SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 000-22309
ASI SOLUTIONS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-3903237
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
780 Third Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 319-8400
______________________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on June 22, 2000 was $22,668,552. The
calculation of holdings by non-affiliates is based upon the assumption, for
these purposes only, that directors, executive officers and persons holding 10%
or more of the registrant's Common Stock, par value $0.01 per share, are
affiliates.
The number of shares of the registrant's Common Stock, par value $0.01 per
share, outstanding on June 22, 2000 was 6,662,183.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relating to the Registrant's
Annual Meeting of Stockholders to be held on September 6, 2000 are incorporated
by reference into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
Overview
ASI Solutions Incorporated (the "Company") is a leading national
provider of human resources outsourcing services for large organizations seeking
to hire, train and develop a higher quality, more effective workforce. The
Company's services are organized into three core areas: performance improvement
services, employment process outsourcing and compensation services and market
share studies. The Company, which has been providing human resources services
for over 20 years, believes that it is well positioned to be a single-source
solution for organizations which outsource all or a portion of these human
resources functions.
The Company was founded in 1978 as a New York corporation by Bernard F.
Reynolds, Eli Salig and Seymour Adler and was reorganized (the "Reorganization")
in March 1996 as a Delaware holding company for its two subsidiaries, Assessment
Solutions Incorporated ("Assessment Solutions") and Proudfoot Reports
Incorporated ("Proudfoot"). On April 16, 1997, the Company completed the initial
public offering of 1,800,000 shares of the Company's common stock, par value
$0.01 per share (the "Common Stock"). On November 14, 1997, the Company acquired
McLagan Partners Incorporated and its related entities.
Services
Performance Improvement Services. The Company provides a comprehensive
range of workforce performance improvement services. The Company believes that
the role of customer service has assumed a greater level of importance in terms
of customer acquisition and retention as heightened competition has led to the
availability of an increased number of alternative or substitute products and
services in virtually all industries. As a consequence, companies are becoming
increasingly vigorous in their efforts to ensure that their customer service
meets the highest quality standards. The Company meets this need by providing
solutions that help clients to assess and select more qualified employees, train
and develop existing employees and to measure performance on a continuing basis
to ensure that service quality remains high. The Company custom designs programs
for clients. This generally involves field research and job analysis to
determine the critical components of a position and the key competencies
required to execute it successfully. Many of the Company's projects include the
use of live simulations, either in person or over the telephone, since the
Company has found that the use of job-specific, behavior-based techniques to
determine a candidate's ability to actually perform the required tasks provides
clients with a more qualified workforce. Assessment and selection services range
from high volume telephone simulation of job candidates, both internal and
external, to comprehensive executive assessment programs. Training and
development programs also utilize the Company's expertise in conducting live
simulations for job skill evaluation. The Company also provides performance
measurement, or monitoring, services for clients who engage in large-scale use
of call centers for their customer contact function.
Employment Process Outsourcing. The Company offers complete employment
process outsourcing services to clients who have large-scale hiring needs and
who do not have the in-house capacity to fulfill their needs. Employment
processes provided by the Company typically include: advertising for and
recruiting applicants; establishing automated telephonic voice response systems
to screen prospective applicants; arranging for the physical facilities and
equipment necessary for the pre-screening process; performing background checks
on applicants; and conducting testing and simulations utilizing the Company's
assessment expertise to select applicants for recommendation to the client. The
Company can
2
also provide any of these services individually on an as needed basis. In
particular, the Company provides clients who have their own internal employment
processes with ongoing background check services. To meet a client's needs, the
Company is frequently asked to secure facilities and equipment, establish an
interactive voice response system to screen prospective applicants, develop
proprietary database and report generation software and staff a facility with
test administrators and coordinators. The Company has in the past scheduled and
tested up to 500 applicants per day, provided client access to the database for
ongoing status reports and provided complete support up to the point of hire.
Compensation Services and Market Share Studies. The Company provides a
series of surveys and related services to the financial services and securities
industries. These include compensation surveys for bank and brokerage and
investment management clients as well as market share surveys for retail
operations and performance monitoring services for institutional operations
within the financial services industry. The Company's consultants and analysts
work closely with clients throughout the year to ensure the accuracy and
consistency of survey data. Only participating clients may purchase surveys. In
addition to domestic surveys, the Company serves both the European and Asian
markets through its foreign offices. The Company also provides various
compensation consulting services to its client base.
Clients
The Company's clients are in a wide range of industries, including
telecommunications, financial services, information technology, consumer
products and healthcare, and are principally Fortune 500 companies for which
customer service, sales and call center functions are critical components of
their businesses. Current customers include American Express Company, AT&T
Wireless Services, Bell Atlantic, BellSouth Corporation, Cablevision, Citibank,
N.A., Goldman, Sachs & Co., Merrill Lynch Incorporated, Morgan Stanley Dean
Witter, Discover & Co., Hewlett-Packard Company, the Internal Revenue Service
and SBC Corporation. The Company provides its services primarily through its two
operations centers in Melville, New York, but also through its regional offices
and at clients' locations. Compensation services are provided through offices in
Stamford, Connecticut, Chicago, Illinois, London, Tokyo and Hong Kong. The only
customer accounting for more than 10% of the Company's revenues in fiscal 2000,
1999 and 1998 was Bell Atlantic, representing 28% in 2000 and 1999, and 30% in
1998.
Competition
The Company believes that the human resources industry is highly
fragmented and that no one participant or small number of participants is
dominant in the industry. The principal competition encountered by the Company
across the full range of services provided by the Company are human resources
consulting firms, smaller companies who are specialized providers of certain
services provided by the Company and consulting firms that are affiliated with
large multinational accounting firms. In addition, the human resources staffs of
many large organizations which are existing or potential clients of the Company
may already provide one or more of the basic services provided by the Company.
Key competitive factors include depth of industry knowledge, breadth of skills
and services offered, level of experience, flexibility, responsiveness to
customer requests, availability of resources to perform a wide variety of
projects in a timely manner and price.
In the area of performance improvement services, the Company encounters
competition from firms such as Aon Consulting, Development Dimensions
International, Personnel Decisions International, The Center for Creative
Leadership and Achieve Global. In the area of employment process outsourcing,
the Company competes with the human resources outsourcing departments within
organizations such as Aon Consulting, Ernst & Young LLP, Fiserve, Inc., Manpower
Temporary Services and Interim Services. While there are many firms who offer
compensation consulting services such as Towers Perrin and Hewitt Associates,
the Company's compensation survey service for the financial services industry
has no direct competition.
3
Intellectual Property and Other Proprietary Rights
The Company primarily relies on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company generally enters into
confidentiality agreements with its employees and clients that limit access to
and distribution of its proprietary information. The Company also believes that
factors such as the technical and creative skills of its personnel, the
Company's corporate knowledge and expertise in behavioral assessment and name
recognition are essential to establishing and maintaining a leadership position
in its industry. The Company seeks to protect its database, documentation and
other written materials under trade secret and copyright laws.
Employees
As of March 31, 2000, the Company employed 686 employees, of whom 442
were full-time and 244 were part-time. Historically, the Company has generally
been able to satisfy its hiring needs. No assurance can be given, however, that
this will continue to be the case, particularly if the Company experiences
substantial future growth. The inability of the Company to hire sufficient,
qualified personnel to service its future growth would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has no collective bargaining agreements or any similar union
agreements and the Company has never experienced any work stoppages. The Company
considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in leased offices
occupying approximately 11,300 square feet at 780 Third Avenue, New York, New
York 10017. The lease for this space will expire in 2010. The Company also
leases office space at the following locations: San Francisco, California; St.
Louis, Missouri; Washington, D.C.; Boston, Massachusetts; and two offices in
Melville, New York. The terms of these leases expire between 1999 and 2005.
Through its acquisition of McLagan in November, 1997, the Company acquired
leases in Stamford, Connecticut and Chicago, Illinois for 11,000 and 6,100
square feet, respectively. These leases expire in 2001 and 2000, respectively.
The Company also acquired leased office space in London, Tokyo and Hong Kong
through its acquisition of McLagan.
The Company anticipates that as its business grows, it will establish
more regional offices and continue to enlarge existing offices.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
that are incidental to the conduct of its business. The Company is not involved
in any pending or threatened legal proceedings which the Company believes could
reasonably be expected to have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol ASIS. The high and low sales prices of the Common Stock each calendar
quarter, as reported by the Nasdaq National Market, were as follows:
Fiscal 2001: High Low
---- ---
First quarter (through June 22, 2000)..... 9 3/4 3 3/4
Fiscal 2000:
First quarter............................. 10 7
Second quarter............................ 10 1/16 3 1/4
Third quarter............................. 5 2 5/8
Fourth quarter............................ 6 3/8 3 7/8
As of June 22, 2000, there were 67 holders of record of the Company's
Common Stock. There were 6,662,183 shares of Common Stock outstanding on June
22, 2000.
The market price of the Company's Common Stock has fluctuated
significantly since the initial public offering in April 1997. The market price
of the Common Stock could be subject to significant fluctuation in the future
based on factors such as major announcements by the Company or its competitors,
quarterly fluctuations in the Company's financial results or the financial
results of other companies in its industry, changes in analysts' estimates of
the Company's financial performance and general conditions in the human resource
outsourcing market and the financial markets. In addition, the stock market in
general has experienced extreme price and volume fluctuations, which have
particularly affected the market prices for many companies and which have often
been unrelated to the operating performance of the specific companies. There can
be no assurance that the market price of the Common Stock will not decline
substantially or otherwise continue to experience significant fluctuations in
the future.
Dividends
The Company has never paid any cash dividends on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain earnings, if any, for the development of its
business. Additionally, the Company's credit facility prohibits the declaration
and payment of cash dividends.
5
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the
Company's consolidated statements of income for the five fiscal years ended
March 31, 1996, 1997, 1998, 1999 and 2000 and consolidated balance sheets as of
March 31, 1996, 1997, 1998, 1999 and 2000 are derived from audited financial
statements of the Company. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this report.
Year Ended March 31,
------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In thousands, except per share and operating data)
Statement of Operations Data (1):
Revenue............................................... $ 10,558 $ 18,819 $ 34,866 $ 59,653 $ 71,902
Cost of services...................................... 5,207 8,706 17,664 29,755 38,113
-------- -------- -------- -------- --------
Gross Profit.......................................... 5,351 10,113 17,202 29,898 33,789
Operating expenses:
General and administrative........................ 2,225 3,224 7,871 14,263 18,181
Sales and marketing............................... 1,100 1,890 3,273 5,408 6,012
Research and development.......................... 614 1,272 1,747 1,938 2,178
-------- -------- -------- -------- --------
Income from operations................................ 1,412 3,727 4,311 8,289 7,418
Interest expense (income), net........................ (2) (2) 593 1,710 1,388
-------- -------- -------- -------- --------
Income before provision for income taxes.............. 1,414 3,729 3,718 6,579 6,030
Provision for income taxes............................ 682 1,917 1,599 2,768 2,625
-------- -------- -------- -------- --------
Net income............................................ $ 732 $ 1,812 $ 2,119 $ 3,811 $ 3,405
======== ======== ======== ======== ========
Basic earnings per share.............................. $ 0.16 $ 0.39 $ 0.33 $ 0.59 $ 0.52
Diluted earnings per share............................ $ 0.16 $ 0.39 $ 0.33 $ 0.58 $ 0.51
Weighted average common shares outstanding (2):
Basic............................................. 4,625 4,625 6,346 6,487 6,595
Dilutive effect of stock options and warrants..... 42 42 175 128 113
-------- -------- -------- -------- --------
Diluted shares.................................... 4,667 4,667 6,521 6,615 6,708
======== ======== ======== ======== ========
Operating Data:
Number of employees................................... 145 282 471 534 686
As of March 31,
------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Balance Sheet Data (1):
Cash and cash equivalents............................. $ 70 $ 60 $ 964 $ 7,595 $ 12,156
Working capital....................................... 530 152 3,160 4,196 4,423
Total assets.......................................... 4,243 8,595 44,561 50,540 55,750
Long-term debt, less current portion.................. -- 307 17,002 12,892 7,763
Total stockholders' equity............................ 2,396 3,243 15,696 19,686 23,929
______________
(1) As of March 31, 1996, the date of the Reorganization, the interests of the
shareholders of such entities other than one controlling shareholder have
been accounted for as a purchase of minority interest. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview" under Item 7 of Part II hereof and Note 1 to the Notes to
Consolidated Financial Statements under Item 8 of Part II hereof.
(2) See Note 1 to the Notes to Consolidated Financial Statements under Item 8
of Part II hereof for a description of weighted average number of common
shares outstanding.
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Selected Financial Data and the related notes thereto included in Item
6 and the Company's Consolidated Financial Statements and related notes thereto
included in Item 8. This report also contains, in addition to historical
information, forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Any such statements are subject to risks and
uncertainties that could cause the actual results to differ materially from
those projected in such statements, including negative developments relating to
unforeseen order cancellations or the effect of a customer delaying an order,
negative developments relating to the Company's significant customers, a
reduction in demand for the Company's services, the impact of intense
competition, changes in the industry, and changes in the general economy. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
Overview
ASI Solutions Incorporated (the "Company") is a leading national
provider of human resources outsourcing services for large organizations seeking
to hire, train and develop a higher quality, more effective workforce. The
Company's services are organized into three core areas: performance improvement
services, employment process outsourcing and compensation services and market
share studies. The Company, which has been providing human resources services
for over 20 years, believes that it is well positioned to be a single-source
solution for organizations which outsource all or a portion of these human
resources functions.
The Company was founded in 1978 as a New York corporation by Bernard F.
Reynolds, Eli Salig and Seymour Adler and was reorganized (the "Reorganization")
in March 1996 as a Delaware holding company for its two subsidiaries, Assessment
Solutions Incorporated ("Assessment Solutions") and Proudfoot Reports
Incorporated ("Proudfoot"). On April 16, 1997, the Company completed the initial
public offering of 1,800,000 shares of the Company's common stock, par value
$0.01 per share (the "Common Stock"). On November 14, 1997, the Company acquired
McLagan Partners Incorporated and its related entities.
In fiscal 1994, the Company introduced and began generating revenue from
a broader array of employment process outsourcing services and performance
improvement services, which have favorably impacted the Company's results of
operations since that time. In October 1996, the Company introduced its
performance measuring services. In November 1997, the Company acquired McLagan,
a provider of a comprehensive array of compensation services and market share
studies primarily to the financial services and securities industries. From
fiscal 1996 to fiscal 2000, the Company's revenue has increased at a compounded
annual growth rate of approximately 55%, from $10.6 million in fiscal 1996 to
$71.9 million in fiscal 2000.
The Company charges for its services through contractual arrangements
which vary depending on the type of service and the nature of the Company's
relationship with the client and recognizes revenue upon completion of such
services. Within performance improvement services, the Company generally charges
a fixed fee for the initial design of a program, and then delivers assessment
and training services for a per person fee. For performance measurement, the
Company generally charges a fixed monthly fee, determined by the duration of
calls monitored, aggregate number of calls, and other relevant variables. For
employment process outsourcing contracts, the Company charges a per-unit fee,
which varies depending upon whether the client only needs one type of service,
such as employee background checks, or an entire recruitment and hiring process.
For larger engagements a minimum monthly fee may be charged. Individual services
generally are also provided on a per-unit fee basis, while more complete
services
7
typically include a base fee component and a per-unit fee. Compensation services
and market share studies are provided at a fixed price per survey or per service
provided.
The Company's clients generally use its services on an as-needed basis,
requiring the Company to be able to respond quickly to changes in the volume of
services it must provide at a given time. The Company has taken a variety of
steps in order to address the operational challenges this situation presents and
increase its ability to control its cost of services. For example, the Company
engages many professionals, including a number of its psychologists, on a
part-time basis, which enables it to have access to a large number of staff on
relatively short notice without incurring significant fixed labor expenses. The
Company also cross-trains its employees on multiple aspects of the delivery of
its services, giving the Company as much flexibility as possible when staffing a
particular client engagement. In addition, the Company often provides its
services at client facilities or other off-site locations, limiting the
Company's need to expand its own facilities in response to rapid increases in
clients' demands for services.
Cost of services includes payroll and other expenses directly
attributable to the services delivered by the Company, as well as facilities
costs, including telephone expenses, costs for third party data utilized in
background reports (e.g., credit bureau reports) and any necessary travel
directly related to providing such services.
General and administrative expense includes payroll and related expenses
attributable to senior management, finance, information systems, human resources
and office administration personnel, facilities costs and general office
expenses pertaining to these functions, as well as outside professional fees.
Sales and marketing expense consists of salaries, commissions,
travel-related costs associated with the solicitation of new business, the cost
of designing, producing and distributing advertising and marketing materials,
and facilities and office-related expense pertaining to these activities.
Research and development expense includes payroll and related expenses,
facilities costs and necessary travel expenses pertaining to the professional
staff which develop new programs used in the conduct of performance improvement
services and employment process outsourcing. Such research and development
typically is only conducted in connection with services being performed under
existing client contracts, and is expensed as incurred.
The Company's operations are subject to Federal and various state, local
and foreign taxes, resulting in an effective tax rate typically of approximately
44%.
Because of the significant size and financial resources of the Company's
existing clients, write-offs for bad debts have historically not been material.
As of March 31, 2000, the following five customers represented 43% of the
Company's total accounts receivable: Bell Atlantic, SBC Corporation,
Hewlett-Packard Company, American Express and Morgan Stanley Dean Witter.
In March 1996, the Company completed the Reorganization pursuant to
which its two predecessor companies, Assessment Solutions and Proudfoot, which
were separately owned but commonly controlled, became subsidiaries of the
Company and substantially all of the stockholders of the predecessors became
stockholders of the Company. The Reorganization has been accounted for as a
reorganization of entities under common control to the extent of the ownership
of one stockholder who held an approximately 60% interest in the entities both
prior and subsequent to the Reorganization. The remaining approximately 40% of
the ownership interests have been treated as if acquired and have been accounted
for as a purchase, resulting in an increase in goodwill of approximately
$1,063,000. This goodwill is being amortized over ten years.
8
Fiscal 2000 Compared with Fiscal 1999
Revenue. Revenue increased $12.2 million, or 20.5%, from $59.7 million
in fiscal 1999 to $71.9 million in fiscal 2000. Performance Improvement Services
revenue increased 23.7% to $21.2 million in fiscal 2000 from $17.1 million in
fiscal 1999. Training and Development services accounted for the largest portion
of the increase followed by revenue increases from the expansion of our client
base in Performance Measurement. Employment Process Outsourcing revenue
increased by 19.2% to $25.9 million in fiscal 2000 from $21.8 million in fiscal
1999. Increases in both employment outsourcing and background investigation
contributed to the increase. Compensation Services and Market Share Studies
revenue increased by 19.3% to $24.8 million in fiscal 2000 from $20.8 million in
fiscal 1999. Increased survey and consulting revenue, both domestically and
internationally, accounted for the increase.
Cost of services. Cost of services increased by $8.3 million, or 28.1%,
from $29.8 million in fiscal 1999 to $38.1 million in fiscal 2000. Higher
personnel expenses, due to increased incentive obligations as well as higher
headcount to support higher business volume, accounted for most of the increase.
Higher telecommunications and service delivery expenses also related to higher
volume contributed to the increase as well. As a percentage of revenue, cost of
services was 49.9% in fiscal 1999 compared with 53% in fiscal 2000.
General and administrative. General and administrative expense
increased by $3.9 million, or 27.5%, from $14.3 million in fiscal 1999 to $18.2
million in fiscal 2000. Higher personnel and incentive expenses, a portion of
which was due to a contractual obligation related to the acquisition of McLagan
Partners in 1997, accounted for most of the increase. Higher professional fees
related to information system upgrades in the Employment Process Outsourcing
unit, also contributed to the increase. As a percentage of revenue, general and
administrative expenses were 25.3% in fiscal 2000 compared with 23.9% in fiscal
1999.
Sales and marketing. Sales and marketing expenses increased by $0.6
million, or 11.2%, from $5.4 million in fiscal 1999 to $6.0 million in fiscal
2000. New business development activities, including advertising, marketing and
conferences account for most of the increase. As a percentage of revenue, sales
and marketing expense was 8.4% in 2000 compared with 9.1% in fiscal 1999.
Research and development. Research and development expenses increased
by $0.3 million, or 12.4% from $1.9 million in fiscal 1999 to $2.2 million in
fiscal 2000. Higher personnel expenses account for the increase. As a percentage
of revenue, research and development expense was 3% in 2000 compared with 3.2%
in fiscal 1999.
Interest (expense) income, net. Net interest expense decreased from
$1.7 million in fiscal 1999 to $1.4 million in fiscal 2000 due to lower
borrowings outstanding as the Company's five year term loan continues to be
paid.
Provision for income taxes. The difference between the effective
federal income tax provision calculated using statutory rates and the actual
provision recorded is principally due to the effect of state and local taxes. As
a percentage of pre-tax income, the provision for income taxes was 43.5% in
fiscal 2000 compared with 42.1% in fiscal 1999. The increase was the result of
additional state taxes, largely due to a change in business mix by state.
The percentages listed are based on actual amounts rather than the
rounded amounts shown above.
9
Fiscal 1999 Compared with Fiscal 1998
Revenue. Revenue increased $24.8 million, or 71.1%, from $34.9 million
in fiscal 1998 to $59.7 million in fiscal 1999. The acquisition of McLagan
Partners, the Company's compensation services and market share studies unit, in
November 1997, accounted for $14.8 million, or 60% of the increase. Other
service areas grew by $10.0 million, or 34.4%, in fiscal 1999. Performance
improvement services' revenue increased by $2.5 million, or 17.1%, from $14.6
million in fiscal 1998 to $17.1 million in fiscal 1999. Increases in training
and development and performance measurement resulted from an increase in the
client base. Employment process outsourcing revenue increased by $7.4 million,
or 51.3%, from $14.4 million in fiscal 1998 to $21.8 million in fiscal 1999.
Services provided to a large outsourcing client accounted for a majority of the
increase. Compensation services and market share study revenue increased by
$14.8 million from $5.9 million in fiscal 1998 to $20.8 million in fiscal 1999.
Cost of services. Cost of services increased $12.1 million, or 68.4%,
from $17.7 million in fiscal 1998 to $29.8 million in fiscal 1999. Expenses
associated with McLagan Partners, acquired in November 1997 accounted for $6.7
million, or 55.4% of the increase. Incentive payments, largely due to the
McLagan acquisition agreement, were $3.7 million in 1999 compared to $.6 million
in 1998. Cost of services for other business areas increased by 34.3% which is
consistent with the increase in revenue. Increased personnel and related
expenses, and outside services, such as telecommunications and service delivery,
needed to meet the higher business volume, accounted for the majority of the
increase. As a percentage of revenue, cost of services was 49.9% in fiscal 1999,
compared to 50.7% in fiscal 1998.
General and administrative. General and administrative expense increased
by $6.4 million, or 81%, from $7.9 million in fiscal 1998 to $14.3 million in
fiscal 1999. Expenses associated with McLagan Partners, acquired in November
1997, accounted for $5.9 million, or 91.6% of the increase. Incentive payments,
largely due to the McLagan acquisition agreement, amounted to $3.3 million.
General and administrative expense for other service areas increased by only
9.1% as higher business volume provided better absorption of fixed expenses. As
a percentage of revenue, general and administrative expense was 23.9% in fiscal
1999 compared to 22.6% in fiscal 1998.
Sales and marketing. Sales and marketing expense increased by $2.1
million, or 65.2%, from $3.3 million in fiscal 1998 to $5.4 million in fiscal
1999. Expenses associated with McLagan Partners, acquired in November 1997,
accounted for $.6 million, or 28.6%, of the increase. Other service areas sales
and marketing expense increased by $1.5 million, or 49.2%. Approximately half of
this increase was due to increased sales personnel dedicated to new business
developments. As a percentage of revenue, sales and marketing expense was 9.1%
in fiscal 1999 compared to 9.4% in fiscal 1998.
Research and development. Research and development expense increased by
$.1 million, or 6%, from $1.8 million in fiscal 1998 to $1.9 million in fiscal
1999. Increased personnel accounted for the majority of the increase. As a
percentage of revenue, research and development expense was 3.2% in fiscal 1999
compared to 5% in fiscal 1998. The decrease is largely due to the fact that the
compensation services area has no research and development.
Interest (expense) income, net. Net interest expense increased by $1.1
million from $.6 million in fiscal 1998 to $1.7 million in fiscal 1999 due to
interest incurred on the debt to acquire McLagan Partners in November 1997 and
interest on short term bank borrowings, used principally to provide working
capital and to finance fixed asset additions.
Provision for income taxes. The difference between the effective federal
income tax provision calculated using statutory rates and the actual provision
recorded is principally due to the effect of state and
10
local taxes. As a percentage of pre-tax income, the provision for income taxes
was 42.1% in fiscal 1999 compared to 43% in fiscal 1998.
The percentages listed are based on actual amounts rather than the
rounded amounts shown above.
Liquidity and Capital Resources
The Company's liquidity needs arise from capital requirements, capital
expenditures and principal and interest payments on debt. Historically, the
Company's source of liquidity has been cash flow generated internally from
operations, supplemented by short-term borrowings under bank lines of credit and
long-term equipment financing.
Cash flow provided by operating activities in fiscal 2000 was
approximately $14,520,000, on net income of approximately $3,405,000, due to
income generated from operations and increases in accounts payable and accrued
expenses. Cash flow used in investing activities of approximately $1,624,000 in
fiscal 2000 was primarily for fixed asset additions. Cash flow used in financing
activities was approximately $8,483,000 in fiscal 2000 and was attributable to
the repayment of outstanding debt.
In November 1997, the Company entered into a new bank credit agreement
(the "Credit Facility") which provides a $15 million term loan and a $5 million
revolving credit facility. The revolving credit facility was subsequently
increased to $10 million in December 1998. This agreement expires November 13,
2003. At March 31, 2000, borrowings under the term loan were $10,750,000 and
there were no borrowings under the revolving credit facility. The Company also
had borrowings at March 31, 2000 under an equipment lease facility of $474,900.
The Credit Facility contains various financial and other covenants and
conditions, including, but not limited to, limitations on capital expenditures
and paying dividends, making acquisitions and incurring additional indebtedness.
The Company received a waiver for non-compliance of certain loan covenants as of
March 31, 2000.
Management believes its working capital, line of credit and cash flows
from operations will be sufficient to meet expected future working capital
requirements.
Inflation
Inflation has had a minimal effect on the results of the Company.
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk, i.e. the risk of loss arising
from adverse changes in interest rates and foreign currency exchange rates.
Interest Rate Exposure
The Company has entered into an interest rate swap at a fixed rate of 9%
per annum on borrowings under its credit facility of up to $5,000,000. A one
percent change in interest rates on variable rate debt would increase interest
expense by approximately $60,000 based upon the variable rate debt outstanding
at March 31, 2000.
11
Foreign Exchange Exposure
Portions of the Company's operations are conducted in Hong Kong, Japan
and the United Kingdom. Exchange rate fluctuations between the US dollar/Hong
Kong dollar, US dollar/Japanese Yen and the US dollar/pound sterling result in
fluctuations in the amounts relating to the Hong Kong, Japan and United Kingdom
operations reported in the Company's consolidated financial statements.
The Company has not entered into hedging transactions with respect to
its foreign currency exposure, but may do so in the future.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants........................................ 14
Consolidated Balance Sheets as of March 31, 2000 and 1999................ 15
Consolidated Statements of Income for the years ended March 31, 2000,
1999 and 1998.......................................................... 16
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 2000, 1999 and 1998.......................................... 17
Consolidated Statements of Cash Flows for the years ended March 31,
2000, 1999 and 1998.................................................... 18-19
Notes to Consolidated Financial Statements............................... 20-34
13
Report of Independent Accountants
To the Board of Directors and Stockholders of ASI Solutions Incorporated:
In our opinion, the consolidated financial statements listed in the Index
appearing under Item 8 on page 13 present fairly, in all material respects, the
consolidated financial position of ASI Solutions Incorporated at March 31, 2000
and 1999, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended March 31, 2000, in conformity
with accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, NY
May 12, 2000
14
ASI Solutions Incorporated
Consolidated Balance Sheets
March 31, 2000 and 1999
2000 1999
---------------- ----------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 12,155,795 $ 7,595,366
Accounts receivable, net 14,479,377 12,874,967
Prepaid expenses and other current assets 765,721 576,424
Deferred income taxes 75,918 299,478
---------------- ----------------
Total current assets 27,476,811 21,346,235
Property and equipment, net 5,042,982 5,218,408
Intangible assets, net 22,401,403 23,258,472
Deferred financing costs 375,160 391,386
Other assets 453,875 325,518
---------------- ----------------
Total assets $ 55,750,231 $ 50,540,019
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion, notes payable to bank $ 3,462,363 $ 7,143,658
Current portion, subordinated notes payable 1,666,667 1,666,666
Other debt 87,785 66,501
Accounts payable and accrued expenses 17,558,809 7,946,658
Accrued income taxes 278,287 326,964
---------------- ----------------
Total current liabilities 23,053,911 17,150,447
Deferred income taxes 690,765 543,593
Notes payable to bank, less current portion 7,762,537 11,224,900
Subordinated notes payable, less current portion 1,666,667
Other liabilities 313,528 268,373
---------------- ----------------
Total liabilities 31,820,741 30,853,980
Commitments
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 2,000,000
shares; no shares issued
Common stock, $.01 par value, authorized 18,000,000
shares; issued and outstanding 6,662,183 in 2000 and
6,497,631 in 1999 67,078 65,432
Additional paid in capital 11,477,820 11,038,250
Accumulated other comprehensive income (3,789) (7,839)
Retained earnings 12,388,381 8,982,927
Less: Treasury stock, 45,534 shares at cost in 1999 (392,731)
---------------- ----------------
Total stockholders' equity 23,929,490 19,686,039
---------------- ----------------
Total liabilities & stockholders' equity $ 55,750,231 $ 50,540,019
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
15
ASI Solutions Incorporated
Consolidated Statements of Income
For each of the three years in the period ended March 31, 2000
2000 1999 1998
----------- ----------- -----------
Revenue $71,901,931 $59,653,278 $34,865,557
Cost of services 38,113,459 29,755,156 17,663,690
----------- ----------- -----------
Gross profit 33,788,472 29,898,122 17,201,867
Operating expenses:
General and administrative 18,180,554 14,263,341 7,871,423
Sales and marketing 6,012,223 5,407,659 3,272,518
Research and development 2,178,081 1,938,061 1,746,507
----------- ----------- -----------
Income from operations 7,417,614 8,289,061 4,311,419
Interest expense, net 1,387,609 1,709,734 592,841
----------- ----------- -----------
Income before provision for income taxes 6,030,005 6,579,327 3,718,578
Provision for income taxes 2,624,551 2,768,439 1,598,989
----------- ----------- -----------
Net income $ 3,405,454 $ 3,810,888 $ 2,119,589
=========== =========== ===========
Basic earnings per share $ 0.52 $ 0.59 $ 0.33
=========== =========== ===========
Diluted earnings per share $ 0.51 $ 0.58 $ 0.33
=========== =========== ===========
Weighted average common shares outstanding:
Basic shares 6,594,695 6,487,253 6,346,053
Diluted effect of stock options and
warrants 113,320 128,018 175,345
----------- ----------- -----------
Diluted shares 6,708,015 6,615,271 6,521,398
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
16
ASI Solutions Incorporated
Consolidated Statements of Stockholders' Equity
For each of the three years in the period ended March 31, 2000
ASI Solutions Accumulated
Incorporated Additional Other Deferred
Common Stock Paid-In Comprehensive Retained Offering Treasury
Shares Amount Capital Income Earnings Costs Stock Total
------ ------ ------- ------ -------- ----- ----- -----
April 1, 1997 4,625,158 $46,252 $ 1,109,218 $ 3,052,450 $(965,034) $ 3,242,886
Comprehensive Income:
Net income 2,119,589 2,119,589
Translation adjustment $ 9,382 9,382
-----------
Total Comprehensive Income 2,128,971
-----------
Issuance of common
stock in initial public
offering and payment of
offering costs 1,800,000 18,000 9,016,283 965,034 9,999,317
Transfer of common stock
back to the company (45,534) $(392,731) (392,731)
Issuance of common
stock for Employee Stock
Purchase Plan 17,077 171 86,927 87,098
Issuance of common
stock for acquisition of
McLagan Partners, Inc. 50,000 500 449,500 450,000
Issuance of common stock
related to bank financing 20,000 200 179,800 180,000
------------------------------------------------------------------------------------------------
March 31, 1998 6,466,701 65,123 10,841,728 9,382 5,172,039 - (392,731) 15,695,541
Comprehensive Income:
Net income 3,810,888 3,810,888
Translation adjustment (17,221) (17,221)
-----------
Total Comprehensive Income 3,793,667
-----------
Issuance of common
stock for Employee Stock
Purchase Plan 30,930 309 196,522 196,831
------------------------------------------------------------------------------------------------
March 31, 1999 6,497,631 65,432 11,038,250 (7,839) 8,982,927 - (392,731) 19,686,039
Comprehensive Income:
Net income 3,405,454 3,405,454
Translation adjustment 4,050 4,050
-----------
Total Comprehensive Income 3,409,504
-----------
Issuance of common
stock for Employee
Stock Purchase Plan 84,488 845 360,124 360,969
Employee Stock Grant 53,685 537 44,713 392,731 437,981
Exercise of employee
stock options 26,379 264 34,733 34,997
------------------------------------------------------------------------------------------------
March 31, 2000 6,662,183 $67,078 $11,477,820 $ (3,789) $12,388,381 - - $23,929,490
================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
17
ASI Solutions Incorporated
Consolidated Statements of Cash Flows
For each of the three years in the period ended March 31, 2000
2000 1999 1998
------------ ------------ ------------
Cash flow from operating activities:
Net income: $ 3,405,454 $ 3,810,888 $ 2,119,589
Adjustments to reconcile net income to net cash:
Depreciation and amortization 2,656,118 2,418,164 1,378,232
Provision for doubtful accounts (772) 75,503 108,153
Loss on fixed asset disposal 2,903
Other 106,225 90,703 112,929
Deferred income taxes 370,732 (72,867) 244,589
Stock compensation 437,981
Changes in assets and liabilities, net of the
effect of business acquisitions:
Accounts receivable (1,575,319) (2,231,542) (6,622,371)
Prepaid expenses and other current assets (187,933) 22,084 (334,960)
Other assets (95,239) (2,597) (31,890)
Accounts payable and accrued expenses 8,597,309 3,397,558 1,253,616
Income taxes 768,606 630,713 (876,260)
Other liabilities 33,464
------------ ------------ ------------
Net cash provided by (used in) operating activities 14,519,529 8,138,607 (2,648,373)
------------ ------------ ------------
Cash flow from investing activities:
Acquisition of property and equipment (1,516,943) (1,411,205) (3,556,780)
Acquisition of businesses (16,943,188)
Other (107,488) (40,333) (103,649)
------------ ------------ ------------
Net cash (used in) investing activities (1,624,431) (1,451,538) (20,603,617)
------------ ------------ ------------
Cash flow from financing activities:
Proceeds from borrowings 21,102,238
Repayment of debt (8,789,040) (2,119,435) (4,834,080)
Payment of financing costs (90,000) (25,000) (312,048)
Restricted cash 1,891,821 (1,891,821)
Proceeds from issuance of common stock, net 395,965 196,831 10,086,415
------------ ------------ ------------
Net cash (used in) provided by financing activities (8,483,075) (55,783) 24,150,704
------------ ------------ ------------
Effect of exchange rate changes on cash and cash equivalents 148,406 (26) 5,202
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 4,560,429 6,631,260 903,916
Cash and cash equivalents at beginning of period 7,595,366 964,106 60,190
------------ ------------ ------------
Cash and cash equivalents at end of period $ 12,155,795 $ 7,595,366 $ 964,106
============ ============ ============
Supplemental cash flow information:
Cash paid for:
Interest $ 1,277,535 $ 1,588,680 $ 658,049
Income taxes $ 1,450,591 $ 2,328,978 $ 2,240,600
The accompanying notes are an integral part of these consolidated financial
statements.
18
ASI Solutions Incorporated
Consolidated Statements of Cash Flows (continued)
For each of the three years in the period ended March 31, 2000
2000 1998
------------ ------------
Supplemental disclosures of non-cash investing and
financing activities:
Capital lease obligations:
Incurred $ 55,690
Terminated 25,883
Transfer of common stock back to the Company
in full satisfaction of shareholder debt $ 392,731
Common stock issued in connection with acquisitions 450,000
Common stock issued in connection with debt
financing 180,000
Issuance of subordinated debt in connection with
acquisitions 5,000,000
Issuance of notes in connection with acquisitions 401,500
Details of acquisitions (Note 3):
Fair value of assets acquired (including goodwill) $ 23,794,688
Liabilities assumed (1,000,000)
Notes issued (5,401,500)
Stock issued (450,000)
------------
Cash utilized for acquisitions $ 16,943,188
============
The accompanying notes are an integral part of these consolidated financial
statements
19
ASI Solutions Incorporated
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation:
--------------------------------------
On March 26, 1996, ASI Solutions Incorporated (the "Company") was incorporated
in the State of Delaware. Effective March 31, 1996, the Company issued 4,625,158
shares of Common Stock in exchange for substantially all of the issued and
outstanding shares of common stock of Proudfoot Reports Incorporated ("PRI") and
95% of the common stock of Assessment Solutions Incorporated ("Assessment
Solutions"). During fiscal 1997, the remaining 5% of the outstanding common
stock of Assessment Solutions was redeemed. The initial stockholders of the
Company were also the principal stockholders of PRI and Assessment Solutions,
the two previously separate but commonly controlled companies. After the
reorganization, Assessment Solutions and PRI are wholly owned subsidiaries of
the Company. On August 29, 1997, the Company acquired the assets of Effective
Learning Systems. On November 13, 1997, the Company's newly created subsidiary
McLagan Partners Inc. ("McLagan Partners") acquired substantially all of the
assets and business operations of McLagan Partners Incorporated and
subsidiaries. The Company, Assessment Solutions, PRI and McLagan Partners are
hereinafter referred to collectively as the "Company."
The exchange described above has been accounted for as a reorganization since
all entities involved were under common control. The consolidated financial
statements reflect the interests attributable to the one controlling shareholder
of both combined entities at their historical basis of accounting. The remaining
interests have been accounted for as a purchase of minority interests and the
excess of the purchase price over the related historical cost of $1,063,000 has
been allocated to intangible assets. All intercompany accounts and transactions
have been eliminated in consolidation.
Effective April 16, 1997, the Company sold 1.8 million shares of common stock to
the public at a price of $6 per share in an initial public offering and pursuant
to an over-allotment option, the underwriter purchased 270,000 shares of common
stock at a price of $6 per share (the "Offering"). Proceeds from the Offering,
net of underwriters' discount and offering costs, were approximately $9,034,000.
Effective on the Offering date, the Company's Certificate of Incorporation (the
"Certificate") was restated to increase the number of authorized shares of
Common Stock to 18 million shares.
The Company
ASI Solutions Incorporated (the "Company") is a leading national provider of
human resources outsourcing services for large organizations seeking to hire,
train and develop a higher quality, more effective workforce. The Company's
services are organized into three core areas: performance improvement services,
employment process outsourcing and compensation services and market share
studies. The Company believes these services position the Company as a
single-source solution for many organizations that outsource all or a portion of
their human resources functions. The Company markets its services principally to
Fortune 500 companies for which customer service, sales and call center
functions are critical components of their businesses. Industries served by the
Company include telecommunications, financial services, information technology,
consumer products and healthcare.
20
Notes to Consolidated Financial Statements - continued
2. Significant Accounting Policies:
-------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity date of three months or less from the date of purchase to be a cash
equivalent.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist of accounts receivable and cash deposits. Cash deposits
generally do not exceed insurable limits. Accounts receivable are concentrated
among a limited number of major companies. To reduce credit risk, the Company
performs credit evaluations of its customers but does not generally require
collateral. One customer represented 28% of revenue for the years ended March
31, 2000 and 1999, and 30% of revenue for the year ended March 31, 1998.
Revenues from the Company's top five customers represented approximately 46% of
total revenues for the years ended March 31, 2000 and 1999, and 55% for the year
ended 1998. Accounts receivable from the Company's top five customers
represented approximately 43% and 42% of total accounts receivable at March 31,
2000 and 1999, respectively.
Allowances for doubtful accounts were approximately $186,000 as of March 31,
2000 and 1999, and $122,000 as of March 31, 1998. Accounts receivable write-offs
amounted to $20,934 for fiscal year ended March 31, 1999. There were no accounts
receivable write-offs for fiscal years ended March 31, 2000 or 1998.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
Furniture and equipment are stated at cost and depreciated over the assets'
estimated useful lives of five years using the straight-line method. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life of the improvement. Capitalized software reflects costs related to
internally developed or purchased software that are capitalized and amortized on
a straight-line basis over a period of five years.
Maintenance and repairs are charged to expense as incurred; renewals and
improvements that extend the life of assets are capitalized. Upon retirement or
disposal, the asset cost and the related accumulated depreciation and
amortization are eliminated from the respective accounts and the resulting gain
or loss, if any, is included in the results of operations.
21
Notes to Consolidated Financial Statements - continued
Intangible Assets
Intangible assets principally include customer lists, covenants not to compete
and the excess of purchase price over the fair value of identifiable net assets
acquired (goodwill). The intangible assets are amortized on a straight-line
basis over their estimated useful lives ranging from 5 to 40 years. Amortization
expense relating to intangible assets was approximately $929,000, $913,000 and
$401,000 for the years ended March 31, 2000, 1999 and 1998, respectively.
Accumulated amortization relating to intangible assets was $2,314,186 and
$1,393,990 as of March 31, 2000 and 1999, respectively.
The Company assesses the recoverability of goodwill by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through forecasted future operations. Impairment is evaluated by comparing
future cash flows (undiscounted and without interest charges) expected to result
from the use or sale of the asset and its eventual disposition, to the carrying
amount of the asset.
Long-lived Assets
If events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual disposition.
If the sum of the expected future cash flows (undiscounted) is less than the
carrying amount of the long-lived asset, an impairment loss is recognized. To
date, no impairment losses have been recognized.
Deferred Financing Costs
Deferred financing costs represent fees incurred in connection with the
Company's Credit Agreement and are being amortized, using the straight-line
method, over the length of the related term loan. Amortization expense was
$106,226 and $93,689 for the years ended March 31, 2000 and 1999, respectively.
Foreign Currency Translation
The financial statements of foreign subsidiaries, where the local currency is
the functional currency, are translated into U.S. dollars using exchange rates
in effect at period end for assets and liabilities and average exchange rates
during each reporting period for results of operations and cash flows.
Adjustments resulting from translation of financial statements are reflected as
a separate component of stockholders' equity.
Revenue
The Company recognizes revenue as earned upon the performance of agreed-upon
services.
Rent Expense
The Company recognizes rent expense for operating leases on a straight-line
basis over the term of the related lease.
22
Notes to Consolidated Financial Statements - continued
Income Taxes
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
consists of the tax payable for the period and the change during the period in
deferred tax assets and liabilities. (See Note 9.)
Fair Value of Financial Instruments
Cash and cash equivalents and fixed rate debt obligations are reflected in the
accompanying consolidated balance sheets at amounts considered by management to
reasonably approximate fair value. Management is not aware of any factors that
would significantly affect the value of these amounts.
Earnings Per Share
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaced the previously
reported primary and fully diluted earnings per share with basic and diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated, to conform to the SFAS 128
requirements. Basic earnings per share are computed by dividing net income by
the weighted average number of shares outstanding during the year. Diluted
earnings per share are calculated to give effect to all potentially dilutive
common shares that were outstanding during the year.
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of SFAS 123, "Accounting
for Stock-Based Compensation." As permitted under SFAS 123, the Company
continues to measure compensation cost in accordance with APB No. 25,
"Accounting for Stock Issued to Employees."
Recently Issued Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of Statement
133," which postponed the adoption of SFAS No. 133. The Company does not
anticipate the statement to have a significant effect on its current financial
reporting and disclosure requirements.
3. Acquisitions:
------------
On November 13, 1997, the Company acquired substantially all of the assets
(primarily fixed assets of $483,978) and businesses of McLagan Partners
Incorporated and its related entities (collectively, "McLagan"). The
consideration paid by the Company for the assets of McLagan included (i) $15.5
million paid in cash; (ii) $5 million in subordinated notes bearing interest at
8 percent per annum and payable in three equal principal installments on each of
April 30, 1998, April 30, 1999 and April 30, 2000; and (iii) 50,000 shares of
the common stock, par value $.01 per share, of the Company. The Company incurred
$828,188 of costs associated with the acquisition. The Company also discharged
approximately $1 million of McLagan's outstanding liabilities and agreed to make
deferred payments in an aggregate amount of $1 million, on April 30, 2000, to
certain employees of McLagan, provided that such employees continue to be
employed by the McLagan subsidiaries as of such date.
23
Notes to Consolidated Financial Statements - continued
The acquisition has been accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets purchased
based upon the fair values at the date of the acquisition. As a result,
$22,294,210 of the purchase price has been allocated to goodwill, customer lists
and other intangibles which are being amortized on a straight line basis over
periods from 5 to 40 years. The Company has an incentive compensation program
with former officers of McLagan which provides for payments to such officers
when certain milestone earnings are attained. (See Note 13.)
4. Property and Equipment:
----------------------
Property and equipment are comprised of the following:
2000 1999
----------- -----------
Furniture and equipment $ 9,362,145 $ 7,901,792
Capitalized software 696,925 652,848
Leasehold improvements 363,150 357,422
----------- -----------
10,422,220 8,912,062
Less, accumulated depreciation and amortization 5,379,238 3,693,654
----------- -----------
$ 5,042,982 $ 5,218,408
=========== ===========
Depreciation and amortization expense relating to furniture and
equipment and leasehold improvements was approximately $1,584,000, $1,374,000
and $858,000 for the years ended March 31, 2000, 1999 and 1998, respectively.
Amortization expense relating to capitalized software was approximately
$139,000, $131,000 and $83,000 for the fiscal years ended March 31, 2000, 1999
and 1998, respectively.
5. Debt:
----
Notes Payable to Bank
- ---------------------
On November 13, 1997, the Company entered into a Credit Agreement with several
banks. The Credit Agreement consists of a $15 million term loan, the proceeds of
which were used in the financing of the acquisition of McLagan, and a $10
million revolving credit facility. Substantially all of the Company's assets are
held as collateral for this debt.
The term loan bears interest at the prime rate (9% at March 31, 2000) plus 0.25
percent or the eurodollar rate (.9553 at March 31, 2000) plus 3.25 percent. The
payment schedule under the term loan calls for quarterly installment payments
beginning on March 31, 1998. Borrowings under the revolving credit facility bear
interest at the prime rate or an optional eurodollar based rate. The Company has
entered into an interest rate swap at a fixed rate of 9% per annum on borrowings
under its credit facility of up to $5,000,000. As of March 31, 2000 and 1999,
borrowings under the term loan were $10,750,000 and $13,000,000, respectively.
There were no borrowings under the revolving credit facility at March 31, 2000.
24
Notes to Consolidated Financial Statements - continued
Borrowings under the revolving credit facility were $4,700,000 at March 31,
1999.
The Credit Agreement, which originally expired on November 13, 2002, was amended
during fiscal 2000 to extend the term to November 13, 2003 at which time any
outstanding principal and interest is payable. Any financing costs associated
with the debt are being amortized over the remaining term of the agreement. The
Credit Agreement contains various financial and other covenants and conditions,
including but not limited to limitations on capital expenditures and dividend
payments, making acquisitions and incurring additional indebtedness. The Company
received a waiver for non-compliance of certain loan covenants as of March 31,
2000.
The Company also has two equipment notes payable to a bank in the amount of
$474,900 and $668,558 at March 31, 2000 and 1999, respectively. Such notes are
payable monthly and bear interest at 8.97% and 9.65%.
Subordinated Notes Payable:
- --------------------------
In connection with the acquisition of McLagan (See Note 3), the Company issued
$5 million of subordinated notes bearing interest at 8% per annum and payable in
three equal principal installments on each of April 30, 1998, 1999 and 2000.
Such notes are subordinated to the Company's Credit Facility and equipment
borrowings. The amount outstanding under such notes as of March 31, 2000 was
$1,666,667. The note was satisfied on April 30, 2000.
Amounts due on the Company's debt financings discussed above are as follows:
2001 $ 5,216,815
2002 4,315,694
2003 3,446,843
------------
$ 12,979,352
============
6. Accounts Payable and Accrued Expenses:
-------------------------------------
Accounts payable and accrued expenses are comprised of the following:
2000 1999
-------------- --------------
Accounts payable $ 4,012,038 $ 1,205,870
Bonuses 8,513,377 4,938,826
Payroll, payroll taxes and benefits 1,388,915 679,595
Customer advances 2,414,950 -
Interest 126,319 259,769
Professional fees 279,682 184,123
Other 823,528 678,475
-------------- --------------
$ 17,558,809 $ 7,946,658
============== ==============
25
Notes to Consolidated Financial Statements - continued
7. Lease Commitments:
-----------------
The Company leases facilities under various operating leases that expire on
various dates through 2010. The leases include escalations for operating
expenses and real estate taxes. Rent expense charged to operations was
$2,361,000, $2,139,000 and $1,585,000 for the years ended March 31, 2000, 1999
and 1998, respectively.
As of March 31 2000, future minimum annual rental payments under non-cancelable
operating leases are as follows:
Fiscal Year
-----------
2001 $ 1,706,718
2002 1,422,079
2003 1,364,570
2004 1,251,368
2005 911,762
Thereafter $ 2,830,098
8. Related Party Transactions:
---------------------------
A director of the Company is also a partner of the law firm that is the
Company's general counsel. Expenses incurred by the Company for legal services
provided by this law firm were approximately $221,000, $241,000 and $691,000 for
the years ended March 31, 2000, 1999 and 1998, respectively. In addition this
director was issued options to purchase 5,000 shares of common stock at a price
of $6.50 on January 15, 1997 and options to purchase 5,000 shares of common
stock at a price of $6.50 on November 4, 1998.
26
Notes to Consolidated Financial Statements - continued
9. Income Taxes:
------------
The provision for income taxes consists of:
2000 1999 1998
------------- ------------- -------------
Current:
Federal $ 1,092,948 $ 1,436,018 $ 798,961
State and local 408,319 769,094 332,986
Foreign 752,552 636,194 222,453
Deferred 370,732 (72,867) 244,589
------------- ------------- -------------
$ 2,624,551 $ 2,768,439 $ 1,598,989
============= ============= =============
The tax provision for the year ended March 31, 2000 also included a $55,182
charge pertaining to an examination by the Internal Revenue Service.
The difference between the statutory Federal income tax rate and the effective
income tax rate is reconciled as follows:
2000 1999 1998
------------- ------------- -------------
Statutory Federal income tax rate provision $ 2,050,202 $ 2,236,971 $ 1,264,317
State and local taxes, net of Federal benefit 315,363 507,593 194,853
Non-deductible expenses 89,802 72,306 64,703
Prior year income taxes 55,182
Other 114,002 (48,431) 75,116
------------- ------------- -------------
$ 2,624,551 $ 2,768,439 $ 1,598,989
============= ============= =============
The components of deferred tax assets and liabilities as of March 31, 2000 and
1999, are as follows:
2000 1999
------------- -------------
Current:
Bad debt reserve $ 75,918 $ 75,918
Accrued bonus 223,560
------------- -------------
Net current asset $ 75,918 $ 299,478
------------- -------------
Non-current:
Foreign Tax Credit $ 82,634 $ 82,634
Straight-lining rent payments 111,799 109,222
Fixed and intangible assets (885,198) (735,449)
------------- -------------
Net non-current liability (690,765) (543,593)
------------- -------------
Net deferred tax liability $ (614,847) $ (244,115)
============= =============
27
Notes to Consolidated Financial Statements - continued
10. Retirement Plans:
----------------
The Company has a 401(k) profit sharing plan, covering substantially all
employees. Employees can contribute to a maximum of 15% of their earnings up to
IRS limitations. Contributions can be made by the Company on a discretionary
basis and vest over a five-year period. Contributions made by the Company to the
plan for the years ended March 31, 2000, 1999 and 1998 were approximately
$475,000, $317,000 and $75,000, respectively.
McLagan Partners, Inc. employees are covered under a separate plan. Employees
are eligible after one year of service. Employees are not required to make
contributions to the plan. The Company makes a discretionary contribution based
on the total compensation of participants. Contributions made by the Company to
the plan for the years ended March 31, 2000 and 1998 were approximately $178,000
and $34,000, respectively. There were no contributions made by the Company to
the plan for the year ended March 31, 1999.
11. Stock Plans:
-----------
Stock Option and Grant Plan
The Company's Stock Option and Grant Plan (the "Option Plan") was adopted by the
Company's Board of Directors as of March 31, 1996 and approved by its
stockholders on January 16, 1997. Officers, directors, employees, consultants
and key persons of the Company are eligible to participate in the Option Plan.
The Option Plan currently provides that options for an aggregate of 1,600,000
shares of Common Stock are available for award (at a price of no less than the
fair market value of the underlying stock at grant date) which generally vest
ratably over three years and expire ten years from the date of grant.
Stock Purchase Plan
In January 1997, the Company created an Employee Stock Purchase Plan (the "Stock
Purchase Plan"), which provides for eligible employees to purchase shares of
Common Stock, through regular period salary reductions of up to 10% of their
pre-tax gross compensation. A maximum of 250,000 shares of Common Stock may be
issued under the Stock Purchase Plan. Under applicable tax rules, an employee
may purchase no more than $25,000 of the fair market value worth of Common Stock
in any calendar year and certain other tax limitations may apply. The Stock
Purchase Plan is intended to qualify as an employee stock purchase plan as
defined in Section 423 of the Internal Revenue Code.
Directors' Stock Option Plan
In January 1997, the Company adopted a stock option and grant plan for
non-employee directors pursuant to which options to acquire a maximum aggregate
of 100,000 shares of Common Stock may be granted to non-employee directors. The
options issued vest ratably over three years, expire ten years from grant date
and cannot have exercise prices less than the fair market value of the Common
Stock on date of grant.
Restricted Stock
During fiscal 2000 the Company issued 53,685 shares of restricted Class A common
stock to certain key employees. As such shares are fully vested, the Company has
recognized the full amount of compensation expense, approximately $438,000,
during fiscal 2000, representing the fair market value of the stock on the
issuance date.
28
Notes to Consolidated Financial Statements - continued
Summary of Options
A summary of stock option transactions for the years ended March 31, 2000, 1999
and 1998 is as follows:
2000 1999 1998
-------------------------- --------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------ ------------ ------------- ------------ ------------
Outstanding,
Beginning of year 1,073,103 $ 7.49 790,533 $ 7.26 393,533 $ 5.75
Granted 409,000 6.39 314,000 8.05 406,000 8.71
Forfeited/expired (122,090) 7.81 (31,430) 7.46 (9,000) 6.50
Exercised (26,379) 1.33
------------ ------------ ------------
Options outstanding,
end of year 1,333,634 $ 7.12 1,073,103 $ 7.49 790,533 $ 7.26
============ ============ ============
Options exercisable,
end of year 580,252 $ 7.16 436,177 $ 6.49 245,866 $ 5.30
============ ============ ============
Options available for
grant, end of year 339,987 176,897 59,467
============ ============ ============
Weighted average fair
value of options
granted during the year $ 3.92 $ 3.88 $ 2.92
============ ============ ============
29
Notes to Consolidated Financial Statements - continued
The Company has applied the disclosure-only provision for SFAS 123. Had
compensation cost been determined based on the fair value at the grant date
consistent with the provisions of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below for the years ended March 31, 2000, 1999 and 1998.
2000 1999 1998
---------------- --------------- --------------
Net income attributable to common
stockholders as reported $ 3,405,454 $ 3,810,888 $ 2,119,589
================ =============== ==============
Unaudited pro forma net income $ 2,849,339 $ 3,536,324 $ 1,921,552
================ =============== ==============
Basic earnings per share, as reported $ 0.52 $ 0.59 $ 0.33
================ =============== ==============
Diluted earnings per share, as reported $ 0.51 $ 0.58 $ 0.33
================ =============== ==============
Unaudited pro forma basic earnings per share $ 0.43 $ 0.55 $ 0.30
================ =============== ==============
Unaudited pro forma diluted earnings per share $ 0.42 $ 0.53 $ 0.29
================ =============== ==============
The weighted average fair value of each option has been estimated on the date of
grant using the Black-Scholes options pricing model with the following weighted
average assumptions; no dividend yield; expected volatility of 60%, 55% and 40%
in 2000, 1999 and 1998, respectively; risk-free interest rate (ranging from
5.96%-6.69% in 2000, 4.74%-5.61% in 1999 and 5.74%-6.37% in 1998); and expected
lives ranging from approximately two to five years.
The following table summarizes information about stock options outstanding at
March 31, 2000:
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life Price Exercisable Price
------------------- -------------- --------------- ------------- ---------------- -------------
$ 0.35 to 1.22 25,846 6.25 $ 0.35 25,846 $ 0.35
4.00 to 5.25 220,000 9.87 4.99 0 0.00
6.50 to 7.75 511,308 7.43 6.72 378,807 6.70
7.84 to 9.00 445,980 8.23 8.64 132,098 9.00
9.25 to 9.63 130,500 8.14 9.63 43,500 9.63
-------------- --------------- ------------- ---------------- -------------
$ 0.35 to 9.63 1,333,634 8.15 $ 7.12 580,251 $ 7.16
============== =============== ============= ================ =============
For the years ended March 31, 1999 and 1998, no options were exercised or
expired.
30
Notes to Consolidated Financial Statements - continued
12. Equity:
------
Undesignated Preferred Stock
The Board of Directors of the Company is authorized, without further action of
the stockholders of the Company, to issue up to 2,000,000 shares of Preferred
Stock in one or more classes or series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any series or the designation of such series.
However, pursuant to the Certificate, the holders of Preferred Stock would not
have cumulative voting rights with respect to the election of directors. Any
such Preferred Stock issued by the Company may rank prior to the Common Stock as
to dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of Common Stock.
The purpose of authorizing the Board of Directors to issue Preferred Stock is,
in part, to eliminate delays associated with a stockholder vote on specific
issuances. The issuance of Preferred Stock could adversely affect the voting
power of the holders of Common Stock and could have the effect of delaying,
deferring, or preventing a change in control of the Company.
13. Employment Agreements:
---------------------
In January 1997, the Company entered into employment agreements with three key
executives that expire on the third anniversary of the date upon which the
Company notifies the executive of the Company's intention to terminate (except
in the case of termination due to cause) their employment. The agreements
provide for aggregate salaries per annum, which were $1,060,000 in fiscal 2000,
plus fringe benefits and an annual bonus to be determined by the Board of
Directors. Each employment agreement includes a covenant not to compete with the
Company for a period of three years after employment ceases.
In November 1997, the Company entered into employment agreements with four key
executives of McLagan Partners, Inc. that expired on March 31, 2000. The
agreements were extended with the same terms through March 31, 2001. The
agreements provide for aggregate base salaries of $600,000 and aggregate annual
incentive payments if certain performance targets are met. All incentive
payments amount to (a) for the period January 1, 1998 through March 31, 1999,
100% of McLagan's income between $4.5 and $6.75 million and 60% of the income in
excess of $6.75 million, and (b) for fiscal year 2000, 100% of McLagan's income
between $3.6 and $5.4 million and 60% of income in excess of $5.4 million. The
agreements include covenants not to compete with the Company for periods between
two and three years beyond the term of their employment with the Company. In
connection with this incentive plan, $5,465,020 was paid to the officers in
fiscal 2001. Incentive payments for 1999 of $4,254,000 were paid to the officers
in May 1999, and at the request of the officers, $841,278 was paid to employees
in fiscal 1998.
14. Industry Segment Information:
----------------------------
ASI Solutions' reportable segments are performance improvement services,
employment process outsourcing and compensation services and market share
studies.
Revenues and profits in the performance improvement services segment are
generated by designing custom solutions for a client where ASI assesses job
candidates, trains existing employees and measures employee performance through
monitoring customer contact. Fees charged are generally based on the number of
people and calls processed plus a fee for the development of a customized
solution.
31
Notes to Consolidated Financial Statements - continued
Revenues and profits in the employee process outsourcing segment are generated
by providing the following services: advertising for and recruiting of
applicants; establishing automated telephonic voice response systems to screen
prospective applicants; arranging for the physical facilities and equipment
necessary for the pre-screening process and performing background checks on
applicants. For larger engagements, the Company generally charges a fixed
minimum monthly fee which may increase based on the total number of people
processed. For other assignments, such as background checks, revenue is based on
a fixed fee for each candidate processed.
Revenues and profits in the compensation services and market share studies
segment are generated by providing survey services to the financial and
securities industries. These include compensation as well as market share survey
services for retail operations within the financial services industry. Only
participating clients may purchase surveys. The Company also provides
compensation services where revenue is generated based on a fee per assignment
basis.
The accounting polices of the segments are the same as those described in the
"Summary of Significant Accounting Policies". ASI Solutions evaluates the
performance of its segments and allocates resources to them based on their
operating contribution, which represents segment revenues less direct costs of
operation, excluding the allocation of corporate expenses. Identifiable assets
of the operating segments principally consist of net accounts receivable
associated with the segment activities. Accounts receivable from performance
improvement services and employment process outsourcing are managed on a
combined basis. All other identifiable assets not attributable to industry
segments are included in corporate assets. The Company does not track
expenditures for long lived assets on a segment basis.
32
Notes to Consolidated Financial Statements - continued
The table below presents information on the revenues and operating contribution
for each segment for the three years ended March 31, 2000, and items which
reconcile segment operating contribution to the Company's reported pre-tax
income.
Year Ended March 31,
2000 1999 1998
-------------- --------------- ---------------
(In Thousands)
Revenue:
Performance Improvement Services $ 21,158 $ 17,104 $ 14,538
Employment Process Outsourcing 25,946 21,763 14,381
Compensation Services and Market Share Studies 24,798 20,786 5,946
------------- ---------------- ---------------
$ 71,902 $ 59,653 $ 34,865
------------- ---------------- ---------------
Operating contribution:
Performance Improvement Services $ 7,512 $ 6,878 $ 6,755
Employment Process Outsourcing 8,280 8,500 5,304
Compensation Services and Market Share Studies 5,068 4,370 2,091
------------- ---------------- ---------------
$ 20,860 $ 19,748 $ 14,150
------------- ---------------- ---------------
Consolidated expenses (income):
Interest, net $ 1,388 $ 1,710 $ 593
Depreciation and Amortization 2,656 2,418 1,378
Selling, General and Administrative and
Research and Development 10,786 9,041 8,460
------------- ---------------- ---------------
$ 14,830 13,169 10,431
------------- ---------------- ---------------
Income before income taxes $ 6,030 $ 6,579 $ 3,719
------------- ---------------- ---------------
Identifiable Assets:
Performance Improvement and Employment Process
Outsourcing $ 13,384 $ 13,136 $ 12,644
Compensation Services and Market Share Studies 6,592 5,283 3,684
Corporate 12,997 8,471 3,641
------------- ---------------- ---------------
$ 32,973 $ 26,890 $ 19,969
============= ================ ===============
The Company began providing compensation and market share studies in November
1997 with the acquisition of McLagan, through its United States and
international offices. All other revenues are generated in the United States.
International revenues in fiscal 2000, 1999 and 1998 were $8,362,835, $6,775,828
and $1,893,879, respectively.
33
Notes to Consolidated Financial Statements - continued
15. Quarterly Results of Operations (Unaudited):
-------------------------------------------
The following tables set forth unaudited financial data for each of the eight
consecutive fiscal quarters ended March 31, 2000.
Quarter Ended
June 30 Sept. 30 Dec. 31 March 31
----------- ------------ ----------- ------------
2000:
Revenue $ 15,899 $ 15,239 $ 20,252 $ 20,512
Gross Profit 7,587 6,863 9,503 9,835
Income before provision for income taxes 1,725 303 1,302 2,700
Net income 1,008 175 719 1,503
Diluted earnings per share $ 0.15 $ 0.03 $ 0.11 $ 0.22
1999:
Revenue $ 12,013 $ 14,844 $ 18,058 $ 14,739
Gross Profit 6,149 7,630 8,985 7,134
Income before provision for income taxes 1,504 1,570 1,949 1,556
Net income 854 914 1,121 922
Diluted earnings per share $ 0.13 $ 0.14 $ 0.17 $ 0.14
34
Notes to Consolidated Financial Statements - continued
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 of Form 10-K is incorporated by
reference to the information contained in the Company's definitive Proxy
Statement for the Company's 2000 Annual Meeting of Stockholders (the "Proxy
Statement"), to be filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by
reference to the information contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by
reference to the information contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by
reference to the information contained in the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Financial Statements and Supplementary Data
-------------------------------------------
See Index to Consolidated Financial Statements under Item 8 in Part II
hereof.
(2) Exhibits
--------
See (c) below.
35
Notes to Consolidated Financial Statements - continued
(b) Reports on Form 8-K.
-------------------
None
(c) Exhibits
--------
Exhibit
Number Description
------ -----------
2.1 Asset Purchase Agreement entered into as of November 13, 1997
by and among McLagan Partners, Inc., McLagan Partners
Incorporated and the holders of all of the outstanding
capital stock of McLagan Partners Incorporated (incorporated
by reference to the relevant exhibit to the Company's Current
Report on Form 8-K dated November 13, 1997 (filed November
24, 1997))
2.2 Asset Purchase Agreement entered into as of November 13, 1997
by and among McLagan Partners International, Inc., McLagan
Partners International Incorporated and the holders of all of
the outstanding capital stock of McLagan Partners
International Incorporated (incorporated by reference to the
relevant exhibit to the Company's Current Report on Form 8-K
dated November 13, 1997 (filed November 24, 1997))
2.3 Asset Purchase Agreement entered into as of November 13, 1997
by and among McLagan Partners Asia, Inc., McLagan Partners
Asia Incorporated and the holders of all of the outstanding
capital stock of McLagan Partners Asia Incorporated
(incorporated by reference to the relevant exhibit to the
Company's Current Report on Form 8-K dated November 13, 1997
(filed November 24, 1997))
3.1 First Restated Certificate of Incorporation of the Company
(incorporated by reference to the relevant exhibit to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997 (filed June 27, 1997))
3.2 By-laws of the Company (incorporated by reference to the
relevant exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1997 (filed June 27,
1997))
4.1 Specimen of Common Stock Certificate (incorporated by
reference to the relevant exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-20401) filed
on January 24, 1997, as amended)
10.1 Warrant Agreement by and between the Company and H.C.
Wainwright & Co., Inc. (incorporated by reference to the
relevant exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1997 (filed June 27,
1997))
10.2 Registration Rights Agreement between the Company, Bernard F.
Reynolds, Eli Salig and Seymour Adler, Ph.D. (incorporated by
reference to the relevant exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-20401) filed
on January 24, 1997, as amended)
36
Notes to Consolidated Financial Statements - continued
10.3 Stock Option and Grant Plan of the Company (incorporated by
reference to the relevant exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997
(filed June 27, 1997))
10.4 Director's Stock Option Plan of the Company (incorporated by
reference to the relevant exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997
(filed June 27, 1997))
10.5 Employee Stock Purchase Plan of the Company (incorporated by
reference to the relevant exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997
(filed June 27, 1997))
10.6 Employment Agreement between the Company and Bernard F.
Reynolds (incorporated by reference to the relevant exhibit
to the Company's Registration Statement on Form S-1 (File No.
333-20401) filed on January 24, 1997, as amended)
10.7 Employment Agreement between the Company and Eli Salig
(incorporated by reference to the relevant exhibit to the
Company's Registration Statement on Form S-1 (File No. 333-
20401) filed on January 24, 1997, as amended)
10.8 Employment Agreement between the Company and Seymour Adler,
Ph.D. (incorporated by reference to the relevant exhibit to
the Company's Registration Statement on Form S-1 (File No.
333-20401) filed on January 24, 1997, as amended)
10.9 Sublease dated July 2, 1996 between Assessment Solutions and
Nikon Inc. regarding the space at 1300 Walt Whitman Road,
Melville, New York (incorporated by reference to the relevant
exhibit to the Company's Registration Statement on Form S-1
(File No. 333-20401) filed on January 24, 1997, as amended)
10.10 Lease dated January 27, 1984 between Assessment Solutions and
780 Third Avenue Associates regarding the space at 780 Third
Avenue, New York, New York, and the Third Amendment to the
lease dated August 7, 1996 by and among Assessment Solutions,
Proudfoot and 780 Third Avenue Associates (incorporated by
reference to the relevant exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-20401) filed
on January 24, 1997, as amended)
10.11 Sublease dated October 6, 1994 between Proudfoot and Nikon,
Inc. regarding the space at 1300 Walt Whitman Road, Melville,
New York, and the Amendment to the sublease, dated July 2,
1996 (incorporated by reference to the relevant exhibit to
the Company's Registration Statement on Form S-1 (File No.
333-20401) filed on January 24, 1997, as amended)
10.12 (Intentionally omitted)
10.13 Commitment letter dated March 3, 1997 between the Company and
Fleet Bank, N.A. (incorporated by reference to the relevant
exhibit to the Company's Registration Statement on Form S-1
(File No. 333-20401) filed on January 24, 1997, as amended)
37
Notes to Consolidated Financial Statements - continued
+10.14 Agreement by and between Assessment Solutions and TeleSector
Resources Group, Inc. (incorporated by reference to the
relevant exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-20401) filed on January 24, 1997, as
amended)
10.15 Lease Agreement by and between 320 Expressway Associates and
the Company, dated March 27, 1997 (incorporated by reference
to the relevant exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (filed August
14, 1997))
+10.16 Amendment No. 06 dated October 6, 1997 to the Agreement by
and between Assessment Solutions and TeleSector Resources
Group, Inc., d/b/a Bell Atlantic Network Services
(incorporated by reference to the relevant exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 (filed January 30, 1998))
+10.17 Amendment No. 07 dated January 12, 1998 to the Agreement by
and between Assessment Solutions and TeleSector Resources
Group, Inc., d/b/a Bell Atlantic Network Services
(incorporated by reference to the relevant exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 (filed January 30, 1998))
10.18 Form of Employment Agreement between McLagan Partners, Inc.
and its senior officers (incorporated by reference to the
relevant exhibit to the Company's Current Report on Form 8-K
dated November 13, 1997 (filed November 24, 1997))
10.19 McLagan Partners, Inc. Incentive Compensation Plan
(incorporated by reference to the relevant exhibit to the
Company's Current Report on Form 8-K dated November 13, 1997
(filed November 24, 1997))
10.20 Credit Agreement dated as of November 13, 1997 among the
Company, McLagan Partners, Inc., The Chase Manhattan Bank, as
Administrative Agent for the Lenders thereunder, and the
other Lenders identified therein (incorporated by reference
to the relevant exhibit to the Company's Current Report on
Form 8-K dated November 13, 1997 (filed November 24, 1997))
*10.21 First Amendment and Waiver dated April 21, 1998 to the Credit
Agreement among the Company, McLagan Partners, Inc., The
Chase Manhattan Bank, as Administrative Agent for the Lenders
thereunder, and the other Lenders identified therein
(incorporated by reference to the relevant exhibit to the
Company's Current Report on Form 8-K dated November 13, 1997
(filed November 24, 1997))
*10.22 Second Amendment dated December 17, 1998 to the Credit
Agreement among the Company, McLagan Partners, Inc., The
Chase Manhattan Bank, as Administrative Agent for the Lenders
thereunder, and the other Lenders identified therein
(incorporated by reference to the relevant exhibit to the
Company's Current Report on Form 8-K dated November 13, 1997
(filed November 24, 1997))
*10.23 Third Amendment dated August 23, 1999 to the Credit Agreement
among the Company, McLagan Partners, Inc., The Chase
Manhattan Bank, as Administrative Agent for the Lenders
thereunder, and the other Lenders identified therein
(incorporated by reference to the relevant exhibit to the
Company's Current Report on Form 8-K dated November 13, 1997
(filed November 24, 1997))
*10.24 Waiver dated November 12, 1999 to the Credit Agreement among
the Company, McLagan Partners, Inc., The Chase Manhattan
Bank, as Administrative Agent for the Lenders thereunder, and
the other Lenders identified therein (incorporated by
reference to the relevant exhibit to the Company's Current
Report on Form 8-K dated November 13, 1997 (filed November
24, 1997))
*10.25 Fourth Amendment and Consent dated February 11, 2000 to the
Credit Agreement among the Company, McLagan Partners, Inc.,
The Chase Manhattan Bank, as Administrative Agent for the
Lenders thereunder, and the other Lenders identified therein
(incorporated by reference to the relevant exhibit to the
Company's Current Report on Form 8-K dated November 13, 1997
(filed November 24, 1997))
*10.26 Waiver and consent dated April 27, 2000 to the Credit
Agreement among the Company, McLagan Partners, Inc., The
Chase Manhattan Bank, as Administrative Agent for the Lenders
thereunder, and the other Lenders identified therein
(incorporated by reference to the relevant exhibit to the
Company's Current Report on Form 8-K dated November 13, 1997
(filed November 24, 1997))
21.1 List of Subsidiaries of the Company
*23.1 Consent of PricewaterhouseCoopers LLP
*27.1 Financial Data Schedule
____________
+ Confidential treatment has been granted as to a portion of this
document by order of the SEC.
* Filed herewith
38
Notes to Consolidated Financial Statements - continued
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASI SOLUTIONS INCORPORATED
By: /s/ Michael J. Mele
-----------------------------------------
Michael J. Mele
Senior Vice President and Chief Financial
Officer
Dated: June 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Bernard F. Reynolds Chairman of the Board and Chief June 26, 2000
- --------------------------------- -------------
Bernard F. Reynolds Executive Officer (Principal Executive
Officer)
/s/ Eli Salig President and Chief Operating Officer June 26, 2000
- --------------------------------- -------------
Eli Salig (Principal Operating Officer) and Director
/s/ Seymour Adler Executive Vice President and Director June 26, 2000
- --------------------------------- -------------
Seymour Adler
/s/ Michael J. Mele Senior Vice President and Chief Financial June 26, 2000
- --------------------------------- -------------
Michael J. Mele Officer (Principal Financial and Accounting
Officer)
/s/ David Tory Director June 26, 2000
- --------------------------------- -------------
David Tory
/s/ Michael J. Boylan Director June 26, 2000
- --------------------------------- -------------
Michael J. Boylan
/s/ Ilan Kaufthal Director June 26, 2000
- --------------------------------- -------------
Ilan Kaufthal
39
Notes to Consolidated Financial Statements - continued
/s/ Carl Seldin Koerner Secretary and Director June 26, 2000
- --------------------------------- -------------
Carl Seldin Koerner
/s/ F. Samuel Smith Director June 26, 2000
- --------------------------------- -------------
F. Samuel Smith
40