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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of
the Commission only (as
permitted by Rule
14a-6(e)(2)
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
DIGITAL SOLUTIONS, INC.
________________________________________________________________________________
(Name of the Corporation as Specified in Charter)
Donald T. Kelly, Secretary
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box)
[ ] No Fee required
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock
________________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
9,383,334
________________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
$1.60
________________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
$15,014,000
________________________________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or form or schedule and the date of filing.
(1) Amount previously paid:
$3,003
________________________________________________________________________________
(2) Form schedule or registration number:
________________________________________________________________________________
(3) Filing party:
________________________________________________________________________________
(4) Dated filed:
________________________________________________________________________________
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[Porter, LeVay & Rose Letterhead]
FOR: DIGITAL SOLUTIONS, INC.
FROM: MARTIN SKALA, VP
PORTER, LEVAY & ROSE, INC.
COMPANY DONALD KAPPAUF, CHIEF EXECUTIVE OFFICER
CONTACT: (732) 748-1700
FOR CLIENT APPROVAL
DSI REPORTS RECORD EARNINGS, REVENUE FOR FISCAL 1998;
EXPANDS ON TEAMSTAFF ACQUISITION GOALS
SOMERSET, NJ, DEC. __ -- Digital Solutions, Inc. (NASDAQ: DGSI), one of
the nation's leading Professional Employer Organizations (PEO), today reported
final earnings for the fourth quarter of $381,000, an increase of 43 percent
over the same quarter in fiscal 1997. The company said the improvement is a
continued reflection of the growth in the profitability of the company and a
further confirmation that it has put its past losses behind it. This represents
the fifth consecutive quarter of profitability for the company. On an after-tax
basis, DSI reported fully diluted earnings per share of one cent.
Revenue for the fourth quarter increased to $37,553,000 from
$30,400,000 for the same period last year, an increase of 42 percent, reflecting
the continued growth in DSI's business.
Revenues for fiscal 1998 grew 14 percent to $139,675,000. Income before
tax was $1,407,000, or approximately 7 cents per share, versus a loss last year
of $2,832,000 which is an improvement of approximately $4.2 million. On a
after-tax basis, DSI will report 14 cents per share for 1998, including a third
fiscal quarter adjustment associated with deferred taxes, versus a loss of
approximately 15 cents per share in fiscal 1997. Without the deferred tax
adjustment, earnings per share on an after tax basis for fiscal 1998 would have
been 4 cents per share from operations.
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"On an overall basis", Donald W. Kappauf, DSI's President, said, "I am
extremely pleased with the performance of the company over the last year. It has
been a year of challenge which has laid the foundation for the future growth of
DSI. We established four objectives coming into this year: A return to
profitability; replacement of the current bank facility with another financing
arrangement, with no vesting of related warrants; hiring of an investment banker
to seek acquisition opportunities; and attainment of a national NASDAQ listing.
We have achieved our first three objectives, culminating in the pending
acquisition of the TeamStaff Companies. The acquisition of TeamStaff will help
us towards the achievement of our fourth objective of a National NASDAQ
listing."
TeamStaff
DSI has mailed a proxy to all its shareholders seeking approval of the
proposed acquisition of The TeamStaff Companies and the change of its name to
TeamStaff. According to Mr. Kappauf, "This is an excellent opportunity to
catapult the combined entities into the forefront of the PEO industry. The
combined company should rank among the top 15 PEOs in the country. Excluding the
impact of the proposed acquisition, we estimated DSI would grow after tax
earnings from 1998 to 2001 at an average annual compound growth rate of
approximately 40 percent, excluding the impact in fiscal 1998 of the third
quarter earnings adjustment associated with deferred taxes. With the acquisition
of the TeamStaff Companies, we believe we will almost double these growth
factors."
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These increases will occur because the company believes the combined
entities will be able to achieve not only significant savings in overhead and
insurance programs including workers' compensation costs but, under Kirk
Scoggins' leadership, also significantly grow the PEO business. Kappauf said,
"It takes about a year to properly train a PEO salesperson. In 1998, our
rebuilding year, we have spent a lot of time improving our sales force but more
work is needed. TeamStaff brings an excellent sales and marketing engine with a
powerful sales force in place to our PEO business. This, coupled with the
financial management DSI demonstrated in 1998, should generate synergies in the
future." As previously stated, DSI believes it has an in-house growth
opportunity in its payroll business customers. "We have an objective", Kappauf
continued, "of converting 10 percent of our payroll business customers in Fiscal
1999 to PEO. This would result in approximately $100 million in additional
revenue to the company. Although we were successful in some conversions from our
Payroll Group in 1998, they did not meet management's expectations for the year.
TeamStaff and DSI have set as their number one priority the conversion of these
customers to PEO and the process has already started. We are more confident of
our success in 1999 due to the proposed addition of the TeamStaff organization."
To further discuss the company's fiscal 1998 performance and the
TeamStaff acquisition, DSI will hold a conference call, Tuesday, December 1,
1998, at 10:00 A.M.
To avoid disruptions to the negotiation process that could come from premature
announcements, DSI does not intend to make announcements with respect to the
status of negotiations until such time as a definitive agreement is reached, the
parties have agreed upon material changes to announced transaction terms or
negotiations have terminated. The statements made herein are only made as of the
date of this press release and DSI undertakes no obligations to publicly update
such statements to reflect subsequent events or circumstances.
This press release contains statements of a forward-looking nature regarding
future events. These statements are only predictions and actual events may
differ materially. Please refer to documents that DSI files from time to time
with the Securities and Exchange Commission for a discussion of certain factors
that could cause actual results to differ materially from those contained in the
forward-looking statements.
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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ ------------
Revenues $ 37,553,000 $ 30,400,000
Direct expenses 35,159,000 27,983,000
------------ ------------
Gross profit 2,394,000 2,417,000
Selling, general and administrative expenses 1,712,000 1,904,000
Depreciation and amortization 159,000 180,000
------------ ------------
Income from operations 523,000 333,000
------------ ------------
Other income (expense) 46,000 26,000
Interest and other income (188,000) (93,000)
------------ ------------
Interest expense (142,000) (67,000)
------------ ------------
Income (loss) before tax 381,000 266,000
Income tax benefit (expense) (174,000) --
------------ ------------
Net income (loss) $ 207,000 $ 266,000
============ ============
Basic earnings (loss) per common share $ .01 $ 0.01
============ ============
Weighted average shares outstanding 19,298,010 19,134,151
============ ============
Diluted earnings (loss) per common share $ 0.01 $ 0.01
============ ============
Diluted shares outstanding 19,450,673 19,317,976
============ ============
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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE YEAR ENDED
SEPTEMBER 30,
1998 1997
------------- -------------
Revenues $ 139,675,000 $ 122,695,000
Direct expenses 129,747,000 113,894,000
------------- -------------
Gross profit 9,928,000 8,801,000
Selling, general and administrative expenses 7,389,000 10,306,000
Depreciation and amortization 661,000 1,010,000
------------- -------------
Income from operations 1,878,000 (2,515,000)
------------- -------------
Other income (expense) 83,000 60,000
Interest and other income (554,000) (377,000)
------------- -------------
Interest expense (471,000) (317,000)
------------- -------------
Income (loss) before tax 1,407,000 (2,832,000)
Income tax benefit 1,296,000 --
------------- -------------
Net income (loss) $ 2,703,000 $ (2,885,000)
============= =============
Basic earnings (loss) per common share $ 0.14 $ (0.15)
============= =============
Weighted average shares outstanding 19,271,897 19,070,349
============= =============
Diluted earnings (loss) per common share $ 0.14 $ (0.15)
============= =============
Diluted shares outstanding 19,403,298 19,070,349
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1998