pursuant to this agreement, the
Representatives shall provide advisory services related to mergers and
acquisitions activity, corporate finance and other matters.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of the Shares offered hereby to any account over which
they exercise discretionary authority.
The Company, its officers, directors and shareholders, as well as the
holders of options under the Plan, have agreed not to offer, assign, issue,
sell, hypothecate or otherwise dispose of any Common Shares, securities of the
Company convertible into, or exercisable or exchangeable for, Common Shares, or
Common Shares received upon conversion, exercise or exchange of such securities
to the public without the prior written consent of Strasbourger for a period of
18 months from the date of this Prospectus.
Prior to this offering, there has been no public trading market for the
Common Shares. The initial public offering price for the Shares will be
determined by arms-length negotiations between the Company and the
Representatives and does not necessarily bear any relationship to the Company's
book value, assets, past operating results, financial condition or other
established criteria of value. Among the factors to be considered in such
negotiations will be prevailing market conditions, the history and prospects for
the Company and the industry in which the Company competes, an assessment of the
Company's management, its capital structure, and such other factors deemed
relevant.
The Company has also granted to the Underwriters an option, exercisable
during the 45-day period commencing on the date of this Prospectus, to purchase
at the public offering price per share, less the underwriting discounts and
commissions, up to an aggregate of 165,000 Common Shares. To the extent such
option is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase additional Common Shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table. The
Underwriters may exercise such right of purchase only for the purpose of
covering over-allotments, if any, made in connection with the sale of Shares.
Purchases of Common Shares upon exercise of the over-allotment option will
result in the realization of additional compensation by the Underwriters.
In connection with this offering, the Company has agreed to sell to the
Representatives, individually and not as Representatives of the several
Underwriters, at the price of $.001 per warrant, the Representatives' Warrants
to purchase an aggregate of 110,000 Common Shares. The Representatives' Warrants
are exercisable for a period of four years commencing one year from the date of
this Prospectus at an exercise price per share (the "Exercise Price") equal to
165% of the public offering price per share. The Representatives' Warrants may
not be sold, transferred, assigned, pledged, or hypothecated for a period of 12
months from the date of the Prospectus, except to members of the selling group
and to officers and partners of the Representatives and members of the selling
group. The Representatives' Warrants contain anti-dilution provisions providing
for adjustments of the Exercise Price and number of shares issuable on exercise
of the Representatives' Warrants, upon the occurrence of certain events,
including dividends, stock splits, and recapitalizations. The holders of the
Representatives' Warrants have no voting, dividend or other rights as
stockholders of the Company with respect to Common Shares underlying the
Representatives' Warrants, unless the Representatives' Warrants shall have been
exercised.
A new registration statement or post-effective amendment to the Registration
Statement will be required to be filed and declared effective before
distribution to the public of the Representatives' Warrants and the Warrant
Shares. The Company has agreed, on one occasion during the period beginning one
year after the date of this Prospectus and ending four years thereafter, if
requested by the holders of a majority of the Representatives' Warrants or
Warrant Shares, to make all necessary filings to permit a
56
<PAGE>
public offering of the Representatives' Warrants and Warrant Shares and to use
its best efforts to cause such filing to become effective under the Securities
Act and to remain effective for at least 12 months, at the Company's sole
expense. In addition, the Company has agreed to give advance notice to holders
of the
Representatives' Warrants and Warrant Shares of its intention to file a
registration statement, and in such case, holders of the Representatives'
Warrants and the Warrant Shares shall have the right to require the Company to
include the Warrant Shares in such registration statement ("Piggyback
Registration Rights") at the Company's expense (subject to certain limitations).
Such Piggyback Registration Rights will expire five years from the effective
date of the Registration Statement.
During and after this offering, the Underwriters may purchase and sell
Common Shares in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Shares sold in this offering for their
account may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Shares
which may be higher than the price that might otherwise affect the market price
of the Common Shares, which may be higher than the price that might otherwise
prevail in the open market. Neither the Company nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Shares. In addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued at any time.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement, which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
Certain legal matters relating to Canadian law, including the validity of
the issuance of the Common Shares offered hereby, will be passed upon for the
Company by McMillan Binch, Toronto, Ontario. Certain legal matters in connection
with the offering will be passed upon for the Company by its United States
counsel, Gersten, Savage & Kaplowitz, LLP, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Stroock & Stroock & Lavan
LLP, New York, New York.
EXPERTS
The financial statements of the Company, ICS and Systems for each of the two
fiscal years ended December 31, 1996 and 1997, appearing in this Prospectus and
Registration Statement have been audited by Schwartz Levitsky Feldman, Chartered
Accountants, as set forth in their reports thereon appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Shares offered hereby. This Prospectus
omits certain information contained in the Registration Statement and the
exhibits thereto, and references are made to the Registration Statement and the
exhibits thereto for further information with respect to the Company and the
Common Shares offered hereby. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to
57
<PAGE>
the Registration Statement. Each such statement is qualified in its entirety by
such reference. The Registration Statement, including exhibits and schedules
filed therewith, may be inspected without charge at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and its public reference facilities in
New York, New York and Chicago, Illinois upon payment of the prescribed fees.
Electronic registration statements filed through the Electronic Data Gathering,
Analysis, and Retrieval System are publicly available through the Commission's
Web site (http:/ /www.sec.gov). Further information on public reference rooms
available at the Commission is available by contacting the Commission at 1-(800)
SEC-0330.
58
<PAGE>
IT STAFFING LTD.
CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
TOGETHER WITH INDEPENDENT AUDITORS' REPORT
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<S> <C>
Independent Auditors' Report................................................................... F-2
Consolidated Balance Sheets.................................................................... F-3
Consolidated Statements of Income.............................................................. F-4
Consolidated Statements of Stockholders' Equity................................................ F-5
Consolidated Statements of Cash Flows.......................................................... F-6
Notes to Consolidated Financial Statements..................................................... F-7
</TABLE>
SUPPLEMENTARY SCHEDULES
<TABLE>
<S> <C>
Consolidated Schedules of Expenses............................................................. F-18
</TABLE>
INTERNATIONAL CAREER SPECIALISTS LTD.
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
TOGETHER WITH INDEPENDENT AUDITORS' REPORT
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<S> <C>
Independent Auditors' Report................................................................... F-20
Balance Sheets................................................................................. F-21
Statement of Income............................................................................ F-22
Statements of Stockholder's Equity............................................................. F-23
Statement of Cash Flows........................................................................ F-24
Notes to Financial Statements.................................................................. F-25
</TABLE>
SUPPLEMENTARY SCHEDULES
<TABLE>
<S> <C>
Schedules of Expenses.......................................................................... F-30
</TABLE>
SYSTEMSEARCH CONSULTING SERVICES INC.
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
TOGETHER WITH INDEPENDENT AUDITORS' REPORT
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<S> <C>
Independent Auditors' Report................................................................... F-32
Balance Sheets................................................................................. F-33
Statements of Income........................................................................... F-34
Statements of Stockholders' Equity............................................................. F-35
Statements of Cash Flows....................................................................... F-36
Notes to Financial Statements.................................................................. F-37
SUPPLEMENTARY SCHEDULES
Schedules of Expenses.......................................................................... F-40
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
IT Staffing Ltd.
We have audited the accompanying consolidated balance sheets of IT Staffing
Ltd. (incorporated in Canada) as of December 31, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1997 and 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IT Staffing Ltd. as of December 31, 1997 and 1996 and the consolidated results
of its operations and its cash flows for the years ended December 31, 1997 and
1996, in conformity with generally accepted accounting principles in the United
States of America.
<TABLE>
<S> <C>
Toronto, Ontario
July 27, 1998 Schwartz Levitsky Feldman
Chartered Accountants
</TABLE>
F-2
<PAGE>
IT STAFFING LTD.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER DECEMBER DECEMBER
30, 30, 31, 31,
1998 1997 1997 1996
----------- ----------- ----------- -----------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash..................................... 149,572 2,935 9,860 5,743
Accounts receivable (note 3)............. 1,838,633 698,046 761,570 211,928
Prepaid expenses......................... 143,585 37,788 19,997 4,352
----------- ----------- ----------- -----------
2,131,790 738,769 791,427 222,023
CAPITAL ASSETS (note 4).................... 123,836 40,631 47,955 22,000
GOODWILL (note 5).......................... 1,237,583 467,296 434,833 --
----------- ----------- ----------- -----------
3,493,209 1,246,696 1,274,215 244,023
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 6)............... 156,746 91,652 196,248 123,396
Accounts payable......................... 1,057,805 422,194 388,250 84,742
Income taxes payable..................... 200,750 61,594 40,786 6,421
Note payable (note 7).................... -- 108,609 104,858 --
Current portion of long-term debt (note
8)..................................... 107,100 17,535 21,191 7,296
Advances from stockholders............... -- 52,885 49,749 29,988
----------- ----------- ----------- -----------
1,522,401 754,469 801,082 251,843
LONG-TERM DEBT (note 8).................... 381,630 43,742 37,278 4,864
----------- ----------- ----------- -----------
1,904,031 798,211 838,360 256,707
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
CAPITAL STOCK (note 9)..................... 1,248,368 328,327 328,327 4
CUMULATIVE TRANSLATION ADJUSTMENT.......... (111,139) (2,542) (18,133) 59
RETAINED EARNINGS (DEFICIENCY)............. 451,949 122,700 125,661 (12,747)
----------- ----------- ----------- -----------
1,589,178 448,485 435,855 (12,684)
----------- ----------- ----------- -----------
3,493,209 1,246,696 1,274,215 244,023
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
IT STAFFING LTD.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
REVENUE
Contract services................................. $ 6,558,250 $ 2,673,449 $3,729,703 $ 295,980
Permanent placements.............................. 2,198,232 746,054 974,638 468,207
------------- ------------- ------------ ------------
8,756,482 3,419,503 4,704,341 764,187
CONTRACTOR COSTS...................................... 5,010,878 2,116,823 2,888,540 259,334
------------- ------------- ------------ ------------
GROSS PROFIT.......................................... 3,745,604 1,302,680 1,815,801 504,853
EXPENSES
Selling........................................... 2,104,823 795,564 1,123,051 273,689
Administrative.................................... 967,741 263,900 373,627 181,876
Financial......................................... 128,702 42,125 125,594 13,733
------------- ------------- ------------ ------------
3,201,266 1,101,589 1,622,272 469,298
INCOME BEFORE INCOME TAXES............................ 544,338 201,091 193,529 35,555
Income Taxes (Note 10)............................ 218,050 65,644 55,121 5,353
------------- ------------- ------------ ------------
NET INCOME............................................ 326,288 135,447 138,408 30,202
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(Note 9)
Basic............................................... 1,650,238 1,309,135 1,309,135 1,021,125
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Fully Diluted....................................... 1,821,095 1,309,135 1,309,135 1,021,125
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
EARNINGS PER WEIGHTED AVERAGE COMMON SHARE
Basic............................................... 20 NTS 10 NTS 11 NTS 3 CENTS
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Fully Diluted....................................... 18 NTS 10 NTS 11 NTS 3 CENTS
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
IT STAFFING LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON
STOCK RETAINED CUMULATIVE
NUMBER OF EARNINGS TRANSLATION
SHARES AMOUNTS (DEFICIT) ADJUSTMENTS
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
$ $ $
Balance as of December 31, 1995................................ 1,021,125 4 (20,948) --
Foreign currency translation................................... -- -- -- 59
Dividends paid................................................. -- -- (22,001) --
Net income for the year........................................ -- -- 30,202 --
---------- ---------- --------- -----------
Balance as of December 31, 1996................................ 1,021,125 4 (12,747) 59
Common shares issued........................................... 288,010 328,323 -- --
Foreign currency translation................................... -- -- -- (2,601)
Net income for the period...................................... -- -- 135,447 --
---------- ---------- --------- -----------
Balance as of September 30, 1997............................... 1,309,135 328,327 122,700 (2,542)
Foreign currency translation................................... -- -- -- (15,591)
Net income for the period...................................... -- -- 2,961 --
---------- ---------- --------- -----------
Balance as of December 31, 1997................................ 1,309,135 328,327 125,661 (18,133)
Common shares issued........................................... 368,740 920,041 -- --
Foreign currency translation................................... -- -- -- (93,006)
Net income for the period...................................... -- -- 326,288 --
---------- ---------- --------- -----------
Balance as of September 30, 1998............................... 1,677,875 1,248,368 451,949 (111,139)
---------- ---------- --------- -----------
---------- ---------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
IT STAFFING LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ $ $ $
Cash flows from operating activities:
Net income.......................................... 326,288 135,447 138,408 30,202
------------- ------------- ------------ ------------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Amortization...................................... 24,356 8,228 16,968 5,037
Amortization of goodwill.......................... 33,579 12,023 15,258 --
Decrease (increase) in accounts receivable........ (1,178,966) (489,358) (577,114) (211,535)
Decrease (increase) in prepaid expenses........... (130,645) 2,742 (15,645) (3,629)
Increase (decrease) in accounts payable........... 727,044 339,226 317,281 60,934
Increase (decrease) in income taxes payable....... 170,124 55,406 34,365 6,454
------------- ------------- ------------ ------------
Total adjustments................................... (354,508) (71,733) (208,887) (142,739)
------------- ------------- ------------ ------------
Net cash generated by operating activities.......... (28,220) 63,714 (70,479) (112,537)
------------- ------------- ------------ ------------
Cash flows from investing activities:
Purchases of capital assets......................... (107,024) (27,090) (44,739) (25,830)
Incorporation costs................................. -- -- 733 (744)
Acquisition of goodwill............................. (614,030) (190,035) (140,028) --
------------- ------------- ------------ ------------
Net cash used in investing activities............... (721,054) (217,125) (184,034) (26,574)
------------- ------------- ------------ ------------
Cash flows from financing activity:
Increase (decrease) in note payable................. (102,466) 108,972 108,350 --
Increase (decrease) in long-term debt............... 454,050 49,374 23,837 12,223
Increase (decrease) in advances from shareholders... (48,614) 23,202 21,716 30,142
Proceeds from issuance of capital stock............. 620,944 -- -- --
Payment of dividends................................ -- -- -- (22,001)
Increase (decrease) in bank's indebtedness.......... (27,828) (30,909) 96,601 115,605
------------- ------------- ------------ ------------
896,086 150,639 250,504 135,969
------------- ------------- ------------ ------------
Effect of foreign currency exchange rate changes...... (7,100) (36) 8,126 8,394
------------- ------------- ------------ ------------
Net increase (decrease) in cash....................... 139,712 (2,808) 4,117 5,252
Cash
--Beginning of year................................. 9,860 5,743 5,743 491
------------- ------------- ------------ ------------
End of year......................................... 149,572 2,935 9,860 5,743
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Interest paid......................................... $ 80,717 $ 13,757 6,491 2,910
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Income taxes paid..................................... -- -- -- --
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
1. BASIS OF PRESENTATION
The consolidated financial statements for the nine months ended September
30, 1998 and 1997 are unaudited. The interim results are not necessarily
indicative of the results for any future period. In the opinion of management,
the data in the consolidated financial statements reflects all adjustments
necessary for a fair presentation of the results of the interim periods
disclosed. All adjustments are of a normal and recurring nature.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. The earnings of the subsidiaries are
included from the date of acquisition. All significant inter-company
accounts have been eliminated.
Systemsearch Consulting Services Inc. was acquired on January 2, 1997 for
$391,850. This amount was paid by the issuance of Common Shares and a
cash payment of $100,007. The purchase has been reflected as follows:
<TABLE>
<S> <C>
Consideration.................................................. $ 391,850
Assumption of net liabilities.................................. 42,807
Goodwill......................................................... 434,657
</TABLE>
International Career Specialists Ltd. was acquired on January 1, 1998 for
$653,083. This amount was paid by the issuance of Common Shares and a
cash payment of $303,555. The purchase was reflected as follows:
<TABLE>
<S> <C>
Consideration.................................................. $ 653,083
Assumption of net liabilities.................................. 198,680
Goodwill......................................................... 851,763
</TABLE>
Had the Systemsearch Consulting Services Inc. income been included with
the Company's December 31, 1996 consolidated results of operations, the
pro-forma summarized results of operations would have been as follows:
<TABLE>
<S> <C>
Revenue......................................................... $1,971,976
Net loss........................................................ 29,854
Loss per share.................................................. (.02)
Pro-forma shares outstanding.................................... 1,309,135
</TABLE>
F-7
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Had the International Career Specialists Ltd. income been included with
the Company's December 31, 1997 consolidated results of operations, the
pro-forma summarized results of operations would have been as follows:
<TABLE>
<S> <C>
Revenue................................................. $8,363,133
Net earnings............................................ 153,744
Earnings per share...................................... .11
Pro-forma shares outstanding............................ 1,440,049
</TABLE>
b) Principal Business Activity
IT Staffing is an information technology staffing company, which along
with its subsidiaries System Search Consulting Services Inc. and
International Career Specialists Ltd., specialize in placing information
technology personnel on both a contract and permanent basis
System Search Consultants Inc. was purchased by IT Staffing Ltd. in a
transaction effective January 2, 1997. The acquisition was accounted for
using the purchase method.
International Career Specialists Ltd. was purchased by IT Staffing Ltd.
in a transaction effective January 1, 1998. The acquisition was accounted
for using the purchase method.
c) Cash
Cash includes cash on hand, and any other highly liquid investments
purchased with a maturity of three months or less. The carrying amount
approximates fair value because of the short maturity of those
instruments.
d) Other Financial Instruments
The carrying amount of the company's other financial instruments
approximate fair value because of the short maturity of these instruments
or the current nature of interest rates borne by these instruments.
e) Long-term Financial Instruments
The fair value of each of the company's long-term financial assets and
debt instruments is based on the amount of future cash flows associated
with each instrument discounted using an estimate of what the company's
current borrowing rate for similar instruments of comparable maturity
would be.
f) Capital Assets
Property and equipment are recorded at cost and are depreciated on the
declining balance basis over their estimated useful lives.
F-8
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
g) Revenue
Revenue from contract placements is recognized as services are performed.
Revenue from permanent placements is recognized upon commencement of
employment.
h) Goodwill
Goodwill representing the cost in excess of the fair value of net assets
acquired related to the acquisitions of System Search Consulting Services
Inc. and International Career Specialists Ltd. is being amortized on a
straight-line basis over a thirty year period. The Company calculates the
recoverability of goodwill on a quarterly basis by reference to estimated
undiscounted future cash flows.
i) Foreign Currency Translation
The translation of the consolidated financial statements from Canadian
dollars ("CDN $") into United States dollars is performed for the
convenience of the reader. Balance sheet accounts are translated using
closing exchange rates in effect at the balance sheet date and income and
expense accounts are translated using an average exchange rate prevailing
during each reporting period. No representation is made that the Canadian
dollar amounts could have been, or could be, converted into United States
dollars at the rates on the respective dates or at any other rates.
Adjustments resulting from the translation are included in the cumulative
translation adjustments in stockholders' equity.
j) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect certain
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Accounts receivable................................... 1,871,287 698,046 796,523 211,928
Less: Allowance for doubtful accounts................. 32,654 -- 34,953 --
------------- ------------- ------------ ------------
Accounts receivable, net.............................. 1,838,633 698,046 761,570 211,928
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
F-9
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31,
----------------------------------- 1996
ACCUMULATED -------------
COST AMORTIZATION NET NET
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
$ $ $ $
Furniture and equipment.......................................... 40,565 16,000 24,565 14,084
Computer equipment............................................... 25,477 9,078 16,399 7,175
Computer software................................................ 13,982 6,991 6,991 --
Incorporation costs.............................................. 710 710 -- 741
--------- ------ --------- ------
80,734 32,779 47,955 22,000
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>
Amortization for the year ended December 31, 1997 amounted to $16,968;
($5,037 at December 31, 1996).
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30,
---------------------------------------- 1997
ACCUMULATED -------------
COST AMORTIZATION NET NET
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1) (NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Furniture and equipment................................. 122,650 47,676 74,974 27,564
Computer equipment...................................... 56,778 19,442 37,336 13,067
Computer software....................................... 23,051 11,525 11,526 --
Automobile.............................................. -- -- -- --
----------- ------ ------------ ------
202,479 78,643 123,836 40,631
----------- ------ ------------ ------
----------- ------ ------------ ------
</TABLE>
Amortization for the period ended September 30, 1998 amounted to $24,356;
($8,228 at September 30, 1997).
5. GOODWILL
Goodwill is the excess of cost over the value of assets acquired over
liabilities assumed.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C>
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Cost.................................................. 1,286,420 479,319 450,091 --
Accumulated amortization.............................. 48,837 12,023 15,258 --
--
------------- ------------- ------------
Net................................................... 1,237,583 467,296 434,833 --
--
--
------------- ------------- ------------
------------- ------------- ------------
Amortization for the period........................... 33,579 12,023 15,258 --
--
--
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
F-10
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
6. BANK INDEBTEDNESS AND LINE OF CREDIT
The companies have available a line of credit to a maximum of $650,000,
which bears interest at plus 1.75% over the Toronto Dominion Bank's prime rate
per annum and is secured by a general assignment of book debts, a general
security agreement and guarantees and postponements of claims by various
affiliated companies.
7. NOTES PAYABLE
Notes payable are represented by $104,858 ($108,609 in September 1997) of
notes payable in conjunction with the acquisition of Systems Search Consulting
Ltd.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Included therein
a) A Business Development Bank of Canada ("BDC") loan,
secured by a general security agreement, payable in
59 equal monthly payments of $4,354 from October
23, 1998, plus interest of the BDC base rate plus
4% per annum. Currently the interest rate is 13%.
In addition IT Staffing Ltd. shall pay interest
monthly by way of a royalty of 0.0426% per annum of
IT Staffing Ltd.'s projected annual gross sales.... 256,886 -- -- --
A BDC loan, secured by a general security agreement,
payable in 59 monthly payments of $3,265 plus
interest of the BDC base rate plus 4% per annum.
Currently, the interest rate is 13%. In addition IT
Staffing Ltd. shall pay interest monthly by way of
royalty of 0.0198% per annum of its projected gross
annual sales........................................ 192,659 -- -- --
------------- ------------- ------------ ------------
Balance forward..................................... 449,545 -- -- --
a) Balance forward.................................... 449,545 -- -- --
A BDC loan secured by a general security agreement,
payable in 34 remaining monthly payments of $653
plus interest of the BDC operational interest rate
prime plus 5%, per annum. Currently, the interest
rate is 14%......................................... 22,205 33,277 28,974 --
</TABLE>
F-11
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
8. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ ------------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
A BDC loan secured by a general security agreement
payable in 26 remaining monthly payments of $653
plus interest of the BDC base rate plus 3% per
annum. Currently, the interest rate is 12%.......... 16,980 28,000 23,749 --
A National Bank of Canada non-revolving, demand loan
currently with no outstanding balance. Payments were
made on a monthly basis in the amount of $608 for 24
months, at a rate equal to the National Bank of
Canada Canadian prime rate plus 2% per annum........ -- -- 5,746 12,160
------------- ------------- ------------ ------------
488,730 61,277 58,469 12,160
Less: Current portion............................... 107,100 17,535 21,191 7,296
------------- ------------- ------------ ------------
381,630 43,742 37,278 4,864
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
b) Future principal payments consist of the following as of September 30,
1998:
<TABLE>
<S> <C>
September 30, 1999................................................ $ 107,100
September 30, 2000................................................ 107,100
September 30, 2001................................................ 99,264
September 30, 2002................................................ 91,428
September 30, 2003................................................ 83,838
---------
$ 488,730
---------
---------
</TABLE>
c) Interest expense with respect to the long-term debt amounted to $36,000
for the nine months ended September 30, 1998 ($18,000 for the nine
months ended September 30, 1997) and $6,491 at December 31, 1997 ($2,910
at December 31, 1996).
d) Pursuant to the BDC loan agreement, BDC has the option to acquire 22,125
shares for an aggregate consideration of $1. The fair market value of
these shares at the time of issuance was $62,393 ($2.82 share). The
imputed discount on these options is being amortized over the term of
the loan as interest.
F-12
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
9. CAPITAL STOCK
<TABLE>
<S> <C> <C>
Authorized
An unlimited number of Common Shares
Issued
<CAPTION>
SHARES $
--------- ---------
<S> <C> <C>
September 30, 1998..................................... 1,677,875 1,248,368
September 30, 1997..................................... 1,309,135 328,327
December 31, 1997...................................... 1,309,135 328,327
December 31, 1996...................................... 1,021,125 4
</TABLE>
On January 2, 1997 288,010 shares were issued in conjunction with the
acquisition of System Search Consulting Services Inc. with a carrying value of
$328,323
On January 1, 1998 130,914 shares were issued in conjunction with the
acquisition of International Career Specialists Ltd. with a carrying value of
$349,528.
A private placement of 196,370 shares was completed in March 1998 yielding
proceeds of $423,639.
A second private placement of 85,094 shares was completed in April 1998
yielding proceeds of $216,814
The Company redeemed 43,637 shares for $69,940 in April 1998.
The Company has outstanding stock options issued in conjunction with its
long-term financing arrangements for 22,125 shares (see note 8d) and additional
options issued to a consultant of the Company for 200,000 shares exercisable at
$2.10/Share.
Subsequent to June 30, 1998 the Company granted options to purchase 50,000
shares to a vice president. The options are exerciseable at the issue price of
Common Shares in the proposed initial public offering.
The Company has initiated a stock option plan for officers, directors,
consultants, key employees and advisors. Under the plan, options to acquire an
aggregate of 435,000 Common Shares may be granted at the discretion of the board
of directors. The shares will require a two year vesting period and will be
exerciseable for up to 10 years. The option exercise price will be determined by
the board of directors and may not be less than the fair market value of the
Common Shares on the date of the granting of an option. To date, no options have
been granted under this plan.
On August 6, 1998, the Company split its stock. The result of the split
converted the outstanding shares from 1,281,667 to 1,667,875 shares. The number
of shares indicated above have been retroactively restated in all periods to
reflect the stock split on August 6, 1998.
The fully diluted shares outstanding after the effect of the stock split is
1,900,000 shares .
Weighted average number of shares outstanding is calculated on a fully
diluted basis after giving effect to the stock split.
F-13
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
10. INCOME TAXES
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
-------------------- ------------------------
SEPT. SEPT. DECEMBER DECEMBER
1998 1997 1997 1998
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Income Taxes (Recovery) consist of:
Amount calculated at Federal and
Provincial Statutory rates......................................... 226,246 77,293 70,702 5,333
Increase (decrease) resulting from:
Permanent Differences.............................................. 6,265 4,021 2,714 1,216
Timing Differences................................................. (268) 74 (29) (106)
Other Differences.................................................. (14,193) (15,744) (18,266) (1,090)
--------- --------- ----------- -----------
(8,196) (11,649) (15,581) 20
--------- --------- ----------- -----------
Current Income Taxes (Recovery)...................................... 218,050 65,644 55,121 5,353
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
11. TRANSACTIONS WITH RELATED COMPANIES
Prior to IT Staffing Ltd. purchasing shares of International Career
Specialists Ltd. on January 1, 1998, the Company rented premises from
International Career Specialists Ltd. The land and building were disposed of as
part of the purchase price.
12. LEASE COMMITMENTS
a) Minimum payments under operating leases for premises occupied by the
Company and its subsidiaries in Toronto and New York, exclusive of most
operating costs and realty taxes, for the fiscal year end of December 31 for the
next five years are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 117,849
1999.............................................................. 95,734
2000.............................................................. 95,734
2001.............................................................. 71,888
2002.............................................................. 55,855
---------
$ 437,060
---------
---------
</TABLE>
b) Minimum payments under other operating leases for the fiscal year end
December 31 until expiry are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 53,158
1999.............................................................. 32,916
2000.............................................................. 16,011
2001.............................................................. 4,242
2002.............................................................. 3,181
---------
$ 109,508
---------
---------
</TABLE>
F-14
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
13. SEGMENTED INFORMATION
a) Sales by Geographic Area
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
------------------------ ------------------------
SEPTEMBER SEPTEMBER DECEMBER DECEMBER
30, 30, 31, 31,
1998 1997 1997 1996
----------- ----------- ----------- -----------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Canada..................................... 8,627,912 3,419,503 4,503,642 764,187
United States of America................... 98,570 -- 200,699 --
----------- ----------- ----------- -----------
8,756,482 3,419,503 4,704,341 764,187
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
b) Net Income by Geographic Area
The Company's accounting records do not readily provide information on net
income by geographic area. Management is of the opinion that the proportion
of net income based principally on sales, presented below, would fairly
present the results of operations by geographic area.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
------------------------ ------------------------
SEPTEMBER SEPTEMBER DECEMBER DECEMBER
30, 30, 31, 31,
1998 1997 1997 1996
----------- ----------- ----------- -----------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Canada..................................... 322,615 135,447 131,822 30,202
United States of America................... 3,673 -- 6,586 --
----------- ----------- ----------- -----------
326,288 135,447 138,408 30,202
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
c) Identifiable Assets by Geographic Area
All identifiable assets were located in Canada for 1998, 1997 and 1996.
d) Sales to Major Customers
The consolidated entity had the following sales to major customers:
<TABLE>
<S> <C> <C>
September 1998............................................................. None
September 1997............................................................. None
December 1997
Bank of Montreal........................................................... $ 674,426 14%
SHL Systemhouse............................................................ $ 511,951 11%
December 1996
Bank of Montreal........................................................... $ 176,972 23%
Inco Limited............................................................... $ 77,119 10%
</TABLE>
e) Purchases From Major Suppliers
F-15
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
13. SEGMENTED INFORMATION (CONTINUED)
There were no significant purchases from major suppliers.
14. SUBSEQUENT EVENTS
a) The Company has entered into a Letter of Intent with an underwriting
firm and is proceeding to complete an initial public offering of 1,000,000
Common Shares for net proceeds to the Company of $4,500,000. Upon successful
completion of the offering the company will apply to have its stock listed on
Nasdaq.
b) Subsequent to September 30, 1998, the company acquired certain major
assets of Southport Consulting Company, a New Jersey corporation. The
consideration for the acquisition of US$250,000 was as follows:
<TABLE>
<S> <C>
Cash.............................................................. $ 50,000
Shares............................................................ 200,000
---------
$ 250,000
---------
---------
</TABLE>
The number of shares shall be determined by the issue price of the initial
public offering and shall have a value of $200,000. In the event that the public
offering is not completed 50,000 shares will be issued.
The assets acquired are valued as follows:
<TABLE>
<S> <C>
Software.......................................................... $ 130,000
Office furniture and equipment.................................... 20,000
Goodwill.......................................................... 100,000
---------
$ 250,000
---------
---------
</TABLE>
IT Staffing has contracted to retain Mr. Michael Carrazza, the key employee
of Southport Consulting Company through December 31, 2000.
15. COMPARATIVE FIGURES
Certain figures in the 1997 financial statements have been reclassified to
conform with the basis of presentation used in 1998.
16. STOCK OPTION PLAN
In July 1998, the Directors of the Company adopted and the stockholders
approved the adoption of the Company's 1998 Stock Option Plan.
The Plan will be administrated by the Compensation Committee or the Board of
Directors, which will determine among other things, those individuals who shall
receive options, the time period during which the options may be partially of
fully exercised, the number of Common Shares issuable upon the exercise of the
options and the option exercise price.
F-16
<PAGE>
IT STAFFING LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
The Plan is effective for a period for ten years, expiring in 2008. Options
to acquire 435,000 Common Shares may be granted to officers, directors,
consultants, key employees, advisors and similar parties who provide their
skills and expertise to the Company. The Plan is designed to enable management
to attract and retain qualified and competent directors, employees, consultants
and independent contractors. Options granted under the Plan may be exercisable
for up to ten years, generally require a minimum two year vesting period, and
shall be at an exercise price all as determined by the Board of Directors
provided that, pursuant to the terms of the Underwriting Agreement between the
Company and the Underwriters, the exercise price of any options may not be less
than the fair market value of the Common Shares on the date of the grant.
Options are non-transferable, and are exercisable only by the participant (or by
his or her guardian of legal representative) during his or her lifetime or by
his or her legal representatives following death.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 65, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant 90 days to
exercise the option, except for termination for cause which results in immediate
termination of the option.
The Company has agreed with the Representative not to grant any options
under the Plan at less than 100% of the fair market value of the Common Shares
at the date of the grant of the option.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan, subject to applicable securities regulation.
The Plan may be terminated or amended at any time by the Board of Directors,
except that the number of Common Shares reserved for issuance upon the exercise
of options granted under the Plan may not be increased without the consent of
the shareholders of the Company.
F-17
<PAGE>
IT STAFFING LTD.
SCHEDULES OF EXPENSES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
------------------------ ------------------------
SEPTEMBER SEPTEMBER DECEMBER DECEMBER
30, 30, 31, 31,
1998 1997 1997 1996
----------- ----------- ----------- -----------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
SELLING
Commissions................................ 1,855,764 690,844 954,915 190,551
Advertising and promotion.................. 198,762 89,187 144,455 67,589
Automobile and travel...................... 50,297 15,533 23,681 15,549
----------- ----------- ----------- -----------
2,104,823 795,564 1,123,051 273,689
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
ADMINISTRATIVE
Office and salaries and benefits........... 229,969 79,966 96,132 56,288
Rent....................................... 156,204 51,048 66,261 33,599
Management salaries and fees............... 291,698 0 -- --
Telephone.................................. 74,966 24,703 40,011 16,034
Office and general......................... 80,041 36,129 60,898 35,001
Taxes and licenses......................... 4,577 10,912 15,066 5,326
Insurance.................................. 8,715 5,697 8,751 6,897
Repairs and maintenance.................... 8,132 1,183 3,486 762
Equipment rental........................... 55,504 34,011 50,796 22,932
Amortization of goodwill................... 33,579 12,023 15,258 --
Amortization............................... 24,356 8,228 16,968 5,037
----------- ----------- ----------- -----------
967,741 263,900 373,627 181,876
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
FINANCIAL
Bad debts.................................. -- -- 36,117 --
Interest and bank charges.................. 85,657 25,428 42,153 8,762
Professional fees.......................... 43,045 16,697 47,324 4,971
----------- ----------- ----------- -----------
128,702 42,125 125,594 13,733
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-18
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
TOGETHER WITH INDEPENDENT AUDITORS' REPORT
(AMOUNTS EXPRESSED IN US DOLLARS)
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
International Career Specialists Ltd.
We have audited the accompanying balance sheets of International Career
Specialists Ltd. (incorporated in Canada) as of December 31, 1997 and 1996 and
the related statements of income, stockholders' equity and cash flow for the
years ended December 31, 1997 and 1996. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of International Career
Specialists Ltd. as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles in the United States of
America.
<TABLE>
<S> <C>
Schwartz Levitsky Feldman
Chartered Accountants
</TABLE>
Toronto, Ontario
July 27, 1998
F-20
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
BALANCE SHEETS
AS AT DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1A) (NOTE 1A)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... 134,096 159,250 161,839 76,220
Accounts receivable....................................... 413,504 249,826 426,121 174,243
Short-term investments (note 2)........................... 0 60,983 47,135 32,773
Loan receivable--parent company........................... 45,716 0 -- --
Due from shareholder...................................... 0 0 -- 43,702
------------- ------------- ------------ ------------
593,316 470,059 635,095 326,938
CAPITAL ASSETS (note 3)..................................... 32,997 29,088 151,844 34,132
INVESTMENT IN RELATED COMPANY............................... 0 59,411 61,167 --
------------- ------------- ------------ ------------
626,313 558,558 848,106 361,070
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable.......................................... 454,440 305,708 505,446 235,093
Accrued wages............................................. 0 157,296 209,018 65,665
Income taxes payable...................................... 104,766 7,761 3,845 (1,016)
Advances from shareholder................................. 0 0 34,228 --
------------- ------------- ------------ ------------
559,206 470,765 752,537 299,742
------------- ------------- ------------ ------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 4)...................................... 1 1 1 1
CUMULATIVE TRANSLATION ADJUSTMENT........................... (9,817) (850) (4,093) (298)
RETAINED EARNINGS........................................... 76,923 88,642 99,661 61,625
------------- ------------- ------------ ------------
67,107 87,793 95,569 61,328
------------- ------------- ------------ ------------
626,313 558,558 848,106 361,070
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
STATEMENTS OF INCOME
FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1A) (NOTE 1A)
<S> <C> <C> <C> <C>
REVENUE
Contract sales.................................... 2,418,973 1,533,992 2,275,859 999,680
Permanent sales................................... 1,053,710 985,522 1,382,934 716,134
------------- ------------- ------------ ------------
3,472,683 2,519,514 3,658,793 1,715,814
Contractor fees................................... 1,661,952 1,179,639 1,736,037 786,245
------------- ------------- ------------ ------------
GROSS PROFIT.......................................... 1,810,731 1,339,875 1,922,756 929,569
Other income...................................... 6,919 3,571 2,665 11,332
------------- ------------- ------------ ------------
1,817,650 1,343,446 1,925,421 940,901
------------- ------------- ------------ ------------
EXPENSES
Administrative.................................... 430,695 396,857 503,627 234,440
Selling........................................... 928,351 903,289 1,356,978 689,834
Financial......................................... 2,610 8,522 15,946 2,204
------------- ------------- ------------ ------------
1,361,656 1,308,668 1,876,551 926,478
------------- ------------- ------------ ------------
INCOME BEFORE INCOME TAXES............................ 455,994 34,778 48,870 14,423
Income taxes (note 5)............................. 167,282 7,761 10,834 6,679
------------- ------------- ------------ ------------
NET INCOME............................................ 288,712 27,017 38,036 7,744
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON
STOCK CUMULATIVE
NUMBER OF RETAINED TRANSLATION
SHARES AMOUNTS EARNINGS ADJUSTMENTS
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
$ $ $
Balance as of December 31, 1995................................ 2 1 53,881 --
Foreign currency translation................................... -- -- -- (298)
Net income for the year........................................ -- -- 7,744 --
---------- ---------- ---------- ------
Balance as of December 31, 1996................................ 2 1 61,625 (298)
Foreign currency translation................................... -- -- -- (552)
Net income for the period...................................... -- -- 27,017 --
---------- ---------- ---------- ------
Balance as of September 30, 1997............................... 2 1 88,642 (850)
Foreign currency translation................................... -- -- -- (3,243)
Net income for the period...................................... -- -- 11,019 --
---------- ---------- ---------- ------
Balance as of December 31, 1997................................ 2 1 99,661 (4,093)
Foreign currency translation................................... -- -- -- (5,724)
Distribution of assets--dividends paid (note 6)................ -- -- (311,450) --
Net income for the period...................................... -- -- 288,712 --
---------- ---------- ---------- ------
Balance as of September 30, 1998............................... 2 1 76,923 (9,817)
---------- ---------- ---------- ------
---------- ---------- ---------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1A) (NOTE 1A)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... 288,712 27,017 38,036 7,744
------------- ------------- ------------ ------------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Amortization...................................... 3,155 10,672 15,933 8,264
Decrease (increase) in accounts receivable........ (16,116) (77,165) (267,804) (106,202)
Decrease (increase) in short-term investments..... 46,060 (28,554) (16,258) 2,553
Increase (decrease) in accounts payable........... (19,042) 72,643 289,526 193,767
Increase (decrease) in accrued wages.............. (204,249) 92,444 150,968 66,002
Increase (decrease) in income taxes payable....... 105,827 8,799 4,979 (936)
------------- ------------- ------------ ------------
Total adjustments................................... (84,365) 78,839 177,344 163,448
------------- ------------- ------------ ------------
Net cash generated by operating activities.......... 204,347 105,856 215,380 171,192
------------- ------------- ------------ ------------
Cash flows from investing activities:
Purchases of capital assets....................... -- (5,871) (139,041) (25,590)
Disposal of capital assets........................ 110,710 -- -- --
------------- ------------- ------------ ------------
Net cash used in investing activities............. 110,710 (5,871) (139,041) (25,590)
------------- ------------- ------------ ------------
Cash flows from financing activities:
Decrease (increase) in investment in related
company......................................... 59,772 (59,610) (63,204) --
Decrease (increase) in advances to shareholder.... -- 43,515 35,358 --
Decrease (increase) in loan to parent company..... (47,817) -- -- --
Increase (decrease) in advances from shareholder...... (33,447) -- 43,266 (36,805)
Payment of dividends................................ (311,450) -- -- --
------------- ------------- ------------ ------------
(332,942) (16,095) 15,420 (36,805)
------------- ------------- ------------ ------------
Effect of foreign currency exchange rate changes...... (9,858) (860) (6,140) (391)
------------- ------------- ------------ ------------
Net increase (decrease) in cash....................... (27,743) 83,030 85,619 108,406
Cash
-- Beginning of year................................ 161,839 76,220 76,220 (32,186)
------------- ------------- ------------ ------------
-- End of year...................................... 134,096 159,250 161,839 76,220
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Interest paid......................................... -- -- -- --
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Income taxes paid..................................... 38,545 3,503 5,856 7,615
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997, DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The financial statements for the nine-months ended September 30, 1998 and 1997
are unaudited. The interim results are not necessarily indicative of the results
for any future period. In the opinion of management, the data in the financial
statements reflects all adjustments necessary for a fair presentation of the
results of the interim periods disclosed. All adjustments are of a normal and
recurring nature.
b) Business Operations
International Career Specialists is an information technology staffing company
specializing in placing high technology personnel on both a contract and
permanent basis.
c) Cash
Cash includes cash on hand, and any other highly liquid investments purchased
with a maturity of three months or less. The carrying amount approximates fair
value because of the short maturity of those instruments.
d) Other Financial Instruments
The carrying amount of the company's other financial instruments approximate
fair value because of the short maturity of these instruments or the current
nature of interest rates borne by these instruments.
e) Short-term Investments
The Company's marketable securities are in equity investments. Short-term
investments are carried at fair market value.
f) Revenue Recognition
Revenue from contract placements is recognized as services are performed.
Revenue from permanent placements are recognized upon commencement of
employment.
g) Capital Assets
Capital assets are recorded at cost and are amortized at the undernoted rates
and methods:
<TABLE>
<S> <C> <C>
Declining
Vehicles 20% balance
Declining
Office equipment 20% balance
Declining
Computer 30% balance
Leasehold improvements 5 years Straight-line
Declining
Building--U.S. office 5% balance
Office equipment--U.S. Declining
office 20% balance
</TABLE>
Amortization of assets acquired during the year is recorded at one-half of the
normal rates.
F-25
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997, DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h) Foreign Currency Translation
The translation of the financial statements from Canadian dollars ("CDN$") into
United States dollars is performed for the convenience of the reader. Balance
sheet accounts are translated using closing exchange rates in effect at the
balance sheet date and income and expense accounts are translated using an
average exchange rate prevailing during each reporting period. No representation
is made that the Canadian dollar amounts could have been, or could be, converted
into United States dollars at the rates on the respective dates or at any other
rates. Adjustments resulting from the translation are including in the
cumulative translation adjustments in stockholders's equity.
i) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect certain reported amounts of assets
and liabilities and disclosures 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.
2. SHORT-TERM INVESTMENTS
Short-term investments consist of:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------- -------------
<CAPTION>
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1A) (NOTE 1A)
<S> <C> <C> <C> <C>
Marketable securities............. -- 60,983 47,135 32,773
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
All marketable securities are in equity investments and have been adjusted to
reflect their market value. The securities were disposed of during 1998. Gains
are recorded in other income.
F-26
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997, DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------------------------------------------
ACCUMULATED ------------------------
COST AMORTIZATION NET NET
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
$ $ $ $
Land--US................................... 24,467 -- 24,467 --
Building--US............................... 85,984 2,150 83,834 --
Office equipment--US....................... 5,276 514 4,762 --
Vehicles................................... 18,577 7,597 10,980 16,372
Office equipment........................... 39,482 16,229 23,253 8,905
Computer................................... 14,038 9,490 4,548 5,080
Leasehold improvements..................... 5,692 5,692 -- 3,775
--------- ------ --------- ------
193,516 41,672 151,844 34,132
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>
Amortization for the year ended December 31, 1997 amounted to $15,933
($8,264 as of December 31, 1996).
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 SEPTEMBER 30,
(UNAUDITED) 1997
(NOTE 1A) (UNAUDITED)
----------------------------------- (NOTE 1A)
ACCUMULATED -------------
COST AMORTIZATION NET NET
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
$ $ $ $
Vehicles..................................... -- -- -- 12,148
Office equipment............................. 43,992 19,907 24,085 11,719
Computer..................................... 17,439 8,527 8,912 3,937
Leasehold improvements....................... -- -- -- 1,284
--------- ------ --------- ------
61,431 28,434 32,997 29,088
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>
Amortization for the nine months ended September 30, 1998 amounted to $3,155
($10,672 for the nine months ended September 30, 1997).
F-27
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997, DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
4. CAPITAL STOCK
<TABLE>
<S> <C> <C> <C> <C>
Authorized
10,000 Preferred shares, 10% non-cumulative, non-participating, non-voting,
redeemable at par value of $7.30 each ($10 Canadian)
25,000 Common shares, no par value
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
------------------------------------ ------------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
----------------- ----------------- ----------------- -----------------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1A) (NOTE 1A)
----------------- -----------------
<S> <C> <C> <C> <C>
Issued
2 Common shares.......... 1 1 1 1
- - - -
- - - -
</TABLE>
F-28
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997, DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
5. INCOME TAXES
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
-------------------- ------------------------
<S> <C> <C> <C> <C>
SEPT. SEPT. DECEMBER DECEMBER
1998 1997 1997 1996
--------- --------- ----------- -----------
Income Taxes (Recovery) consist of:
Amount calculated at Federal and
Provincial Statutory rates.......................................... 173,278 13,216 18,571 5,769
Increase (decrease) resulting from:
Permanent Differences............................................... 448 554 735 784
Timing Differences.................................................. (458) (440) (583) --
Other Differences................................................... (5,986) (5,569) (7,888) 125
--------- --------- ----------- -----
(5,995) (5,454) (7,736) 909
--------- --------- ----------- -----
Current Income Taxes (Recovery)....................................... 167,282 7,761 10,834 6,679
--------- --------- ----------- -----
--------- --------- ----------- -----
</TABLE>
6. DISTRIBUTION OF ASSETS--DIVIDENDS PAID
On January 1, 1998, the Company paid a dividend in kind to its shareholder
distributing assets as follows:
<TABLE>
<S> <C>
Short-term investments (at market value).......................... $ 53,464
Investment in 1242541 Ontario Inc................................. 68,194
Land--Building U.S................................................ 109,834
Vehicle........................................................... 10,443
Cash.............................................................. 69,515
---------
$ 311,450
---------
---------
</TABLE>
7. LEASE COMMITMENTS
Minimum payments under an operating lease for premises, inclusive of all
operating costs, hydro, basic insurance, utilities and property taxes for which
the company is responsible, for the fiscal year end, is as follows until expiry:
<TABLE>
<S> <C>
1998............................................................... $ 40,878
1999............................................................... 40,878
2000............................................................... 40,878
2001............................................................... 17,032
</TABLE>
F-29
<PAGE>
INTERNATIONAL CAREER SPECIALISTS LTD.
SCHEDULES OF EXPENSES
FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
------------------------------ --------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
-------------- -------------- ------------ ------------
<CAPTION>
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1A) (NOTE 1A)
<S> <C> <C> <C> <C>
ADMINISTRATIVE
Management salaries and fees................... 291,698 296,385 366,225 139,338
Office salaries and benefits................... 70,143 35,109 47,055 33,574
Rent........................................... 34,000 32,048 43,688 35,066
Telephone...................................... 15,819 10,640 14,486 11,118
Office and general............................. 13,610 12,003 16,240 7,080
Repairs and maintenance........................ 2,270 -- -- --
Amortization................................... 3,155 10,672 15,933 8,264
------- ------- ------------ ------------
430,695 396,857 503,627 234,440
------- ------- ------------ ------------
------- ------- ------------ ------------
SELLING
Commission..................................... 910,740 880,100 1,323,007 659,090
Advertising and promotion...................... 11,699 15,404 22,235 17,650
Automobile and travel.......................... 5,912 7,785 11,736 13,094
------- ------- ------------ ------------
928,351 903,289 1,356,978 689,834
------- ------- ------------ ------------
------- ------- ------------ ------------
FINANCIAL
Professional fees.............................. 2,001 8,265 15,596 1,868
Interest and bank charges...................... 609 257 350 336
------- ------- ------------ ------------
2,610 8,522 15,946 2,204
------- ------- ------------ ------------
------- ------- ------------ ------------
</TABLE>
F-30
<PAGE>
SYSTEMSEARCH CONSULTING SERVICES INC.
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
TOGETHER WITH INDEPENDENT AUDITORS' REPORT
(AMOUNTS EXPRESSED IN US DOLLARS)
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Systemsearch Consulting Services Inc.
We have audited the accompanying balance sheets of Systemsearch Consulting
Services Inc. (incorporated in Canada) as of December 31, 1997 and 1996 and the
related statements of income, stockholders' equity and cash flows for the years
ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Systemsearch Consulting
Services Ltd. as of December 31, 1997 and 1996 and the results of its operations
and its cash flows for the years ended December 31, 1997 and 1996, in conformity
with generally accepted accounting principles in the United States of America.
<TABLE>
<S> <C>
Schwartz Levitsky
Feldman
Chartered Accountants
</TABLE>
Toronto, Ontario
July 27, 1998
F-32
<PAGE>
SYSTEMSEARCH CONSULTING SERVICES INC.
BALANCE SHEETS
AS AT DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER DECEMBER DECEMBER
30, 30, 31, 31,
1998 1997 1997 1996
----------- ----------- ----------- -----------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Bank..................................... 13,259 2,935 7,948 4,050
Accounts receivable...................... 370,946 233,121 271,985 144,615
Income taxes recoverable................. -- -- 19,000
Due from parent company (note 3)......... 65,308 --
----------- ----------- ----------- -----------
449,513 236,056 279,933 167,665
CAPITAL ASSETS (note 4).................... 11,711 12,223 11,176 9,339
----------- ----------- ----------- -----------
461,224 248,279 291,109 177,004
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness........................ -- 13,343 12,183 5,905
Accounts payable......................... 154,783 165,845 176,438 158,700
Income taxes payable..................... 113,059 14,313 20,168 --
Due to shareholder (note 5).............. -- -- 20,972 --
----------- ----------- ----------- -----------
267,842 193,501 229,761 164,605
DUE TO SHAREHOLDER (note 5)................ -- 21,722 -- 57,489
----------- ----------- ----------- -----------
267,842 215,223 229,761 222,094
----------- ----------- ----------- -----------
SHAREHOLDER'S EQUITY
CAPITAL STOCK (note 6)..................... 36 36 36 36
CUMULATIVE TRANSLATION ADJUSTMENT.......... (11,863) 315 (1,074) 329
RETAINED EARNINGS.......................... 205,209 32,705 62,386 (45,455)
----------- ----------- ----------- -----------
193,382 33,056 61,348 (45,090)
----------- ----------- ----------- -----------
461,224 248,279 291,109 177,004
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
SYSTEMSEARCH CONSULTING SERVICES INC.
STATEMENTS OF INCOME
FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
------------------------ ------------------------
SEPTEMBER SEPTEMBER DECEMBER DECEMBER
30, 30, 31, 31,
1998 1997 1997 1996
----------- ----------- ----------- -----------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
REVENUE
Contract sales........................... 1,504,978 1,192,167 1,703,097 1,009,238
Permanent sales.......................... 429,024 209,114 248,961 198,550
----------- ----------- ----------- -----------
1,934,002 1,401,281 1,952,058 1,207,788
Contractor fees.......................... 1,230,896 890,138 1,289,229 838,855
----------- ----------- ----------- -----------
GROSS PROFIT............................... 703,106 511,143 662,829 368,933
Other income............................. 3,533 0 -- --
----------- ----------- ----------- -----------
706,639 511,143 662,829 368,933
----------- ----------- ----------- -----------
EXPENSES
Administrative........................... 128,641 66,518 89,031 81,617
Selling.................................. 329,817 315,965 406,718 341,495
Financial................................ 6,809 17,331 19,400 9,619
----------- ----------- ----------- -----------
465,267 399,814 515,149 432,731
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES............... 241,372 111,329 147,680 (63,798)
Income taxes (note 7).................... 98,549 33,169 39,839 (19,000)
----------- ----------- ----------- -----------
NET INCOME................................. 142,823 78,160 107,841 (44,798)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
SYSTEMSEARCH CONSULTING SERVICES INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON
STOCK RETAINED CUMULATIVE
NUMBER OF EARNINGS TRANSLATION
SHARES AMOUNTS (DEFICIT) ADJUSTMENTS
------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
$ $ $
Balance as of December 31, 1995................................... 65 36 (657) --
Foreign currency translation...................................... -- -- -- 329
Net loss for the year............................................. -- -- (44,798) --
----- ----- --------- -----------
Balance as of December 31, 1996................................... 65 36 (45,455) 329
Foreign currency translation...................................... -- -- -- (14)
Net income for the year........................................... -- -- 78,160 --
----- ----- --------- -----------
Balance as of September 30, 1997.................................. 65 36 32,705 315
Foreign currency translation...................................... -- -- -- (1,389)
Net income for the year........................................... -- -- 29,681 --
----- ----- --------- -----------
Balance as of December 31, 1997................................... 65 36 62,386 (1,074)
Foreign currency translation...................................... -- -- -- (10,789)
Net income for the year........................................... -- -- 142,823 --
----- ----- --------- -----------
Balance as of September 30, 1998.................................. 65 36 205,209 (11,863)
----- ----- --------- -----------
----- ----- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
SYSTEMSEARCH CONSULTING SERVICES INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... 142,823 78,160 107,841 (44,798)
------------- ------------- ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization........................................ 2,162 1,947 2,582 2,347
Decrease (increase) in accounts receivable.......... (122,220) (89,904) (137,868) 48,795
Increase (decrease) in accounts payable............. (10,744) 8,379 25,196 (50,617)
Increase (decrease) in income taxes payable......... 98,276 33,181 39,839 (19,000)
------------- ------------- ------------ ------------
Total adjustments..................................... (32,526) (46,397) (70,251) (18,475)
------------- ------------- ------------ ------------
Net cash generated by operating activities.......... 110,297 31,763 37,590 (63,273)
------------- ------------- ------------ ------------
Cash flows from investing activities:
Purchases of capital assets......................... (3,491) 1,947 (4,884) --
------------- ------------- ------------ ------------
Cash flows from financing activities
Decrease (increase) in laon to parent company....... (68,311)
Increase (decrease) in advance from shareholder..... (20,493) (35,448) (35,246) 22,000
Increase (decrease) in bank indebtedness............ (11,902) 7,508 6,278 5,905
------------- ------------- ------------ ------------
(100,706) (27,940) (28,968) 27,905
------------- ------------- ------------ ------------
Effect of foreign currency exchange rate on changes... (789) (6,885) 160 9
------------- ------------- ------------ ------------
Net increase (decrease) in cash....................... 5,311 (1,115) 3,898 (35,359)
Cash
--Beginning of year................................. 7,948 4,050 4,050 39,409
------------- ------------- ------------ ------------
--End of year....................................... 13,259 2,935 7,948 4,050
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
--Interest paid..................................... 2,477 2,941 3,936 8,548
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
--Income taxes paid................................. -- -- -- --
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
SYSTEMSEARCH CONSULTING SERVICES INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements for the nine months ended September 30, 1998 and
1997 are unaudited. The interim results are not necessarily indicative of the
results for any future period. In the opinion of management, the data in the
financial statements reflects all adjustments necessary for a fair presentation
of the results of the interim periods disclosed. All adjustments are of normal
and recurring nature.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Business
Systemsearch Consulting Services Inc. is an information technology
staffing company, specializes in placing information technology personnel
on both a contract and permanent basis.
b) Cash
Cash includes cash on hand, and any other highly liquid investments
purchased with a maturity of three months or less. The carrying amount
approximates fair value because of the short maturity of those
instruments.
c) Other Financial Instruments
The carrying amount of the Company's other financial instruments
approximate fair value because of the short maturity of these instruments
or the current nature of interest rates borne by these instruments.
d) Long-term Financial Instruments
The fair value of each of the Company's long-term financial assets and
debt instruments is based on the amount of future cash flows associated
with each instrument discounted using an estimate of what the Company's
current borrowing rate for similar instruments of comparable maturity
would be.
e) Capital Assets
Property and equipment are recorded at cost and are amortized on the
declining balance basis over their estimated useful lives.
f) Revenue Recognition
Revenue from contract placements is recognized as services are performed.
Revenue from permanent placements are recognized upon commencement of
employment.
g) Foreign Currency Translation
The translation of the financial statements from Canadian dollars ("CDN
$") into United States dollars is performed for the convenience of the
reader. Balance sheet accounts are translated using closing exchange
rates in effect at the balance sheet date and income and expense accounts
F-37
<PAGE>
SYSTEMSEARCH CONSULTING SERVICES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are translated using an average exchange rate prevailing during each
reporting period. No representation is made that the Canadian dollar
amounts could have been, or could be, converted into United States
dollars at the rates on the respective dates or at any other rates.
Adjustments resulting from the translation are included in the cumulative
translation adjustments in stockholders' equity.
h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosures 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.
3. DUE FROM PARENT COMPANY
This loan is unsecured, non-interest bearing and has no specific terms of
repayment.
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------------------------- -------------
ACCUMULATED
COST AMORTIZATION NET NET
--------- ----------- --------- -------------
$ $ $ $
<S> <C> <C> <C> <C>
Furniture and fixtures............................... 22,203 11,027 11,176 9,339
--------- ----------- --------- -----
--------- ----------- --------- -----
Amortization for the year ended December 31, 1997 amounted to
$2,582 ($2,347 as of December 31, 1996).
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
(UNAUDITED) SEPTEMBER 30,
(NOTE 1) 1996
------------------------------------- (UNAUDITED)
ACCUMULATED (NOTE 1)
AMORTIZATION -----------------
COST NET NET NET
----------- ----------- ----------- -----------------
$ $ $ $
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1) (NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Furniture and fixtures.................... 24,080 12,369 11,711 12,223
----------- ----------- ----------- ------
----------- ----------- ----------- ------
</TABLE>
Amortization for the period ended September 30, 1998 amounted to $2,162
($1,947 for the period ended September 30, 1997).
F-38
<PAGE>
SYSTEMSEARCH CONSULTING SERVICES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
5. DUE TO SHAREHOLDER
The shareholder loan is unsecured, non-interest bearing and has no specific
terms of repayment.
6. CAPITAL STOCK
<TABLE>
<S> <C> <C> <C> <C>
Authorized
An unlimited number of Common Shares, no par value
Issued
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- ----------------------------
SEPTEMBER 30 SEPTEMBER 30 DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
------------- ------------- ------------- -------------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
65 Common shares....................... 36 36 36 36
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
7. INCOME TAXES
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
------------------------ ------------------------
SEPTEMBER SEPTEMBER DECEMBER DECEMBER
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income Taxes (Recovery) consist of:
Amount calculated at Federal and Provincial
Statutory rates............................... 98,359 46,758 56,119 (19,139)
Increase (decrease) resulting from:
Permanent Differences......................... 299 129 134 319
Timing Differences............................ (110) (57) (68) (180)
Other Differences............................. -- (13,662) (16,346) --
----------- ----------- ----------- -----------
189 (13,589) (16,279) 139
----------- ----------- ----------- -----------
Current Income Taxes (Recovery)................. 98,549 33,169 39,839 (19,000)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
8. LEASE COMMITMENTS
Minimum lease payments under an operating lease for the premises, exclusive
of all operating costs, hydro, basic insurance, utilities and property taxes for
which the company is responsible, is as follows for the fiscal year end:
<TABLE>
<CAPTION>
<S> <C>
1998............................................................................... $ 21,695
1999............................................................................... 23,380
2000............................................................................... 23,380
2001............................................................................... 23,380
2002............................................................................... 23,380
</TABLE>
F-39
<PAGE>
SYSTEMSEARCH CONSULTING SERVICES INC.
SCHEDULES OF EXPENSES
FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
---------------------------- --------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
$ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
ADMINISTRATIVE
Office salaries and benefits........................ 61,098 -- -- --
Rent................................................ 29,222 22,878 28,848 26,732
Office and general.................................. 13,610 23,992 35,649 32,627
Telephone........................................... 9,872 8,248 10,473 10,532
Taxes and licences.................................. 4,236 4,857 5,948 2,916
Insurance........................................... 1,808 1,869 1,858 2,287
Equipment rental.................................... 1,814 1,772 2,158 4,176
Repairs and maintenance............................. 4,819 955 1,515 --
Management salaries and fees........................ -- -- -- --
Amortization........................................ 2,162 1,947 2,582 2,347
------------- ------------- ------------ ------------
128,641 66,518 89,031 81,617
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
SELLING
Commission.......................................... 316,979 312,113 402,059 332,529
Automobile and travel............................... 12,838 3,852 4,659 8,966
------------- ------------- ------------ ------------
329,817 315,965 406,718 341,495
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
FINANCIAL
Interest and bank charges........................... 2,477 2,941 3,936 8,548
Professional fees................................... 4,332 14,390 15,464 1,071
------------- ------------- ------------ ------------
6,809 17,331 19,400 9,619
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
F-40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 8
Use of Proceeds................................ 18
Dividend Policy................................ 19
Dilution....................................... 20
Capitalization................................. 21
Selected Financial Data........................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 23
Business....................................... 29
Management..................................... 42
Principal Shareholders......................... 47
Certain Transactions........................... 48
Shares Eligible for Future Sale................ 49
Description of Securities...................... 51
Certain United States and Canadian Federal
Income Tax Considerations.................... 52
Investment Canada Act.......................... 54
Underwriting................................... 55
Legal Matters.................................. 57
Experts........................................ 57
Additional Information......................... 57
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMPANY'S SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
IT STAFFING LTD.
1,100,000
COMMON SHARES
------------------------
PROSPECTUS
------------------------
STRASBOURGER PEARSON
TULCIN WOLFF
INCORPORATED
WIN CAPITAL CORP
NUTMEG SECURITIES, LTD.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company provide that the Company shall indemnify directors
and officers of the Company. The pertinent section of Canadian law is set forth
below in full. In addition, upon effectiveness of this registration statement,
management intends to obtain officers' and directors' liability insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission (the
"Commission") with respect to the effect of any indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
Section 136 of the Business Corporations Act (Ontario) provides as follows:
(1) INDEMNIFICATION OF DIRECTORS. A corporation may indemnify a director or
officer of the corporation, a former director or officer of the corporation or a
person who acts or acted at the corporation's request as a director or officer
of a body corporate of which the corporation is or was a shareholder or
creditor, and his or her heirs and legal representatives, against all costs,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her in respect of any civil, criminal or
administrative action or proceeding to which he or she is a party by reason of
being or having been a director or officer of such corporation or body
corporate, if,
(a) he or she acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he or she had reasonable grounds for
believing that his or her conduct was lawful.
(2) IDEM. A corporation may, with the approval of the court, indemnify a
person referred to in subsection (1) in respect of an action by or behalf of the
corporation or body corporate to procure a judgment in its favour, to which the
person is made a party by reason of being or having been a director or an
officer of the corporation or body corporate, against all costs, charges and
expenses reasonably incurred by the person in connection with such action if he
or she fulfils the conditions set out in clauses (1)(a) and (b).
(3) IDEM. Despite anything in this section, a person referred to in
subsection (1) is entitled to indemnity from the corporation in respect of all
costs, charges and expenses reasonably incurred by him in connection with the
defense of any civil, criminal or administrative action or proceeding to which
he or she is made a party by reason of being or having been a director or
officer of the corporation or body corporate, if the person seeking indemnity;
(a) was substantially successful on the merits in his or her defense of
the action or proceeding; and
(b) fulfills the conditions set out in clauses (1)(a) and (b).
(4) LIABILITY INSURANCE. A corporation may purchase and maintain insurance
for the benefit of any person referred to in subsection (1) against any
liability incurred by the person,
(a) in his or her capacity as a director or officer of the corporation,
except where the liability relates to the person's failure to act honestly
and in good faith with a view to the best interests of the corporation; or
II-1
<PAGE>
(b) in his or her capacity as a director or officer of another body
corporate where the person acts or acted in that capacity at the
corporation's request, except where the liability relates to the person's
failure to act honestly and in good faith with a view to the best interests
of the body corporate.
(5) APPLICATION TO COURT. A corporation or a person referred to in
subsection (1) may apply to the court for an order approving an indemnity under
this section and the court may so order and make any further order it thinks
fit.
(6) INDEM. Upon application under subsection (5), the court may order notice
to be given to any interested person and such person is entitled to appear and
be heard in person or by counsel.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by the
Company in connection with the issuance and distribution of the securities being
registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................................... $ 1,988.97
NASD Filing Fee................................................................ 1,375.00
Nasdaq Listing Fees*........................................................... 15,000.00
Printing Engraving Expenses*................................................... 75,000.00
Legal Fees and Expenses*....................................................... 150,000.00
Accounting Fees and Expenses*.................................................. 70,000.00
Blue Sky Fees and Expenses*.................................................... 35,000.00
Transfer Agent and Registrar Fees and Expenses................................. 3,500.00
Miscellaneous*................................................................. 8,136.03
Total.......................................................................... $360,000.00
</TABLE>
- ------------------------
* estimate
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In October 1997, in consideration for business consulting services,
including identifying, structuring and effecting the acquisitions of Systems and
ICS, the Company issued 113,459 Common Shares to Globe Capital Corporation,
which is controlled by Lloyd Maclean, the Company's Chief Financial Officer and
a Director. The shares were valued at CDN$50,000.
In January 1997, in connection with the acquisition of Systems, the Company
issued 174,551 Common Shares to John R. Wilson. The shares were valued at
$291,843. 43,637 of these shares were redeemed in April 1998 for $69,940.
II-2
<PAGE>
In February through March of 1998, the Company sold 196,372 Common Shares to
12 individuals at a purchase price of approximately $2.15 per share for
aggregate consideration of $423,639. The twelve individuals included employees
and directors of the Company were:
<TABLE>
<CAPTION>
PURCHASE PRICE IN
SHAREHOLDER SHARES CANADIAN DOLLARS AFFILIATION(1)
- ----------------------------------------------- --------- -------------------------------- --------------------
<S> <C> <C> <C>
Patrick French................................. 19,637 60,000 (2)
James French................................... 6,546 20,000 (2)
Paul Dodd...................................... 19,637 60,000 Employee
Deidre Taylor.................................. 9,819 30,000 (3)
Blair Taylor................................... 9,819 30,000 Director Nominee
John Richardson................................ 9,819 30,000
Dennis Marsh................................... 19,637 60,000
Owen McCreery.................................. 39,274 120,000
Maureen Neglia................................. 9,819 30,000 Employee
Michael Helferman.............................. 19,637 60,000
Gail Dunne..................................... 13,091 40,000 (4)
Jim Reddy...................................... 19,637 60,000 Director Nominee
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the investors had no affiliation with the
Company.
(2) Mr. Patrick French and Mr. James French are the brothers of Declan French,
the Company's Chairman and Chief Executive Officer.
(3) Ms. Taylor is the spouse of Blair Taylor, a director nominee.
(4) Ms. Dunne is the spouse of John Dunne, a director nominee.
In May and June of 1998, the Company sold 85,582 Common Shares to seven
individuals at a purchase price of approximately $2.53 per share for aggregate
consideration of $216,814. The seven individuals were:
<TABLE>
<CAPTION>
PURCHASE PRICE IN
SHAREHOLDER SHARES CANADIAN DOLLARS AFFILIATION(1)
- ----------------------------------------------- --------- -------------------------------- --------------------
<S> <C> <C> <C>
Dennis Marsh................................... 15,704 60,000
Owen McCreery.................................. 31,914 120,000
Donna Hankinson................................ 2,618 10,000
Kelly Hankinson................................ 1,309 5,000 Employee
William Neill.................................. 19,637 60,000 Director Nominee
Paul Dodd...................................... 6,546 25,000 Employee
Maureen Neglia................................. 7,854 30,000 Employee
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the investors had no affiliation with the
Company.
In January 1998, in connection with the Acquisition of ICS, the Company
issued 130,914 shares of Common Stock to John A. Irwin. The shares were valued
at $349,528.
All of such issuances were made in Canada to Canadian residents in
conformity with the relevant local securities laws and the Company believes
would have been exempt from registration in the United States pursuant to the
exemption provided by Section 4(2) of the Securities Act, since all of such
individuals were sophisticated, accredited investors who purchased for
investment purposes without a view to distribution and there was no underwriter
involved in the private transaction.
In May 1998, the Company granted an option to purchase 200,000 Common Shares
at an exercise price of $2.10 per share to Robert M. Rubin. The options are
exercisable out of proceeds of Mr. Rubin's consulting agreement which provides
for an $80,000 per year cash compensation.
In connection with the acquisition of Southport Consulting Co., in November
1998, the Company became obliged to issue shares of Common Stock having a value
of $200,000, based on the initial public
II-3
<PAGE>
offering price, to Michael Carrazza. The transaction was pursuant to Section
4(2) and the recipient was a sophisticated, accredited investor who took the
shares for investment purposes without a view to distribution and there was no
underwriter involved in the private transaction.
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement
***3.1 Bylaws of Registrant
***3.2 Articles of Incorporation dated February 11, 1994
***3.3 Articles of Amendment dated February 15, 1996
***3.4 Articles of Amendment dated April 15, 1998
***3.5 Articles of Amendment dated August 6, 1998
***3.6 Articles of Amendment dated January 19, 1999
***4.2 Form of Underwriters' Warrant
***4.3 Specimen Common Share Certificate
***5.1 Opinion of McMillan Binch
***10.1 Form of Financial Consulting Agreement
***10.2 1998 Stock Option Plan
***10.3(a) Lease of the Company's headquarters in Toronto, Ontario
***10.3(b) Lease of the Company's office in New York, New York
***10.3(c) Lease of the Company's office in Etobicoke, Ontario
***10.3(d) Lease of the Company's office in Scarborough, Ontario
***10.3(e) Lease of the Company's office in Ottawa, Ontario
***10.4 Employment Agreement between the Company and Declan French dated August 1998
***10.5 Employment Agreement between the Company and John A. Irwin dated May 19, 1998
***10.6 Employment Agreement between the Company and John R. Wilson dated February 8,
1998
***10.7 Employment Agreement between the Company and John J. Silver dated August 10, 1998
***10.8 Form of consulting agreement for the Company's independent contractors
***10.9 Form of services agreement for the Company's customers
***10.10 Agreement for the Acquisition of the Capital Stock of International Career
Specialists Ltd.
***10.11 Agreement for the acquisition of the Capital Stock of Systemsearch Consulting
Services, Inc. and Systems, PS, Inc.
***10.12 License Agreement between the Company and International Office Centers Corp.
dated
August 1, 1998
***10.13 Joint Venture Agreement between the Company and Great Lakes Research and
Development, Ltd. dated October 30, 1998
***10.14 Consulting Agreement between the Company and Robert M. Rubin
***10.15 Form of Employment Agreement with Confidentiality Provision
***10.16 Asset Purchase Agreement between IT Staffing Ltd. and Southport Consulting
Company
***10.17 Consulting Agreement between IT Staffing Ltd. and Michael Carrazza
*23.1 Consent of Schwartz Levitsky Feldman, independent auditors of IT Staffing LTD.
*23.2 Consent of Schwartz Levitsky Feldman, independent auditors of Informational
Career Specialists Ltd.
*23.3 Consent of Schwartz Levitsky Feldman, independent auditors of System Search
Consulting Services, Inc.
***23.4 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP
***23.5 Consent of McMillan Binch
***23.6 Consents to act as Directors
</TABLE>
- ------------------------
* Filed herewith.
*** Previously filed.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to any charter provision, by-law, contract
arrangements, statute, or otherwise, the registrant has been advised 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. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer 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 small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i)To include any
Prospectus required by section 10(a)(3) of 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
information set forth in the registration statement; (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.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment 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.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h), under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement at that time as the initial bona fide offering of those
securities.
(6) The Company will provide to the Underwriter at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirement
for filing on Form SB-2 and has duly caused this Pre-Effective Amendment No. 6
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Province of Ontario, Canada on May 25, 1999.
<TABLE>
<S> <C> <C>
IT STAFFING LTD.
By: /s/ DECLAN FRENCH
-----------------------------------------
Declan French
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act, this Pre-Effective
Amendment No. 6 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman, President and
/s/ DECLAN FRENCH Chief Executive Officer
- ------------------------------ (Principal Executive May 25, 1999
Declan French Officer)
/s/ LLOYD MACLEAN Chief Financial Officer and
- ------------------------------ Director (Principal May 25, 1999
Lloyd Maclean Accounting Officer)
II-6
<PAGE>
Exhibit 1.1
1,100,000 Common Shares
IT STAFFING LTD.
UNDERWRITING AGREEMENT
May __, 1999
STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED
WIN CAPITAL CORP.
NUTMEG SECURITIES, LTD.
MASON HILL & CO., INC.
as Representatives of the several Underwriters
named in Schedule I attached hereto
c/o Strasbourger Pearson Tulcin Wolff Incorporated
61 Broadway
New York, New York 10006
c/o Win Capital Corp.
2 Rector Street
New York, New York 10006
Ladies and Gentlemen:
The undersigned, IT Staffing Ltd., an Ontario corporation (the
"Company"), hereby confirms its agreement with Strasbourger Pearson Tulcin Wolff
Incorporated ("Strasbourger"), Win Capital Corp., Nutmeg Securities, Ltd. and
Mason Hill & Co., Inc. as representatives (the "Representatives") of the several
underwriters named in Schedule I hereto (the "Underwriters"), and the
Underwriters as follows:
1. Introduction.
(a) The Company proposes to issue and sell to the Underwriters
an aggregate of 1,100,000 common shares, no par value, of the Company (the
"Common Shares"). Such Common Shares are hereinafter referred to as the "Firm
Stock."
(b) Solely for the purpose of covering over-allotments, if
any, the Company proposes to grant to the Underwriters an option (the
"Over-allotment Option") to purchase from it, in the aggregate, up to an
additional 165,000 Common Shares. Such Common Shares are hereinafter referred to
as the "Additional Stock." The Firm Stock and the Additional Stock are
hereinafter referred to as the "Stock."
(c) In consideration of the services to be provided under the
Financial Advisory Agreement (as defined herein), the Company proposes to sell
to the Representatives
<PAGE>
warrants (the "Representatives' Warrants") to purchase up to an aggregate of
110,000 Common Shares (the "Warrant Shares") for an aggregate purchase price of
$110.00. The Representatives' Warrants shall be substantially in the form filed
as an exhibit to the Registration Statement (as hereinafter defined). The
Representatives' Warrants and the Warrant Shares are hereinafter referred to
collectively as the "Representatives' Securities." The Stock and the
Representatives' Securities are hereinafter referred to collectively as the
"Securities."
2. Representations and Warranties. The Company represents and warrants
to, and agrees with, the several Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form SB-2
(Registration No. 333-63909), and may have filed one or more amendments thereto
and a Rule 462(b) Registration Statement (as hereinafter defined) in accordance
with Rule 462(b) under the Securities Act, including in such registration
statement and each such amendment a related preliminary prospectus, for the
registration of the Securities under the Securities Act of 1933, as amended (the
"Securities Act"). As used in this Agreement, the term "Registration Statement"
shall refer to such registration statement referred to in the first sentence of
this Section 2(a), as amended, on file with the Commission at the time such
registration statement is declared by the Commission to be effective under the
Securities Act (including the prospectus, financial statements, and exhibits
filed as a part thereof, provided, however, that such registration statement, at
the time it is declared by the Commission to be effective under the Securities
Act, may omit such information as is permitted to be omitted from such
registration statement when it becomes effective under the Securities Act
pursuant to Rule 430A of the General Rules and Regulations of the Commission
under the Securities Act (the "Regulations"), which information (the "Rule 430A
Information") shall be deemed to be included in such registration statement when
a final prospectus is filed with the Commission in accordance with Rules 430A
and 424(b)(1) or (4) of the Regulations and includes any Rule 462(b)
Registration Statement); the term "Preliminary Prospectus" shall refer to each
prospectus included in the Registration Statement, or any amendments thereto,
before the Registration Statement is declared by the Commission to be effective
under the Securities Act, the form of prospectus omitting Rule 430A Information
included in the Registration Statement when the Registration Statement becomes
effective under the Securities Act, if applicable (the "Rule 430A Prospectus"),
and any prospectus filed by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Regulations; and the term "Prospectus" shall
refer to the final prospectus forming a part of the Registration Statement in
the form first filed with the Commission pursuant to Rule 424(b)(1) or (4) of
the Regulations or, if no such filing is required, the form of final prospectus
forming a part of the Registration Statement. As used in this Agreement, the
term "Rule 462(b) Registration Statement" means the registration statement and
any amendments thereto filed pursuant to Rule 462(b) of the Regulations relating
to the offering covered by the Initial Registration Statement.
(b) When the Registration Statement becomes effective under
the Securities Act, and at all times subsequent thereto up to and including the
Closing Date (as defined in Section 3(a) hereof) and each Additional Closing
Date (as defined in Section 3(b) hereof), and during such longer period as the
Prospectus may be required to be delivered in connection with
2
<PAGE>
sales by the Underwriters or a dealer, and during such longer period until any
post-effective amendment thereto shall become effective under the Securities
Act, the Registration Statement (and any post-effective amendment thereto) and
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment or supplement to the Registration Statement or
the Prospectus) will contain all statements which are required to be stated
therein in accordance with the Securities Act and the Regulations, will comply
with the Securities Act and the Regulations, and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
no event will have occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has not then
been set forth in such an amendment or supplement; if a Rule 430A Prospectus is
included in the Registration Statement at the time it is declared by the
Commission to be effective under the Securities Act, the Prospectus filed
pursuant to Rules 430A and 424(b)(1) or (4) of the Regulations will contain all
Rule 430A Information and all statements which are required to be stated therein
in accordance with the Securities Act or the Regulations, will comply with the
Securities Act and the Regulations, and will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and each Preliminary
Prospectus, as of the date filed with the Commission, contained all statements
required to be stated therein in accordance with the Securities Act and the
Regulations, complied with the Securities Act and the Regulations, and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; except that no representation or warranty is made in this
Section 2(a)(2) with respect to statements or omissions made in reliance upon,
and in conformity with, written information furnished to the Company as stated
in Section 8(b) with respect to any Underwriter by, or on behalf of, such
Underwriter through the Representatives expressly for inclusion in the
Registration Statement, any Preliminary Prospectus, or the Prospectus, or any
amendment or supplement thereto.
(c) Neither the Commission nor, to the best knowledge of the
Company, the "blue sky" or securities authority of any jurisdiction has issued
an order (a "Stop Order") suspending the effectiveness of, or preventing or
suspending the use of, the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, refusing to permit the
effectiveness of the Registration Statement, or suspending the registration or
qualification of the Securities, nor has any of such authorities instituted or
threatened to institute any proceedings with respect to a Stop Order.
(d) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the Prospectus has
been properly described therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration Statement has
been filed with the Commission as an exhibit to the Registration Statement.
(e) The following corporations are the only subsidiaries (as
defined in the Regulations) of the Company: Systemsearch Consulting, Inc., an
Ontario corporation ("SCI"), Systems PS Inc., an Ontario corporation ("SPS"),
and International Career Specialists Ltd., an
3
<PAGE>
Ontario corporation ("ICS," and collectively with SCI and SPS, the
"Subsidiaries"). The Company and each of the Subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of its
respective jurisdiction of incorporation, with full power and authority, and all
necessary consents, authorizations, approvals, orders, licenses, certificates,
and permits of and from, and declarations and filings with, all federal, state,
local, and other governmental authorities and all courts and other tribunals, to
own, lease, license, and use its properties and assets and to conduct its
business in the manner described in the Prospectus. The Company and each
Subsidiary is duly qualified to do business as a foreign corporation and is in
good standing as such in every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of its business makes
such qualification necessary, except where the failure to so qualify will not
have a material adverse effect on the Company's business, properties, or
financial condition on a consolidated basis.
(f) The authorized capital stock of the Company consists of
15,000,000 Common Shares, of which 1,677,875 shares are outstanding prior to
this offering, and 1,000,000 shares of preferred stock, no par value, of which
none are outstanding. Each outstanding Common Share is validly authorized and
issued, fully paid, and nonassessable, without any personal liability attaching
to the ownership thereof, has not been issued and is not owned or held in
violation of any preemptive or similar rights of shareholders. Each share of
capital stock of each Subsidiary is owned of record and beneficially by the
Company. There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of the Company or any Subsidiary or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company, except as may be properly
described in the Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company or any Subsidiary, except as may
be properly described in the Prospectus. The certificates evidencing the Common
Shares are in due and proper form.
(g) The consolidated financial statements of the Company and
each of the Subsidiaries included in the Registration Statement and the
Prospectus fairly present in all material respects, with respect to the Company,
the financial position, the results of operations, the cash flows, and the other
information purported to be shown therein at the respective dates and for the
respective periods to which they apply. Such consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
(except to the extent that certain footnote disclosures regarding any stub
period may have been omitted in accordance with the applicable rules of the
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) consistently applied throughout the periods involved, are correct and
complete in all material respects, and are in accordance with the books and
records of the Company. Schwartz Levitsky Feldman, the accountants whose reports
on the audited consolidated financial statements for the years ended and at
December 31, 1996 and 1997, are filed with the Commission as a part of the
Registration Statement, is, and during the periods covered by their reports
included in the Registration Statement and the Prospectus was, independent
certified public accountants with respect to the Company and each of the
Subsidiaries within the meaning of the Securities Act and the Regulations. No
other financial
4
<PAGE>
statements are required by Form SB-2 or otherwise to be included in the
Registration Statement or the Prospectus. There has at no time been a material
adverse change in the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company on a
consolidated basis from the latest information set forth in the Registration
Statement or the Prospectus, except as may be properly described in the
Prospectus.
(h) There is no litigation, arbitration, claim, governmental
or other proceeding (formal or informal), or investigation pending, threatened,
or, to the best knowledge of the Company, in prospect (or any basis therefor)
with respect to the Company, any Subsidiary, or any of their respective
operations, businesses, properties, or assets, except as may be properly
described in the Prospectus or such as individually or in the aggregate do not
now have, and will not in the future have, a material adverse effect upon the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company and the Subsidiaries taken as a
whole. To the best knowledge of the Company, neither the Company nor any
Subsidiary is in violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, except as may be properly described in
the Prospectus or such as in the aggregate do not now have, and will not in the
future have, a material adverse effect upon the operations, business,
properties, or assets of the Company and the Subsidiaries taken as a whole; nor
is the Company or any Subsidiary currently required to take any action in order
to avoid any such violation or default.
(i) The Company and each Subsidiary has good and marketable
title to all properties and assets which the Prospectus indicates are owned by
it, free and clear of all liens, security interests, pledges, charges,
encumbrances, and mortgages, except as may be properly described in the
Prospectus or as are not material to the Company and the Subsidiaries taken as a
whole. No real property owned, leased, licensed, or used by the Company or any
Subsidiary lies in an area which is, or to the knowledge of the Company will be,
subject to zoning, use, or building code restrictions which would prohibit, and
no state of facts relating to the actions or inaction of another person or
entity or his or its ownership, leasing, licensing, or use of any real or
personal property exists or will exist which would prevent, the continued
effective ownership, leasing, licensing, or use of such real property in the
business of the Company and the Subsidiaries, each as presently conducted or as
the Prospectus indicates it contemplates conducting, except as may be properly
described in the Prospectus.
(j) Neither the Company or any Subsidiary nor, to the
knowledge of the Company, any other party, is now, or is expected by the Company
to be, in violation or breach of, or in default with respect to, any provision
of any contract, agreement, instrument, lease, license, arrangement, or
understanding which is material to the Company and the Subsidiaries taken as a
whole, and each such contract, agreement, instrument, lease, license,
arrangement, and understanding is in full force and effect and is the legal,
valid, and binding obligation of the parties thereto and is enforceable as to
them in accordance with its respective terms. The Company and each Subsidiary
enjoys peaceful and undisturbed possession under all leases and licenses under
which it is operating. Except as described in the Prospectus, neither the
Company nor any Subsidiary is a party to, or bound by, any contract, agreement,
instrument, lease, license, arrangement, or understanding, or subject to any
charter or other restriction, which has had, or
5
<PAGE>
may in the future have, a material adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of the Company and the Subsidiaries taken as a whole. Neither the
Company nor any Subsidiary is in violation or breach of, or in default with
respect to, any term of its respective certificate of incorporation (or other
charter document) or by-laws.
(k) The Company and each Subsidiary owns or possesses adequate
rights to use all patents, patent rights, inventions, trade secrets, licenses,
know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names, and copyrights described or referred to
in the Prospectus as owned or used by it or which are necessary for the conduct
of its business as currently conducted as described in the Prospectus and, to
the best knowledge of the Company, its business as contemplated as described in
the Prospectus. To the best knowledge of the Company, all such patents, patent
rights, licenses, trademarks, service marks, and copyrights are (i) valid and
enforceable, (ii) not being infringed by any third parties which infringement
could, singly or in the aggregate, materially and adversely affect the business,
properties, operations, condition (financial or otherwise), results of
operations, income, or business prospects of the Company and the Subsidiaries
taken as a whole, as presently being conducted or as proposed to be conducted as
described in the Prospectus, and (iii) are uncontested by any third party. The
Company has no knowledge of, nor has it received any notice of, infringement of,
or conflict with, asserted rights of others with respect to any patents, patent
rights, inventions, trade secrets, licenses, know-how, proprietary techniques,
including processes and substances, trademarks, service marks, trade names, or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling, or finding could materially and adversely affect the business,
properties, operations, condition (financial or otherwise), results of
operations, income, or business prospects of the Company and the Subsidiaries
taken as a whole, as presently being conducted or as proposed to be conducted as
described in the Prospectus.
(l) Neither the Company or any Subsidiary, nor, to the best
knowledge of the Company, any director, officer, agent, employee, or other
person associated with, or acting on behalf of, the Company or any Subsidiary,
has, directly or indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
from corporate funds; violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment. The Company's internal accounting controls
and procedures are sufficient to cause the Company and each of the Subsidiaries
to comply in all respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(m) The Company has all requisite power and authority to
execute, deliver, and perform each of this Agreement, the financial advisory
agreement, between the Company and the Representatives, a form of which has been
filed as an Exhibit to the Registration Statement (the "Financial Advisory
Agreement"), and the Representatives' Warrants. All necessary corporate
proceedings of the Company have been duly taken to authorize the
6
<PAGE>
execution, delivery, and performance by the Company of this Agreement, the
Financial Advisory Agreement, and the Representatives' Warrants. This Agreement
has been duly authorized, executed, and delivered by the Company and is the
legal, valid, and binding obligation of the Company. The Financial Advisory
Agreement and the Representatives' Warrants have been duly authorized by the
Company and, when executed and delivered by the Company, will be legal, valid,
and binding obligations of the Company, each enforceable as to the Company in
accordance with its terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any federal,
state, local, or other governmental authority or any court or other tribunal is
required by the Company or any Subsidiary for the execution, delivery, or
performance by the Company of this Agreement, the Financial Advisory Agreement,
or the Representatives' Warrants, except filings under the Securities Act which
have been or will be made before the Closing Date, and consents consisting only
of consents under "blue sky" or securities laws which have been obtained at or
prior to the date of this Agreement. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to which
the Company or any Subsidiary is a party, or to which any of their respective
properties or assets are subject, is required for the execution, delivery, or
performance of this Agreement, the Financial Advisory Agreement, and the
Representatives' Warrants; and the execution, delivery, and performance of this
Agreement, the Financial Advisory Agreement, and the Representatives' Warrants
will not violate, result in a breach of, conflict with, result in the creation
or imposition of any lien, charge, or encumbrance upon any properties or assets
of the Company or any Subsidiary pursuant to the terms of, or, with or without
the giving of notice or the passage of time or both, entitle any party to
terminate or call a default under, any such contract, agreement, instrument,
lease, license, arrangement, or understanding, or violate, result in a breach
of, or conflict with any term of the certificate of incorporation (or other
charter document) or by-laws of the Company, or violate, result in a breach of,
or conflict with, any law, rule, regulation, order, judgment, or decree binding
on the Company or any Subsidiary or to which any of their respective operations,
businesses, properties, or assets are subject.
(n) The Firm Stock is validly authorized and, when issued and
delivered in accordance with this Agreement, will be validly issued, fully paid,
and nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive or similar rights
of shareholders, and the Underwriters will receive good title to the shares of
Firm Stock purchased by them, respectively, free and clear of all liens,
security interests, pledges, charges, encumbrances, shareholders' agreements,
and voting trusts. The Additional Stock is validly authorized and, when issued
in accordance with the terms hereof, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive or similar rights
of shareholders. The Additional Stock has been duly and validly reserved for
issuance. The Stock conforms to all statements relating thereto contained in the
Registration Statement and the Prospectus.
(o) The Warrant Stock is validly authorized and has been duly
and validly reserved for issuance and, when issued and delivered upon exercise
of the Representatives' Warrants in accordance with the terms thereof, will be
validly issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, and will not be
7
<PAGE>
issued in violation of any preemptive or similar rights of shareholders; and the
holders of the Representatives' Warrants will receive good title to the
securities purchased by them upon the exercise of the Representatives' Warrants,
free and clear of all liens, security interests, pledges, charges, encumbrances,
shareholders' agreements, and voting trusts. The Representatives' Securities
conform to all statements relating thereto contained in the Registration
Statement and the Prospectus.
(p) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except as may
otherwise be properly described in the Prospectus, neither the Company nor any
Subsidiary has (i) issued any securities or incurred any material liability or
material obligation, primary or contingent, for borrowed money, (ii) entered
into any material transaction not in the ordinary course of business, (iii)
declared or paid any dividend on its capital stock, except dividends by a
Subsidiary to the Company or another Subsidiary, or (iv) experienced any adverse
changes or any development which may materially adversely effect the condition
(financial or otherwise), net assets or shareholders' equity, results of
operations, business, key personnel, assets, or properties of the Company and
the Subsidiaries taken as a whole.
(q) Neither the Company or any Subsidiary nor any of their
respective officers, directors, or affiliates (as defined in the Regulations),
has taken or will take, directly or indirectly, prior to the termination of the
offering contemplated by this Agreement, any action designed to stabilize or
manipulate the price of any security of the Company, or which has caused or
resulted in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of any of the Firm Stock or the
Additional Stock.
(r) The Company has obtained from each of its directors,
officers, and shareholders a written agreement, in form and substance
satisfactory to counsel for the Underwriters, that, for a period of 18 months
from the date on which the Registration Statement is declared by the Commission
to be effective under the Securities Act, he, she, or it will not, without the
prior written consent of Strasbourger, publicly offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any Common Shares or any security or other instrument which by its
terms is convertible into, or exercisable or exchangeable for, Common Shares or
other securities of the Company, including, without limitation, any Common
Shares issuable pursuant to the terms of any employee stock options.
(s) The Company is not, and does not intend to conduct its
business in a manner in which it would be required to register as, an
"investment company" as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations
promulgated thereunder.
(t) No person or entity has the right to require registration
of Common Shares or other securities of the Company because of the filing or
effectiveness of the Registration Statement, which right has not been waived.
8
<PAGE>
(u) Except as may be set forth in the Prospectus, the Company
has not incurred any liability for a fee, commission, or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(v) Neither the Company or any Subsidiary, nor any of their
respective affiliates, is presently doing business with the government of Cuba
or with any person or affiliate located in Cuba. If, at any time after the date
on which the Registration Statement is declared by the Commission to be
effective under the Securities Act or with the Florida Department of Banking and
Finance (the "Florida Department"), whichever is later, and prior to the end of
the period referred to in the first clause of Section 2(b) hereof, the Company
and any Subsidiary commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba, the Company will so inform the
Florida Department within 90 days after such commencement of business in Cuba,
and, during the period referred to in Section 2(2) hereof, will inform the
Florida Department within 90 days after any change occurs with respect to
previously reported information.
(w) No officer, director, or shareholder of the Company has
any affiliation or association with the National Association of Securities
Dealers, Inc. (the "NASD") or any member thereof, except that Michael Carrazza,
who is a consultant to the Company and after the Closing Date (as herein
defined) will be a shareholder and Director of the Company, is the brother of an
employee of one of the Representatives.
(x) Except as disclosed in the Prospectus, the Company, each
of the Subsidiaries, and all shareholders of the Company have filed all
necessary federal, state, provincial, local, and foreign income and franchise
tax returns and other reports required to be filed and has paid all taxes shown
as due thereon; and there is no tax deficiency which has been, or, to the
knowledge of the Company, might be, asserted against the Company or any
Subsidiary.
(y) To the best knowledge of the Company, none of the
activities or business of the Company or any Subsidiary is in violation of, or
will cause the Company or any Subsidiary to violate, any law, rule, regulation,
or order of the United States, any state, county, or locality, or of any agency
or body of the United States or of any state, county, or locality, the violation
of which would have a material adverse effect upon the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of the Company and the Subsidiaries taken as a whole.
(z) The Common Shares have been approved for quotation on the
Nasdaq SmallCap Market and the Boston Stock Exchange (the "Stock Exchange").
(aa) The Company is in compliance with all U.S. and Canadian
federal, state, provincial, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment, and
wages and hours. There are no pending investigations involving the Company, by
the U.S. Department of Labor, or any other U.S. or Canadian governmental agency
responsible for the enforcement of such federal, state, local, or
9
<PAGE>
foreign laws and regulations. There is no unfair labor practice charge or
complaint against either the Company pending before the National Labor
Regulations Board or its Canadian counterpart or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or, to the best knowledge of the Company,
threatened against or involving the Company or any predecessor entity, and none
has ever occurred. No representation question exists respecting the employees of
the Company, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending or threatened under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the employees of the
Company exists, or, is imminent.
(ab) Except as described in the Prospectus, the Company does
not maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a "multi
employer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA" Plans"). The Company does not maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No "accumulated funding deficiency" (as defined in Section 302 of
ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than
events with respect to which the 30-day notice under Section 4043 of ERISA has
been waived) has occurred with respect to any employee benefit plan which could
reasonably be expected to have a material adverse effect of the business,
prospects, financial condition, or results of operations of the Company. No
ERISA Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Internal Revenue Code of 1986, as amended (the "Code") and
ERISA as they relate to any such ERISA Plan. Determination letters have been
received from the Internal Revenue Service with respect to each ERISA Plan which
is intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multi employer plan."
(ac) The Company has not been notified nor is otherwise aware
that it is potentially liable, or is considered potentially liable, under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or any similar law ("Environmental Laws"). To the best knowledge of the
Company, the Company is in compliance with all applicable existing Environmental
Laws, except for such instances of non-compliance which would not have a
material adverse effect on the business, prospects, financial condition, or
results of operations. The term "Hazardous Material" means (i) any "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act, as amended, (iii) any petroleum or
petroleum product, (iv) any polychlorinated biphenyl, and (v) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material, waste or
substance regulation under or within the meaning of any other Environmental Law.
To the best knowledge of the Company, no disposal, release or discharge of
Hazardous Material has occurred on, in, at or about any of the facilities or
properties of the Company except
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for those instances which are in compliance with Environmental Laws or in the
aggregate would not have a material adverse effect on the business, prospects,
financial condition, or results of operations of the Company. Except as
described in the Prospectus, to the best knowledge of the Company: (i) there has
been no storage, disposal, generation, transportation, handling or treatment of
Hazardous Material by the Company (or to the knowledge of the Company, and of
its predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or which would
require remedial action which has not been taken, under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for such
violations and failures to take remedial action which would not result in,
singularly or in the aggregate, a material adverse effect on the business,
prospects, financial condition, or results of operations of the Company; and
(ii) there has been no material spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or into the
environmental surrounding such property by the Company of any Hazardous
Material, except for such spills, discharge, leaks, emissions, injections,
escapes, dumping or releases which are in compliance with Environmental Laws or
would not result in, singularly or in the aggregate, a material adverse effect
the business, prospects, financial condition, or results of operations of the
Company.
(ad) None of the proceeds of the sale of the Securities will
be used, directly or indirectly, for the purpose of purchasing or carrying any
margin security, for the purpose of reducing or retiring any indebtedness which
was originally incurred to purchase or carry any margin security or for any
other purpose which might cause any of the Securities or Warrants to be
considered a "purpose credit" within the meanings of Regulation G, T, U or X of
the Board of Governors of the Federal Reserve Board.
3. Purchase, Sale, and Delivery of the Stock and the Representatives'
Warrants.
(a) On the basis of the representations, warranties,
covenants, and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to issue and sell to
the several Underwriters, and, the Underwriters, severally and not jointly,
agree to purchase from the Company, the numbers of shares of Firm Stock set
forth opposite the respective names of the Underwriters in Schedule I hereto.
The purchase price per share of the Firm Stock to be paid by
the several Underwriters shall be $4.50. The initial public offering price per
share of the Firm Stock shall be $5.00.
Payment for the Firm Stock by the Underwriters shall be made
by wire transfer of immediately available funds to an account designated by, the
Company, at the offices of Strasbourger Pearson Tulcin Wolff Incorporated, 61
Broadway, New York, New York 10006, or at such other place in the New York City
metropolitan area as the Representatives shall determine and advise the Company
by at least two full days' notice in writing, upon delivery of the Firm Stock to
the Representatives for the respective accounts of the Underwriters. Such
delivery and payment shall be made at 9:00 a.m., New York City local time, on
the third business
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day following the time of the initial public offering, as defined in Section
11(a) hereof (unless such time and date is postponed in accordance with the
provisions of Section 9(c) hereof), or at such other time as shall be agreed
upon between the Representatives and the Company. The time and date of such
delivery and payment are hereinafter referred to as the "Closing Date."
Certificates representing the Firm Stock shall be registered
in such name or names and in such authorized denominations as the
Representatives may request in writing at least two full business days prior to
the Closing Date. The Company shall permit the Representatives to examine and
package such certificates for delivery at least one full business day prior to
the Closing Date.
(b) The Company hereby grants to the Underwriters' the
Over-allotment Option to purchase up to an aggregate of 165,000 Common Shares,
as may be necessary to cover over-allotments, at the same purchase price per
share to be paid by the several Underwriters to the Company for the Firm Stock
as provided for in this Section 3 hereof. The Over-allotment Options may be
exercised only to cover over-allotments in the sale of shares by Underwriters'
and shall be exercised pro rata to the numbers of Common Shares set forth
opposite the names of such Underwriters in Schedule I hereto. The Over-allotment
Option may be exercised by the Underwriters on the basis of the representations,
warranties, covenants, and agreements of the Company herein contained, but
subject to the terms and conditions herein set forth, at any time and from time
to time on or before the forty-fifth day following the date on which the
Registration Statement becomes effective under the Securities Act, by written
notice by the Representatives to the Company. Such notice shall set forth the
aggregate number of shares of Additional Stock as to which the Over-allotment
Option is being exercised, the name or names in which the certificates
representing the Additional Stock are to be registered, the authorized
denominations in which the Additional Stock is to be registered, and the time
and date, as determined by the Representatives, when such shares of Additional
Stock are to be delivered (each such time and date are hereinafter referred to
as an "Additional Closing Date"); provided, however, that no Additional Closing
Date shall be earlier than the Closing Date nor earlier than the second business
day after the date on which the notice of the exercise of the Over-allotment
Option shall have been given nor later than the eighth business day after the
date on which such notice shall have been given.
In the event the Company declares or pays a dividend or a
distribution on the Common Shares, whether in the form of cash, Common Shares,
or other consideration, prior to the Additional Closing Date, such dividend or
distribution shall also be paid on the Additional Stock on the later of the
Additional Closing Date and the date on which such dividend or distribution is
payable.
Payment for the shares of Additional Stock by the Underwriters
shall be made by wire transfer of immediately available funds to an account
designated by the Company at the offices of Strasbourger Pearson Tulcin Wolff
Incorporated, 61 Broadway, New York, New York 10006, or at such other place in
the New York City metropolitan area as the Representatives shall determine and
advise the Company by at least two full days' notice in writing, upon delivery
of the shares of Additional Stock to the Underwriters' for their respective
accounts.
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Certificates for the shares of Additional Stock shall be
registered in such name or names and in such authorized denominations as the
Representatives may request in writing at least two full business days prior to
the Additional Closing Date with respect thereto. The Company shall permit the
Representatives to examine and package such certificates for delivery at least
one full business day prior to the Additional Closing Date with respect thereto.
(c) The Company hereby agrees to issue and sell to the
Representatives (individually and in consideration of the services to be
provided under the Financial Advisory Agreement and not as the representatives
of the several Underwriters) and/or their designees on the Closing Date the
Representatives' Warrants to purchase the Warrant Shares for an aggregate
purchase price of $110.00.
Delivery and payment for the Representatives' Warrants shall
be made on the Closing Date. The Company shall deliver to the Representatives
upon payment therefor, certificates representing the Representatives' Warrants
in the name or names and in such authorized denominations as the Representatives
may request. The Representatives' Warrants shall be exercisable for a period of
four years commencing one year from the date on which the Registration Statement
was declared effective under the Securities Act at an initial exercise price per
Warrant Share equal to $8.25.
(d) It is understood that the Representatives may (but shall
not be obligated to) make any and all the payments required pursuant to this
Section 3 on behalf of any Underwriters whose check or checks shall not have
been received by the Representatives at the time of delivery of the Stock to be
purchased by such Underwriter or Underwriters. Any such payment by the
Representatives shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
4. Offering.
(a) The Underwriters are to make a public offering of the Firm
Stock as soon, on or after the date on which the Registration Statement becomes
effective under the Securities Act, as the Representatives deem it advisable so
to do. The Firm Stock is to be initially offered to the public at the initial
public offering price as provided for in Section 3(a) (such price being
hereinafter referred to as the "public offering price"). After the initial
public offering, the Representatives may from time to time increase or decrease
the public offering price, in the sole discretion of the Representatives, by
reason of changes in general market conditions or otherwise.
(b) Until the later of the Closing Date and the completion of
the distribution of the Firm Stock and Additional Stock, the Underwriters will
not offer, sell or deliver the Firm Stock and Additional Stock, directly or
indirectly, in Canada or to or for the benefit of any person who the
Underwriters know or have reasonable grounds for believing is a resident thereof
in violation of the securities laws of Canada or any province or territory of
Canada.
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5. Covenants. The Company covenants that it will:
(a) Use its best efforts to cause the Registration Statement
to become effective under the Securities Act as promptly as possible and notify
the Representatives and counsel to the Underwriters immediately, and confirm
such notice in writing, (i) when the Registration Statement and any
post-effective amendment thereto become effective under the Securities Act, (ii)
of the receipt of any comments from the Commission or the "blue sky" or
securities authority of any jurisdiction regarding the Registration Statement,
any post-effective amendment thereto, the Prospectus, or any amendment or
supplement thereto, (iii) of the filing with the Commission of any supplement to
the Prospectus, and (iv) of the receipt of any notification with respect to a
Stop Order or the initiation or threatening of any proceeding with respect to a
Stop Order. The Company will use its best efforts to prevent the issuance of any
Stop Order and, if any Stop Order is issued, to obtain the lifting thereof as
promptly as possible. If the Registration Statement has become or becomes
effective under the Securities Act with a form of prospectus omitting Rule 430A
Information, or filing of the Prospectus with the Commission is otherwise
required under Rule 424(b) of the Regulations, the Company will file with the
Commission the Prospectus, properly completed, pursuant to Rule 424(b) of the
Regulations within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing.
(b) During the time when a prospectus relating to the Firm
Stock or the Additional Stock is required to be delivered hereunder or under the
Securities Act or the Regulations, comply with all requirements imposed upon it
by the Securities Act, as now existing and as hereafter amended, and by the
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of, or dealings in, the Stock in accordance with the
provisions hereof and the Prospectus. If, at any time when a prospectus relating
to the Firm Stock or the Additional Stock is required to be delivered hereunder
or under the Securities Act or the Regulations, any event shall have occurred as
a result of which, in the reasonable opinion of counsel for the Company or
counsel for the Underwriters, the Registration Statement or the Prospectus as
then amended or supplemented contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or if, in the opinion of either of
such counsel, it is necessary at any time to amend or supplement the
Registration Statement or the Prospectus to comply with the Securities Act or
the Regulations, the Company will immediately notify the Representatives and
promptly prepare and file with the Commission an appropriate amendment or
supplement (in form and substance satisfactory to the Representatives and
counsel to the Underwriters) which will correct such statement or omission or
which will effect such compliance and will use its best efforts to have any such
amendment declared effective under the Securities Act as soon as possible.
(c) Deliver without charge to each of the several Underwriters
such number of copies of each Preliminary Prospectus as may reasonably be
requested by the Underwriters and, as soon as the Registration Statement, or any
amendment thereto, becomes effective under the Securities Act or a supplement is
filed with the Commission, deliver without charge to the Representatives two
signed copies of the Registration Statement, including exhibits, or such
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<PAGE>
amendment thereto, as the case may be, and two copies of any supplement thereto,
and deliver without charge to each of the several Underwriters such number of
copies of the Prospectus, the Registration Statement, and amendments and
supplements thereto, if any, without exhibits, as the Representatives may
reasonably request for the purposes contemplated by the Securities Act.
(d) Endeavor in good faith, in cooperation with the
Representatives, at or prior to the time the Registration Statement becomes
effective under the Securities Act, to qualify the Securities for offering and
sale under the "blue sky" or securities laws of such jurisdictions as may be
designated by the Representatives; provided, however, that no such qualification
shall be required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a foreign
corporation doing business in such jurisdiction to which it is not then subject.
In each jurisdiction where such qualification shall be effected, the Company
will, unless the Representatives agree in writing that such action is not at the
time necessary or advisable, file and make such statements or reports at such
times as are or may be required by the laws of such jurisdiction.
(e) Make generally available, within the meaning of Section
11(a) of the Securities Act and the Regulations, to its security holders as soon
as practicable, but not later than forty-five (45) days after the end of its
fiscal quarter in which the first anniversary date of the effective date of the
Registration Statement occurs, an earnings statement, which need not be
certified by independent certified public accountants unless required by the
Securities Act or the Regulations, but which shall satisfy the provisions of
Section 11(a) of the Securities Act and the Regulations, covering a period of at
least 12 months beginning after the date on which the Registration Statement was
declared effective under the Securities Act.
(f) For a period of 18 months after the date of the
Prospectus, not, without the prior written consent of Strasbourger, offer,
issue, sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any Common Shares or other securities of the
Company, or any security or other instrument which by its terms is convertible
into, or exercisable or exchangeable for, Common Shares, except as contemplated
by Section 3 hereof and except for (i) the issuance of stock options, or Common
Shares issuable upon the exercise thereof, which have been or may be granted
pursuant to the Company's 1998 Stock Option Plan, up to an aggregate of 435,000
Common Shares, all as properly described in the Prospectus, (ii) upon the
exercise of warrants outstanding on the date hereof, as properly described in
the Prospectus, (iii) the issuance of shares of Warrant Stock issuable upon
exercise of the Representatives' Warrants, and (iv) the issuance of Common
Shares in connection with acquisitions by the Company.
(g) For a period of five years after the date on which the
Registration Statement was declared effective under the Securities Act furnish
the Representatives without charge, the following:
(1) within 90 days after the end of each fiscal
year, one copy of financial statements certified by independent certified public
accountants, including a balance sheet, statement of operations, and statement
cash flows of the Company and its then existing
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<PAGE>
subsidiaries, if any, with supporting schedules, prepared in accordance with
generally accepted accounting principles, as at the end of such fiscal year and
for the 12 months then ended, which may be on a consolidated basis;
(2) as soon as practicable after they have been sent
to shareholders of the Company or filed with, or furnished to, the Commission,
the NASD, or the Exchange one copy of each annual and interim financial and
other report or communication sent by the Company to its shareholders or filed
with, or furnished to, the Commission, the NASD, or the Exchange;
(3) as soon as practicable, one copy of every press
release and every material news item and article in respect of the Company, any
Subsidiary, or their respective affairs which was released by the Company or any
such Subsidiary; and
(4) such additional documents and information with
respect to the Company, any Subsidiary, and their respective affairs, as the
Representatives may from time to time reasonably request; provided, however,
that such additional documents and information shall be received by the
Representatives on a confidential basis, unless otherwise disclosed to the
public, and shall not be used in violation of the federal securities laws and
the rules and regulations promulgated thereunder.
(h) Apply the net proceeds received by the Company from the
offering contemplated by this Agreement in the manner set forth under the
heading "Use of Proceeds" in the Prospectus.
(i) Furnish to the Representatives as early as practicable
prior to the Closing Date and each Additional Closing Date, if any, as the case
may be, but not less than two full business days prior thereto, a copy of the
latest available unaudited interim financial statements of the Company which
have been read by the Company's independent certified public accountants, as
stated in their letters to be furnished pursuant to Section 7(f) hereof.
(j) File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the date on which
the Registration Statement was declared effective under the Securities Act,
unless such filing shall comply with the Securities Act and the Regulations and
unless the Representatives shall previously have been advised of such filing and
furnished with a copy thereof, and the Representatives shall have approved such
filing in writing. Until the later of (i) the completion by the Underwriters of
the distribution of the Stock (but in no event more than nine months after the
date on which the Registration Statement shall have been declared effective
under the Securities Act) and (ii) 25 days after the date on which the
Registration Statement shall have been declared effective under the Securities
Act, the Company will prepare and file with the Commission, promptly upon the
Representatives' request, any amendments or supplements to the Registration
Statement or the Prospectus which, in the sole opinion of the Representatives,
may be necessary or advisable in connection with the distribution of the Stock.
(k) File timely with the Commission an appropriate form to
register the
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Common Shares, including the Stock, pursuant to Section 12(b) of the Exchange
Act and comply with all registration, filing, and reporting requirements of the
Exchange Act, which may from time to time be applicable to the Company.
(l) Comply with all provisions of all undertakings contained
in the Registration Statement.
(m) Prior to the later of (A) the date referred to in the
second sentence of clause (j) of this Section 5, and (B) any Additional Closing
Date, issue no press release or other communication, directly or indirectly, and
hold no press conference with respect to the Company, the financial condition,
results of operations, business, properties, assets, liabilities of any the
Company or any Subsidiary, or this offering, without the prior written consent
of the Representatives.
(n) Make all filings required to maintain the inclusion of the
Common Shares on the Nasdaq SmallCap Market and the Exchange for at least five
years from the date of this Agreement.
(o) On the Closing Date, sell to the Representatives,
individually and not as Representatives of the several Underwriters, at the
price of $.001 per warrant, warrants to purchase the Warrant Stock, which
Representatives' Warrants shall be substantially in the form set forth as an
exhibit to the Registration Statement. On the Closing Date, execute and deliver
to the Representatives the Financial Advisory Agreement.
(p) Until expiration of the Representatives' Warrants, keep
reserved sufficient Common Shares for issuance upon exercise of the
Representatives' Warrants.
(q) Deliver to the Representatives, without charge, within a
reasonable period after the last Additional Closing Date or the expiration of
the period during which the Representatives may exercise the Over-allotment
Options, five sets of leather bound volumes of the Registration Statement and
all related materials to the individuals designated by the Representatives or
counsel to the Underwriters.
(r) For a period of three years after the effective date on
which the Registration Statement is declared effective under the Securities Act,
provide, at its sole expense, to the Representatives copies of the Company's
daily transfer sheets, if so requested by the Representatives.
(s) Maintain key-person life insurance payable to the Company
on the life of Mr. Declan A. French, the President, Chairman of the Board of
Directors, and Chief Executive Officer of the Company, in the amount of at least
$200,000 for the period of time equal to the longer of three years from the date
on which the Registration Statement becomes effective under the Securities Act
and the term of the employment agreement between the Company and such officer.
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<PAGE>
(t) For a period of three years from the date on which the
Registration Statement becomes effective under the Securities Act, the
Representatives shall have the right to designate a director or appoint a
designee as an observer of the Company's Board of Directors. Such director or
observer will have the right to attend all meetings of the Board of Directors.
Such director or observer shall be entitled to receive reimbursement for all
out-of-pocket expenses incurred in attending such meetings, including, but not
limited to, food, lodging, transportation, and any fees paid to directors for
attending meetings. The Representatives shall be given notice of such meetings
at the same time and in the same manner as directors of the Company are
informed. The Representatives and such director or observer shall be indemnified
to the same extent as the other directors. The Company will purchase directors
and officers insurance in an amount of not less than $2,000,000, provided,
however, that the Company shall not be required to pay more than $50,000 per
year in order to maintain such insurance, and if insurance in such amount is not
available at such cost, the Company shall purchase that amount of such insurance
which is available at a cost of $50,000 per year.
(u) For a period of three years from the date on which the
Registration Statement becomes effective under the Securities Act, retain a
transfer agent reasonably acceptable to the Representatives.
6. Payment of Expenses. The Company hereby agrees to pay all expenses
(other than fees of counsel for the Underwriters, except as provided in Section
6(c)) in connection with (a) the preparation, printing, filing, distribution,
and mailing of the Registration Statement and the Prospectus and the printing,
filing, distribution, and mailing of this Agreement and the Agreement Among
Underwriters, any Selected Dealer Agreement and related documents, including the
cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments or supplements thereto supplied to the
Underwriters in quantities as hereinabove stated, (b) the issuance, sale,
transfer, and delivery (as applicable) of the Securities, including, without
limitation, the purchase from the Company of the Stock by the Underwriters, the
purchase by the Representatives of the Representatives' Warrants, the
consummation by the Company of any of its obligations under the this Agreement,
the Financial Advisory Agreement, or under the Representatives' Warrants, the
resale of the Stock by the Underwriters in connection with the distribution
contemplated by this Agreement, and any transfer or other taxes payable thereon,
(c) the qualification of the Securities under state or foreign "blue sky" or
securities laws, including the costs of printing and mailing the preliminary and
final "Blue Sky Survey" and the fees of counsel for the Underwriters (up to
$35,000) and the disbursements in connection therewith, (d) the filing fees
payable to the Commission, the NASD, NASD Regulation, Inc. ("NASDR"), and the
jurisdictions in which such qualification is sought, (e) any fees relating to
the listing of the Common Shares on the Exchange and any other stock market or
exchange, (f) the cost of printing or engraving certificates representing the
Securities, (g) the fees of the transfer agent for the Securities, (h)
advertising costs and expenses, including, but not limited to, costs and
expenses relating to the "road show," information meetings and presentations
(including travel and hotel), bound volumes, prospectus memorabilia, and
expenses relating to tombstone advertisements, (i) a non-accountable expense
allowance equal to three percent of the gross proceeds of the sale of the Firm
Stock and the Additional Stock (less $75,000 previously paid to the
Representatives by the Company in respect of such non-accountable expense
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allowance) to the Representatives on the Closing Date, (j) fees and expenses of
counsel to, and independent certified public accountants of, the Company, and
(k) costs and expenses in connection with due diligence investigations,
including, but not limited to, fees of any consultant retained by the
Underwriters. Notwithstanding the foregoing, if the offering contemplated hereby
should be terminated, the Company agrees to pay the Representatives only the
out-of-pocket expenses incurred by the Underwriters in connection with this
Agreement or the proposed offer, sale, and delivery of the Securities.
7. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Stock and the Additional
Stock, as provided herein, and the obligation of the Representatives,
individually and not as representatives of the several Underwriters, to purchase
and pay for the Representatives' Warrants, each as provided herein, shall be
subject, in the discretion of the Representatives, to the continuing accuracy of
the representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
the Underwriters, as of the date hereof and as of the Closing Date (or any
Additional Closing Date, as the case may be), to the performance by the Company
of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective
under the Securities Act not later than 6:00 P.M., New York City local time, on
the date of this Agreement or such later date and time as shall be consented to
in writing by the Representatives, on or prior to the Closing Date, or any
Additional Closing Date, as the case may be, no Stop Order shall have been
issued and no proceeding shall have been initiated or threatened with respect to
a Stop Order; and any request by the Commission for additional information shall
have been complied with by the Company to the reasonable satisfaction of counsel
for the Underwriters. If required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Securities Act.
(b) (i) At the Closing Date and any Additional Closing Date,
as the case may be, you shall have received the opinion of Gersten, Savage,
Kaplowitz & Fredericks, LLP, United Stated counsel for the Company, dated the
date of delivery, addressed to the Underwriters, and in form and scope
satisfactory to counsel for the Underwriters, with reproduced copies or signed
counterparts thereof for each of the Underwriters.
(ii) At the Closing Date and any Additional Closing Date,
as the case may be, you shall have received the opinion of McMillan Binch,
Canadian counsel for the Company, dated the date of delivery, addressed to the
Underwriters, and in form and scope satisfactory to counsel for the
Underwriters, with reproduced copies or signed counterparts thereof for each of
the Underwriters.
(c) On or prior to the Closing Date and any Additional Closing
Date, as the case may be, the Underwriters shall have been furnished such
information, documents, certificates, and opinions as they may reasonably
require for the purpose of enabling them to review the matters referred to in
Section 7(b), and in order to evidence the accuracy, completeness, or
satisfaction of any of the representations, warranties, covenants, agreements,
or
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conditions herein contained, or as the Representatives may reasonably request.
(d) At the Closing Date or any Additional Closing Date, as the
case may be, (i) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Securities Act and the
Regulations, and in all material respects conform to the requirements thereof,
and neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company or any Subsidiary from that
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the date on
which the Registration Statement becomes effective under the Securities Act, and
neither the Company nor any Subsidiary shall have incurred any material
liabilities or entered into any agreements not in the ordinary course of
business other than as referred to in the Registration Statement and Prospectus,
(iii) except as set forth in the Prospectus, no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation shall be
pending, threatened, or in prospect (or any basis therefor) with respect to the
Company or any Subsidiary or any of their respective operations, businesses,
properties, or assets which would be required to be set forth in the
Registration Statement, wherein an unfavorable decision, ruling, or finding
would materially adversely affect the business, property, condition (financial
or otherwise), results of operations, or general affairs of the Company or such
Subsidiary, and (iv) the Stock be listed upon the Nasdaq SmallCap Market and the
Exchange.
(e) At the Closing Date and any Additional Closing Date, as
the case may be, you shall have received a certificate of the Chief Executive
Officer and the Chief Financial Officer of the Company, dated the Closing Date
or such Additional Closing Date, as the case may be, to the effect, among other
things, that (i) the conditions set forth in Sections 7(a) and 7(d) have been
satisfied, (ii) as of the date of this Agreement and as of the Closing Date or
such Additional Closing Date, as the case may be, the representations and
warranties of the Company contained herein were and are accurate and correct in
all material respects, and (iii) as of the Closing Date or such Additional
Closing Date, as the case may be, the obligations to be performed by the Company
hereunder on or prior to such time have been fully performed.
(f) At the time this Agreement is executed and at the Closing
Date and any Additional Closing Date, as the case may be, you shall have
received a letter, addressed to the Underwriters, and in form and substance
satisfactory to the Representatives, with reproduced copies or signed
counterparts thereof for each of the Underwriters, from Schwartz Levitsky
Feldman, independent certified public accountants for the Company and each of
the Subsidiaries, dated the date of delivery, in form and substance satisfactory
to the Representatives and counsel to the Underwriters.
20
<PAGE>
(g) All proceedings taken in connection with the issuance,
sale, transfer, and delivery of the Securities shall be satisfactory in form and
substance to the Representatives and to counsel for the Underwriters, and the
Underwriters shall have received from such counsel for the Underwriters the
opinion, dated as of the Closing Date and the Additional Closing Date, as the
case may be, with respect to such of the matters set forth under Section 7(b),
and with respect to such other related matters, as the Representatives may
reasonably request.
(h) NASDR, upon review of the terms of the public offering of
the Stock shall not have objected to the Underwriters' participation in such
offering.
(i) Prior to or on the Closing Date, the Company shall have
entered into the Financial Advisory Agreement and the Representatives' Warrants
with the Representatives.
(j) Prior to or on the Closing Date, the Company shall have
provided to you copies of the agreements referred to in Section 2(r).
Any certificate or other document signed by any officer of the Company
and delivered to the Representatives or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled prior to or at the Closing
Date or any Additional Closing Date, as the case may be, is not so fulfilled,
the Representatives may, on behalf of the several Underwriters, terminate this
Agreement or, if the Representatives so elect, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
8. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each Underwriter, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against any and all loss, liability, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 8, but not be limited to, reasonable attorneys' fees and any and all
reasonable expense incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation) as and when incurred
arising out of, based upon, or in connection with, (i) any untrue statement or
alleged untrue statement of a material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, or the Prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto or (B) any
application or other document or communication (for purposes of this Section 8,
collectively referred to as an "application") executed by, or on behalf of, the
Company or based upon written information furnished by, or on behalf of, the
Company filed in any jurisdiction in order to qualify the Securities under the
"blue sky" or securities laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be
21
<PAGE>
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and in conformity
with, written information furnished to the Company as stated in Section 8(b)
with respect to any Underwriter by, or on behalf of, such Underwriter through
the Representatives expressly for inclusion in the Registration Statement, any
Preliminary Prospectus, or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii) any breach of any
representation, warranty, covenant, or agreement of the Company contained in
this Agreement. The foregoing agreement to indemnify shall be in addition to any
liability the Company may otherwise have, including liabilities arising under
this Agreement.
If any action is brought against an Underwriter or any of its
respective officers, directors, partners, employees, agents, or counsel, or any
controlling persons of an Underwriter (an "indemnified party") in respect of
which indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the Company
in writing of the institution of such action (but the failure so to notify shall
not relieve the Company from any liability it may have other than pursuant to
this Section 8(a)) and the Company shall promptly assume the defense of such
action, including, without limitation, the employment of counsel satisfactory to
such indemnified party or parties and payment of expenses. Such indemnified
party or parties shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the defense of
such action or the Company shall not have promptly employed counsel satisfactory
to such indemnified party or parties to have charge of the defense of such
action or such indemnified party or parties shall have concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from, or in addition to, those available to the
Company, in any of which events such fees and expenses shall be borne by the
Company, and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this paragraph
to the contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written consent,
which consent shall not be unreasonably withheld. The Company shall not, without
the prior written consent of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment or otherwise seek to terminate any pending
or threatened action, in respect of which indemnity may be sought hereunder
(whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Underwriters of the commencement of
any litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of the Securities, the Registration
Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or
supplement thereto, or any application.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each director of the Company, each officer of the Company
who shall have signed the Registration Statement, and each other person, if any,
who controls the Company within the
22
<PAGE>
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to the
several Underwriters in Section 8(a), but only with respect to statements or
omissions, if any, made in the Registration Statement, any Preliminary
Prospectus, or the Prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, or in any application, in reliance upon,
and in conformity with, written information furnished to the Company as stated
in this Section 8(b) with respect to any Underwriter by, or on behalf of, such
Underwriter through the Representatives expressly for inclusion in the
Registration Statement, any Preliminary Prospectus, or the Prospectus, or any
amendment or supplement thereto, or on any application, as the case may be;
provided, however, that the obligation of each Underwriter to provide indemnity
under the provisions of this Section 8(b) shall be limited to the amount which
represents the product of (i) the number of shares of Stock underwritten by such
Underwriter hereunder and the (ii) the underwriting discount per Common Share
set forth on the cover page of the Prospectus. For all purposes of this
Agreement, the amounts of the selling concession and reallowance and the name of
each of the Underwriters, and the number of shares of Firm Stock purchased by
each of the Underwriters set forth in the Prospectus constitute the only
information furnished in writing by, or on behalf of, such Underwriter expressly
for inclusion in the Registration Statement, any Preliminary Prospectus, or the
Prospectus (as from time to time amended or supplemented), or any amendment or
supplement thereto, or in any application, as the case may be. If any action
shall be brought against the Company or any other person so indemnified based on
the Registration Statement, any Preliminary Prospectus, or the Prospectus, or
any amendment or supplement thereto, or in any application, and in respect of
which indemnity may be sought against any Underwriter pursuant to this Section
8(b), such Underwriter shall have the rights and duties given to the Company,
and the Company and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 8(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a) or
8(b) (subject to the limitations thereof), but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case or (ii) any indemnified or indemnifying party seeks
contribution under the Securities Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by, or on behalf of,
any director of the Company, any officer of the Company who signed the
Registration Statement, and any controlling person of the Company), as one
entity, and the Underwriters (including for this purpose any contribution by, or
on behalf of, an indemnified party) as a second entity, shall contribute to the
losses, liabilities, claims, damages, and expenses whatsoever to which any of
them may be subject, so that the Underwriters, in the aggregate, are responsible
for the proportion thereof equal to the percentage which the underwriting
discount per Common Share set forth on the cover page of the Prospectus
represents of the initial public offering price per Common Share set forth on
the cover page of the Prospectus and the Company is responsible for the
remaining portion; provided, however, that if applicable law does not permit
such allocation, then other relevant equitable considerations such as the
relative fault of the Company and the Underwriters in connection with the facts
which resulted in such losses, liabilities, claims, damages, and expenses shall
also be considered. The relative fault, in the case of an untrue
23
<PAGE>
statement, alleged untrue statement, omission, or alleged omission, shall be
determined by, among other things, whether such statement, alleged statement,
omission, or alleged omission relates to information supplied by the Company or
by the Underwriters, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company and the Underwriters agree
that it would be unjust and inequitable if the respective obligations of the
Company and the Underwriters for contribution were determined by pro rata or per
capita allocation of the aggregate losses, liabilities, claims, damages, and
expenses (even if the Underwriters and the other indemnified parties were
treated as one entity for such purpose) or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
8(c). No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes of
this Section 8(c), each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
and each officer, director, partner, employee, agent, and counsel of any
Underwriter shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the provisions of this Section 8(c). Anything in this Section
8(c) to the contrary notwithstanding, no party shall be liable for contribution
with respect to the settlement of any claim or action effected without its
written consent. This Section 8(c) is intended to supersede any right to
contribution under the Securities Act, the Exchange Act, or otherwise.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Stock or Additional Stock hereunder, and if
the number of shares of Firm Stock or Additional Stock to which the defaults of
all Underwriters in the aggregate relate does not exceed 10% of the number of
shares of Firm Stock or Additional Stock, as the case may be, which all
Underwriters have agreed to purchase hereunder, then such shares of Firm Stock
or Additional Stock to which such defaults relate shall be purchased by the
non-defaulting Underwriters in proportion to their respective commitments
hereunder.
(b) If such defaults exceed in the aggregate 10% of the number
of shares of Firm Stock or Additional Stock, as the case may be, which all
Underwriters have agreed to purchase hereunder, the Representatives may, in
their discretion, arrange to purchase itself or for another party or parties to
purchase such shares of Firm Stock or Additional Stock, as the case may be, to
which such default relates on the terms contained herein. If the Representatives
do not arrange for the purchase of such shares of Firm Stock or Additional
Stock, as the case may be, within one business day after the occurrence of
defaults relating to in excess of 10% of the Firm Stock or the Additional Stock,
as the case may be, then the Company shall be entitled to a further period of
one business day within which to procure another party or parties satisfactory
to the Representatives to purchase such shares of Firm Stock or Additional
Stock, as the case may be,
24
<PAGE>
on such terms. If the Representatives or the Company does not arrange for the
purchase of the shares of Firm Stock or Additional Stock, as the case may be, to
which such defaults relate as provided in this Section 9(b), this Agreement may
be terminated by the Representatives or by the Company without liability on the
part of the Company (except that the provisions of Sections 5(a)(1), 6, 8, 10,
and 13 shall survive such termination) or the several Underwriters, but nothing
in this Agreement shall relieve a defaulting Underwriter of its liability, if
any, to the other several Underwriters and to the Company for any damages
occasioned by its default hereunder.
(c) If the shares of Firm Stock or Additional Stock to which
such defaults relate are to be purchased by the non-defaulting Underwriters, or
are to be purchased by another party or parties as aforesaid, the
Representatives or the Company shall have the right to postpone the Closing Date
or the Additional Closing Date, as the case may be, for a reasonable period but
not in any event more than seven business days in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus or in any other documents and arrangements with respect to the Firm
Stock or the Additional Stock, and the Company agrees to prepare and file
promptly any amendment or supplement to the Registration Statement or the
Prospectus which in the opinion of counsel for the Underwriters may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any party substituted under this Section 9 as if such party had originally been
a party to this Agreement and had been allocated the number of shares of Firm
Stock and Additional Stock actually purchased by it as a result of its original
commitment to purchase Firm Stock and Additional Stock and its purchase of
shares of Firm Stock or Additional Stock pursuant to this Section 9.
10. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, any Underwriter or any indemnified
person, or by, or on behalf of, the Company or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Firm Stock and the Additional Stock, if
any, to the several Underwriters. In addition, the provisions of Sections
5(a)(1), 6, 8, 10, 11, and 13 shall survive termination of this Agreement,
whether such termination occurs before or after the Closing Date or any
Additional Closing Date. Notwithstanding anything in the second sentence of
Section 6 hereof to the contrary, and in addition to the obligations assumed by
the Company pursuant to the first sentence of Section 6 hereof, if the offering
should be terminated, the Company shall be liable to the Underwriters only for
out-of-pocket expenses incurred by the Underwriters in connection with this
Agreement or the proposed, offer, sale, and delivery of the Securities.
11. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 9:30 A.M., New
York City local time, on the first full business day following the day on which
the Registration Statement
25
<PAGE>
becomes effective under the Securities Act or at the time of the initial public
offering by the Underwriters of the Firm Stock, whichever is earlier. The time
of the initial public offering shall mean the time, after the Registration
Statement becomes effective under the Securities Act, of the release by the
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Firm Stock or the time, after the
Registration Statement becomes effective under the Securities Act, when the Firm
Stock is first released by the Representatives for offering by the Underwriters
or dealers by letter or telegram, whichever shall first occur. The
Representatives or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except as noted
below in this Section 11, by giving the notice indicated in Section 11(d) before
the time this Agreement becomes effective under the Securities Act.
(b) If the purchase price of the Firm Stock has not been
determined as provided for in Section 3 prior to 4:30 p.m., New York City local
time, on the fifth full business day after the date on which the Registration
Statement becomes effective under the Securities Act, this Agreement may be
terminated at any time thereafter either by the Representatives or by the
Company by giving notice to the other unless before such termination the
purchase price for the Firm Stock has been so determined. If the purchase price
of the Firm Stock has not been so determined prior to 4:30 p.m., New York City
local time, on the tenth full business day after the date on which the
Registration Statement becomes effective under the Securities Act, this
Agreement shall automatically terminate forthwith.
(c) In addition to the right to terminate this Agreement
pursuant to Sections 7 and 9 hereof, the Representatives shall have the right to
terminate this Agreement at any time prior to the Closing Date or any Additional
Closing Date, as the case may be, by giving notice to the Company, and, if
exercised, the Over-allotment Option, at any time prior to any Additional
Closing Date, by giving notice to the Company, (i) if there shall have been a
general suspension of, or a general limitation on prices for, trading in the
Common Shares or in securities generally on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market; or (ii) if there
shall have been an outbreak or increase in the level of major hostilities or
other national or international calamity; or (iii) if a banking moratorium has
been declared by a state or federal authority; or (iv) if a moratorium in
foreign exchange trading by major international banks or persons has been
declared; or (v) if there shall have been a material interruption in the mail
service or other means of communication within the United States; or (vi) if the
Company shall have sustained a material or substantial loss by fire, flood,
accident, hurricane, earthquake, theft, sabotage, or other calamity or malicious
act, whether or not such loss shall have been insured, or from any labor dispute
or court or government action, order, or decree, which will, in the opinion of
the Representatives, make it inadvisable to proceed with the offering, sale, or
delivery of the Firm Stock or the Additional Stock, as the case may be; or (vii)
if any material governmental restrictions shall have been imposed on trading in
securities in general, which restrictions are not in effect on the date hereof;
or (viii) if there shall be passed by the Congress of the United States or by
any state legislature any act or measure, or adopted by any governmental body or
authoritative accounting institute or board, or any governmental executive, any
orders, rules, or regulations, which the Representatives believe likely to have
a material adverse effect on the business, financial condition, or financial
statements of the
26
<PAGE>
Company or the market for the Common Shares; or (ix) if the obligations of the
Company set forth in Section 7 hereof have not been performed, satisfied, or
waived or the Company shall have failed, refused, or been unable to perform all
obligations and satisfy all conditions on its part to be satisfied or performed
hereunder prior thereto; (x) there shall have been a material adverse effect, or
any development involving a prospective material adverse effect, in the
business, prospects, financial condition, or results of operations of the
Company, or any executive officer of the Company shall have suffered any injury
or disability of a nature that materially adversely affects his ability to
function in his or her respective capacities for the Company for more than six
months, or any material action, suit, or proceeding shall be threatened,
instituted, or pending, at law or in equity, against the Company or any of its
directors or executive officers, by any person or by any federal, state, or
other governmental body or entity.
(d) If the Representatives elect to prevent this Agreement
from becoming effective, as provided in this Section 11, or to terminate this
Agreement pursuant to Section 7 of this Agreement or this Section 11, the
Representatives shall notify the Company promptly by telephone, telex, or
telegram, confirmed by letter. If, as so provided, the Company elects to prevent
this Agreement from becoming effective or to terminate this Agreement, the
Company shall notify the Representatives promptly by telephone, telex, or
telegram, confirmed by letter.
(e) Anything in this Agreement to the contrary notwithstanding
other than Section 11(f), if this Agreement shall not become effective by reason
of an election pursuant to this Section 11 or if this Agreement shall terminate
or shall otherwise not be carried out within the time specified herein by reason
of any failure on the part of the Company to perform any covenant or agreement
or satisfy any condition of this Agreement by it to be performed or satisfied,
the sole liability of the Company to the several Underwriters, in addition to
the obligations the Company assumed pursuant to the first sentence of Section 6,
will be to reimburse the several Underwriters for such out-of-pocket expenses
(including the fees and disbursements of their counsel) as shall have been
incurred by them in connection with this Agreement or the proposed offer, sale,
and delivery of the Securities, and, upon demand, the Company agrees to pay
promptly the full amount thereof to the Representatives for the respective
accounts of the Underwriters. Anything in this Agreement to the contrary
notwithstanding other than Section 11(f), if this Agreement shall not be carried
out within the time specified herein for any reason other than the failure on
the part of the Company to perform any covenant or agreement or satisfy any
condition of this Agreement by it to be performed or satisfied, the Company
shall have no liability to the several Underwriters other than for obligations
assumed by the Company pursuant to Section 6.
(f) Notwithstanding any election hereunder or any termination
of this Agreement, and whether or not this Agreement is otherwise carried out,
the provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof. Notwithstanding anything in the second
sentence of Section 6 hereof to the contrary, and in addition to the obligations
assumed by the Company pursuant to the first sentence of Section 6 hereof, if
the offering should be terminated, the Company shall be liable to the several
Underwriters only for out-of-pocket
27
<PAGE>
expenses incurred by the several Underwriters in connection with this Agreement
or the proposed, offer, sale, and delivery of the Securities.
12. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to such Underwriter, c/o Strasbourger Pearson Tulcin Wolff
Incorporated, 61 Broadway, New York, New York 10006, Attention: Mr. Allan
Levine, and Win Capital Corp., 2 Rector Street, New York, New York 10006,
Attention: Al Barbara, with a copy to Stroock & Stroock & Lavan LLP, New York,
New York 10038, Attention: James Tanenbaum, Esq.; or if sent to the Company,
shall be mailed, delivered, or telexed or telegraphed and confirmed by letter,
to the Company, IT Staffing Ltd., 55 University Avenue, Toronto, Canada M5J 2H7,
Attention: Declan A. French, with a copy to Gersten, Savage, Kaplowitz &
Fredericks, LLP, 101 East 52nd Street, 9th Floor, New York 10022, Attention: Jay
M. Kaplowitz, Esq. and Arthur S. Marcus, Esq. All notices hereunder shall be
effective upon receipt by the party to which it is addressed.
13. Parties. Each Representative, individually and not as the
representative of the several Underwriters, represents that it is authorized to
act as the Representative on behalf of the several Underwriters named in
Schedule I hereto, and the Company shall be entitled to act and rely on any
request, notice, consent, waiver, or agreement purportedly given on behalf of
the Underwriters when the same shall have been given by the Representative on
such behalf. This Agreement shall inure solely to the benefit of, and shall be
binding upon, the several Underwriters, the Company, and the persons and
entities referred to in Section 8 who are entitled to indemnification or
contribution, and their respective successors, legal representatives, and
assigns (which shall not include any buyer, as such, of the Firm Stock or the
Additional Stock), and no other person shall have, or be construed to have, any
legal or equitable right, remedy, or claim under, in respect of, or by virtue of
this Agreement or any provision herein contained. Notwithstanding anything
contained in this Agreement to the contrary, all of the obligations of the
Underwriters hereunder are several and not joint.
14. Construction. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
conflict of laws. Time is of the essence in this Agreement.
15. Consent to Jurisdiction. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company fail to appear or answer within such 30-day
period or such extended period, as the case may be, the Company shall be deemed
in default and
28
<PAGE>
judgment may be entered against the Company for the amount as demanded in any
summons, complaint, or other process so served. The Company hereby irrevocably
appoints Gersten, Savage, Kaplowitz & Fredericks, LLP, United States counsel to
the Company, as the Company's agent to receive service of process in any action
against the Company in any federal or state court of the State of New York
arising out of this offering.
29
<PAGE>
If the foregoing correctly sets forth the understandings among the
Representatives and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
IT STAFFING LTD.
By:
---------------------------------
Name:
Title:
Accepted as of the date first above
written in New York, New York
STRASBOURGER PEARSON TULCIN
WOLFF INCORPORATED
WIN CAPITAL CORP.
NUTMEG SECURITIES, LTD.
MASON HILL & CO., INC.
On behalf of themselves and the
other several Underwriters named
in Schedule I hereto.
STRASBOURGER PEARSON TULCIN
WOLFF INCORPORATED
By:
---------------------------------
Name: Michael Schumacher
Title: President
WIN CAPITAL CORP.
By:
---------------------------------
Name: Al Barbara
Title: Vice Chairman
30
<PAGE>
SCHEDULE I
Total
Number
of Shares
to be
Underwriter Purchased
- ----------- ---------
Strasbourger Pearson Tulcin Wolff Incorporated
Win Capital Corp.
Nutmeg Securities, Ltd.
Mason Hill & Co., Inc.
Total 1,100,000
=========
<PAGE>
EXHIBIT 23.1
CONSENT OF SCHWARTZ LEVITSKY FELDMAN
The undersigned, Schwartz Levitsky Feldman, hereby consents to the use of
our name and the use of our opinion dated July 27, 1998 for IT Staffing Ltd.
(the "Company") as filed with its Registration Statement on Form SB-2 being
filed by the Company.
/s/ Schwartz Levitsky Feldman
Schwartz Levitsky Feldman
Chartered Accountants
May 25, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF SCHWARTZ LEVITSKY FELDMAN
The undersigned, Schwartz Levitsky Feldman, hereby consents to the use of
our name and the use of our opinion dated July 27, 1998 for International Career
Specialists Ltd. as filed with IT Staffing Ltd.'s Registration Statement on Form
SB-2 being filed by IT Staffing Ltd.
/s/ Schwartz Levitsky Feldman
Schwartz Levitsky Feldman
Chartered Accountants
May 25, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF SCHWARTZ LEVITSKY FELDMAN
The undersigned, Schwartz Levitsky Feldman, hereby consents to the use of
our name and the use of our opinion dated July 27, 1998 for Systemsearch
Consulting Services, Inc. as filed with IT Staffing Ltd's Registration Statement
on Form SB-2 being filed by IT Staffing Ltd.
/s/ Schwartz Levitsky Feldman
Schwartz Levitsky Feldman
Chartered Accountants
May 25, 1999
