As filed with the Securities and Exchange Commission on May 21, 2002.

Registration No. 333-84452

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-effective

Amendment No. 3

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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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ADVANTAGE PAYROLL SERVICES, INC.
(Exact name of registrant as specified in its charter)

Delaware 7374 01-0287147
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

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126 Merrow Road
Auburn, Maine 04211
Telephone: (207) 784-0178
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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Copies to:

Charles W. Lathrop, Jr. Dennis M. Myers Christopher D. Lueking
Advantage Payroll Services, Inc. Gerald T. Nowak Latham & Watkins
126 Merrow Road Kirkland & Ellis 233 South Wacker Drive, Suite 5800
Auburn, Maine 04211 200 East Randolph Drive Chicago, Illinois 60606-6401
Telephone: (207) 784-0178 Chicago, Illinois 60601 Telephone: (312) 876-7700
Facsimile: (207) 786-0490 Telephone: (312) 861-2000 Facsimile: (312) 993-9767
Facsimile: (312) 861-2200

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]

-----------------

The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

================================================================================

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities, and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

Subject to Completion, dated May 21, 2002

PROSPECTUS

5,500,000 Shares

[LOGO] ADVANTAGE (R)
PAYROLL SERVICES

Common Stock

- --------------------------------------------------------------------------------

This is our initial public offering of common stock. We are offering
4,539,474 shares and the selling stockholders identified in this prospectus are
offering 960,526 shares of our common stock. No public market currently exists
for our shares. We will not receive any of the proceeds from the sale of shares
by the selling stockholders.

We currently anticipate the initial public offering price to be between
$18.00 and $20.00 per share. We have applied for quotation of our common stock
on the Nasdaq National Market under the symbol "APAY."

Investing in the shares involves risks. See "Risk Factors" beginning on
page 7.

Per Share Total
--------- -----

Initial public offering price..................... $ $

Underwriting discounts and commissions............ $ $

Proceeds, before expenses, to Advantage........... $ $

Proceeds, before expenses, to selling stockholders $ $

One of the selling stockholders identified in this prospectus has granted
the underwriters a 30-day option to purchase up to an aggregate of 825,000
additional shares of common stock on the same terms and conditions as set forth
above to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares
on or about , 2002.

- --------------------------------------------------------------------------------

LEHMAN BROTHERS

CIBC WORLD MARKETS

ROBERT W. BAIRD & CO.
WACHOVIA SECURITIES

, 2002

[Inside Cover Art: montage depicting customers and products with the statement
"serving small to mid-sized businesses for over 35 years."]

TABLE OF CONTENTS

Page
----

Prospectus Summary..................... 1
Risk Factors........................... 7
Forward Looking Statements............. 16
Use of Proceeds........................ 17
Dividend Policy........................ 17
Capitalization......................... 18
Dilution............................... 19
Selected Consolidated Financial Data... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 22

Page
----

Business........................... 36
Management......................... 49
Principal and Selling Stockholders. 58
Certain Relationships and Related
Transactions..................... 60
Description of Capital Stock....... 63
Shares Eligible for Future Sale.... 66
Underwriting....................... 68
Experts............................ 72
Legal Matters...................... 72
Where You Can Find More Information 72
Index to Financial Statements...... F-1

ABOUT THIS PROSPECTUS

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it
is unlawful. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.

Until , 2002, all dealers selling shares of our common stock, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
you should consider before investing in our common stock. You should read the
entire prospectus carefully. References in this prospectus to "Advantage,"
"we," "us" and "our" refer to the business of Advantage Payroll Services, Inc.
and all of its consolidated subsidiaries. This prospectus contains
forward-looking statements, which involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth in "Risk
Factors" and elsewhere in this prospectus. Unless otherwise stated, the
information contained in this prospectus assumes no exercise of the
underwriters' over-allotment option.

Our Business

Advantage Payroll Services, Inc. is a leading national provider of
outsourced payroll processing and related services to small businesses. We
assist our clients in managing their payroll processing cycle by:

. calculating, collecting and disbursing their payroll funds;
. remitting payroll taxes;
. preparing and filing all associated tax returns; and
. offering a wide range of ancillary products and services, including human
resource information software, employee benefit services and workers'
compensation premium billing.

We generate revenue from these activities by charging fees for these
services and from investing collected but unremitted payroll funds in the
interval between our receipt of such funds and their disbursement.

We serve a growing and diverse client base of small to mid-sized businesses
located in all 50 states. As of February 22, 2002, we provided services to
approximately 44,500 clients, who process an average of 15 checks or direct
deposits each pay period. For the twelve-month period ended February 22, 2002,
our top 50 clients represented less than 3.7% of our payroll revenue, with no
single client representing more than 0.4% of payroll revenue. We believe we are
the nation's third largest payroll processing provider for small businesses
based on the number of clients we serve. We serve our clients through a
national network of offices, including 15 independently-owned associate
offices. Our client retention rate was approximately 93%, net of business
failures and ownership changes, for the twelve-month period ended February 22,
2002.

We believe our high-quality products and services are valuable to our
clients because we enable our clients to focus on their core competencies by
providing the following:

. timely and accurate outsourced payroll processing and related services;

. well-trained client service representatives who are responsive and
experienced;

. information technology that interacts with other information technology
systems;

. a broad array of service offerings in a cost-effective format; and

. a relationship-oriented approach to meet our clients' changing needs.

Our Market Opportunity

According to Gartner Group Inc., a national research data provider, the U.S.
market for outsourced payroll processing and tax filing services is large and
growing, with revenue estimated to grow from $7.2 billion in 2000 to $16.7
billion by 2005, representing a five-year compound annual growth rate of 18.4%.
Our target market of small to mid-sized businesses is the fastest growing
segment in the United States. It also has the least penetration of outsourced
payroll and tax filing services. Small to mid-sized businesses lend themselves
to outsourcing the payroll function because outsourcing reduces processing
costs and administrative burdens while minimizing the employers' compliance
risks associated with increasingly complex and changing administrative
requirements and federal, state and local tax regulations. We believe that our
significant investments in a well-trained work force, national office network
and scalable computer technology have enabled us to deliver a broad array of
timely and accurate payroll processing and related services and positioned us
to capitalize on this continuing outsourcing trend.

Our Strategy

We believe we have significant opportunity for continued strong organic
growth. We will also acquire compatible client bases on an opportunistic basis.
Our objective is to continue to be a leading provider of payroll and related
administrative services to small businesses and further penetrate the market
for providing those services to mid-sized businesses by:

. providing the industry's highest quality of service to our clients,
including timely and accurate payroll and tax filing services;

. recruiting, training and retaining the industry's most experienced and
knowledgeable payroll tax and regulatory experts;

. capitalizing on the increased productivity expected from our maturing
sales force;

. increasing our direct sales force;

. expanding into new geographic markets and further penetrating our existing
markets;

. capitalizing on economies of scale while maintaining a strong local
presence; and

. broadening our ancillary product and service offerings.

Our ability to implement our business strategy is subject to risks and
uncertainties. These risks include those related to:

. the integration of acquisitions;

. our ability to manage growing and changing operations;

. our reliance on third party service providers;

. our competition;

. the concentrated stock ownership by our principal stockholders, who will
hold approximately 57.6% of our voting stock after giving effect to this
offering;

. our history of net losses;

. our accumulated stockholders' deficit; and

. anticipated aggregate non-cash charges to be incurred in connection with
this offering.

For a more detailed explanation of these and other risks facing our business,
see "Risk Factors."

Our Company

We are a Delaware corporation and our principal executive offices are
located at 126 Merrow Road, Auburn, Maine 04211. Our main corporate office
telephone number is (207) 784-0178 and our web site is
www.advantagepayroll.com. Information on our web site should not be construed
to be part of this prospectus.

Our principal stockholders include Willis Stein & Partners, L.P., which will
own approximately 39.7% of our common stock after this offering, and New
England Business Service, Inc., or NEBS, which will own approximately 17.6% of
our common stock after this offering.

"Advantage," "Advantage Payroll," "Advantage Payroll Services," "Instant
Payroll," and "HR Counselor" are registered trademarks of Advantage Payroll
Services, Inc. Other trademarks and trade names appearing in this prospectus
are the property of their respective holders.

The Offering

Common stock offered by Advantage.................. 4,539,474 shares

Common stock offered by selling stockholders....... 960,526 shares

Common stock to be outstanding after
the offering..................................... 17,658,598 shares

Over-allotment option granted by one of the selling
stockholders..................................... 825,000 shares

Use of proceeds.................................... We intend to use approximately $39.5 million of
the net proceeds from this offering to repay all of
our existing bank indebtedness, approximately
$36.2 million to redeem all of our shares of
preferred stock, 94.0% of which are held by our
affiliates, and the remainder for general
corporate purposes, including working capital,
capital expenditures and possible acquisitions.
We will redeem our shares of preferred stock in
order to discharge our obligations to our
preferred stockholders and to provide preferred
stockholders with additional liquidity. We will
not receive any proceeds from the sale of shares
by the selling stockholders. See "Use of
Proceeds."

Proposed Nasdaq National Market symbol............. "APAY"

The number of shares that will be outstanding after the offering is based on
the number of shares outstanding as of April 30, 2002, includes 962,795 shares
that we expect to issue upon exercise of a warrant held by NEBS, and excludes:

. an aggregate of 700,000 shares of common stock reserved for issuance under
our 1998 Key Employees Stock Option Plan of which 698,000 shares are subject
to outstanding options as of February 22, 2002, at a weighted average
exercise price of $1.45 per share;

. an aggregate of 91,667 shares of common stock reserved for issuance under
our 2000 Management and Sales Employees Stock Option Plan of which 87,550
shares are subject to outstanding options as of February 22, 2002, at a
weighted average exercise price of $13.32 per share;

. an aggregate of 200,000 shares of common stock reserved for issuance under
our 2001 Management and Sales Employees Stock Option Plan of which 120,000
shares are subject to outstanding options as of February 22, 2002, at an
exercise price of $16.50 per share; and

. an aggregate of 1,750,000 shares of common stock reserved for issuance under
our 2002 Stock Option Plan of which approximately 575,000 shares will be
subject to options granted concurrently with this offering at an exercise
price equal to the initial public offering price per share.

Our fiscal year consists of the 52- or 53-week period ending on the last
Friday in May of each year and fiscal years are identified in this prospectus
according to the calendar year in which they end. For example, the fiscal year
ended May 25, 2001 is referred to as "fiscal 2001." Except as otherwise
indicated, all information in this prospectus assumes that the underwriters do
not exercise the option granted by one of the selling stockholders to purchase
additional shares in this offering and that all of our outstanding debt is
repaid and all of our preferred stock is redeemed upon the close of this
offering.

Summary Consolidated Financial Data

The following table summarizes financial data regarding our business and
should be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our consolidated financial statements
and the related notes included elsewhere in this prospectus.

The summary consolidated statements of operations data for the fiscal years
ended May 28, 1999, May 26, 2000 and May 25, 2001, the summary consolidated
statements of operations data for the nine months ended February 23, 2001 and
February 22, 2002, and the summary consolidated balance sheet data as of
February 22, 2002 are derived from our consolidated financial statements that
are included elsewhere in this prospectus. All amounts included in the
consolidated statements of operations data have been derived from audited
financial statements, except for the unaudited nine months ended February 23,
2001. Our revenue is subject to seasonal fluctuations. We realize the largest
percentage of annual revenue in our third fiscal quarter.

The summary pro forma consolidated statements of operations data for the
fiscal year ended May 25, 2001 and the nine months ended February 22, 2002
reflect the use of proceeds from this offering to repay all of our debt and
redeem all of our preferred stock. The pro forma columns exclude the impact of
nonrecurring adjustments described in footnote 3 to this table.

Pro Forma (3)
------------------------
Fiscal Year Ended (1) Nine Months Ended Fiscal Year Nine Months
------------------------- ------------------------ Ended Ended
May 28, May 26, May 25, February 23, February 22, May 25, February 22,
1999 2000 2001 2001 2002 (2) 2001 2002
------- ------- ------- ------------ ------------ ----------- ------------
(in thousands, except per share data)

Consolidated Statements of
Operations Data:
Payroll service revenue............... $25,068 $30,186 $42,065 $30,344 $46,634 $42,065 $46,634
Interest on client payroll funds
invested............................ 4,410 5,544 8,033 5,753 5,681 8,033 5,681
------- ------- ------- ------- ------- ------- -------
Total revenue...................... 29,478 35,730 50,098 36,097 52,315 50,098 52,315
Operating expenses:
Operating costs..................... 7,808 10,589 16,918 12,139 18,255 16,918 18,255
Conversion expenses (4)............. 1,426 1,056 1,970 1,365 3,416 1,970 3,416
Selling, general and
administrative.................... 15,992 21,784 26,239 19,328 24,836 26,239 24,836
Depreciation and amortization....... 1,817 3,014 4,699 3,329 3,021 4,699 3,021
------- ------- ------- ------- ------- ------- -------
Operating income (loss)............... 2,435 (713) 272 (64) 2,787 272 2,787

Interest expense...................... 3,908 4,619 5,868 4,242 1,776 -- --
Investment and other income........... 143 127 215 208 27 215 27
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes..... (1,330) (5,205) (5,381) (4,098) 1,038 487 2,814
Income tax expense (benefit).......... (439) (801) 44 34 -- 44 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... (891) (4,404) (5,425) (4,132) 1,038 443 2,814
------- ------- ------- ------- ------- ------- -------
Preferred stock dividends............. (670) (825) (1,001) (739) (3,049) -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss) applicable to common
stockholders......................... $(1,561) $(5,229) $(6,426) $(4,871) $(2,011) $ 443 $ 2,814
======= ======= ======= ======= ======= ======= =======
Earnings per share:
Basic............................... $ (0.17) $ (0.54) $ (0.59) $ (0.45) $ (0.17) $ 0.03 $ 0.17
Diluted............................. $ (0.17) $ (0.54) $ (0.59) $ (0.45) $ (0.17) $ 0.03 $ 0.17
Weighted average common shares
outstanding:
Basic............................... 9,250 9,752 10,925 10,890 11,804 15,290 16,168
Diluted............................. 9,250 9,752 10,925 10,890 11,804 15,986 16,855

Pro Forma (3)
------------------------
Fiscal Year Ended (1) Nine Months Ended Fiscal Year Nine Months
-------------------------- ------------------------ Ended Ended
May 28, May 26, May 25, February 23, February 22, May 25, February 22,
1999 2000 2001 2001 2002 (2) 2001 2002
------- ------- -------- ------------ ------------ ----------- ------------
(in thousands, except other data)

Other Financial Data:
EBITDA (5)............................. $ 4,252 $ 2,301 $ 4,971 $ 3,265 $ 5,808 $4,971 $5,808
Conversion expenses (4)................ 1,426 1,056 1,970 1,365 3,416 1,970 3,416
------- ------- -------- -------- -------- ------ ------
Adjusted EBITDA (6).................... 5,678 3,357 6,941 4,630 9,224 6,941 9,224
Net cash provided by operating
activities............................ 1,200 649 1,046 (972) 1,166
Net cash used in investing activities.. (1,944) (9,357) (21,246) (20,752) (23,356)
Net cash provided by (used in)
financing activities.................. (187) 17,568 15,376 16,126 20,757

Other Data:
Approximate number of clients at end of
period................................ 19,500 25,500 35,500 34,000 44,500
Number of direct sales force
representatives at end of period...... 26 67 103 102 139

As of February 22, 2002
-------------------------
Actual As Adjusted (7)
-------- ---------------

Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 2,872 $ 18,107
Working capital (deficit)....................... (7,303) 17,682
Client payroll funds invested................... 168,977 168,977
Total assets.................................... 246,815 261,535
Total debt...................................... 39,497 --
Redeemable preferred stock, at liquidation value 36,180 --
Total stockholders' equity (deficit)............ (2,451) 87,096

(3)The pro forma columns give effect to the sale by Advantage of 4,539,474
shares of common stock at an assumed offering price of $19.00 per share,
the midpoint of the range set forth on the cover of this prospectus, and the
application of the estimated net proceeds therefrom, after deducting
discounts, allowances and offering expenses. Adjustments include: the
elimination of interest expense associated with debt repaid using the net
proceeds of this offering; the elimination of preferred stock dividends
associated with preferred stock redeemed using the net proceeds of this
offering; and the issuance of 4,364,397 shares of common stock in this
offering.

(4)We generally incur expenses in converting clients obtained through our
acquisition of other payroll processing companies. Conversion expenses
primarily include salaries, benefits and stay bonuses paid to employees of
acquired companies performing duplicative functions, such as automated
clearing house processing, tax processing and information technology
support, who will not be retained after conversion is completed, payment of
salaries and benefits of our employees directly performing conversion
procedures, travel costs and lease expenses of duplicate facilities.
Conversion expenses are acquisition specific and only continue until the
acquired clients are converted onto our system for processing.

(5)EBITDA represents earnings before interest, tax, depreciation and
amortization. Management believes that it is widely accepted that EBITDA, as
defined, provides useful information about a company's operating
performance. This belief is based upon discussions with investors, analysts,
creditors and other market professionals. EBITDA, as defined, is not
intended to represent cash flows for the period, nor is it presented as an
alternative to operating income or as an indicator of operating performance.
It should not be considered in isolation or as a substitute for a measure of
performance prepared in accordance with generally accepted accounting
principles, or GAAP, in the United States, is not indicative of operating
income or cash flow from operations as determined under GAAP and does not
give effect to our capital expenditures or debt service payments. Our method
of computation may or may not be comparable to other similarly titled
measures by other companies.
(6)Adjusted EBITDA means EBITDA plus conversion expenses. Management believes
that Adjusted EBITDA provides useful information about our operating
performance because conversion expenses are associated with particular
acquisitions and vary from period to period based on our recent acquisition
history, and as such, continuing operating performance is more comparable
from period to period after excluding conversion expenses.

(7)The "As Adjusted" column gives effect to the consummation of this offering
and the exercise of the NEBS warrant and the use of the proceeds therefrom,
as well as the following nonrecurring, noncash adjustments which will occur
in connection with this offering, in each case assuming a per share offering
price of $19.00, the midpoint of the offering range: a noncash charge
totaling approximately $4.1 million in connection with the vesting of the
performance-based portion of the NEBS warrant, of which $0.7 million will be
incurred in the quarter ended May 30, 2002 and the remainder will be
incurred upon the consummation of this offering; a noncash charge of $5.7
million related to the restated additional incentive agreement as described
under "Certain Relationships and Related Transactions--Restated Additional
Incentive Agreement"; and a noncash charge of $1.4 million related to the
write-off of debt issuance costs and unamortized compensation expense
associated with the repayment of all of our debt and the redemption of all
of our preferred stock with the proceeds of this offering. For more
information regarding these nonrecurring, noncash charges, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Charges Related to this Offering."

RISK FACTORS

You should carefully consider the risks described below before making a
decision to buy our shares. If any of the following risks actually occur, our
business could be harmed. In that event, the trading price of our shares might
decline, and you could lose all or part of your investment. You should also
refer to the other information set forth in this prospectus, including our
consolidated financial statements and related notes.

Risks Related to Our Business and Industry

Acquisitions, especially unsuccessful ones, could harm our financial results.
Difficulties integrating these acquisitions may impose substantial costs and
delays and cause other problems for us.

The integration of payroll processing companies and companies in related
businesses and conversion of clients onto our systems place a burden on us. For
example, we incurred $1.4 million, $1.1 million and $2.0 million in conversion
expenses in fiscal 1999, 2000 and 2001, respectively. The integration of these
companies is subject to risks commonly encountered in making such acquisitions,
including, among others, loss of key personnel of the acquired company,
difficulty associated with assimilating the personnel and operations of the
acquired company, potential disruption of ongoing business, maintenance of
uniform standards, controls, procedures and policies, processing payroll and
paying related payroll obligations on acquired systems prior to conversion on
our system, and impairment of the acquired company's reputation and
relationships with its employees and clients. Any of these may result in the
loss of clients. Further, the integration process may require a
disproportionate amount of time and attention from our management and may
distract our management from its day-to-day responsibilities. It is also
possible that we may not realize, either at all or in a timely manner, any or
all benefits from recent and future acquisitions, but may incur significant
costs in connection with these acquisitions. Failure to successfully integrate
recent and future acquisitions could adversely affect our results of operations.

Our success depends on our ability to manage growing and changing operations.

Our business has grown significantly in size and complexity since our
management buy-out in February 1998. This growth has placed, and is expected to
continue to place, significant demands on our management, systems, internal
controls and financial and physical resources. In addition, we expect that we
will need to further develop our financial and managerial controls and
reporting systems to accommodate future growth. This could require us to incur
expenses for hiring additional qualified personnel, retaining professionals to
assist in developing the appropriate control systems and expanding our
information technology infrastructure. The nature of the payroll processing
business is such that qualified management personnel can be difficult to find.
Any inability to manage growth effectively could have a material adverse effect
on our financial results.

We rely on third-party service providers, whose failure to deliver our products
and services to our clients would harm our business.

As part of delivering products and services to our clients, we depend on
third-party service providers for various functions. These providers include
couriers, telecommunication providers and utilities. Although we have written
agreements with most third-party service providers, some of these providers may
not always be able to deliver products and services on our behalf in a timely
manner. Service providers have in the past and may again in the future
experience interruptions in their service delivery for a variety of reasons,
including employee strikes, storms or other adverse weather conditions,
earthquakes or other natural disasters, logistical or mechanical failures or
accidents. Our failure to deliver products and services to our clients in a
timely manner could damage our reputation and could have a material adverse
effect on our client retention rates.

Our success depends on our ability to compete effectively in the marketplace.

We operate in a competitive, highly fragmented market, with over 1,600
local, regional or national payroll processing service providers, and we
compete for clients with a variety of organizations that offer similar

services. The market in which we compete is also subject to rapid change and is
significantly affected by new service introductions and other market activities
of industry participants. In payroll processing and tax filing, we primarily
compete with several public and private service providers, including Automatic
Data Processing, Inc., or ADP, and Paychex, Inc. Some of these companies have
greater financial, technical, marketing, name recognition and other resources
and a larger number of clients than we do. In addition, some of these companies
offer more services or features than we do and have more processing facilities
throughout the United States. We also compete with in-house employee services
departments and, to a lesser extent with banks and local payroll companies.
With respect to benefits administration services, we compete with insurance
companies, benefits consultants and other local benefits outsourcing companies.
We may also compete with companies that market related products and services
that may offer payroll or administrative services in the future. We have
experienced, and expect to continue to experience, competition from new
entrants into our markets. Increased competition may result in pricing
pressures, loss of market share or loss of clients, any of which could harm our
business. We believe the principal competitive factors affecting our market
include the following:

. client service;

. system functionality and performance;

. system and service flexibility;

. breadth of service offering;

. reputation and experience; and

. service cost.

Our inability to compete successfully would harm our business and results of
operations. A portion of our new clients have historically come from our
competitors. If we do not have the same success in winning clients from our
competitors in the future, we would have to rely more on clients that are
moving from in-house operations or start-up businesses to outsourcing. This
could increase our sales timeframe and our client acquisition costs, which
would adversely affect our financial condition and results of operations.

We rely on financial institutions to transfer our clients' payroll funds.
Should these financial institutions delay or stop processing these
transactions, our business could suffer.

We currently have contractual relationships to electronically transfer our
clients' payroll funds through the automated clearing house, or ACH, system
with two banks, one of which owns a payroll processing service that competes
directly with us. These contracts are cancelable upon 30 days' notice by either
party. If either of these banks was to delay the processing of transfers or
terminate these contracts and we were not able to obtain these services in a
timely manner or on acceptable terms from other banks, our business could
materially suffer.

We make payments on our clients' behalf. If our clients have insufficient funds
in their bank accounts to transfer money to cover such payments, we may suffer
losses.

As part of the provision of payroll services, our clients authorize us to
transfer money from their bank accounts, in accordance with the limitations and
restrictions of the National Automated Clearing House Association, or NACHA, to
fund their employee paychecks, direct deposits and tax liabilities and pay our
fees. Due to NACHA rules, we may bear the financial risk for clients that have
insufficient funds to cover such transfers. We have in the past, and may again
in the future, make payments on our clients' behalf for which we are not
reimbursed. These losses could have a material impact on our business. Since
June 1997, we estimate that we have incurred approximately $545,000 in losses
as a result of payments made on our clients' behalf for which we were not
reimbursed and for fees for which we were not paid.

Our growth cannot be assured. Even if we do experience growth, we cannot assure
you that we will grow profitably.

Our growth will depend, in part, upon our ability to attract and retain new
clients, offer and achieve market acceptance of new services and features and
expand in existing and into new geographic markets. Our failure to

successfully identify new geographic markets or to develop or introduce new
products and services could have a material adverse effect on our growth
prospects. For example, we plan to offer new services by increasing our
emphasis on selling ancillary products and services to both new and existing
clients; however, we cannot assure you that these new ancillary products and
services will gain market acceptance. Even if we do increase our service
offerings and gain new clients, we may not realize profits, and failure to do
so would harm our financial condition and results of operations.

We may incur substantial costs in connection with establishing new client
relationships and expanding our service offerings that we may not be able to
recoup.

Establishing new client relationships is a time-consuming and expensive
process. We incur substantial costs in order to obtain each new client. These
costs consist primarily of sales and implementation expenses and, to a lesser
extent, marketing expenses. We incur these costs in advance of recognizing any
revenue, and we cannot guarantee that we will fully recoup these costs. If we
cannot maintain our historically high client retention rate, our return on
client acquisition costs will be significantly lower. In addition, as we expand
our service offerings, we incur substantial operating costs associated with
hiring and training new employees and building an operational infrastructure.
Our failure to recoup costs associated with establishing client relationships
and expanding our service offerings could harm our financial condition and
results of operations.

We may make errors and omissions in performing our services, which could
subject us to losses, fines and harm our reputation.

Our payroll processing is subject to various risks resulting from errors and
omissions in filing client tax returns, paying tax liabilities owed to tax
authorities on behalf of our clients and paying our clients' employees. Our
clients transfer to us contributed employer and employee tax funds, as well as
funds to be paid to employees. Tracking, processing, remitting and paying such
amounts is complex. Errors and omissions have occurred in the past and may
occur in the future in connection with these services. We could be subject to
large cash penalties imposed by tax authorities for late filings or
underpayment of taxes. We may also transfer funds in error to the wrong party
or in incorrect amounts and may not be able to correct the error or retrieve
the funds. We maintain errors and omissions insurance; however, we cannot
assure you that our insurance for such losses will be adequate.

We face substantial competition in attracting and retaining experienced
personnel, and we may be unable to grow our business if we cannot attract and
retain qualified employees.

Our success depends to a significant degree on our ability to provide our
clients with highly qualified and experienced employees who possess the skills
and experience necessary to satisfy our clients' payroll processing needs.
These employees are in great demand, particularly in certain geographic areas,
and are likely to remain a limited resource for the foreseeable future. Our
ability to attract and retain employees with the requisite experience and skill
depends on several factors including, but not limited to, our ability to offer
competitive wages, benefits and professional growth opportunities. Many of the
companies with which we compete for experienced personnel have greater
financial resources and name recognition than we do. We have in the past and
may in the future experience difficulty in recruiting sufficient numbers of
qualified personnel. In particular, our ability to find and train sales
representatives is critical to our ability to achieve our growth objectives.
The inability to attract and retain experienced personnel could have a material
adverse effect on our business.

The loss of senior management and key personnel could negatively affect our
ability to conduct our business efficiently and could lead to loss of clients
and proprietary information.

Our success is largely dependent on the skills, experience, effort and
performance of our senior management and other key employees. The loss of the
services of our Chairman, President and Chief Executive Officer, Charles W.
Lathrop, Jr., or one or more members of our senior management could have a
material adverse effect

on us. We do not maintain key man life insurance on any of our executives other
than Mr. Lathrop. If we lose any key personnel, we may be unable to prevent the
unauthorized disclosure or use of our technical knowledge, practices,
procedures or client lists by the former employee. Disclosure of this
information could harm our business.

Since the beginning of fiscal 1999, we have sustained aggregate net losses
applicable to common shareholders after preferred dividends of approximately
$15.2 million and may not achieve profitability in the future.

We have experienced aggregate net losses applicable to common shareholders
after preferred dividends of approximately $15.2 million since the beginning of
fiscal 1999. Our net losses have resulted, in part, from interest costs related
to funds borrowed in connection with our management buy-out in February 1998.
In addition, we have incurred costs associated with expanding our direct sales
force, entering new geographic markets, providing additional ancillary products
and services, penetrating the market for mid-sized businesses and acquiring
compatible client bases. We expect to continue to incur these costs in the
future. As of February 22, 2002, we had a stockholders' deficit of
approximately $2.5 million. Lack of profitability would harm our financial
condition and adversely impact our business.

Our recent history of net losses may inhibit our ability to access the capital
markets. Even if we are able to access the capital markets, our stockholders
may experience significant dilution.

We may seek to raise additional capital to fund our investments and/or
operations through public or private equity or debt financing. We cannot assure
you that additional financing will be available, if needed, on acceptable
terms, or at all. If additional capital is needed and not available, we may
need to change our business strategy to slow our rate of expansion or reduce
our operations. If we raise additional funds by issuing equity securities, our
stockholders may experience dilution.

We may not be able to maintain or grow our market share if we fail to adapt to
advances in technology. Even if we are able to develop or acquire new
technologies in a timely manner, we may incur substantial costs in developing
or acquiring such technologies.

Our ability to satisfactorily provide our core products and services and to
develop, or partner effectively to provide, ancillary products for our clients
is dependent on our ability to maintain up-to-date software and systems
technology. Our current position in the market could be impaired if we do not
react appropriately to emerging technology trends. The technologies in which we
have invested to date rapidly evolve and have short life cycles. The
introduction of services with new technologies and the emergence of new
industry standards and practices can render existing services obsolete and
unmarketable over time. Our ability to expand into new markets requires us to
anticipate and efficiently adapt to technological changes. Our future success
will depend, in part, on our ability to develop or acquire advanced
technologies, enhance our existing services with new features, add new services
in order to meet the sophisticated, varied and changing needs of our clients
and respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. If we cannot meet these needs
in a timely manner, our growth may suffer. Even if we are able to develop or
acquire new technologies in a timely manner, we may incur substantial costs in
developing or acquiring such technologies and in deploying new services and
features to our clients.

Our investments of collected but unremitted payroll funds are exposed to
several risks that could harm our financial results, causing the market price
of our common stock to decrease dramatically.

Approximately 10.9% of our revenue for the nine months ended February 22,
2002 was derived from interest earned from investing collected but unremitted
payroll funds. As a result, interest rate fluctuation could impact our results
of operations. For example, our future results may be adversely affected as a
result of declines in interest rates. Similarly, changes in policies relating
to withholding federal or state income taxes or reduction in the time allowed
for taxpayers to remit payment for taxes owed to government authorities could
have an adverse effect on our business. Our investments are also exposed to
several risks, including credit risks from the possible inability of the
issuers to meet the terms of their obligations under those investment
securities. We would be liable to our clients for any losses on such
investments.

The failure by our associate offices to perform their obligations under the
license agreements or a disagreement between us and one or more of our
associate offices could harm our business.

Our associate offices accounted for approximately 22.9% and 32.0% of our
revenues for the first nine months of fiscal 2002 and fiscal 2001,
respectively. In addition, for the first nine months of fiscal 2002, our
associate offices contributed to the generation of 20.6% of our new clients.
The success of this distribution channel depends on the performance of our
associate offices under the license agreements. The failure of one or more of
our associate offices to meet our marketing expectations, operational and
customer service standards or otherwise comply with their obligations under the
license agreements could have a negative impact on our business or financial
results.

We recently were approached by a representative of five of our associate
offices indicating a desire of these associate offices to sell us their
businesses on a collective basis in connection with this offering. We have had
numerous discussions with such associate offices and their representatives but
have not been able to reach an agreement with respect to the purchase price. In
the course of negotiations, a representative of the associate offices has
claimed that these associate offices are owed additional amounts from us under
their respective license agreements. We believe this claim is without merit and
are prepared to vigorously defend against any such action should such associate
offices decide to pursue it. Any material dispute between us and our associate
offices, regardless of outcome, could have a negative impact on our business or
financial results.

The general condition of the U.S. economy may adversely affect our investments
and our business as a whole.

The general condition of the U.S. economy and the current weakness in the
economy has and will continue to affect our business. These conditions include
declines in interest rates, client staff reductions, client labor strikes and
acquisitions of our clients by other companies, among others. In addition,
potential clients and existing clients are also less likely to switch service
providers and in some cases are delaying or postponing purchasing decisions.
These factors could result in the reduction of the aggregate amount of payroll
that we process and the amount of interest that we earn on such funds. In
addition, the general condition of the U.S. economy is affected by social,
political and military conditions, including terrorist threats and acts and any
responses by the United States to such threats and acts.

Major catastrophes and other similar problems may cause us to lose client data
and adversely interrupt our operations.

We currently conduct substantially all of our back-office processing at our
headquarters in Auburn, Maine. Our operations are dependent on our ability to
protect our infrastructure against damage from an ice-storm or other natural or
man-made major disaster, fire, power loss, security breach, telecommunications
failure, terrorist attack or similar event. We cannot assure you that the
precautions that we have taken to protect ourselves from, or minimize the
impact of, such events will be adequate. Any damage to our data centers,
failure of telecommunications links or breach of the security of our computer
systems could result in an interruption of our operations or other loss that
may or may not be covered by our insurance.

Our revenue and expenses vary seasonally, and our stock price may fluctuate
correspondingly.

Our revenue is subject to seasonal fluctuations based on changes in the
total payroll of our client base. We typically realize the largest percentage
of annual revenue in our third fiscal quarter, primarily due to new clients
beginning services in the beginning of their tax year which is our third fiscal
quarter, higher interest income earned on higher amounts of payroll funds
invested and W-2 fee revenue, which are reported in our third quarter. Seasonal
fluctuation in our revenue and expenses, especially unexpected fluctuation,
could cause volatility or a decrease in the price of our common stock.

Our operating results have fluctuated, and will continue to fluctuate, from
quarter to quarter. Negative fluctuations could materially lower the price of
our common stock.

Our quarterly operating results have fluctuated in the past and will
continue to fluctuate in the future depending on a variety of factors,
including the following:

. the number and size of new clients starting payroll services;

. interest rate fluctuation;

. interest revenue and realized gains or losses from our investments;

. our ability to identify, recruit and train sales representatives and to
retain our existing sales force;

. the decision of clients to delay or cancel implementation or ongoing
services;

. our ability to timely design, develop, introduce and implement services
and features for new and existing services;

. service offerings provided by competitors;

. cost associated with strategic acquisitions or investments in technology;

. the timing of strategic acquisitions or investments;

. costs to transition to new technologies;

. expenses incurred for geographic expansion;

. price competition;

. a reduction in the number of our clients' employees; and

. general economic factors.

A substantial majority of our operating expenses, particularly personnel and
related costs, depreciation and rent, are relatively fixed in advance of any
particular quarter. As a result, we may not be able to timely cut costs in
response to any decrease in revenue. For example, the decision by clients to
delay or cancel our services, or our under-utilization of personnel, may cause
significant variations in operating results and could result in additional
losses for the applicable quarters. Additionally, as we secure larger clients,
the time and expense required to implement our services to those clients
increases, which could contribute to larger fluctuations in revenue. Any of
these factors or positions could cause our future revenue and results of
operations to vary substantially. As a result of the foregoing, in some future
quarter, our results of operations could be below the expectations of public
market analysts and investors, which, as a newly public company, could cause
the market price of our common stock to decrease dramatically. In addition,
there can be no assurance that securities analysts will cover our company after
this offering, which could have an adverse effect on the market price of our
common stock.

Changes in governmental policies could reduce the need for our service
offerings or otherwise harm our business.

Our services, particularly tax filing and benefits plan administration,
depend upon government regulations that continually change. Additional
regulations could potentially increase our cost of doing business. As a
response to small, local payroll companies improperly managing their custodial
funds, several states, including Minnesota and Maine, have instituted
regulations concerning payroll companies. State regulation has typically taken
the form of required annual registration, proof of insurance, audited
financials, notifications to potential or signed clients, and in some cases,
additional electronic interfaces with the various agencies. Failure to timely
implement corresponding changes to our services and technology would harm our
business and results of operations. Changes in both state and federal
regulations could also reduce or eliminate the need for our services and
substantially decrease our revenue.

In addition, since we derive a significant portion of our revenue from
interest earned from investing collected but unremitted payroll funds, changes
in policies relating to withholding federal or state income taxes, reductions
in the time allowed to remit tax payments owed to government authorities or tax
cuts could harm our business and results of operations. The federal
government's recent disaster relief for taxpayers, which delays the due date
for certain taxes, as well as recent tax cuts and other measures approved by
the federal government, could harm our business and results of operations by
reducing the amount of collected but unremitted payroll funds and delaying the
collection of, and correspondingly the interest we would earn on, these funds.

Our employees or associates may violate our relationship of trust with our
clients, which may lead to lawsuits against us.

We have access to our clients' confidential information as well as to their
funds. Actions taken by our employees or associates in breach of our
relationships with our clients may damage our clients' businesses. For example,
if one or more of our employees or associates violates confidentiality
agreements or misappropriates funds, our clients may assert claims against us.
Our insurance may not adequately cover claims like these. Claims of these types
could damage our client relationships and harm our business and financial
condition.

We may not have taken all necessary steps to protect our intellectual property.

Our success depends in part upon our proprietary software technology and our
other intellectual property rights. We rely on a combination of contract,
copyright, trademark, trade secret and common laws to establish and protect our
proprietary technology. We may not have registered all trade and service marks,
filed all copyright applications or received releases from all third party
vendors that would be necessary to fully protect all of our intellectual
property. We have no patents or patent applications. We do grant licenses at no
additional charge to some of our clients to use our proprietary software under
customary license agreements. We may not have taken all necessary steps to
protect our proprietary technology. Even if we have, third parties may develop
similar or competing technologies independently. The failure to protect our
intellectual property could harm our business and our results of operations.

Claims from third parties relating to infringement of intellectual property
could harm our business.

We cannot guarantee that our services and technology do not infringe on any
existing patents, copyrights or other proprietary rights of others. Third
parties, including our competitors, may have or could obtain proprietary rights
that would prevent, limit or interfere with our ability to develop, perform or
sell our payroll processing services and related products. As a result, we may
be found to infringe on the proprietary rights of others. We could incur
substantial costs in defending such infringement claims. An adverse result in
an intellectual property dispute could force us to do any of the following:

. cease developing, performing or selling any of our payroll products or
related services that incorporate the challenged intellectual property;

. obtain and pay for licenses from the holder of the infringed intellectual
property right;

. redesign or reengineer our products and services; or

. pay substantial damages.

Any of these resulting liabilities could harm our business and our results of
operations.

Our revolving credit facility will contain restrictions on our ability to take
certain actions, including paying dividends to stockholders.

In connection with this offering, we anticipate entering into a new $10.0
million senior revolving credit facility. Under the terms of the new senior
credit facility, we will need to comply with various financial covenants. In
addition, we will be restricted from taking certain corporate actions and
making certain payments, including the payment of dividends to stockholders.
The limitations contained in the credit agreement may restrict our ability to
take certain actions that may be beneficial to stockholders, and will in any
event restrict our ability to pay dividends for the foreseeable future.

We will incur significant non-cash charges in connection with this offering.

Upon consummation of this offering, Willis Stein & Partners, L.P., our
principal stockholder, will transfer 300,000 shares of the common stock it
currently holds into a trust for the benefit of certain of our executive

officers under the terms of the restated additional incentive agreement with
Advantage and certain executives. We will not actually bear any cash expense or
issue any additional shares in connection with this transfer. However, because
Willis Stein is our principal stockholder, we will be required under applicable
accounting rules to record a one-time, pretax, noncash compensation charge of
approximately $5.7 million, based on an assumed initial public offering price
of $19.00 per share, the midpoint of the range set forth on the cover of this
prospectus, in the quarter this offering is consummated as a result of this
plan.

In addition, we anticipate incurring a one-time, non-cash charge of
approximately $1.4 million on the early extinguishment of debt and the
redemption of preferred stock with the proceeds of this offering. This relates
to the write-off of unamortized debt issuance costs and unearned compensation
associated with securities issued at the time of our February 1998 management
buy-out.

Additionally, we anticipate incurring a charge totaling approximately $4.1
million in connection with the vesting of a portion of a warrant issued to New
England Business Service, Inc., or NEBS, of which $0.7 million will be incurred
in the quarter ended May 30, 2002 and the remainder will be incurred upon the
consummation of this offering. This warrant contains two components--a
performance-based portion that, in accordance with its terms, will vest and
become exercisable in connection with this offering based on NEBS' performance
under the alliance agreement in the period leading up to this offering and a
vested portion, currently exercisable for 320,932 shares of our common stock.
Both components of the warrant have an exercise price of $12.67 per share. We
currently estimate that the performance-based portion of the NEBS warrant,
which results in the charge, will become exercisable for 641,863 shares. We
believe that NEBS will purchase the maximum number of shares it is entitled to
purchase under the vested portion and the performance-based portion of the
warrant upon the consummation of this offering. Any portion of the warrant not
exercised in connection with this offering will be canceled.

For more information regarding these non-cash charges, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Charges Relating to this Offering."

After giving effect to this offering, two of our stockholders will control
approximately 57.3% of our voting stock, and their interests may differ from
yours.

After giving effect to this offering, two significant stockholders, Willis
Stein & Partners, L.P. and NEBS will control approximately 57.3% of our voting
stock. If these stockholders acted or voted together, they would have the power
to exercise significant influence over the election of our directors. They
would also have significant control over other matters requiring stockholder
approval, including the approval of major corporate transactions. In addition,
this concentration of ownership may delay or prevent a change in control of our
company, even when a change may be in the best interests of our stockholders.
Furthermore, the interests of these stockholders may not always coincide with
the interests of our company or other stockholders.

Risks Relating to this Offering

The initial public offering price is significantly higher than the book value
of our common stock, and you will experience immediate and substantial dilution
in the book value of your investment.

Prior investors paid a lower per share price than the price in this
offering. The initial public offering price is substantially higher than the
net book value per share of the outstanding common stock immediately after this
offering. Accordingly, if you purchase common stock in this offering, you will
incur immediate and substantial dilution of $17.91 per share. In addition, we
have issued options to acquire common stock at prices significantly below the
initial public offering price. To the extent these outstanding options are
exercised, there will be further dilution to investors in this offering.

Future sales of our common stock, including the shares purchased in this
offering, may depress our stock price.

Sales of a substantial number of shares of our common stock in the public
market by our stockholders after this offering, or the perception that such
sales are likely to occur, could depress the market price of our common

stock and could impair our ability to raise capital through the sale of
additional equity securities. Upon completion of this offering, we will have
outstanding 17,658,598 shares of common stock. Of these shares, the 5,500,000
shares of common stock sold in this offering will be freely tradable, without
restriction, in the public market. After the lockup agreements pertaining to
this offering expire 180 days from the date of this prospectus, an additional
12,099,376 shares will be eligible for sale in the public market. After the
closing of this offering, holders of approximately 12,044,226 shares will be
entitled to registration rights with respect to the registration of their
shares under the Securities Act.

An active public market for our common stock may not develop, which could
impede your ability to sell your shares and depress our stock price.

Before this offering, you could not buy or sell our common stock on the
public market. An active public market for our common stock may not develop or
be sustained after the offering, which could affect your ability to sell your
shares and depress the market price of your shares. The market price of your
shares may fall below the initial public offering price.

Provisions in our charter documents and Delaware law could discourage potential
acquisition proposals and could delay, deter or prevent a change in control.

Provisions of our certificate of incorporation and bylaws may inhibit
changes in control of Advantage not approved by our board of directors and
would limit the circumstances in which a premium may be paid for the common
stock in proposed transactions, or a proxy contest for control of the board may
be initiated. These provisions provide for:

. a classified board of directors;

. a prohibition on stockholder action through written consents;

. a requirement that special meetings of stockholders be called only by a
majority of the board of directors;

. advance notice requirements for stockholder proposals and nominations;

. limitations on the ability of stockholders to amend, alter or repeal the
bylaws; and

. the authority of the board to issue, without stockholder approval,
preferred stock with such terms as the board may determine.

We will also be afforded the protections of Section 203 of the Delaware
General Corporation Law, which would prevent us from engaging in a business
combination with a 15.0% or greater stockholder for a period of three years
from the date it acquired such status unless certain board or stockholder
approvals are obtained.

FORWARD LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements may be
found throughout this prospectus, particularly under the headings "Prospectus
Summary," "Risk Factors," "Dividend Policy," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business,"
among others. Forward-looking statements typically are identified by the use of
terms such as "may," "will," "should," "expect," "anticipate," "believe,"
"estimate," "intend" and similar words, although some forward-looking
statements are expressed differently. You should consider statements that
contain these words carefully because they describe our expectations, plans,
strategies and goals and our beliefs concerning future business conditions, our
results of operations, financial position, and our business outlook or state
other "forward-looking" information based on currently available information.
The factors listed above under the heading "Risk Factors" and in the other
sections of this prospectus provide examples of risks, uncertainties and events
that could cause our actual results to differ materially from the expectations
expressed in our forward-looking statements. These factors include, among other
things, the following:

. difficulties in integrating acquired businesses and realizing related cost
savings and other benefits;

. implementation of our growth strategy;

. risks involved with use of third-party service providers;

. risks involved with making payments on behalf of clients with insufficient
funds;

. competitive conditions in our industry;

. difficulties in making electronic transfers of client funds;

. difficulties in attracting and retaining clients;

. risks involved with errors and omissions in our performance;

. difficulties in attracting or retaining experienced personnel;

. our dependence on our senior management and key personnel;

. our future financial position and access to capital markets;

. the success of implementation of new technology and addition of new
services;

. risks involved with adaptation to evolving technologies and standards;

. investment risk;

. the failure by our associate offices to perform under the license
agreements;

. general business and economic conditions;

. impact of seasonality;

. fluctuations in operating results;

. changes in governmental policies and regulations affecting payroll, tax
filing and benefits plan administration services;

. risks involved with breaches of confidentiality and misappropriation of
funds by our employees and associates;

. infringements on intellectual property;

. uncertain effects on the global and domestic economies and financial
markets due to the terrorist attacks in New York City, Washington, D.C.
and Pennsylvania on September 11, 2001; and

. impact of legal proceedings.

The forward-looking statements made in this prospectus relate only to events
as of the date on which the statements are made. We undertake no obligation to
update beyond that required by law any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events.

USE OF PROCEEDS

We estimate that our net proceeds from the sale of 4,539,474 shares of
common stock in this offering will be approximately $78.7 million, assuming an
initial public offering price of $19.00 per share, the midpoint of the range
set forth on the cover of this prospectus. We will not receive any proceeds
from the sale of shares by the selling stockholders.

We intend to use approximately $39.5 million of our net proceeds from this
offering to repay all existing indebtedness, based on amounts outstanding as of
February 22, 2002. We also intend to redeem all outstanding shares of our
preferred stock, which shares have an aggregate liquidation value of $36.2
million assuming a redemption date of February 22, 2002. We will redeem our
shares of preferred stock in order to discharge our obligations to our
preferred stockholders and to provide preferred stockholders with additional
liquidity. We intend to use the remainder of our net proceeds of this offering
for general corporate purposes, including the funding of working capital,
capital expenditures and possible acquisitions of payroll processing companies,
associate offices or companies in related businesses. We are not currently in
discussions with any acquisition candidates where such acquisition is probable.

As of February 22, 2002, the existing indebtedness to be repaid from a
portion of the net proceeds from this offering consisted of the following:

. Approximately $28.6 million under our acquisition line of credit,
excluding accrued interest, which currently bears interest at an effective
rate of 4.9% and has a final maturity date of February 10, 2005;

. Approximately $6.9 million under our term loan, excluding accrued
interest, which currently bears interest at an effective rate of 4.7% and
has a final maturity date of February 10, 2003; and

. Approximately $4.0 million under our revolving credit facility, excluding
accrued interest, which currently bears interest at an effective rate of
6.8% and has a final maturity date of February 10, 2003.

As of February 22, 2002, the number, aggregate liquidation value, including
accrued but unpaid dividends, and holders of shares of our outstanding
preferred stock were as follows:

. 25,542,527 shares of preferred stock with an aggregate liquidation value
including accrued but unpaid dividends of $30,233,988 held by Willis Stein;

. 1,564,611 shares of preferred stock with an aggregate liquidation value
including accrued but unpaid dividends of $1,888,619 held by an affiliate
of Charles W. Lathrop, Jr.;

. 1,476,580 shares of preferred stock with an aggregate liquidation value
including accrued but unpaid dividends of $1,782,358 held by Nancy M.
French;

. 60,833 shares of preferred stock with an aggregate liquidation value
including accrued but unpaid dividends of $75,501 held by Hollis
Rademacher; and

. 1,823,934 shares of preferred stock with an aggregate liquidation value
including accrued but unpaid dividends of $2,199,337 held by persons who
are not affiliates of Advantage.

DIVIDEND POLICY

We have not in the past paid, and do not expect for the foreseeable future
to pay, dividends on our common stock. Instead, we anticipate that all of our
earnings in the foreseeable future will be used in the operation and growth of
our business. The payment of dividends by us to holders of our common stock
will be prohibited by our new bank credit facility, which we expect to have a
five-year term. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend upon, among other factors,
our results of operations, financial condition, capital requirements and
contractual restrictions.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and
consolidated capitalization as of February 22, 2002 on an actual basis and as
adjusted for the sale by us of 4,539,474 shares of common stock pursuant to
this offering, assuming an offering price of $19.00 per share, the midpoint of
the range set forth on the cover of this prospectus, and the application of the
net proceeds therefrom as described in "Use of Proceeds."

This table should be read in conjunction with the "Selected Consolidated
Financial Data" included elsewhere in this prospectus.

As of February 22, 2002
---------------------
As
Actual Adjusted (1)
-------- ------------
(in thousands, except
share data)

Cash and cash equivalents.............................................................. $ 2,872 $ 18,107
======== ========
Debt:
Senior Acquisition Line of Credit................................................... $ 28,619 $ --
Senior Term Loan.................................................................... 6,878 --
Revolving Credit Facility........................................................... 4,000 --
-------- --------
Total debt...................................................................... 39,497 --

Redeemable preferred stock, par value $0.01 per share, 35,000,000 shares authorized;
30,468,485 shares issued and outstanding, at liquidation value....................... 36,180 --

Stockholders' equity (deficit):
Common stock, par $0.01 per share, 16,000,000 shares authorized, 12,117,747
shares issued and 12,108,329 shares outstanding, actual; 200,000,000 shares
authorized, 17,610,598 shares issued and outstanding, as adjusted................. 143 198
Preferred stock, par $0.01 per share, no shares authorized, issued or outstanding,
actual; 5,000,000 shares authorized, no shares issued or outstanding, as adjusted. -- --

Additional paid-in capital.......................................................... 37,893 138,512
Accumulated other comprehensive income:
Unrealized gain on investments, net of tax...................................... 93 93
Accumulated deficit................................................................. (14,128) (25,255)
Treasury stock, 9,418 shares at cost................................................ (26,452) (26,452)
-------- --------
Total stockholders' equity (deficit)............................................ (2,451) 87,096
-------- --------
Total capitalization................................................................... $ 73,226 $ 87,096
======== ========

- --------

(1)The "As Adjusted" column gives effect to the consummation of this offering
and the exercise of the NEBS warrant and the use of the proceeds therefrom,
as well as the following nonrecurring, noncash adjustments which will occur
in connection with this offering, in each case assuming a per share offering
price of $19.00, the midpoint of the offering range: a noncash charge
totaling approximately $4.1 million in connection with the vesting of the
performance-based portion of the NEBS warrant, of which $0.7 million will be
incurred in the quarter ended May 30, 2002 and the remainder will be
incurred upon the consummation of this offering; a noncash charge of $5.7
million related to the restated additional incentive agreement as described
under "Certain Relationships and Related Transactions--Restated Additional
Incentive Agreement"; and a noncash charge of $1.4 million related to the
write-off of debt issuance costs and unamoritized compensation expense
associated with the repayment of all of our debt and the redemption of all
of our preferred stock with the proceeds of this offering. For more
information regarding these nonrecurring, noncash charges, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Charges Related to this Offering."

The number of shares of common stock to be outstanding after this offering
does not include:

. 905,550 shares of common stock issuable upon exercise of options
outstanding as of February 22, 2002 at a weighted average exercise
price of $4.59 per share;

. 86,117 shares of common stock issuable upon exercise of stock options
reserved for issuance as of February 22, 2002; and

. 1,750,000 shares of common stock reserved for issuance under our 2002
Stock Option Plan.

DILUTION

Our net tangible book value as of February 22, 2002 was $(60.5) million, or
$(5.00) per share of common stock. Net tangible book value per share represents
the amount of our total tangible assets, less our total liabilities, divided by
the pro forma number of shares of common stock outstanding. Dilution in pro
forma net tangible book value per share represents the difference between the
amount per share paid by investors in this offering and the pro forma net
tangible book value per share of our common stock immediately after this
offering. After giving effect to our sale of 4,539,474 shares of common stock
in this offering, based upon an assumed initial public offering price of $19.00
per share, the midpoint of the range set forth on the cover page of this
prospectus, our pro forma net tangible book value as of February 22, 2002 would
have been approximately $18.2 million, or $1.09 per share of common stock. This
represents an immediate increase in pro forma net tangible book value to
existing stockholders of $6.09 per share and an immediate dilution to new
investors in this offering of $17.91 per share. The following table illustrates
the per share dilution in pro forma net tangible book value to new investors:

Assumed initial public offering price per share.................................. $19.00
Net tangible book value per share as of February 22, 2002..................... $(5.00)
Increase in pro forma net tangible book value per share attributable to new
investors................................................................... 6.09
------
Pro forma net tangible book value per share as of February 22, 2002 after the
offering.................................................................... 1.09
------
Pro forma net tangible book value dilution per share to new investors............ $17.91
======

The following table summarizes, as of February 22, 2002, the differences
between the number of shares of common stock purchased from us, the aggregate
cash consideration paid to us and the average price per share paid by existing
stockholders since our inception and new investors purchasing shares of common
stock in this offering. The calculation below is based on an offering price of
$19.00 per share, the midpoint of the range set forth on the cover page of this
prospectus, before deducting estimated underwriting and offering expenses
payable by us:

Shares Purchased Total Consideration
----------------- ------------------- Average Price
Number Percent Amount (2) Percent Per Share
---------- ------- ------------ ------- -------------

Existing stockholders (1) 12,108,329 72.7% $ 33,826,901 28.2% $ 2.79
New public investors..... 4,539,474 27.3 86,250,000 71.8 19.00
---------- ---- ------------ ----
Total................. 16,647,803 100% $120,076,901 100%
========== ==== ============ ====

- --------

(1)The above discussion and the table do not include 905,550 shares of common
stock issuable as of February 22, 2002 pursuant to the exercise of stock
options under our stock option plans at a weighted average exercise price of
$4.59 per share and a maximum of 1,069,772 shares potentially issuable upon
exercise of the NEBS warrant. It also excludes 48,000 shares issued on
February 25, 2002. To the extent that outstanding options are exercised in
the future, there will be further dilution to investors. For more
information about our capitalization and stock option plans, refer to
"Capitalization" and "Management--Stock Option Plans."

(2)The amount of treasury stock included in the statement of stockholders
deficit included elsewhere in this prospectus includes amounts paid to
former and existing stockholders. Only amounts paid to existing stockholders
are included in this table.

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected financial data regarding our
business and should be read together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," our consolidated financial
statements and the related notes included elsewhere in this prospectus. The
selected consolidated statements of operations data for the fiscal years ended
May 28, 1999, May 26, 2000 and May 25, 2001, the selected consolidated
statements of operations data for the nine months ended February 23, 2001 and
February 22, 2002, and the selected consolidated balance sheet data as of
February 22, 2002 are derived from our consolidated financial statements that
are included elsewhere in this prospectus. All amounts included in the
consolidated statements of operations data have been derived from audited
financial statements, except for the unaudited nine months ended February 23,
2001.

Fiscal Year Ended (1) Nine Months Ended
----------------------------------------------- ------------------------
May 30, May 29, May 28, May 26, May 25, February 23, February 22,
1997 1998 1999 2000 2001 2001 2002 (2)
------- -------- -------- -------- -------- ------------ ------------
(in thousands, except per share data)

Consolidated Statements of Operations Data:
Payroll service revenue............................ $10,125 $ 14,082 $ 25,068 $ 30,186 $ 42,065 $ 30,344 $ 46,634
Interest on client payroll funds invested.......... 2,523 3,041 4,410 5,544 8,033 5,753 5,681
------- -------- -------- -------- -------- -------- --------
Total revenue................................... 12,648 17,123 29,478 35,730 50,098 36,097 52,315
Operating expenses:
Operating costs.................................. 2,499 4,924 7,808 10,589 16,918 12,139 18,255
Conversion expenses (3).......................... -- 315 1,426 1,056 1,970 1,365 3,416
Selling, general and administrative.............. 8,739 9,244 15,992 21,784 26,239 19,328 24,836
Depreciation and amortization.................... 305 598 1,817 3,014 4,699 3,329 3,021
------- -------- -------- -------- -------- -------- --------
Operating income (loss)............................ 1,105 2,042 2,435 (713) 272 (64) 2,787
Interest expense................................... 97 1,134 3,908 4,619 5,868 4,242 1,776
Investment and other income (expense).............. (15) 35 143 127 215 208 27
------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes.................. 993 943 (1,330) (5,205) (5,381) (4,098) 1,038
Income tax expense (benefit)....................... 326 398 (439) (801) 44 34 --
------- -------- -------- -------- -------- -------- --------
Net income (loss).................................. 667 545 (891) (4,404) (5,425) (4,132) 1,038
------- -------- -------- -------- -------- -------- --------
Preferred stock dividends.......................... -- (166) (670) (825) (1,001) (739) (3,049)
------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to common
stockholders...................................... $ 667 $ 379 $ (1,561) $ (5,229) $ (6,426) $ (4,871) $ (2,011)
======= ======== ======== ======== ======== ======== ========
Earnings per share:
Basic............................................ $ 0.04 $ (0.17) $ (0.54) $ (0.59) $ (0.45) $ (0.17)
Diluted.......................................... $ 0.04 $ (0.17) $ (0.54) $ (0.59) $ (0.45) $ (0.17)
Weighted average common shares outstanding (4):
Basic............................................ 9,250 9,250 9,752 10,925 10,890 11,804
Diluted.......................................... 9,250 9,250 9,752 10,925 10,890 11,804
Other Financial Data:
EBITDA (5)......................................... $ 1,410 $ 2,640 $ 4,252 $ 2,301 $ 4,971 $ 3,265 $ 5,808
Conversion expenses (3)............................ -- 315 1,426 1,056 1,970 1,365 3,416
------- -------- -------- -------- -------- -------- --------
Adjusted EBITDA (6)................................ 1,410 2,955 5,678 3,357 6,941 4,630 9,224
Net cash provided by (used in) operating activities 981 1,668 1,200 649 1,046 (972) 1,166
Net cash used in investing activities.............. (401) (14,324) (1,944) (9,357) (21,246) (20,752) (23,356)
Net cash provided by (used in) financing activities (252) 13,513 (187) 17,568 15,376 16,126 20,757
Consolidated Balance Sheet Data:
Cash and cash equivalents.......................... $ 332 $ 1,201 $ 270 $ 9,130 $ 4,305 $ 3,532 $ 2,872
Working capital (deficit).......................... 697 129 (1,817) 2,084 (4,515) (5,026) (7,303)
Client payroll funds invested...................... 50,357 53,603 85,997 88,032 110,505 121,428 168,977
Total assets....................................... 53,801 73,919 106,906 127,177 167,046 178,605 246,815
Total debt......................................... 906 37,520 38,397 43,665 60,476 60,877 39,497
Redeemable preferred stock, at liquidation value... -- 5,584 6,254 7,974 8,974 8,713 36,180
Total stockholders' equity (deficit)............... 1,930 (23,241) (25,303) (18,223) (19,245) (17,086) (2,451)

- --------
(1)Results of operations for acquired companies are included from the date of
acquisition. As a result, comparability of periods has been affected by our
acquisitions. For more information about our acquisition history, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisition History."
(2)In May 2001, we exchanged all outstanding subordinated notes, including
accrued but unpaid interest thereon, for shares of our 12% redeemable
preferred stock. As a result, interest expense will significantly decrease
in fiscal 2002. As of February 2002, the outstanding liquidation preference
of the 12% preferred stock was $36.2 million. We intend to redeem all of our
outstanding 12% redeemable preferred stock with the proceeds of this
offering.
(3)We generally incur expenses in converting clients obtained through our
acquisition of other payroll processing companies. Conversion expenses
primarily include salaries, benefits and stay bonuses paid to employees of
acquired companies performing duplicative functions, such as ACH processing,
tax processing and information technology support, who will not be retained
after conversion is completed, payment of salaries and benefits of our
employees directly performing conversion procedures, travel costs and lease
expenses of duplicate facilities. Conversion expenses are acquisition
specific and only continue until the acquired clients are converted onto our
system.
(4)Weighted average common shares outstanding is calculated as if the February
1998 management buy-out occurred at the beginning of fiscal 1998.
(5)EBITDA represents earnings before interest, tax, depreciation and
amortization. Management believes that it is widely accepted that EBITDA, as
defined, provides useful information about a company's operating
performance. This belief is based upon discussions with investors, analysts,
creditors and other market professionals. EBITDA, as defined, is not
intended to represent cash flows for the period, nor is it presented as an
alternative to operating income or as an indicator of operating performance.
It should not be considered in isolation or as a substitute for a measure of
performance prepared in accordance with GAAP, is not indicative of operating
income or cash flow from operations as determined under GAAP and does not
give effect to our capital expenditures or debt service payments. Our method
of computation may or may not be comparable to other similarly titled
measures by other companies.
(6)Adjusted EBITDA means EBITDA plus conversion expenses. Management believes
that Adjusted EBITDA provides useful information about our operating
performance because conversion expenses are associated with particular
acquisitions and vary from period to period based on our recent acquisition
history, and as such, continuing operating performance is more comparable
from period to period after excluding conversion expenses.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the "Selected
Financial and Other Data" section of this prospectus and our consolidated
financial statements and the notes to those statements included elsewhere in
this prospectus. The forward-looking statements in this discussion regarding
the payroll processing industry, our expectations regarding our future
performance, liquidity and capital resources and other non-historical
statements in this discussion include numerous risks and uncertainties, as
described in the "Risk Factors" and "Forward-Looking Statements" sections of
this prospectus. Our actual results may differ materially from those contained
in any forward-looking statements.

Overview

We are a leading national provider of outsourced payroll processing and
related services to small businesses. We assist our clients in managing their
payroll processing cycle by calculating, collecting and disbursing their
payroll funds, remitting payroll taxes and preparing and filing all associated
tax returns. In addition, we offer our clients a wide range of ancillary
products and services, including providing human resource information software,
employee benefit services and workers' compensation premium billing.

Revenue

We derive revenue from fees charged to our clients for payroll processing,
tax filing and other ancillary services. We recognize this revenue when
services are rendered. In connection with these services, we collect funds from
our clients in order to pay payroll, payroll taxes and other withholdings and
hold these funds until payments are due. In addition, we handle all regulatory
correspondence and amendments, remit funds collected from our clients to the
appropriate taxing authority and file federal, state and local tax returns.
Most of our clients allow us to deduct our fees from their bank account when we
process their payroll. Our revenue is subject to seasonal fluctuations. We
normally realize the largest percentage of annual revenue in our third fiscal
quarter.

We also generate revenue from investing collected but unremitted client
payroll funds during the interval between our receipt and disbursement of
funds. We record investment income earned on invested payroll funds as revenue
in our consolidated statements of operations, as the collection, holding and
remittance of these funds is a significant component of our service to our
clients.

Prior to our February 1998 management buy-out, we marketed our products and
services primarily through a network of associate offices. Our relationship
with these associate offices is governed by a license agreement, which, among
other things, prohibits the associate offices from distributing products and
services other than our own, and a comprehensive policies and procedures
manual. Our license agreements with our associate offices expire between
September 2003 and September 2009, and are renewable at the option of the
associate office for at least one additional ten-year term. This distribution
model is based on the same division of responsibilities as we have with our
direct offices. Our associate offices are responsible for selling and marketing
our products and services in their assigned territory and interacting directly
with clients to perform defined operational functions in connection with the
delivery of our products and services. We perform all other services, including
all centralized back-office functions, and maintain a direct contractual
relationship with the client. We bear all credit risk associated with these
contracts. We pay our associate offices a commission based on the revenue
generated and retain all investment income on the collected but unremitted
payroll funds. Since the management buy-out, we

purchased all but 15 of our associate offices, which has contributed to our
shift to a direct sales model. We obtain incremental earnings when purchasing
associate offices because the commissions we pay to them exceed the incremental
cost we would incur for the functions they perform. The direct sales model
differs from our associate sales model in that we are responsible for all
aspects of the client relationship. As a result, our associate network
accounted for approximately 22.9% of our revenue for the first nine months of
fiscal 2002 as compared to 48.5% of our revenue for fiscal 1999. As we acquire
associate offices, total revenue is unaffected because all revenue from our
associate offices is already reflected in our statements of operations under
payroll service revenue. The percentage of revenue generated by associate
offices necessarily decreases as the percentage of offices that are associate
offices decreases. We may in the future purchase our remaining associate
offices from time to time should the opportunity arise.

We have entered into an alliance agreement with NEBS whereby NEBS sells our
payroll services under its private labels. We are responsible for providing all
payroll processing and tax filing services to the accounts sold under the
private label program, including the billing and collection of processing fees.
We bear the risk of losses incurred in connection with the collection of these
amounts. We pay NEBS a commission based on revenue generated. Revenue received
under this arrangement accounted for 3% for the nine months ended February 22,
2002 and for lesser amounts in prior periods.

Operating Costs

Operating expenses are comprised of ongoing costs related to payroll
processing, tax filing and other ancillary service operations. Our most
significant operating expenses relate to wages and benefits associated with
performing these duties, payroll delivery and facility expenses, including
telecommunications. Operating expenses include set-up expenses incurred in
connection with clients obtained through our normal sales channels.

Conversion Expenses

Unlike the normal set-up costs associated with new clients obtained through
our normal sales channels that are classified as operating costs, we also incur
expenses from time-to-time in converting acquired clients obtained through our
acquisition of other payroll processing companies. We report these costs
separately on our financial statements as conversion expenses. These conversion
expenses primarily include salaries, benefits and stay bonuses paid to
employees of acquired companies performing duplicative functions, such as ACH
processing, tax processing and information technology support, who will not be
retained after conversion is completed, payment of salaries and benefits to our
employees directly performing conversion procedures, travel costs and lease
expenses of duplicate facilities.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of wages and
benefits paid to sales and administrative staff, sales and marketing expenses,
professional fees, other overhead costs for finance and corporate services and
commissions paid to associate offices.

Depreciation and Amortization

Depreciation and amortization includes depreciation of all property and
equipment and amortization of goodwill and intangible assets. Beginning in
fiscal 2002, we adopted SFAS No. 142 and, as a result, no longer amortize
goodwill but rather periodically test for impairment.

Income Taxes

As of February 2002, we had approximately $8.8 million in net operating loss
carryforwards available to offset future taxable income. These tax net
operating loss carryforwards will expire at various dates through 2022 if
unutilized and may be subject to annual limitations as a result of changes in
our ownership.

Acquisition History

We have made a number of acquisitions since the February 1998 management
buy-out, including acquisitions of payroll processing companies and a company
in a related business, and purchases of our associate offices. Results of
operations for acquired payroll processing companies and companies in related
businesses are included from the date of acquisition. As a result,
comparability of periods has been affected by these acquisitions. Acquisitions
of our associate offices have less impact on the comparability of periods, as
revenue from our associate offices is already included in our results of
operations under the caption "payroll processing revenue." The following table
sets forth certain information regarding our acquisition activity over the past
three fiscal years for which total cash and stock consideration exceeded
$200,000:

Total Cash and Stock
Acquisition Dates Consideration
---------------------------------------- --------------------

2000
Third party payroll processor... July 1999 $ 5.0 million
Associate offices............... Various 1.1 million
2001
Third party payroll processors.. July 2000, September 2000, February 2001 16.7 million
Associate offices............... Various 5.4 million
2002 (through February 22, 2002)
Third party payroll processors.. Two in August 2001 19.4 million
Related service operation....... September 2001 0.5 million

For more information about our acquisition history, see note 5 to our
consolidated financial statements that appear elsewhere in this prospectus.

Critical Accounting Policies and Estimates

Our discussion and analysis of results of operations and financial condition
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires us to
make estimates and judgments that affect the amounts reported in those
financial statements. On an ongoing basis, we evaluate estimates, including
those related to our clients' ability to meet their payroll obligations,
impairment of intangible assets, allocation of purchase price of acquired
businesses, determination of the fair value of equity instruments issued to
third parties, recoverability of deferred income tax assets and contingencies.
We base our estimates on historical experiences and assumptions believed to be
reasonable under the circumstances. Those estimates form the basis for our
judgements that affect the amounts reported in the financial statements. Actual
results could differ from our estimates under different assumptions or
conditions.

We maintain a reserve for estimated losses associated with our clients'
inability to meet their payroll obligations. As part of the provision of
payroll services, our clients authorize us to transfer money from their bank
accounts, in accordance with the limitations and restrictions of NACHA to fund
their employee paychecks, direct deposits and tax liabilities and pay our fees.
In accordance with the NACHA regulations, we are notified within 72 hours of
transactions for which funds were not collected. Due to the immediacy of this
notification, at any particular time, we are able to individually evaluate each
uncollected amount and make a determination of the likelihood of collection. If
the financial condition of our clients were to deteriorate, adversely affecting
their ability to meet their payroll obligations, additional reserves may be
required.

We perform impairment tests related to goodwill and other intangible assets
on a periodic basis. Because our business is largely homogenous and we
integrate our new acquisitions fully into our existing system, we evaluate our
business as a single reporting unit for purposes of goodwill impairment
testing. Based on the results of these tests, no impairment charges have been
recorded to date. We record a valuation allowance to reduce deferred income tax
assets to an amount that is more likely than not to be realized. We allocate
the purchase price of acquired businesses to the assets acquired based on our
past experience and use of third-party valuation

specialists. We estimate the fair value of equity instruments issued based on
our review of past cash transactions for similar equity instruments and use of
third-party valuation specialists. As of February 2002, we have recorded a full
valuation allowance for our net deferred tax assets.

Results of Operations

The table below sets forth certain operating data expressed as a percentage
of revenue for the periods indicated:

Fiscal Year Ended Nine Months Ended
---------------------- ------------------------
May 28, May 26, May 25, February 23, February 22,
1999 2000 2001 2001 2002
------- ------- ------- ------------ ------------

Consolidated Statements of Operations Data:
Payroll service revenue.................... 85.0% 84.5% 84.0% 84.1% 89.1%
Interest on client payroll funds invested.. 15.0 15.5 16.0 15.9 10.9
Total revenue.............................. 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Operating costs......................... 26.5 29.6 33.8 33.6 34.9
Conversion expenses..................... 4.8 3.0 3.9 3.8 6.5
Selling, general and administrative..... 54.2 61.0 52.4 53.5 47.5
Depreciation and amortization........... 6.2 8.4 9.4 9.2 5.8
Total operating expenses................... 91.7 102.0 99.5 100.2 94.7
Operating income (loss).................... 8.3 (2.0) 0.5 (0.2) 5.3
Interest expense........................... 13.3 12.9 11.7 11.8 3.4
Investment and other income................ 0.5 0.4 0.4 0.6 0.1
Income (loss) before income taxes.......... (4.5) (14.6) (10.7) (11.4) 2.0
Income tax expense (benefit)............... (1.5) (2.2) 0.1 0.1 0.0
Net income (loss).......................... (3.0) (12.3) (10.8) (11.4) 2.0

Nine Months Ended February 2002 Compared to Nine Months Ended February 2001

Revenue

Revenue increased $16.2 million, or 44.9%, to $52.3 million for the
nine-month period ended February 2002 from $36.1 million for the nine-month
period ended February 2001. This increase resulted from a $16.3 million, or
53.7%, increase in payroll service revenue partially offset by a $0.1 million,
or 1.3%, decrease in interest income from payroll funds invested. Payroll
service revenue increased as a result of the addition of new clients. Of the
53.7% increase in payroll service revenue, 25.1% was due to organic growth of
our existing business, while 28.6% was the result of acquisitions. The organic
growth is largely attributable to the continued expansion of our sales force
from 103 representatives in May 2001 to 139 representatives in February 2002.
Revenue related to ancillary services, which are included in payroll service
revenue was $1.0 million for the nine months ended February 2002 compared to
$0.5 million for the nine months ended February 2001. We realize the largest
percentage of annual revenue in our third fiscal quarter, primarily due to W-2
revenue, which occurs only in our third quarter and represented over 15% of our
total revenue for the quarter ended February 2002.

Interest income from payroll funds invested decreased $0.1 million or 1.3%
to $5.7 million, reflecting a decrease in the average rate of return largely
offset by a higher average daily balance of funds held for clients. The average
daily balance of funds held for clients increased 28.6% to $156.6 million for
the nine months ended

February 2002 from $121.8 million for the nine months ended February 2001. The
average rate of return decreased to 4.5% for the nine months ended February
2002 from 6.3% for the nine months ended February 2001. In addition, we
realized $0.4 million of gains in the nine months ended February 2002 and none
in the nine months ended February 2001.

Operating Costs

Total operating costs increased $6.1 million, or 50.4%, to $18.3 million for
the nine-month period ended February 2002 from $12.1 million for the nine-month
period ended February 2001. As a percentage of revenue, operating costs
increased to 34.9% for the nine-month period ended February 2002 compared to
33.6% for the nine-month period ended February 2001. Wages and benefits
increased $3.2 million or 47.3% to $9.9 million, which was related to
additional employees acquired in recent acquisitions, hiring of additional
branch personnel to support growth in our client base and the purchase of
associate offices. Other operating costs increased $3.0 million, or 54%, to
$8.4 million due largely to increases in the number of payrolls processed as a
result of our organic growth and the acquisition of two payroll processors.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $5.5 million, or
28.5%, to $24.8 million for the nine-month period ended February 2002 from
$19.3 million for the nine-month period ended February 2001. The most
significant increase was in wages and benefits which increased $3.6 million or
45.6% to $11.6 million related to the expansion of our sales force and
increasing our corporate personnel to support the growth in our client base. As
a percentage of revenue, selling, general and administrative expenses decreased
to 47.5% for the nine-month period ended February 2002 from 53.5% for the
nine-month period ended February 2001. Commissions paid to associates increased
$0.3 million, or 4.5%, to $7.4 million.

Conversion Expenses

Conversion expenses were $3.4 million for the nine months ended February
2002 compared to $1.4 million for the nine months ended February 2001. The most
significant increase was in wages, benefits and stay bonuses of acquired
company employees performing duplicative functions, which increased $1.6
million to $2.0 million. The fiscal 2002 conversion expenses are associated
with the conversion of the clients acquired in two of the fiscal 2001
acquisitions as well as those acquired in the two August 2001 acquisitions.
Conversion expenses in the nine months ended February 2001 are associated with
the conversion of clients from our July 2000, September 2000 and February 2001
acquisitions.

Depreciation and Amortization

Depreciation and amortization expense decreased $0.3 million, or 9.2%, to
$3.0 million for the nine-month period ended February 2002 from $3.3 million
for the nine-month period ended February 2001. The decrease is due to the
adoption of SFAS No. 142 which eliminated the amortization of goodwill
partially offset by the amortization of customer lists associated with the
August 2001 acquisitions. Amortization expense of goodwill included in the nine
months ended February 2001 was $1.1 million.

Interest Expense

Interest expense decreased $2.5 million, or 58.1%, to $1.8 million for the
nine-month period ended February 2002 from $4.2 million for the nine-month
period ended February 2001. This decrease reflects the exchange of all junior
subordinated debt, including accrued but unpaid interest thereon, for preferred
stock at the beginning of fiscal 2002.

Investment and Other Income

Investment and other income decreased $0.2 million to less than $0.1 million
for the nine-month period ended February 2002 from $0.2 million for the
nine-month period ended February 2001. The decrease is the result of lower
average corporate cash balances and lower rates of return on those balances.

Income Taxes

There was no tax expense in the nine months ended February 22, 2002 due to
the reversal of a portion of our deferred tax valuation allowance. As of
February 22, 2002, we had approximately $8.8 million in tax net operating loss
carryforwards available to offset future taxable income.

Fiscal 2001 Compared to Fiscal 2000

Revenue

Revenue increased $14.4 million, or 40.2%, to $50.1 million in fiscal 2001
from $35.7 million in fiscal 2000. This increase resulted from a $11.9 million,
or 39.4%, increase in payroll service revenue and a $2.5 million, or 44.9%,
increase in interest income from payroll funds invested. Payroll service
revenue increased primarily as a result of the addition of new clients. New
client additions resulted from the expansion of our direct sales force during
fiscal 2001 and fiscal 2000 and from acquisitions. Of the 39.4% increase in
payroll service revenue, 22.6% was due to organic growth of existing business,
while 16.8% was the result of acquisitions. The organic growth was attributable
to an increase in our direct sales force to 103 representatives in May 2001
from 67 representatives in May 2000. These additional sales people were added
to existing offices, several new offices established in fiscal 2000 and three
new sales-only offices opened in fiscal 2001. Revenue related to ancillary
services, which are included in payroll service revenue, was $0.8 million in
fiscal 2001 compared to $0.4 million in fiscal 2000.

The 44.9% increase in interest income from payroll funds invested reflects
an increase in the average daily balance of funds held for clients as well as
an increase in the average rate of return. The average daily balance of funds
held for clients increased 29.0% to $127.8 million in May 2001 from $99.0
million in May 2000. In addition to the increased average rate of return, we
recorded $0.3 million of realized gains on the sale of available-for-sale
securities in fiscal 2001 and none in fiscal 2000. During the second half of
fiscal 2001, market rates of return decreased significantly as a result of a
2.5 percentage point decrease in the federal funds rate. We expect that
investment revenue in fiscal 2002 will be less than fiscal 2001 because of the
decline in these rates.

Operating Costs

Total operating costs increased $6.3 million, or 59.8%, to $16.9 million in
fiscal 2001 from $10.6 million in fiscal 2000. As a percentage of revenue,
operating costs increased to 33.8% of revenue in fiscal 2001 compared to 29.6%
of revenue in fiscal 2000. Wages and benefits increased $3.6 million, or 61.5%,
to $9.4 million, which was related to the hiring of additional branch operating
personnel to support the growth in client base, additional employees acquired
in recent acquisitions and purchases of associate offices. Other operating
costs increased $2.8 million, or 58%, to $7.6 million due largely to increases
in the number of payrolls processed as a result of our organic growth and the
acquisition of three payroll processors. Additionally, the opening of several
new offices during fiscal 2002 also increased occupancy, telecommunications and
other facility-related costs.

Conversion Expenses

Conversion expenses were $2.0 million in fiscal 2001 as compared to $1.1
million in fiscal 2000. The most significant increase was in wages and benefits
of our employees and contractors, which increased $0.6 million, and the wages,
benefits and stay bonuses of acquired company employees performing duplicative
functions, which increased $0.4 million. The fiscal 2001 conversion expenses
are associated with the conversion of clients acquired in September 2000 and
February 2001 acquisitions, as well as the completed conversion of clients from
a July 2000 acquisition. The fiscal 2000 conversion expenses relate primarily
to the conversion of clients acquired in a July 1999 acquisition.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $4.5 million, or
20.4%, to $26.2 million in fiscal 2001 from $21.8 million in fiscal 2000. The
most significant increase was in wages and benefits, which increased $3.5
million, or 45.7%, to $11.1 million, related to the expansion of our direct
sales force, including the

acquisition of sales employees hired in connection with recent acquisitions,
purchases of associate offices and increasing our corporate personnel to
support the growth in client base. Commissions paid to associates decreased
$0.3 million to $9.3 million in fiscal 2001 due to the purchase of several
associate offices during the year accounting for a $1.6 million decrease in
commissions paid. This decrease was partially offset by increased commissions
of $1.3 million paid as a result of increased volume at remaining associate
offices.

Depreciation and Amortization

Depreciation and amortization expense increased $1.7 million, or 55.9%, to
$4.7 million in fiscal 2001 from $3.0 million in fiscal 2000. The most
significant increase was in amortization of intangibles, which increased $1.2
million, or 74.0%, to $2.7 million during fiscal 2001 as a result of recent
acquisitions.

Interest Expense

Interest expense increased $1.3 million, or 27.0%, to $5.9 million in fiscal
2001 from $4.6 million in fiscal 2000. This increase reflects higher average
senior and junior subordinated debt outstanding during fiscal 2001 compared to
fiscal 2000. The average interest rate on outstanding senior debt was 9.0% and
8.8% in fiscal 2001 and fiscal 2000, respectively. At the beginning of fiscal
2002, we exchanged of all of our outstanding junior subordinated notes,
including accrued but unpaid interest thereon, for 21,756,652 shares of
preferred stock.

Investment and Other Income

Investment and other income increased $0.1 million to $0.2 million in fiscal
2001 from $0.1 million in fiscal 2000. The increase in interest income was the
result of higher average corporate cash balances in fiscal 2001 compared to
fiscal 2000, which was partially offset by lower interest rates. Investment
income earned on client payroll funds invested is included in revenue.

Income Taxes

Our effective tax rate reflects a full valuation allowance for the tax
benefit associated with our loss in fiscal 2001. The fiscal 2001 tax expense is
the result of certain state taxes incurred during fiscal 2001. As of May 2001,
we had approximately $8.5 million in tax net operating loss carryforwards
available to offset future taxable income. As of May 2001 and May 2000, we had
recorded a full valuation allowance against our net deferred tax assets.

Fiscal 2000 Compared to Fiscal 1999

Revenue

Revenue increased $6.3 million, or 21.2%, to $35.7 million in fiscal 2000
from $29.5 million in fiscal 1999. This increase was the result of a $5.1
million, or 20.4%, increase in payroll service revenue and $1.1 million, or
25.7%, increase in interest income from payroll funds invested. Payroll service
revenue increased primarily as a result of the addition of new clients. A July
1999 acquisition added approximately 14.0% to year-over-year payroll service
revenue. During fiscal 2000, we also embarked on an aggressive expansion
program by opening offices in several new markets and recruiting, training and
developing a national sales force. During fiscal 2000, the direct sales force
grew from 26 representatives in May 1999 to 67 representatives in May 2000, a
157.7% increase. Revenue related to ancillary services, which are included in
payroll service revenue, was $0.4 million in fiscal 2000 compared to $0.2
million in fiscal 1999.

The 25.7% increase in interest income from payroll funds reflects an
increase in the average daily balance of funds held for clients. The average
daily balance of funds held for clients increased 37.2% to $99.0 million in
fiscal 2000 from $72.2 million in fiscal 1999. There were no realized gains or
losses on the sale of available-for-sale securities in fiscal 2000 compared to
a gain of $0.3 million in fiscal 1999. Average rates of return in fiscal 2000
were comparable to fiscal 1999.

Operating Costs

Total operating costs increased $2.8 million, or 35.6%, to $10.6 million in
fiscal 2000 from $7.8 million in fiscal 1999. As a percentage of revenue,
operating costs increased to 29.6% of revenue in fiscal 2000 compared to 26.5%
of revenue in fiscal 1999. Wages and benefits increased $0.7 million, or 14.8%,
to $5.8 million, which was related to the hiring of additional branch operating
personnel to support the growth in client base, including the opening of
several new offices, and the employees acquired in a July 1999 acquisition. The
new office openings in fiscal 2000 also increased occupancy, telecommunications
and other facility-related costs. Other operating costs increased $2.0 million,
or 74%, to $4.8 million due largely to increases in the number of payrolls
processed as a result of our organic growth and the acquisition of a payroll
processor. The opening of several new offices also increased occupancy,
telecommunications and other facility-related costs.

Conversion Expenses

Conversion expenses were $1.1 million in fiscal 2000 compared to $1.4
million in fiscal 1999. The most significant decrease was in wages and benefits
of our employees and contractors, which decreased $0.3 million. The fiscal 2000
conversion expenses related primarily to the conversion of clients acquired in
a July 1999 acquisition. The fiscal 1999 conversion expenses related to the
conversion of clients acquired in an April 1998 acquisition.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $5.8 million, or
36.2%, to $21.8 million in fiscal 2000 from $16.0 million in fiscal 1999. The
most significant increase was in wages and benefits, which increased $3.4
million, or 79.7%, to $7.6 million, related to the expansion of our direct
sales force, including the acquisition of sales employees acquired in a July
1999 acquisition. Commissions paid to associates increased $0.9 million to $9.5
million in fiscal 2000 due to increased sales volume at associate offices
resulting in increased commissions paid of $1.1 million, partially offset by
the purchase of two associate offices, which decreased commissions paid by $0.2
million.

Depreciation and Amortization

Depreciation and amortization expense increased $1.2 million, or 65.9%, to
$3.0 million in fiscal 2000 from $1.8 million in fiscal 1999. The most
significant increase was in depreciation, which increased $0.8 million due to
the opening of several new offices during the fiscal year.

Interest Expense

Interest expense increased $0.7 million, or 18.2%, to $4.6 million in fiscal
2000 from $3.9 million in fiscal 1999. This increase reflects higher average
senior and junior subordinated debt outstanding during fiscal 2000 compared to
fiscal 1999. The average interest rate on outstanding senior debt was 8.8% and
8.2% in fiscal 2000 and fiscal 1999, respectively.

Investment and Other Income

Investment and other income was $0.1 million in both fiscal 2000 and fiscal
1999. The balance relates primarily to interest earned on corporate funds.

Income Taxes

Our effective tax rate reflects a full valuation allowance for the tax
benefit associated with our loss in fiscal 2000. The fiscal 2000 tax benefit is
primarily the result of tax net operating loss carrybacks and the change in our
valuation allowance.

Quarterly Results of Operations

The following table contains certain of our unaudited quarterly financial
information for the eight fiscal quarters ended February 22, 2002. Our revenue
is subject to seasonal fluctuations. We realize the largest percentage of
annual revenue in our third fiscal quarter, primarily due to W-2 fee revenue,
which occurs only in the third quarter and represented over 15% of total
revenue for the quarter ended February 22, 2002, and secondarily to new clients
initiating services at the beginning of the tax year and higher interest income
earned on higher amounts of client payroll funds invested in the beginning of
the tax year. This information should be read in conjunction with the
consolidated financial statements. The operating results for any previous
quarter are not necessarily indicative of results for any future period.

Quarter Ended
----------------------------------------------------------------------
May 26, Aug. 25, Nov. 24, Feb. 23, May 25, Aug. 31, Nov. 30, Feb. 22,
2000 2000 2000 2001 2001 2001 2001 2002
------- -------- -------- -------- ------- -------- -------- --------

Consolidated Statements of Operations Data:
Payroll service revenue................... $8,234 $ 8,100 $ 9,473 $12,771 $11,721 $13,315 $15,073 $18,246
Interest on client payroll funds invested. 1,642 1,627 1,851 2,276 2,279 1,934 2,015 1,732
------ ------- ------- ------- ------- ------- ------- -------
Total revenue............................ 9,876 9,727 11,324 15,047 14,000 15,249 17,088 19,978

Operating expenses:
Operating costs........................... 2,716 3,199 3,994 4,946 4,779 5,391 6,156 6,709
Conversion expenses....................... 62 195 446 724 604 882 1,243 1,290
Selling, general and administrative....... 6,083 6,005 6,312 7,010 6,912 7,858 8,654 8,324
Depreciation and amortization............. 909 831 1,112 1,386 1,370 863 1,029 1,129
------ ------- ------- ------- ------- ------- ------- -------
Total operating expense..................... 9,770 10,230 11,864 14,066 13,665 14,994 17,082 17,452
------ ------- ------- ------- ------- ------- ------- -------
Operating income (loss)..................... 106 (503) (540) 981 335 255 6 2,526
------ ------- ------- ------- ------- ------- ------- -------
Interest expense............................ 1,179 1,212 1,471 1,560 1,626 685 563 528
Investment and other income................. 110 105 71 32 8 12 5 10
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes........... (963) (1,610) (1,940) (547) (1,283) (418) (552) 2,008
Income tax expense (benefit)................ (163) 11 11 12 10 -- -- --
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)........................... $ (800) $(1,621) $(1,951) $ (559) $(1,293) $ (418) $ (552) $ 2,008
====== ======= ======= ======= ======= ======= ======= =======

Our quarterly operating results have fluctuated in the past and will
continue to fluctuate in the future depending on a variety of factors,
including the following:

. the number and size of new clients starting services;

. interest rate fluctuation;

. interest revenue and realized gains or losses from our investments;

. our ability to identify, recruit and train sales representatives and to
retain our existing sales force;

. the decision by clients to delay or cancel implementation of ongoing
services;

. our ability to timely design, develop, introduce and implement services
and features for new and existing services;

. service offerings provided by competitors;

. costs associated with strategic acquisitions or investments in technology;

. the timing of strategic acquisitions or investments;

. costs to transition to new technologies;

. expenses incurred for geographic expansion;

. price competition;

. the reduction in the number of employees of our clients; and

. general economic factors.

Due to these and other factors, we believe that quarter-to-quarter
comparisons of our results of operations are not meaningful indicators of
future performance.

Liquidity and Capital Resources

Our principal uses of cash have been to finance working capital, capital
expenditures, debt service, acquisitions and new operations. We will use a
portion of the net proceeds of this offering to repay all of our existing
indebtedness, eliminating the need to use cash for debt service. We expect that
our principal uses of cash in the future will be to finance working capital,
capital expenditures, new operations and opportunistic acquisitions. Since our
February 1998 management buy-out, we have funded our operations through cash
generated from operations, bank borrowings and private financings.

Net cash provided by (used in) operating activities was $1.2 million for the
nine-month period ended February 2002 compared to $(1.0) million for the prior
year period. The increase is primarily attributable to net income of $1.0
million in the nine month period ended February 2002 compared to a net loss of
$4.1 million for the nine month period ended February 2001. Net cash provided
by operating activities was $1.0 million and $0.6 million for fiscal 2001 and
2000, respectively. The increase was primarily a result of increased losses and
a decrease in net working capital charges which was more than offset by
increased amortization and depreciation charges.

Net cash used in investing activities was $23.4 million for the nine-month
period ended February 2002 compared to $20.8 million for the prior year period.
The use of cash for investing activities during the nine months ended February
2002 is primarily the result of the acquisition of two payroll processing
businesses in August 2001 for $19.4 million and the purchase of property, plant
and equipment for $3.2 million. Net cash used in investing activities was $21.2
million and $9.4 million for fiscal 2001 and 2000, respectively. The use of
cash for investing activities in fiscal 2001 is the result of purchasing
payroll processing businesses for $13.4 million, purchasing associate offices
for $4.6 million and purchasing property, plant and equipment for $2.5 million
to support the growth of our business. The use of cash for investing activities
in fiscal 2000 is the result of purchasing a payroll processing business for
$3.2 million, the purchase of four associate offices for $1.2 million and
purchasing property, plant and equipment for $5.1 million.

Net cash provided by financing activities was $20.8 million for the
nine-month period ended February 2002, compared to $16.1 million for the
nine-month period ended February 2001. This increase is primarily the result of
issuances of common and preferred stock to finance acquisitions. Net cash
provided by financing activities was $15.4 million and $17.6 million for fiscal
2001 and 2000, respectively. The net cash provided from financing activities in
fiscal 2001 was the result of net borrowing on our senior credit facility used
to finance acquisitions. In fiscal 2000, we had net borrowing on our senior
facility of $1.4 million, sold 1,069,772 shares of common stock for $12.7
million and issued preferred stock and subordinated debt totaling $3.4 million
to our principal stockholder. The net proceeds were used to fund our fiscal
2000 acquisitions and increased our available cash reserves.

Our capital expenditures of $2.5 million in fiscal 2001 consisted primarily
of additions to data processing equipment and software, of which an immaterial
amount represented the purchase of software licenses. We estimate our capital
expenditures for fiscal 2002 will increase by approximately $1.0 million over
fiscal 2001 and will be used for similar purposes.

Cash and cash equivalents does not include cash held on behalf of our
clients for tax withholding purposes. We had cash and cash equivalents of $2.9
million as of February 2002. Client payroll funds invested was $169.0 million
as of February 2002, of which $73.5 million consisted of money market funds,
cash equivalents and other, and $95.5 million consisted of available-for-sale
securities, i.e., corporate bonds, U.S. government agency securities, mutual
funds and other securities.

We currently have a senior credit facility with a syndicate of financial
institutions, which is comprised of a $15.0 million term loan, a $32.0 million
acquisition line of credit and a $5.0 million revolving credit facility. The
term loan matures on February 10, 2003, the acquisition line of credit matures
on February 10, 2005 and the revolving credit facility matures on February 10,
2003. Our obligations under the credit agreement are guaranteed by all of our
subsidiaries, all of which are wholly-owned and consolidated. None of our
associate offices have guaranteed any of our indebtedness. All of our
borrowings under the senior credit facility bear interest at floating rates,
which can be either a base rate, or at our option, a LIBOR rate plus an
applicable margin. As of February 2002, an aggregate of $39.5 million was
outstanding under our senior credit facility at a weighted average interest
rate of 5.0%. We intend to use a portion of the net proceeds from this offering
to repay all of our outstanding borrowings under this senior credit facility.

In connection with this offering, we anticipate entering into a new $10.0
million senior revolving credit facility. We do not expect to initially incur
any borrowings under this revolving line of credit. Borrowings under the credit
facility will bear interest at a floating rate, which can be either a base
rate, or at our option, a LIBOR rate plus an applicable margin. The new credit
facility will contain various financial covenants, including covenants
requiring a maximum ratio of total indebtedness to EBITDA, a minimum ratio of
EBITDA to interest expense and a minimum ratio of cash flow to fixed charges.
The new credit facility will also contain covenants restricting certain
corporate actions, including asset dispositions, acquisitions, paying
dividends, changes of control, incurring indebtedness, making loans and
investments and transactions with affiliates. The credit facility will be
collateralized by substantially all of our assets. The credit facility will
also contain customary events of default. At our election, we will be able to
voluntarily prepay the revolving credit facility at any time without premium or
penalty.

In addition to the obligations related to our senior credit facility and
redeemable preferred stock that we intend to repay and redeem with proceeds
from this offering, we also have commitments under various noncancelable
operating leases. The leases relate primarily to facility leases and require
future minimum lease payments of $1.2 million in fiscal 2002, $1.0 million in
fiscal 2003, $0.9 million in fiscal 2004 and $0.9 million in fiscal 2005 and
thereafter.

Since our management buy-out, we have from time to time issued junior
subordinated notes and 12% redeemable preferred stock to our current
stockholder group. In fiscal 2002, we exchanged all outstanding subordinated
notes, including accrued but unpaid interest thereon, for shares of our 12%
redeemable preferred stock. As a result, interest expense will significantly
decrease in fiscal 2002. As of February 2002, the outstanding liquidation
preference of the 12% preferred stock was $36.2 million. We intend to redeem
all of our outstanding 12% redeemable preferred stock with the proceeds of this
offering.

On February 25, 2002, we acquired a payroll processing operation for
approximately $1.8 million in cash and the issuance of 48,000 shares of common
stock.

We believe that cash flow from operating activities, proceeds from this
offering and borrowings under our new credit facility will be sufficient to
fund currently anticipated working capital, planned capital spending and debt
service requirements for the foreseeable future; however, we cannot assure you
that this will be the case. We do not need the proceeds of this offering to
continue operations for the next twelve months. We regularly review acquisition
and additional opportunities as well as major new program opportunities with
new or existing clients, any of which may require additional debt or equity
financing, and we cannot assure you that financing will be available on
satisfactory terms or at all.

Certain Charges Related to this Offering

of return on Willis Stein's investment. The original agreement was constructed
contemplating a cash sale of Advantage in a single private transaction
resulting in a one-time payment to the executives and a corresponding one-time
compensation charge. In the context of a public offering, however, Willis
Stein's liquidation of its investment over time might result in periodic
non-cash compensation charges to Advantage that could be unpredictable in
frequency and size. As a result, the agreement was amended and restated in
March 2002 in order to allow Advantage to record a one-time pretax, non-cash
compensation charge at the time of this offering. Under the amended and
restated agreement, at the time of this offering, Willis Stein will transfer
300,000 of its shares to an irrevocable grantor trust established for the
benefit of Mssrs. Lathrop, McGrail and Meagher and Ms. French. Since the
offering will trigger the executives' right to distributions from the trust,
applicable accounting rules require a one-time pretax, non-cash compensation
charge to be recorded at the time of the offering. Based on an assumed initial
offering price of $19.00, the midpoint of the range set forth on the cover of
this prospectus, Advantage will incur a $5.7 million charge in the quarter this
offering is consummated as a result of this agreement.

We anticipate incurring a one-time, noncash charge of approximately $1.4
million on the early extinguishment of debt and the redemption of preferred
stock with the proceeds of this offering. This relates to the write-off of
unamortized debt issuance costs and unearned compensation associated with
securities issued at the time of our February 1998 management buy-out.

Additionally, we anticipate incurring a charge totaling approximately $4.1
million in connection with the vesting of a portion of a warrant issued to
NEBS, of which $0.7 million will be incurred in the quarter ended May 30, 2002
and the remainder will be incurred upon the consummation of this offering. This
warrant contains two components--a performance-based portion that, in
accordance with its terms, will vest and become exercisable in connection with
this offering based on NEBS' performance under the alliance agreement in the
period leading up to this offering and a vested portion, currently exercisable
for 320,932 shares of our common stock. Both components of the warrant have an
exercise price of $12.67 per share. The purpose of the vested portion of the
warrant was to induce NEBS to purchase shares of our common stock in a separate
transaction. The purpose of the performance-based portion of the warrant was to
incentivize NEBS' performance under the alliance agreement. We currently
estimate that the performance-based portion of the NEBS warrant, which results
in the charge, will become exercisable for 641,863 shares. We believe that NEBS
will purchase the maximum number of shares it is entitled to purchase under the
vested portion and the performance-based portion of the warrant upon the
consummation of this offering. Any portion of the warrant not exercised in
connection with this offering will be canceled.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We invest on a daily basis client payroll funds in our possession, which we
hold from the time they are collected until they are remitted. We are exposed
to credit risk in connection with these investments through the possible
inability of borrowers to meet their obligations. We attempt to limit this
credit risk by investing primarily in securities with no less than an A rating
by Moody's and Standard & Poor's and in short-term funds. Our investment policy
guidelines limit the size and duration of our individual investments. We do not
utilize derivative financial instruments to manage interest rate risk.

Funds held for clients are comprised of short-term funds and
available-for-sale securities. As of February 22, 2002, our available-for-sale
securities consisted of approximately 97% U.S. government agencies, 1%
corporate bonds, 1% mutual funds and 1% other securities. Our
available-for-sale securities are exposed to interest rate risk, as interest
rate volatility will cause fluctuations in the market value of held investments
and the earnings potential of future investments. Decreases in interest rates
normally increase the market value of the available-for-sale securities, while
increases in interest rates decrease the market value of the available-for-sale
securities. Our available-for-sale securities and short-term funds are exposed
to earnings risk from changes in interest rates, as rate volatility will cause
fluctuations in the earnings potential of future investments. Decreases in
interest rates quickly decrease earnings from short-term funds, and over time
decrease earnings from the available-for-sale securities portfolio. Increases
in interest rates have the opposite earnings effect on the

available-for-sale securities and short-term funds. Earnings from the
available-for-sale securities do not reflect changes in rates until the
investments are sold or mature, and the proceeds are reinvested at current
rates. Realized gains or losses from transactions in our available-for-sale
portfolio may temporarily offset the immediate impact of changing interest
rates on earnings from short-term funds.

Calculating the future effects of changing interest rates involves many
factors. These factors include, but are not limited to, daily interest rate
changes, seasonal variations in investment balances and actual duration of
investments. Realized gains are more prevalent in a decreasing rate environment
and realized losses are more prevalent in an increasing rate environment. The
amount of client payroll fund assets and liabilities varies significantly based
upon the timing of collecting and remitting client funds to the applicable tax
authorities and client employees. As of February 2002, our client payroll fund
asset and liability balances were $169.0 million and $168.9 million,
respectively. The variance represents a mark-to-market reserve due to
fluctuating interest rates, which is reflected in stockholders' deficit.

As of February 22, 2002, our available-for-sale securities included net
unrealized gains of approximately $0.1 million, compared with a portfolio at
May 25, 2001 and May 26, 2000 that included net unrealized losses of
approximately $1.0 million and $2.4 million, respectively. As of May 26, 2000,
May 25, 2001 and February 22, 2002, we had approximately $36.1 million, $72.2
million and $95.5 million, respectively, invested in available-for-sale
securities at fair value, with weighted average yields to maturity of 6.1%,
6.3% and 6.1%, respectively.

As of February 22, 2002, a hypothetical decrease in interest rates of 25
basis points would result in the potential increase of the fair value of our
portfolio of approximately $1.6 million. Conversely, a corresponding increase
in interest rates would result in a comparable decrease in fair value. This
hypothetical decrease or increase in the fair value of the portfolio would be
recorded as an adjustment to the portfolio's recorded value, with a
corresponding amount recorded in stockholders' deficit, and with no related or
immediate impact to the results of operations.

The following table reflects the estimated exposure of net investment income
for the next twelve months due to an immediate shift in forecasted investment
return rates. Estimated exposures set forth below are dependent on material
assumptions such as those previously discussed.

Rate of Return Change (basis point) Estimated Exposure to Net Investment Income
- ----------------------------------- -------------------------------------------
+200 $1.5 million
-200 ($1.5) million

The recent trend in interest rates has been toward interest rate reductions
versus interest rate increases during fiscal 2001. The following table
summarizes the changes in the federal funds rate over the last three years:

1999 2000 2001 2002
---- ---- ----- -----

Federal funds rate--beginning of fiscal year 5.50% 4.75% 6.50% 4.00%
Rate increase (decrease):
First quarter............................ -- .50 -- (.50)
Second quarter........................... (.75) .25 -- (1.50)
Third quarter............................ -- .25 (1.00) (.25)
Fourth quarter........................... -- .75 (1.50) --
---- ---- ----- -----
Federal funds rate--end of fiscal year...... 4.75% 6.50% 4.00% 1.75%

Debt Obligations

Our exposure to interest rate risk also arises from the variable rates
associated with our borrowings. As of February 2002, we had total borrowings of
$39.5 million bearing variable interest rates. As of February 2002, an adverse
change of 1.0% in the interest rate would have caused us to incur a change in
interest expense of

approximately $0.4 million on an annual basis for all borrowings outstanding
bearing interest at variable rates for the twelve month period ended February
2002.

Effects of Inflation

The impact of inflation on our operations has not been significant in recent
years. However, we cannot assure you that a high rate of inflation in the
future would not have an adverse effect on our operating results.

Recent Accounting Pronouncements

During fiscal 1999, the Financial Accounting Standards Board, or FASB,
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an
asset or liability measured at its fair value and changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. We adopted SFAS 133 as of the beginning of fiscal 2002. There
was no impact on our financial statements.

In June 2001, the FASB finalized SFAS No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires the use of
the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations. SFAS 141
also requires the recognition of acquired intangible assets apart from goodwill
if the acquired intangible assets meet certain criteria. SFAS 141 applies to
all business combinations initiated after June 30, 2001 and for purchase
business combinations completed on or after July 1, 2001. It also requires,
upon adoption of SFAS 142, that the reclassification of the carrying amounts of
intangible assets and goodwill shall be based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires the identification of reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at the date, regardless of when those assets were
initially recognized. SFAS 142 requires a transitional goodwill impairment test
six months from the date of adoption. We will also be required to reassess the
useful lives of other intangible assets within the first interim quarter after
adoption of SFAS 142.

We adopted SFAS 142 as of the beginning of fiscal 2002. We performed an
initial impairment test of goodwill and determined that no impairment of
recorded goodwill existed. Additionally, we have not recorded any amortization
expense associated with recorded goodwill during fiscal 2002. During fiscal
2001, 2000 and 1999, we recorded $1.6 million, $0.7 million, and $0.5 million,
respectively, of amortization expense related to recorded goodwill.

In June 2001, the FASB approved the issuance of SFAS No. 143, "Accounting
for Asset Retirement Obligations." SFAS 143 establishes accounting standards
for the recognition and measurement of legal obligations associated with the
retirement of tangible long-lived assets. SFAS 143 will become effective for us
at the beginning of fiscal 2003 and requires recognition of a liability for an
asset retirement obligation in the period in which it is incurred. We are in
the process of evaluating the impact this standard will have on our financial
statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. We are in the process of
evaluating the impact this standard will have on our financial statements.

BUSINESS

The following description of our business should be read in conjunction with
the information included elsewhere in this prospectus.

Overview

. calculating, collecting and disbursing their payroll funds;

. remitting payroll taxes;

. preparing and filing all associated tax returns; and

. offering a wide range of ancillary products and services, including human
resource information software, employee benefit services and workers'
compensation premium billing.

We were founded in 1967 and were acquired through a management buy-out in
February 1998 by an investor group led by our Chief Executive Officer, Charles
W. Lathrop, Jr., and Willis Stein & Partners, L.L.C., a private equity firm
based in Chicago, Illinois. Prior to our management buy-out, we marketed our
products and services primarily through a network of associate offices. Our
relationship with these associate offices is governed by a license agreement,
which, among other things, prohibits the associate offices from distributing
products and services other than our own, and a comprehensive policies and
procedures manual. Our license agreements with our associate offices expire
between September 2003 and September 2009, and are renewable at the option of
the associate office for at least one additional ten-year term. This
distribution model is based on the same division of responsibilities as we have
with our direct offices. Our associate offices are responsible for selling and
marketing our products and services in their assigned territory and interacting
directly with clients to perform defined operational functions in connection
with the delivery of our products and services. We perform all other services,
including all centralized back-office functions, and maintain a direct
contractual relationship with the client. We bear all credit risk associated
with these contracts. We pay our associate offices a commission based on the
revenue generated and retain all investment income on the collected but
unremitted payroll funds. Subsequent to our management buy-out, we purchased
all but 15 of our associate offices, which has contributed to our shift to a
direct sales model, developed a direct national sales force, expanded the scope
of our services and increased our national presence through strong organic
growth and selected strategic acquisitions. We may in the future purchase our
remaining associate offices from time to time should the opportunity arise.

As part of our growth strategy, we intend to:

. further expand our sales force and increase its productivity;

. enter new geographic markets throughout the United States;

. provide additional ancillary products and services to new and existing
clients;

. penetrate the market for mid-sized businesses; and

. acquire compatible client bases on an opportunistic basis.

Our target market of small to mid-sized businesses lends itself to
outsourcing because payroll processing and related services are often too
complex and costly for these businesses to administer internally. Outsourcing
allows these businesses to focus on their core competencies thereby increasing
their overall productivity. According to industry sources, small businesses
have a lower penetration rate for outsourced payroll processing services than
larger businesses and are increasingly using these services. We believe that
our significant investments in a well-trained work force, national office
network and scalable computer technology have enabled us to deliver a broad
array of timely and accurate payroll processing and related services and
positioned us to capitalize on this continuing outsourcing trend.

We serve a growing and diverse client base of small to mid-sized businesses
located in all 50 states. As of February 22, 2002, we provided services to
approximately 44,500 clients, who process an average of 15 checks or direct
deposits each pay period. We believe we are the nation's third largest payroll
processing provider for small businesses based on the number of clients we
serve. We serve our clients through a network of 41 local offices in 26 states.
Our top 50 clients represent less than 3.7% of our payroll revenue, with no
single client representing more than 0.4% of payroll revenue. In addition, our
clients operate in a broad range of industries. As a result, our sales are not
concentrated with any particular client or in any particular industry or region.

Over our 35-year history, we have placed a priority on developing and
maintaining a high level of client service. We believe that our level of client
service differentiates us from our competitors. Our reputation for excellent
client service is in part due to our focus on maintaining a well-trained work
force. We believe that we maintain one of the industry's highest ratios of
certified payroll professionals, or CPPs, to clients. Our service-orientation
also fosters innovation on the part of our employees. We were one of the first
in the payroll processing industry to provide complete federal, state and local
tax filings for our clients. In addition, for years we have offered "bundled"
services whereby we provide our clients with tax filing and direct deposit
services as part of our basic payroll processing package. Our well-trained work
force and our service-orientation are key factors that have contributed to our
success in attracting and retaining clients. Our client retention rate was
approximately 93%, net of business failures and ownership changes, and 85%
overall for the twelve-month period ended February 22, 2002.

Industry Background

Businesses in the United States are increasingly outsourcing non-core
functions in order to reduce costs and improve service, quality, efficiency,
productivity and convenience. Demand for outsourced employee administration
services has grown significantly and is expected to continue growing over the
next several years. According to Gartner Group Inc., a national research data
provider, U.S. corporate spending on outsourced payroll processing and tax
filing services was $7.2 billion in 2000 and is expected to grow to $16.7
billion by 2005, a five-year compound annual growth rate of 18.4%.

The market for payroll processing and related services can generally be
classified based on the size of the business in terms of the number of
employees. The following table sets forth certain information relating to the
market:

Estimated Outsourced
No. of Approximate No. of Payroll Processing
Size Employees U.S. Businesses(1) Penetration(2)
---- ------------- ------------------ --------------------

Small.... 1-99 10,405,373 15% or less
Mid-Sized 100-999 139,833 40-50%
Large.... 1,000 or more 16,990 50-60%

- --------
(1)Based upon Dun & Bradstreet reports as of January 2002.
(2)Management estimates based on industry data.

Payroll processing and employee administration are non-core functions
well-suited for outsourcing, particularly by small to mid-sized businesses.
They involve increasingly complex and changing tasks, including tracking
employee information, calculating payroll, producing paychecks and direct
deposits, remitting and filing payroll taxes and generating management reports.
Outsourcing these discrete tasks allows them to be performed more efficiently
and at a lower cost than performing them internally. In addition to reducing
payroll processing costs and administrative burdens, we believe that
outsourcing minimizes businesses' compliance risks associated with increasingly
complex and changing federal, state and local tax regulations and
administrative requirements. Compliance requires a dedicated staff with the
requisite knowledge to accurately calculate taxes for multiple federal, state
and local government agencies, collect wage garnishments based on different
state laws and make numerous agency filings. Few small to mid-sized businesses
can afford to maintain the expertise needed to keep up with these complex and
changing regulations.

We believe that our industry's need for payroll tax and regulatory
expertise, combined with the requirement of initial and ongoing investments in
information systems, create a substantial barrier to entry in the industry. In
recent years, payroll processing and employee administration services have
increased in complexity due to continual changes in regulations and
increasingly sophisticated employee benefit plans. In addition, payroll and
employee administration systems must keep pace with rapidly evolving business
operations as clients increase in size, expand geographically and add new
operations. Further, these systems must be flexible and scalable to enable
integration with increasingly advanced computer systems as clients adopt new
technologies. Developing the expertise and infrastructure needed to effectively
compete in this industry on a national basis requires a substantial investment
in time and money that presents significant obstacles to potential entrants.

We believe that the small business portion of the payroll processing market
is particularly attractive because:

. the market is large and has a low penetration rate of outsourced payroll
processing and related services;

. small businesses generally do not require customized solutions;

. small businesses generally have fewer in-house resources than larger
businesses and, as a result, are generally more dependent on their
outsourced service provider; and

. the quality of service, ease of use and responsiveness to clients' needs
are the primary considerations of small businesses.

Our Solution

We believe we are well-positioned to capitalize on the continuing trend of
outsourcing payroll processing and employee administration services by small to
mid-sized businesses. We have designed a high-quality and cost-effective
business solution for the small to mid-sized market. Our solution to meeting
our clients' outsourcing needs includes the following:

. timely and accurate outsourced payroll processing and related services;

. well-trained client service representatives who are experienced and
responsive;

. flexible, scalable and redundant information technology systems;

. a broad array of service offerings in a cost-effective format; and

. a relationship-oriented approach to meet our clients' changing needs.

Our Business Strategy

We are dedicated to continuing to provide premier products and services to
our clients throughout the United States. Our objectives are to offer our
clients the industry's highest quality of service and to develop and implement
comprehensive and fully integrated service packages to best meet the ongoing
needs of our clients. In order to achieve our objectives, we have implemented
the following business strategies:

Provide Premier Service. We believe clients choose their payroll processing
provider based primarily upon the quality of the service provided. We are
committed to providing high-quality services to our clients, including timely
and accurate payroll and tax filing services. We provide extensive training to
our employees and recruit experienced and knowledgeable payroll tax and
regulatory experts. We believe that we maintain one of the highest ratios of
CPPs to clients in the industry. Further, we have built a flexible and
redundant back-office infrastructure in order to better meet the changing needs
of our clients and to ensure that we maintain the continuity of our services at
all times. We believe that our ability to consistently deliver high-quality
services affords us a competitive advantage in our industry and is a key factor
in enabling us to achieve net client retention rates of 93%, earn high client
satisfaction ratings and allow our direct sales force to generate more than 80%
of their sales from referrals.

Offer the Best Value. We believe clients also seek a compelling value and
comprehensive service offering when selecting a payroll processing provider. By
bundling our core service offerings, we offer our clients payroll processing
and related services at competitive prices. We plan to continue to develop
innovative and profitable services that deliver value to our clients and
increase penetration of ancillary services.

Capitalize on Economies of Scale While Maintaining a Strong Local Presence.
The payroll processing business benefits from significant economies of scale,
resulting in lower processing costs per client as the client base grows. To
maximize scale efficiencies, we use a centralized back-office infrastructure to
provide requisite tax and regulatory expertise and technological support to
determine payroll calculations, pay and file payroll taxes, handle taxing
agency notices and inquiries and manage banking relationships. At the same
time, we develop personal client relationships by using local offices to
establish and maintain new and existing client relationships. Our local offices
provide ongoing client service support and training, as well as print and
distribute payroll checks and reports. We believe there is significant
opportunity to benefit from increased efficiency in our current operations as
we continue to add new clients and realize the benefits of integrating newly
acquired clients.

Enhance Referral Relationships. The payroll processing business is largely a
referral-based business. We are committed to enhancing and maintaining our
referral relationships, which generate more than 80% of our new clients. We
recruit and hire sales representatives with business-to-business sales
experience and focus on the development of referral relationships with
accountants, banks and other business-to-business networks. We also obtain a
significant number of referrals from satisfied clients.

Our Growth Strategy

We believe we have significant opportunity for continued strong organic
growth. We have experienced organic growth in payroll service revenue of 22.6%
and 25.1% during fiscal 2001 and the nine months ended February 22, 2002,
respectively. This strong organic payroll revenue growth has been complemented
by several strategic acquisitions resulting in overall compound annual growth
rates of 39.4% and 53.7% for the same periods. For more information about these
acquisitions, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Acquisition History." Since our management buy-out
in February 1998, we have grown our total payroll service revenue, excluding
investment income, at a compound annual growth rate of 46.1%. Key elements of
our growth strategy include:

Expand Direct Sales Force. Sales force expansion is a highly effective and
cost-efficient means of growth due to the direct correlation between new sales
and the number of sales representatives. We have grown our direct sales force
from 2 to 139 sales representatives since February 1998 and plan to continue to
actively expand in both existing and new markets.

Increase Sales Force Productivity. Our profitability is, in part, driven by
the productivity of our sales force. We measure the productivity of our sales
force by the number of new clients obtained and the number of referral
relationships generated. The productivity of our sales force increases with the
tenure of our sales representatives. As a result of our recent rapid sales
force expansion, the average tenure of our sales force is less than 1.4 years.
By contrast, we believe the average tenure of the sales forces of our two
largest competitors is significantly longer. The small business accounting
community is the primary focus of our sales representatives and a major source
for referrals. Since professional referrals play such an important part of our
new business generation, we expect our sales force to experience significant
productivity gains as their referral networks mature. During calendar year
2001, sales representatives completing a second twelve-month period of
employment were on average 58% more productive during that twelve-month period
than the sales representatives completing their first twelve months of
employment. As a result, our relatively new sales force represents a
significant source of future increases to our productivity and profitability.

Enter New Geographic Markets. We have significantly expanded our national
presence by opening local offices in major markets throughout the United
States. We currently have offices in 27 of the 40 largest

metropolitan markets in the United States. In order to meet the growing demand
for our services, we intend to continue opening local offices in additional
markets and have identified over 20 additional markets suitable for potential
expansion over the next few years. The new markets we identified are generally
in or near major metropolitan areas where significant small business growth is
present. Over the past four years, we have opened seven new offices and
established a sales-only presence, or company-owned offices staffed only with
sales representatives, in three additional markets.

Provide Ancillary Products and Services. Ancillary products and services
significantly increase the profitability of a client, drive revenue growth and
increase client retention. We have recently increased our emphasis on
cross-selling ancillary products and services to both new and existing clients.
Our ancillary products and services include: Section 125 Premium Only Plans,
Workers' Compensation Premium Billing, New Hire Reporting, HR Counselor(R) and
the Advantage401(k)(R). At present, over 80% of our clients have adopted
New Hire Reporting, while less than 5% of our clients have purchased our other
ancillary products and services.

Penetrate the Mid-Market. We define mid-sized businesses as businesses with
100 to 999 employees. By expanding our ability to serve the mid-market, we gain
access to both a new market as well as the ability to grow with our clients as
they expand their employee bases. Although we currently have more than 1,000
clients with 100 or more employees, we have traditionally concentrated our
marketing and product development efforts on clients with less than 100
employees. With the consummation of a recent strategic acquisition, we enhanced
our ability to market to and service mid-sized businesses. This mid-market
service model, sold and delivered by our dedicated mid-market group, is now
available to our clients and prospects nationwide.

Continue to Pursue Strategic Relationships and Opportunistic Acquisitions.
In order to expand our presence in existing markets and enter new markets, we
are actively pursuing strategic relationships with other businesses that serve
our potential clients. These relationships can take the form of referral
relationships, preferred provider relationships or private label payroll
programs. In addition to our strategic relationships, we have consummated
several acquisitions that have increased our presence in existing markets and
established our presence in new major markets. Since our management buy-out, we
have acquired several payroll businesses, adding over 16,000 new clients to our
client base. We intend to continue to pursue strategic relationships and
acquisition candidates on an opportunistic basis as a cost-effective means of
increasing our presence in existing markets, building scale, acquiring new
products and entering new markets.

Products and Services

We provide payroll processing and employee administration services to small
and mid-sized businesses. We specialize in providing our clients with timely,
accurate and cost-effective payroll processing and related products and
services. Our flexible and responsive products and services alleviate various
employment-related administrative burdens for our clients and the risks
associated with complying with increasingly complex and changing federal, state
and local tax regulations and withholding requirements, allowing them to focus
on their core competencies. The following is a description of our products and
services:

Payroll and Tax Filing Services. Our payroll processing and tax filing
services include calculating and processing client checks and direct deposits,
signing and sealing payroll checks, generating standard management reports and
providing code compliant tax services. We offer our core services, i.e.,
payroll processing and tax filing services, in bundled packages at competitive
prices. As a result of our bundling approach, approximately 93% of our payroll
processing clients also use our tax filing services and approximately 55% use
our direct deposit services.

As a part of our payroll processing and tax filing services, we receive
employee earnings, tax and deduction information from the client, then apply
federal, state and local payroll and tax regulations, such as those related to
unemployment and FICA, to calculate employee net pay. We then debit the
client's account by an amount equal to net pay plus payroll taxes, our fees and
any other deductions that the client elects to have us process.

Finally, we pay the client's employees by check or direct deposit, remit taxes
and file any applicable tax forms with the appropriate tax agency and transfer
various deductions to appropriate third parties. For example, we provide
quarterly preparation and filing with respect to 941 Federal Tax Returns, state
withholding, state unemployment returns, and annual preparation and filing on
Forms W-2, W-3, 1099 and 1096 and in connection with 940 FUTA Returns and 945
Accounts and Schedule H.

We offer our clients, for an additional charge, various reports, special
delivery options and additional services, such as general ledger and deferred
compensation reports, workers' compensation reports, FICA Tip Credit Reporting
and vacation and/or sick accrual reports, and payroll reports reflecting the
distribution of an employee's labor among jobs, department and division
summaries, labor/job costing. We also offer interfaces to many accounting
software products, time and attendance systems and qualified benefit plan
administrators.

Clients can choose to contact us and submit information through a variety of
means, including:

Method Description
- ------ -----------

Phone Clients can call their customer service representative directly to
communicate payroll data.

Fax Timesheets pre-printed with employee data are provided for each
payroll. Clients then complete payroll data specific to that pay period
and fax it to their customer service representative.

Electronic Timesheet Clients using this method are regularly emailed an electronic
spreadsheet populated with employee data that they complete and
submit electronically to our payroll processing system.

Instant Payroll(R) Clients that use Instant Payroll(R) input and manage their payroll data
directly via the Internet at their convenience and the related payroll
calculations are completed in seconds.

Advantage Payroll(R) for Windows Clients using this method load our Windows(R) based payroll
application on their desktop PC at no additional charge. Clients input
and manage their payroll data with this software and transmit that
data to us via modem.

All clients can access their reports at any time over the Internet and have
the option of receiving their checks, direct deposit advice and printed reports
by a variety of methods. Sales of our payroll and tax filing services and
related products, not including revenue from ancillary products and services,
represented 87.1% of our revenue for the nine months ended February 22, 2002.

Ancillary Products and Services. We provide our clients with access to a
variety of ancillary products and services, either directly or through
arrangements with third-party providers. Integrating these ancillary products
with our payroll processing services provides increased convenience and value
to our clients and recurring revenue streams and productivity to us. The
ancillary products and services that we frequently integrate with our other
products and services include:

Product or Services Description
- ------------------- -----------
Services

Section 125 Premium Only Plans We ensure proper compliance and reporting, on behalf of our clients,
under Section 125 of the Internal Revenue Code. Premium Only
Plans allow employees to make tax-free contributions to their group
benefits plans. Employers and employees benefit by not having to
pay payroll taxes on these pre-tax deductions.

Workers Compensation Premium Billing Our workers' compensation premium billing service allows us to
calculate and collect the workers' compensation premiums of
participating clients, then remit the premium to the applicable third-
party insurance carrier for which the insurance company pays us a
fee. This allows our clients to avoid paying an up-front premium
deposit and eliminates or reduces audit adjustments at the end of the
policy period.

Product or Services Description
- ------------------- -----------
Services

New Hire Reporting We assist our clients with proper compliance and reporting under
The Welfare Reform Act of 1996, which requires all employers to
report new hires to the appropriate state agency.

Electronic Payment of Corporate Federal Payroll clients who are required to pay their income, excise or other
Tax federal taxes electronically may elect to have us process those
payments on their behalf.

Products

Payroll Checking Account--The Clients can choose to have their payroll checks and direct deposits
Advantage Check(R) paid out of an Advantage checking account and have us debit their
account once for the entire amount. Benefits include the avoidance
of account reconciliation, elimination of bank check clearing charges
and increased confidentiality.

HR Counselor(R) HR Counselor(R) assists our clients in managing all aspects of their
human resource and benefits administration functions and provides a
single point of entry for all data shared by HR Counselor(R) and our
payroll system. HR Counselor(R) is an easy to use human resource
information system, or HRIS, that is available as a PC-based application
that integrates with our Windows(R) payroll product, or as an Internet
based application that integrates with our Instant Payroll(R) product.

Advantage401(k)(R) We offer our clients' employees access to an outside 401(k) plan.

Sales Channels

We offer and distribute our core products and services through several sales
channels. Each of the sales channels depends significantly on our sales
representatives' ability to develop referral relationships. All service
contracts, regardless of sales channel, are between us and the client, and
neither the associate offices nor the private label sponsor is party to
them. We are responsible for the design, specification and delivery of products
and services for all sales channels. Further we bear all credit risk associated
with these contracts. Our primary sales channels include:

Direct Sales Force. We employ direct sales representatives to focus on the
development of referral relationships with accountants, banks and other
business-to-business networks and, in the event of a referral, to develop the
client relationship. We recruit and hire sales representatives with
business-to-business sales experience and prefer candidates with payroll
experience. Our 139 direct sales representatives operate out of local offices
located generally in major metropolitan areas. We typically assign one field
sales representative for every 8,000 to 10,000 small businesses and 100
certified public accountants in that representative's territory. Our direct
sales representatives are supported by certified public accountant relationship
building programs, bank referral fee programs, direct marketing materials, our
web site and public relations efforts. Our certified public accountant
relationship building program consists of providing targeted certified public
accountants with educational materials, access to our payroll tax experts and
promotional materials in order to encourage them to recommend our services to
their clients. When entering a new market, we typically increase the presence
of these programs and materials and conduct a focused accountant media
campaign. In the mid-market group, we depend primarily on client referrals,
networking, telemarketing and referrals from our small market sales
representatives to generate business. For the nine months ended February 22,
2002, our direct sales force contributed to the generation of 62.8% of our new
clients, compared to 11.9% in fiscal 1998.

Associate Network. Prior to our February 1998 management buy-out, we
primarily relied on a network of associate offices for sales, marketing and
client interaction. Since our management buy-out, we have purchased the
majority of our associate offices from their prior owners, which has
contributed to our shift to a

direct sales model. The 15 remaining associate offices are located primarily in
second and third-tier markets. We may in the future purchase these offices from
time to time should the opportunity arise. Our relationship with these
associate offices is governed by a license agreement, which prohibits, among
other things, the associate offices from distributing products and services
other than our own, and a comprehensive policies and procedures manual. Our
license agreements with our associate offices expire between September 2003 and
September 2009, and are renewable at the option of the associate office for at
least one additional ten-year term. This distribution model is based on the
same division of responsibilities as we have with our direct offices. Our
associate offices are responsible for selling and marketing our products and
services in their assigned territory and interacting directly with clients to
perform defined operational functions in connection with the delivery of our
products and services. We perform all other services, including all centralized
back-office functions, and maintain a direct contractual relationship with the
client. We bear all credit risk associated with these contracts. We pay our
associate offices a commission based on revenue generated and retain all
investment income on the collected but unremitted payroll funds. We support our
associate offices by providing, among other things, all centralized back-office
processing, tax filing and ACH processing functions and product development, as
well as by developing marketing materials, training programs and business
generation programs. The license agreement also prohibits associate offices
from moving clients off the Advantage processing system. Under the license
agreements, we maintain control over the operations of our associate offices
and have a right of first refusal in connection with the sale of an associate
office. In order to maintain quality control over our associate offices, we
have promulgated a continually updated operational procedures manual of over
400 pages, which details the standards, policies and procedures under which our
associate offices must operate. The license agreements require strict adherence
to these standards, policies and procedures. Among other things, we have the
right to make periodic inspections of our associate offices, monitor compliance
and review operational and financial performance. Under the license agreements,
we have the right to require upgrades to their infrastructure to improve their
performance when necessary. In addition, we provide ongoing advice and counsel
both from an operations and sales perspective to our associate offices. For the
nine months ended February 22, 2002, our associate network contributed to the
generation of 20.6% of our new clients.

Private Label. We offer our products and services through a private label
relationship with NEBS, a manufacturer and distributor of business supplies to
small businesses. NEBS is also one of our significant stockholders. We perform
all functions other than sales and marketing under NEBS' labels. Under a
ten-year agreement, NEBS sells payroll services to their new and existing
clients under their labels through their approximately 270 sales
representatives. These clients are then serviced by a dedicated processing
office. NEBS has approximately 2.3 million active customers located in the
United States. We pay NEBS a commission based on the services they perform and
retain all investment income on tax withheld. For the nine months ended
February 22, 2002, our relationship with NEBS contributed to the generation of
16.6% of our new clients. We also have other private label arrangements,
primarily with small certified public accounting firms, and will continue to
pursue other similar relationships in the future.

Telecenter. We have established a telecenter in Sarasota, Florida to assist
us in offering our products and services to potential clients in markets not
serviced by one of our local offices. Interest in our products and services
generated from our web site, Internet marketing and other relationships is
channeled through the telecenter for immediate handling. If the telecenter
representative consummates a sale with a client over the phone, the client's
payroll information is collected by fax or mail and the client is assigned to
the closest appropriate office for ongoing payroll processing. If a sale is not
consummated over the phone, the prospective client is assigned to the closest
appropriate sales office for further discussions regarding our products and
services.

The Internet. Our web site, www.advantagepayroll.com, provides additional
access to our services for potential payroll clients nationwide. The Internet
allows us to market to clients in remote areas. These clients can read about
our services online and sign-up for our products by downloading forms and
speaking with our telesales representatives. We purchased the right to be
listed first among payroll service providers on Verizon Information Services'
SuperPages.com. According to Verizon, SuperPages.com is the Internet's number
one ranked online directory.

Referral Relationships

Our professional referral relationships generate more than 80% of our new
clients, while cold calling, telemarketing, the Internet, the Yellow Pages and
direct mailings generate the remainder. For the nine months ended February 22,
2002, sources of new clients primarily fell within the following categories:

Sources of New Clients

% of Total
Source Sources
------ ----------

CPA Referrals.......... 44%
Client Referrals....... 20
Bank Referrals......... 10
Other Referrals........ 8
Cold Call/Telemarketing 8
Yellow Pages/Other..... 6
Internet............... 4
---
Total............... 100%

Certified Public Accountants. Building referral relationships in the small
business accounting community is the primary focus of our sales
representatives. It is common in the industry for certified public accountants
to refer their clients to a payroll processor so that their clients can focus
on their core competencies. As trusted advisors, accountants have considerable
influence over their clients' decisions. This dynamic creates tremendous
leverage for a sales representative who has formed an ongoing relationship with
the certified public accountant in his or her territory. Accordingly, the
development of these relationships is the primary driver of productivity growth
for a sales representative in a new territory.

Clients. Our satisfied clients frequently recommend our services to other
business owners. We believe that our payroll clients recognize the benefits of
outsourcing payroll processing to a service provider with a history of
providing timely and accurate payroll and related services and successfully
interacting with governmental agencies. As a result, our satisfied clients
often recommend our "payroll service solution" to other business owners.

Banks. While all sales representatives solicit bank branches in their
territory for referrals, we also have formal referral agreements, which include
revenue sharing components, with three major regional banks: Union Bank of
California, N.A., Banknorth Group, Inc. and Union Planters Bank, N.A. Under
these referral agreements, our products and services are among the approved
products and services recommended by bank employees. In addition, our referral
agreements provide incentives to bank employees encouraging them to refer their
clients to us. Referrals resulting from these relationships are directed to a
local sales representative as we have local offices in the vicinity of all
three banks.

Other Referrals. We also have informal referral relationships with
attorneys, insurance agents, bookkeepers, Chambers of Commerce and other
groups. While these referral relationships generate less new business than
referral relationships with certified public accountants and banks, these
informal arrangements augment our sales representatives' total marketing plan.
In addition, we have had a relationship with BJ's Wholesale Club, Inc., a
leading discount warehouse retailer, for over two years pursuant to which we
provide payroll services to BJ's business customers. Under this written
agreement, BJ's recommends our services to their clients and distributes
marketing materials in exchange for a commission. While BJ's strong marketing,
brand and client relationships influence customers to purchase our payroll
processing products and services, we maintain control over the actual sales of
our products and services. We intend to continue to seek similar distribution
arrangements with other potential partners.

Operations

We maintain distinct but integrated payroll, tax processing, ACH processing
and investment operational areas to ensure that we can provide complete and
comprehensive payroll processing and tax filing services to our clients. Each
area performs functions to ensure complete client service, internal control of
data and accountability

for accurate and audited client tax files. These areas are sufficiently
centralized to allow us economies of scale in maintaining functional expertise.
We use technology to ensure ongoing operational ability and efficiency. The
following describes each of our operational areas and our technology support:

Payroll. Payroll hours and employee data are received by our local branch
office by fax or phone communication from the client and keyed into the payroll
system. The client's data is then transmitted to our corporate office for
central processing. In the case of Instant Payroll(R) clients and Windows(R)
clients, data files are transmitted directly to our corporate office. All
calculations are performed centrally. Completed files are transmitted back to
the local office for the printing of payroll checks and management reports and
delivery to the client. Files containing payroll check numbers are again
transmitted back to our corporate office, thus creating a complete history of
the transactions in both offices. Although client payroll is processed based on
a predetermined schedule, we have the ability to process special or bonus
payroll to meet our clients' needs.

Tax. Our corporate office maintains and processes all of the control files
necessary for the proper taxation of wages and calculation of tax deposits. Our
tax system is updated daily based on information provided by our payroll tax
and regulatory experts and performs all the necessary tax payment calculations.
The preparation of quarterly payroll tax returns and the reconciliation and
reporting of wages and tax payments is accomplished at our corporate office
using our integrated document management system. Our clients receive copies
and/or summary information regarding the quarterly activity processed on their
accounts. The tax processing department audits the system-calculated tax
payments and prepares necessary documents to meet the remittance requirements
of each taxing jurisdiction. The exchange of tax information between us and the
tax agencies is accomplished through various mediums such as electronic funds
transfer, electronic data interchange, magnetic tape and paper reports and
checks.

Our tax department is the focal point for the dissemination of information
received from or sent to tax agencies. This department monitors all tax law
changes and implements them in our payroll and tax systems. An auxiliary
function of the compliance department is the management of all new hire
reporting to all states for clients selecting this option. We have developed
good relationships with government agencies, which are important in maintaining
our reputation as a high-quality provider of payroll services. We are actively
involved in several industry groups, including the board of the National
Payroll Reporting Consortium, the American Society of Payroll Managers'
Government Affairs Committee and the American Payroll Association's Government
Affairs Task Force.

ACH Processing. Our ACH processing department generates all of the ACH files
necessary to credit employee direct deposit transactions, collect the payroll
fees from our clients' accounts and move money to fund bank accounts owned by
us to cover issued checks. Our corporate office accounts for and distributes
client funds. Clients may elect to use their business account or Advantage
owned checks to pay employees. We maintain business checking accounts in the
geographic area of each local office to enable checks to be written from a
local financial institution. Within this department, our credit department is
responsible for the processing of all collection activities. Through electronic
fund transfers, we collect payroll taxes to be remitted to governmental
agencies, monies to fund both direct deposits and client checks drawn on our
accounts and fees. In order to mitigate credit risk, we have the contractual
right to offset any unpaid funds with monies escrowed for tax or other purposes.

Investment. Our investment department invests on a daily basis client
payroll funds in our possession, which we hold from the time they are received
until they are disbursed. Our board of directors has adopted an investment
policy which provides guidelines for the quality, maturity and diversification
of our invested funds and is intended to maintain liquidity and minimize market
value fluctuations. Under this investment policy, investments are limited to
fixed income securities consisting of money market instruments (including money
market funds), U.S. government securities and corporate instruments rated A or
higher by Moody's and Standard & Poor's. In order to maintain diversification,
no more than 5.0% of our portfolio may be invested in an individual position,
with the exception of the U.S. treasury or U.S. agencies. Our policy prohibits
investments or trading in commodities, equities, direct loans, illiquid
mortgages, futures, limited partnerships, venture capital, short sales or
similar transactions. We measure the performance of our investments on a
monthly basis. To the extent our investments cease to conform to our investment
policy, they are liquidated over a reasonable period of time. The interest
revenue or realized gains (and losses) that accrues from these investments is
solely to our

benefit and used to fund operating expenses, unforeseen and future
contingencies and to provide working capital. Our investment department will
monitor our investment securities to ensure that the fair value of such
securities (excluding cash items, U.S. government securities and money market
funds) does not exceed 40.0% of our total assets (excluding cash items, U.S.
government securities and money market funds).

Technology and Disaster Recovery. Technology plays an integral part in
ensuring operational efficiency. We have made significant investments in
disaster recovery and business continuity programs to ensure constant
availability of systems, data and communications, and have taken measures to
ensure rapid recovery of data and communications in the event of unplanned
outages at our corporate office or local offices. The data center at our
corporate office has security-restricted access, raised flooring, independent
air conditioning, constant power supplies, a back-up generator and fire
suppression capabilities. A fully equipped alternate data center with redundant
servers is located 34 miles from our headquarters and is on a separate power
grid. All primary systems are backed-up daily and downloaded onto the redundant
system. In addition, we have retained SunGard to provide disaster recovery
services and to assist us in implementing a disaster recovery plan.

Clients

We serve our clients through a network of 41 local offices in 26 states. Our
clients are generally located in relative close proximity to one of our local
offices. The following table demonstrates the geographic diversity of our
client base:

Percent of Clients by Region as of February 22, 2002

U.S. Region % of Total Clients
----------- ------------------

Northeast... 30%
Southeast... 21
West........ 19
Central..... 18
Mid-Atlantic 12
---
Total.... 100%

In addition, our clients operate in a broad range of industries and, as a
result, our sales are not concentrated in any particular industry. The
following table shows the distribution of our clients by industry group as
compared to the economy as a whole:

Industry Advantage (1) D&B (2)
-------- ------------- -------

Services........................... 47.2% 41.3%
Retail Trade....................... 18.5 19.2
Finance, Insurance and Real Estate. 10.0 8.6
Manufacturing...................... 7.7 5.3
Construction....................... 6.7 8.9
Wholesale Trade.................... 3.7 5.6
Transportation and Public Utilities 2.8 4.3
Agriculture, Forestry and Fishing.. 2.0 5.1
Public Administration.............. 0.8 1.4
Mining............................. 0.6 0.3
---- ----
Total........................... 100% 100%

- --------
(1)As of December 31, 2001.
(2)Based upon the number of U.S. businesses in the various industry categories
as measured by Dun & Bradstreet as of January 2002.

We believe that our high-quality, responsive and professional client service
are key factors in enabling us to achieve client retention rates of
approximately 93%, net of business failures and ownership changes, earn high
client satisfaction ratings and allow our direct sales force to generate more
than 80% of their sales from referrals.

Competition

The market for payroll processing services is highly fragmented. Our
principal national competitors are ADP and Paychex, which have considerably
larger client bases. We also compete with over 1,600 local and regional payroll
processing service providers. In addition to competition from traditional
payroll companies, we compete with the in-house resources of our clients and
professional employer organizations that combine the payroll function with
insurance, benefits and other administrative and human resource functions.

We compete for clients on the basis of quality service, timely and accurate
performance, requisite skills, scope and price of services, and geographic
reach of services. We believe that our high-quality, responsive and flexible
client service and bundled service offerings differentiate us from our
competitors.

Properties

Our corporate headquarters are located in a company-owned 30,000 square foot
facility in Auburn, Maine from which we also process payroll and perform
related administrative services. We also own a 17,000 square foot facility in
Rock Hill, South Carolina.

We maintain company-owned offices in the following locations, each of which
are located in space occupied under lease:

Phoenix, Arizona (sales-only)
Tucson, Arizona
Los Angeles, California (sales-only)
Oakland, California
Orange County, California
San Diego, California
Denver, Colorado
Hartford, Connecticut
Ft. Lauderdale, Florida
Orlando, Florida
Sarasota, Florida
Atlanta, Georgia
Chicago, Illinois
Portland, Maine
Baltimore, Maryland
Westwood, Massachusetts
Portsmouth, New Hampshire
Wayne, New Jersey
Charlotte, North Carolina
Ft. Washington, Pennsylvania
Charleston, South Carolina
Dallas, Texas
Burlington, Vermont
Milwaukee, Wisconsin (sales-only)

We anticipate that our rights under these leases, as well as our owned
property, will be pledged to the lenders under our new revolving credit
facility.

Our associate offices are located in the following cities. Our associate
offices either own or lease their own office space.

Birmingham, Alabama
Fairfield County, Connecticut
Evansville, Indiana
Baton Rouge, Louisiana
Bangor, Maine
Presque Isle, Maine
Boston, Massachusetts
Concord, Massachusetts
Detroit, Michigan
Minneapolis, Minnesota
Manchester, New Hampshire
Long Island, New York
Warwick, Rhode Island
Midland, Texas
Wheeling, West Virginia

We believe our offices are well maintained and suitable for our current
requirements. We anticipate that as our business grows, we will need to
acquire, lease or build additional facilities. We believe that suitable
additional or substitute space is readily available when needed.

Trademarks and Tradenames

We have registered the following trademarks: Advantage Payroll, Advantage
Payroll Services, Advantage, Instant Payroll, HR Counselor and Advantage Check.
The registration for these trademarks is perpetual. We consider each of these
trademarks to be important to our business operations. We have in the past and
will continue to file for copyright protection on our proprietary operating
software. We have no patent protection for our operating software.

Employees

At February 22, 2002, we employed over 700 persons. Our employees are not
represented by any unions. We have not experienced any work stoppage due to
labor disagreements and we believe that our employee relations are good.

A number of our employees hold the certified payroll professional, or CPP,
designation. We believe that we maintain one of the industry's highest ratios
of CPPs to clients. The CPP designation is awarded by the American Payroll
Association, or APA, to individuals who have demonstrated a broad scope of
professional proficiency in payroll computation, tax reporting and calculation,
and regulatory compliance as it relates to payroll. Individuals applying for
certification are required to have been practicing a total of three years out
of the five years preceding the date of the examination, pass a rigorous four
hour examination, and agree to be bound by the APA code of ethics. The
certificate is valid for five years, at the end of which an individual must
re-certify by examination or continuing education.

We maintain a $1.0 million key man life insurance policy on our Chairman,
President and Chief Executive Officer, Charles W. Lathrop, Jr.

Legal Proceedings

We are not aware of any legal proceedings pending or threatened against us
that we expect would have a material adverse effect on our financial condition
or results of operations.

MANAGEMENT

Executive Officers, Directors and Key Employees

Our executive officers, directors and key employees are as follows:

Name Age Position
---- --- --------

Charles W. Lathrop, Jr...... 45 Chairman, President and Chief Executive Officer
Peter J. McGrail............ 42 Vice President, Chief Financial Officer and Assistant
Secretary
Nancy M. French............. 48 Vice President of Tax Services and Government Relations
David R. Meagher............ 43 Vice President of Sales & Marketing
Steven R. Beauchamp......... 30 Vice President of Payroll Operations
George P. Allman (1)........ 60 Director
Daniel M. Gill (2).......... 38 Director
Lawrence R. Pugh (1) (2).... 69 Director
Hollis W. Rademacher (1) (2) 66 Director
John R. Willis (2).......... 52 Director

- --------
(1)Member of the audit committee.
(2)Member of the compensation committee.

Charles W. Lathrop, Jr. has served as our President and Chief Executive
Officer since January 1997. Mr. Lathrop has served as a director since February
1998 and was elected Chairman of the board of directors in September 2001.
Prior to joining Advantage, Mr. Lathrop served as President of The Spencer
Charles Group, Ltd., a management-consulting firm servicing the small business
community from May 1995 to January 1997. From September 1993 to May 1995, Mr.
Lathrop served as Executive Vice President and Chief Operating Officer of
Choice Drug Systems, Inc., which at the time was a publicly traded healthcare
company. Prior to September 1993, Mr. Lathrop was Executive Vice President and
Chief Operating Officer of Arthur Drug Stores, Inc., a privately held retail
drug store chain.

Peter J. McGrail has served as our Vice President and Chief Financial
Officer since May 1999 and Assistant Secretary since May 2002. Prior to joining
Advantage, Mr. McGrail worked as a consultant evaluating investment
opportunities from January 1999 to April 1999 for Gordon Brothers, a private
business consulting firm. From January 1995 to December 1998, Mr. McGrail
served as Vice President and Chief Financial Officer with Kitchen Etc., a
privately held, high growth retail organization. Prior to January 1995, he was
the Controller at Nature Food Centers, a publicly traded retailer. Mr. McGrail
also spent seven years in public accounting with KPMG LLP as a certified public
accountant.

Nancy M. French has served as our Vice President of Tax Services and
Government Relations since December 1998. From 1982 to 1998, Ms. French held a
variety of management positions within Advantage, including Vice President of
Operations and Director of Tax Services. Ms. French serves on the Government
Affairs Task Force of the American Payroll Association and is a member of the
American Society of Payroll Managers, Government Affairs Committee, as well as
the Maine Association of Payroll Professionals. Ms. French is a founding member
and serves on the board of directors of the National Payroll Reporting
Consortium. Ms. French is a certified payroll professional.

David R. Meagher has served as our Vice President of Sales & Marketing since
September 1999. Prior to his current position, Mr. Meagher served as Vice
President of Business Development from July 1997 to September 1999. Prior to
joining Advantage, Mr. Meagher was Vice President of Sales at InterPay, a
regional payroll processing company and a subsidiary of FleetBoston, from April
1995 to July 1997. Mr. Meagher is a certified payroll professional.

Steven R. Beauchamp has served as our Vice President of Payroll Operations
since August 2001. Mr. Beauchamp was the President of Payroll Central, Inc., a
regional payroll processing company serving the

mid-market, prior to it being acquired by Advantage in August 2001. Prior to
joining Payroll Central, Mr. Beauchamp spent three years in operations
management with ADP Canada from May 1995 to May 1998. Mr. Beauchamp is a
certified payroll professional.

George P. Allman has been a director of Advantage since August 2001. Mr.
Allman is Senior Vice President and President--Diversified Operations of New
England Business Service, Inc., a manufacturer and distributor of business
supplies to small businesses and an Advantage stockholder. Prior to assuming
this position in 1998, Mr. Allman served as Vice President--Diversified
Operations and as Vice President--Retail Sales and Operations in 1996, the year
he joined New England Business Service, Inc. From 1984 to 1996, Mr. Allman was
Founder and President of GPA Associates, Inc., an exclusive supplier of The
Gillette Company products to the promotional products industry. Prior to
founding GPA Associates, Inc., Mr. Allman served in various positions in The
Gillette Company from 1966 to 1984, where his last position was Vice
President--Special Markets.

Daniel M. Gill has served as a director of Advantage since February 1998.
Mr. Gill is a Managing Director of Willis Stein & Partners, L.L.C., the general
partner of Willis Stein & Partners, L.P. Willis Stein is a Chicago-based
private equity firm. Prior to the formation of Willis Stein & Partners, L.P. in
1995, Mr. Gill was a Managing Director of Continental Illinois Venture
Corporation, a subsidiary of Bank of America. Mr. Gill serves on the board of
directors of CTN Media Group, Inc., Racing Champions Corp. and other Willis
Stein & Partners' portfolio companies.

Lawrence R. Pugh has served as a director of Advantage since October 1999.
Mr. Pugh retired as Chairman of VF Corporation, an apparel company in
Pennsylvania, in October 1998, a post he had held since 1983. Additionally, Mr.
Pugh served as Chief Executive Officer of VF Corporation from 1983 to 1995. Mr.
Pugh serves on the board of directors of UnumProvident, Co., the country's
largest disability insurer.

Hollis W. Rademacher has served as a director of Advantage since February
1998. Since 1993, Mr. Rademacher has acted as a business consultant and private
investor under the name HR Consulting and Investments. Prior to that time, Mr.
Rademacher served in a variety of positions with Continental Bank Corporation,
most recently as Chief Financial Officer. Mr. Rademacher serves on the board of
directors of Schawk, Inc., Wintrust Financial Corp., CTN Media Group, Inc. and
Aurum Technology, Inc. Mr. Rademacher is a past member of the Reserve City
Bankers Association, and a past member of the board of directors of the
National Futures Association and the Bank Administration Institute.

John R. Willis has served as a director of Advantage since February 1998.
Mr. Willis is a Managing Director of Willis Stein & Partners, L.L.C., the
general partner of Willis Stein & Partners, L.P. Willis Stein is a
Chicago-based private equity firm. From 1989 through 1994, Mr. Willis was
President and a director of Continental Illinois Venture Corporation, a
subsidiary of Bank of America. Mr. Willis joined Continental Bank Corporation
in 1974, holding a variety of managerial responsibilities in corporate banking.
Mr. Willis serves on the board of directors of Aavid Thermal Technologies,
Inc., Ziff Davis Media Inc. and other Willis Stein & Partners' portfolio
companies.

Terms of Office

Our directors were elected pursuant to a stockholders agreement. At present,
all directors are elected and serve until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal. There are
no family relationships between any of our directors or executive officers. Our
executive officers are elected by, and serve until dismissed by, the board of
directors.

Upon the completion of this offering, our board will be divided into three
classes, as nearly equal in number as possible, with each director serving a
three-year term and one class being elected at each year's annual meeting of
stockholders. Messrs. Allman and Gill will be in the class of directors whose
term expires at the 2003 annual meeting of our stockholders. Messrs. Pugh and
Rademacher will be in the class of directors whose term expires at the 2004
annual meeting of our stockholders. Messrs. Lathrop and Willis will be in the
class of

directors whose term expires at the 2005 annual meeting of our stockholders. At
each annual meeting of our stockholders, successors to the class of directors
whose term expires at such meeting will be elected to serve for three-year
terms or until their respective successors are elected and qualified.

Committees of the Board of Directors

Our board of directors has an audit committee and a compensation committee.
The board may also establish other committees to assist in the discharge of its
responsibilities.

Audit Committee. The audit committee makes recommendations to the board of
directors regarding the independent auditors to be nominated for election by
the stockholders and reviews the independence of such auditors, approves the
scope of the annual audit activities of the independent auditors, approves the
audit fee payable to the independent auditors and reviews such audit results
with the independent auditors. The audit committee is currently comprised of
Messrs. Allman, Pugh and Rademacher. PricewaterhouseCoopers LLP currently
serves as our independent accountants.

Compensation Committee. The duties of the compensation committee are to
provide a general review of our compensation and benefit plans to ensure that
they meet corporate objectives. In addition, the compensation committee reviews
the chief executive officer's recommendations on compensating our officers and
adopting and changing major compensation policies and practices, and reports
its recommendations to the whole board of directors for approval and
authorization. The compensation committee also administers our stock plans.
Messrs. Gill, Pugh, Rademacher and Willis currently serve as members of our
compensation committee.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors or
compensation committee.

Compensation of Directors

Our directors are currently not entitled to receive any compensation for
serving on the board. Directors are reimbursed for their out-of-pocket expenses
incurred in connection with such services. Following this offering, directors
who are not our employees or who are not otherwise affiliated with us or our
principal stockholders will receive compensation that is commensurate with
arrangements offered to directors of companies that are similar to us.
Compensation arrangements for independent directors established by our board
may be in the form of cash payments and/or option grants.

Compensation of Executive Officers

The following table sets forth information concerning the compensation for
the fiscal year ended May 25, 2001 for our chief executive officer and the
three other executive officers who earned in excess of $100,000 for services
rendered during our last fiscal year. For ease of reference, we collectively
refer to these executive officers throughout this section as our "named
executive officers."

Summary Compensation Table

Annual Compensation (1)
- - ------------------------------------- Securities All Other
Other Annual Underlying Compensation
Name and Principal Position Salary ($) Bonus ($) Compensation (1) Options (#) ($) (2)
--------------------------- ---------- --------- ---------------- ----------- ------------

Charles W. Lathrop, Jr................... $184,087 $110,000 $ 4,432 300,000 $3,682
Chairman, President and
Chief Executive Officer
Peter J. McGrail......................... 122,555 40,000 29,604 85,000 2,348
Vice President, Chief Financial Officer
and Assistant Secretary
Nancy M. French.......................... 116,487 20,000 -- 80,000 2,460
Vice President of Tax Services and
Government Relations
David R. Meagher......................... 118,518 20,000 4,574 80,000 2,069
Vice President of Sales & Marketing

- --------
(1)With respect to each of the named executive officers, the aggregate amount
of perquisites and other personal benefits, securities or property received
was less than either $50,000 or 10.0% of the total annual salary and bonus
reported for such named executive officer.
(2)All other compensation consists of discretionary matching contributions to
our 401(k) plan on behalf of each named executive officer.

Option Grants in Last Fiscal Year

The following table sets forth information regarding stock options granted
by us to the named executive officers during our last fiscal year. The
percentage of total options set forth below is based on options to purchase an
aggregate of 129,400 shares of common stock granted to employees in fiscal
2001. Stock options are generally granted at 100.0% of the fair value of our
common stock as determined by the compensation committee on the date of grant.
In reaching the determination of fair value at the time of each grant, the
compensation committee considers a range of factors, including our current
financial position, our recent revenue, results of operations and cash flows,
its assessment of our competitive position in our markets and prospects for the
future, the status of our product development and marketing efforts, current
valuations for comparable companies and the illiquidity of an investment in our
common stock. Each of the options listed below were granted under the 1998 Key
Employee Stock Plan.

Option Grants in Fiscal 2001

Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------------- Annual Rate of
Number of % of Stock Price Appreciation
Securities Total Options for Option Term (1)
Underlying Granted to Exercise Price Expiration ------------------------
Name Options Granted Employees in Per Share (2) Date 5% 10%
- ---- --------------- Fiscal Year -------------- ---------- -------- --------

Charles W. Lathrop, Jr. -- -- -- -- -- --
Peter J. McGrail....... 10,000 7.7% $12.03 6/1/10 $174,452 $327,710
Nancy M. French........ -- -- -- -- -- --
David R. Meagher....... -- -- -- -- -- --

- --------
(1)Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts representing hypothetical gains are those
that could be achieved if options are exercised at the end of the option
term. The assumed 5.0% and 10.0% rates of stock price appreciation are
provided in accordance with rules of the Securities and Exchange Commission
based on the midpoint of the offering range, and do not represent our
estimate or projection of the future stock price.

(2)The exercise price was equal to the fair market value of the common stock on
the date of grant.

Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

None of the named executive officers exercised options during the fiscal
year ended May 25, 2001. The following table sets forth the number and value of
securities underlying unexercised options held as of May 25, 2001.

Aggregate Option Exercises in Fiscal 2001 and Fiscal Year-End Option Values

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at May 25, 2001 at May 25, 2001 (1)
Acquired on ------------------------- -------------------------
Name Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------

Charles W. Lathrop, Jr. -- -- 180,000 120,000 $3,392,982 $2,261,988
Peter J. McGrail....... -- -- 30,000 55,000 540,000 879,700
Nancy M. French........ -- -- 40,000 40,000 753,996 753,996
David R. Meagher....... -- -- 40,000 40,000 753,996 753,996

- --------
(1)The value of unexercised in-the-money option is based on the assumed initial
public offering price of $19.00 per share, the midpoint of the filing range,
less the per share exercise price, multiplied by the number of shares
underlying the options.

Stock Plans

1998 Key Employee Stock Option Plan

On February 10, 1998, our board of directors adopted and our stockholders
approved the 1998 Key Employees Stock Option Plan, or the 1998 Key Employee
Stock Plan, which authorizes the granting of stock options and the sale of our
common stock to our executives and other key employees or our subsidiaries. The
1998 Key Employee Stock Plan authorizes the granting of stock options up to an
aggregate of 750,000 shares of common stock, subject to adjustment upon the
occurrence of specified events to prevent any dilution or expansion of the
rights of participants that might otherwise result from the occurrence of such
events.

Options to purchase an aggregate of 698,000 shares of our common stock were
outstanding as of February 22, 2002 under the 1998 Key Employee Stock Plan.
Most of the options vest and become exercisable in three equal installments
beginning on the first anniversary of the grant date and continuing thereafter
on an annual basis. Unvested options will terminate in the event that the
optionee ceases to be employed by us, and vested but unexercised options are
subject to repurchase by us in the event the optionee ceases to be employed by
us and/or our subsidiaries for any reason. This repurchase option will
terminate upon the consummation of this offering. As of the date of this
prospectus, most of our option agreements provide that options will immediately
terminate 45 days after the optionee ceases to be employed by us for any
reason. The outstanding options granted under the 1998 Key Employee Stock Plan
have a weighted average exercise price equal to $1.45 per share.

2000 Management and Sales Employees Stock Option Plan

On January 27, 2000, our board of directors approved the 2000 Management and
Sales Employees Stock Option Plan, or the 2000 Management and Sales Employees
Stock Plan, which authorizes the granting of stock options and the sale of our
common stock to our managers and sales representatives or our subsidiaries. The
2000 Management and Sales Employees Stock Plan authorizes the granting of stock
options up to an aggregate of 100,000 shares of common stock, subject to
adjustment upon the occurrence of specified events to prevent any dilution or
expansion of the rights of participants that might otherwise result from the
occurrence of such events.

Options to purchase an aggregate of 87,550 shares of our common stock were
outstanding as of February 22, 2002 under the 2000 Management and Sales
Employees Stock Plan. Options vest and become

exercisable in either three or five equal installments beginning on the first
anniversary of the grant date and continuing thereafter on an annual basis.
Unvested options will terminate in the event that the optionee ceases to be
employed by us, and vested but unexercised options are subject to repurchase by
us in the event the optionee ceases to be employed by us and/or our
subsidiaries for any reason. This repurchase option will terminate upon the
consummation of this offering. As of the date of this prospectus, most of our
option agreements provide that options will immediately terminate 45 days after
the optionee ceases to be employed by us for any reason. The outstanding
options granted under the 2000 Management and Sales Employees Stock Plan have a
weighted average exercise price equal to $13.32 per share.

2001 Management and Sales Employees Stock Option Plan

On June 5, 2001, our board of directors approved the 2001 Management and
Sales Employees Stock Option Plan, or the 2001 Management and Sales Employees
Stock Plan, which authorizes the granting of stock options and the sale of our
common stock to our managers and sales representatives or our subsidiaries. The
2001 Management and Sales Employees Stock Plan authorizes the granting of stock
options up to an aggregate of 200,000 shares of common stock, subject to
adjustment upon the occurrence of specified events to prevent any dilution or
expansion of the rights of participants that might otherwise result from the
occurrence of such events.

Options to purchase an aggregate of 120,000 shares of common stock were
outstanding as of February 22, 2002 under the 2001 Management and Sales
Employees Stock Plan. Options vest and become exercisable in either three or
five equal installments beginning on the first anniversary of the grant date
and continuing thereafter on an annual basis. Unvested options will terminate
in the event that the optionee ceases to be employed by us, and vested but
unexercised options are subject to repurchase by us in the event the optionee
ceases to be employed by us and/or our subsidiaries for any reason. This
repurchase option will terminate upon the consummation of this offering. As of
the date of this prospectus, most of our option agreements provide that options
will immediately terminate 45 days after the optionee ceases to be employed by
us for any reason. The options granted under the 2001 Management and Sales
Employees Stock Plan have an exercise price equal to $16.50 per share.

2002 Stock Option Plan

We expect the 2002 Stock Option Plan, or the 2002 Plan, to be adopted by our
board of directors and approved by our stockholders prior to the completion of
this offering. As of the date of this prospectus, no awards have been made
under the 2002 Plan. No future grants will be made under the 1998 Key Employee
Stock Plan upon the effectiveness of the 2002 Plan.

The 2002 Plan provides for the grant of incentive stock options to our
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and to our employees, directors and other persons
who provide services to us, including associates. A total of 1,750,000 shares
of common stock, any shares returned to the 1998 Key Employee Stock Plan as a
result of termination of options and annual increases to be added on the date
of each annual meeting of our stockholders commencing in 2002 equal to 1.0% of
the outstanding shares of common stock, or such lesser amount as may be
determined by our board of directors, will be reserved for issuance pursuant to
the 2002 Plan.

The administrator of the 2002 Plan has the power to determine the terms of
the options granted, including the exercise price of the option, the number of
shares subject to each option, the exercisability thereof, and the form of
consideration payable upon such exercise. In addition, our board of directors
has the authority to amend, suspend or terminate the 2002 Plan, provided that
no such action may affect any share of common stock previously issued and sold
or any option previously granted under the 2002 Plan.

Options granted under the 2002 Plan are generally not transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
and only by such optionee. Options granted under the 2002 Plan

must generally be exercised within 60 days after the end of an optionee's
status as an employee, director or consultant of Advantage, or within 180 days
after such optionee's termination by death or disability, but in no event later
than the expiration of the option term.

The exercise price of all incentive stock options granted under the 2002
Plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options granted under
the 2002 Plan is determined by the administrator, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the exercise
price must be at least equal to the fair market value of the common stock on
the date of grant. With respect to any participant who owns stock possessing
more than 10.0% of the voting power of all classes of our outstanding capital
stock, the exercise price of any incentive stock option granted must be at
least equal to 110.0% of the fair market value on the grant date and the term
of such incentive stock option must not exceed five years. The term of all
other options granted under the 2002 Plan may not exceed ten years.

The 2002 Plan provides that, in the event of a merger with or into another
corporation, or a sale of substantially all of our assets, each option shall be
assumed or an equivalent option substituted for by the successor corporation.
If the outstanding options are not assumed or substituted for by the successor
corporation, the administrator shall provide for the optionee to have the right
to exercise the option as to all of the optioned stock, including shares as to
which it would not otherwise be exercisable.

401(k) Plan

We maintain a tax-qualified employee savings and retirement plan, or 401(k)
plan, that covers most employees who satisfy certain eligibility requirements
relating to minimum age and length of service. Under the 401(k) plan, eligible
employees may elect to contribute a minimum of 1.0% of their annual
compensation, up to a maximum amount equal to the lesser of 15.0% of their
annual compensation or the statutorily prescribed annual limit. We may also
elect to make a matching contribution to the 401(k) plan in an amount equal to
a discretional percentage of the employee contributions, subject to certain
statutory limitations. We announce annually the amount of funds which we will
match. The current matching rate is 50.0% of the first 4.0% contributed by an
employee.

Director and Officer Indemnification and Limitation on Liability

Our certificate of incorporation provides that, to the fullest extent
permitted by the Delaware General Corporation Law and except as otherwise
provided in our bylaws, none of our directors shall be liable to us or our
stockholders for monetary damages for a breach of fiduciary duty. In addition,
our certificate of incorporation provides for indemnification of any person who
was or is made or threatened to be made a party to any action, suit or other
proceeding, whether criminal, civil, administrative or investigative, because
of his or her status as a director or officer of Advantage, or service as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise at our request to the fullest extent
authorized under the Delaware General Corporation Law against all expenses,
liabilities and losses reasonably incurred by such person. Further, our
certificate of incorporation provides that we may purchase and maintain
insurance on our own behalf and on behalf of any other person who is or was a
director, officer or agent of Advantage or was serving at our request as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.

Employment Agreements

We are party to several employment and non-compete agreements with key
executives. In March 2002, we entered into an employment agreement with Charles
W. Lathrop, Jr. The employment agreement provides that Mr. Lathrop will serve
as our President and Chief Executive Officer through the fifth anniversary of
the date of

his agreement. Mr. Lathrop's employment will automatically terminate upon his
resignation, death, disability or incapacity, or upon earlier termination by
us. The employment agreement provides that Mr. Lathrop will receive:

. an annual base salary starting at $208,000, subject to annual increases
beginning in June 2003;

. an annual bonus equal to between 25.0% to 75.0% of his base salary based
upon achievement of performance goals and objectives, each to be
determined by our board of directors and Mr. Lathrop on an annual basis;

. a company-owned vehicle;

. a $1.5 million term life insurance policy; and

. customary fringe benefits.
If the employment period is terminated by us without cause prior to the
fifth anniversary of his agreement, Mr. Lathrop will be entitled to receive his
then current base salary until the earlier of the second anniversary of his
termination or the expiration date of his employment agreement. In addition,
immediately prior to his termination, the vesting of any unvested stock options
held by Mr. Lathrop shall accelerate by twelve months, so that Mr. Lathrop will
receive one additional year for purposes of determining his number vested
options. Further, if, during his employment period, Mr. Lathrop terminates his
employment for good reason, as defined in his employment agreement, Mr. Lathrop
will be entitled to receive his current base salary until the earlier of the
second anniversary of his termination or the expiration date of his employment
agreement. Under the employment agreement, Mr. Lathrop has agreed not to:

. compete with us during his employment with us and for two years thereafter;

. disclose any of our confidential information during his employment with us
without the prior written consent of the board;

. solicit or hire any of our or our subsidiaries' employees during the
noncompete period; or

. interfere with the relationships between us and our clients, suppliers,
licensees, licensors, associate offices or any of our other business
relations, during the noncompete period.

In addition, Mr. Lathrop has agreed to disclose to us any and all
inventions, innovations, improvements, developments and all other similar or
related information, relating to our and our subsidiaries' business, research
and development or products and services, which are conceived, developed or
made by him during his employment and has acknowledged that such inventions
will be our property.

We also entered into substantially similar employment agreements with Peter
J. McGrail and Nancy M. French in March 2002, and David R. Meagher in April
2001. Each of the employment agreements provides that such executive will serve
in his or her respective position through the third anniversary of the date of
the agreement; provided, however, that each executive's employment period will
automatically terminate upon such executive's resignation, death, disability or
incapacity, or upon earlier termination by us. Under their respective
employment agreements, the executives receive:

. an annual base salary, which increases by 4.0% per annum or such other
rate as our board of directors may determine, starting at the following
amount:

Name Annual Base Salary
---- ------------------

Peter J. McGrail $160,000
Nancy M. French. $125,000
David R. Meagher $135,200

. an annual bonus based upon the executive's attainment of certain
performance based objectives set each year by our president and approved
by our board; and

. customary fringe benefits.

If the executive's employment period is terminated by us without cause prior
to the third anniversary of the date of his or her agreement, he or she will be
entitled to receive a severance payment equal to his or her then current base
salary until the earlier of the twelve-month anniversary of his or her
termination or the expiration date of his or her employment agreement. If the
employment period is terminated by us for cause or as a result of the
executive's resignation, death, disability or incapacity, such executive will
be entitled to receive his or her then current base salary through the date of
termination. Under the employment agreements, each executive has agreed not to:

. compete with us during his or her employment with us and for two years
thereafter;

. disclose any of our confidential information during his or her employment
with us without the prior written consent of the board;

. solicit or hire any of our or our subsidiaries' employees during the
noncompete period; or

. interfere with the relationships between us and our clients, suppliers,
licensees, licensors, associate offices or any of our other business
relations, during the noncompete period.

In addition, each executive has agreed to disclose to us any and all
inventions, innovations, improvements, developments and all other similar or
related information, relating to our and our subsidiaries' business, research
and development or products and services, which are conceived, developed or
made by him or her during his or her employment and has acknowledged that such
inventions will be our property.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with respect to the beneficial
ownership of our common stock as of April 30, 2002 by:

. each person, or group of affiliated persons, known to us to own
beneficially more than 5.0% of our common stock;

. each of our directors;

. each of our named executive officers;

. all of our directors and executive officers as a group; and

. the selling stockholders.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes generally voting power and/or
investment power with respect to securities. Shares of common stock subject to
options or warrants currently exercisable, or exercisable within 60 days of
April 30, 2002, are deemed outstanding for purposes of computing the percentage
beneficially owned by the person holding such options or warrants but are not
deemed outstanding for purposes of computing the percentage beneficially owned
by any other person. Percentage ownership prior to the offering is based on
12,156,329 shares of common stock outstanding as of April 30, 2002. Percentage
ownership after the offering is based on 17,658,598 shares of common stock
expected to be outstanding after the offering, including shares expected to be
issued upon exercise of the NEBS warrant. Except as otherwise noted, the
persons or entities named have sole voting power with respect to those shares
shown as beneficially owned by them. Unless otherwise indicated, the principal
address of each of the stockholders below is c/o Advantage Payroll Services,
Inc., 126 Merrow Road, Auburn, Maine 04211.

Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
----------------------- Shares to --------------------
Name and Address Number Percent be Sold Number Percent
- ---------------- ---------- ------- --------- ---------- -------

5% Stockholders:
Willis Stein & Partners, L.P. (1).............. 7,785,032 64.0 771,551 7,013,481 39.7
New England Business Service, Inc. (2)......... 3,102,339 23.6 -- 3,102,339 17.6
Directors and Executive Officers:
Charles W. Lathrop, Jr. (3).................... 701,861 5.7 -- 701,861 3.9
Peter J. McGrail (4)........................... 47,000 * -- 47,000 *
Nancy M. French (5)............................ 515,875 4.2 -- 515,875 2.9
David R. Meagher (6)........................... 80,000 * -- 80,000 *
George P. Allman (2)........................... 3,102,339 23.6 -- 3,102,339 17.6
Daniel M. Gill (1)............................. 7,785,032 64.0 771,551 7,013,481 39.7
Lawrence R. Pugh (7)........................... 6,000 * -- 6,000 *
Hollis W. Rademacher........................... 24,979 * -- 24,979 *
John R. Willis (1)............................. 7,785,032 64.0 771,551 7,013,481 39.7
All directors and executive officers as a group
(9 persons) (8).............................. 12,263,086 90.6 771,551 11,491,535 63.6
Selling Stockholders:
J. Stokes Mayfield (9)......................... 245,962 2.0 122,981 122,981 *
Addie M. Rutledge (9).......................... 81,987 * 65,994 15,993 *

- --------
*Denotes ownership of less than one percent.

(1)The 7,785,032 shares of common stock in the table include 300,000 shares to
be transferred into a trust pursuant to the restated additional incentive
agreement. Willis Stein & Partners, L.P. disclaims beneficial ownership of
the shares held of record by the trust. John R. Willis and Daniel M. Gill,
as Managing Directors of Willis Stein & Partners, L.L.C., which is the
general partner of Willis Stein & Partners, L.P., may each be deemed to
beneficially own the shares held of record by Willis Stein & Partners, L.P.
Voting

and dispositive power over the shares held by Willis Stein & Partners, L.P.,
resides with the Managing Directors of Willis Stein & Partners, L.L.C., with
no individual holding the right to make investment decisions. The Managing
Directors of Willis Stein & Partners, L.L.C. include John R. Willis, Daniel
M. Gill and Avy H. Stein. As a result, each of these persons disclaims
beneficial ownership of these shares. The address of Willis Stein &
Partners, L.P. is One North Wacker Drive, Suite 4800, Chicago, IL 60606.

(2)The 3,102,339 shares of common stock in the table include 962,795 shares of
common stock which we estimate will be exercisable at the time of this
offering under the vested portion and the performance-based portion of a
warrant held by NEBS. Mr. Allman is Senior Vice President and
President--Diversified Operations of New England Business Service, Inc., a
manufacturer and distributor of business supplies to small businesses and an
Advantage stockholder. As a result, the shares of common stock owned by NEBS
may be deemed to be beneficially owned by Mr. Allman. Mr. Allman disclaims
beneficial ownership of these shares. NEBS is a publicly traded company
managed by its board of directors. NEBS has advised us that the power to
vote and dispose of our shares resides with its board of directors. The
address of Mr. Allman and NEBS is c/o New England Business Service, Inc.,
500 Main Street, Groton, MA 01471.

(3)The 701,861 shares of common stock in the table include options to acquire
240,000 shares of common stock which are currently exercisable, 35,000
shares of common stock owned by Angela M. Lathrop, 1,333 shares of common
stock owned by the Lathrop Family Trust f/b/o Spencer C. Lathrop and 1,333
shares of common stock owned by the Lathrop Family Trust f/b/o Colby W.
Lathrop. Mr. Lathrop may be deemed to have beneficial ownership of the
shares of common stock owned by Angela M. Lathrop, the Lathrop Family Trust
f/b/o Spencer C. Lathrop and the Lathrop Family Trust f/b/o Colby W.
Lathrop. Mr. Lathrop also has 60,000 unvested options.

(4)The 47,000 shares of common stock in the table include options to acquire
47,000 shares of common stock which are currently exercisable. Mr. McGrail
also has 38,000 unvested options.

(5)The 515,875 shares of common stock in the table include options to acquire
60,000 shares of common stock which are currently exercisable. Ms. French
also has 20,000 unvested options.

(6)The 80,000 shares of common stock in the table include options to acquire
60,000 shares of common stock which are currently exercisable. Mr. Meagher
also has 20,000 unvested options.

(7)The 6,000 shares of common stock in the table include options to acquire
6,000 shares of common stock which are currently exercisable. Mr. Pugh also
has 9,000 unvested options.

(8)The 12,263,086 shares of common stock in the table include options and a
warrant to acquire 1,375,795 shares of common stock which are currently
exercisable.

(9)J. Stokes Mayfield and Addie M. Rutledge are former owners of a payroll
processing business we acquired in July 1999.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Restated Additional Incentive Agreement

In February 1998, Willis Stein & Partners, L.P., Advantage and certain
executives entered into an additional incentive agreement, entitling Messrs.
Lathrop and Meagher and Ms. French to receive a certain percentage of any cash
received by Willis Stein in connection with its investment in Advantage beyond
a certain target rate of return. The purpose of this agreement was to provide
additional incentives to management to achieve higher rates of return on Willis
Stein's investment. The original agreement was constructed contemplating a cash
sale of Advantage in a single private transaction resulting in a one-time
payment to the executives and a corresponding one-time compensation charge. In
the context of a public offering, however, Willis Stein's liquidation of its
investment over time might result in periodic non-cash compensation charges to
Advantage that could be unpredictable in frequency and size. As a result, the
agreement was amended and restated in March 2002 in order to allow Advantage to
record a one-time pretax, non-cash compensation charge at the time of this
offering. Mr. McGrail was added as a party to the agreement at that time.

Under the amended and restated agreement, at the time of this offering,
Willis Stein will transfer 300,000 of its shares to an irrevocable grantor
trust established for the benefit of Messrs. Lathrop, McGrail and Meagher and
Ms. French. Following this offering, the trust will participate in any sale,
transfer or other disposition by Willis Stein of its Advantage common stock,
not including shares sold in this offering, in an amount equal to 5% of the
total number of securities to be sold or transferred by Willis Stein. Mr.
Lathrop will receive 60% of the trust assets valued at $3.4 million, assuming
an initial offering price of $19.00, the midpoint of the range set forth on the
cover of this prospectus. Messrs. McGrail and Meagher and Ms. French will
receive the balance of the trust assets. Distributions will be made immediately
following any distribution by Willis Stein to its general and limited partners
of cash, securities or other property received by Willis Stein on account of
its security ownership in Advantage. Upon the tenth anniversary of the
consummation of this offering, the trustee will distribute to the executives
the remainder of the trust assets. Once the trust is created and the shares are
transferred, each executive's right to receive distributions from the trust is
unconditional and irrevocable, whether he or she remains employed by Advantage.

Since the offering will trigger the executives' right to distributions from
the trust, applicable accounting rules require a one-time pretax, non-cash
compensation charge to be recorded at the time of the offering. Based on an
assumed initial offering price of $19.00, the midpoint of the range set forth
on the cover of this prospectus, Advantage will incur a $5.7 million charge in
the quarter this offering is consummated as a result of this agreement.

Pursuant to a lockup agreement with Lehman Brothers, Inc., Willis Stein
cannot sell, transfer or dispose of their shares of our common stock prior to
180 days after the consummation of this offering and, as a result, neither can
the trust.

Willis Stein is one of our principal stockholders and the managing directors
of its general partner, Willis Stein & Partners, L.L.C., include two of our
directors, John R. Willis and Daniel M. Gill.

Alliance Agreement

In March 2000, we entered into a ten-year strategic alliance agreement with
NEBS, one of our principal stockholders, and McBee Systems, Inc., an indirect
wholly-owned subsidiary of NEBS. Under this agreement, we agreed to provide
payroll processing and related services to NEBS' customers under certain NEBS'
labels. In return, NEBS has agreed to actively market our products and services
to its existing and prospective U.S. customers and to refrain from marketing or
selling other substantially similar products or services. In addition, we
agreed to provide our products and services to NEBS at prices at least as
favorable as those offered by us to other similar private label purchasers. We
are entitled to collect all processing and related fees and charges from

NEBS' customers, as well as to retain all investment income on tax withheld. In
return, we agreed to pay NEBS a commission on account of all services provided
under the private label program and to provide a facility with a dedicated work
force to support the private label services and products. We also agreed to
supply all sales and customer support for the program and train NEBS' personnel
to familiarize them with our products and services. This agreement will
continue after the conclusion of the initial ten-year term for successive
five-year periods unless either party gives the other party at least 18 months
prior written notice that it wishes to terminate the agreement. This agreement,
however, may be terminated at any time by either party in the event that the
other party fails to substantially perform any of its material obligations
under the agreement, becomes insolvent or bankrupt or fails to maintain
operations as a going concern for more than 20 days. Payroll service revenue
received as a result of this agreement was $539,972 for fiscal 2001 and
$1,621,777 for the nine months ended February 22, 2002. Commissions paid to
NEBS were $152,800 for fiscal 2001 and $412,216 for the nine months ended
February 22, 2002.

Common Stock Purchase Warrant

In March 2000, we sold NEBS 1,069,772 shares of our common stock at $12.03
per share and issued a performance-based warrant for an additional 1,069,772
shares at an exercise price of $12.67 per share. The terms of the warrant
provided that it would become exercisable upon the attainment of certain
defined active client levels. As a result of this transaction, NEBS became one
of our principal stockholders.

In August 2001, we canceled the existing warrant and sold NEBS an additional
1,069,772 shares of our common stock and issued a new warrant, all for an
aggregate purchase price of $17.7 million in cash. The new warrant, with an
exercise price of $12.67 per share, consisted of two portions. The first
portion, covering 748,840 shares, becomes exercisable upon attainment of
performance milestones. We refer to this portion as the performance-based
portion. The performance-based portion becomes exercisable in increments of
106,977 shares at the time NEBS has 2,500 active clients and upon the
attainment of each additional 2,500 active clients. The purpose of the
performance-based portion was to incentivize NEBS to perform under the alliance
agreement.

The second portion of the warrant, covering 320,932 shares, was immediately
exercisable at $12.67 per share for a period of one year ending August 2002
without regard to any performance criteria. We refer to this portion as the
vested portion. The purpose of the vested portion of the warrant was to induce
NEBS to purchase the stock for an aggregate of $17.7 million, or $16.50 per
share, which in the absence of the warrant was above the fair market value of
the stock. We estimate that the fair market value of the securities sold in
that transaction was $16.4 million for the stock, or $15.31 per share, and $1.3
million for the warrant. Since the sale of the stock and the issuance of the
new warrant consisted of a single financing transaction, with NEBS paying fair
value for the stock and warrant combined, the $17.7 million received for the
stock and vested portion of the warrant was accounted for as an equity
transaction.

According to the terms of the warrant, upon the consummation of this
offering, the warrant will terminate and a formula will be used to determine
the number of shares exercisable under the performance-based portion of the
warrant. The number of active clients used to determine the number of shares of
common stock purchasable is based on the number of active clients secured
during the quarter before this offering multiplied by the remaining twelve
quarters in the initial term of the agreement. The purpose of this provision is
to terminate any performance awards after this offering without limiting the
award that NEBS may have earned had the agreement run its full term. The
maximum number of shares purchasable under the performance-based portion of the
warrant is 748,840 shares. We currently estimate that the performance-based
portion of the NEBS warrant will become exercisable for 641,863 shares, of
which 106,977 shares became exercisable in the quarter ended May 30, 2002 and
the remainder will become exercisable upon the consummation of this offering.

We believe that NEBS will purchase the maximum number of shares it is
entitled to purchase under the vested portion and the performance-based portion
of the warrant upon the consummation of this offering. Any portion of the
warrant not exercised in connection with this offering will be canceled.

Exchange Agreement

Since the February 1998 management buy-out, we have from time to time issued
12% junior subordinated notes to certain of our stockholders including, but not
limited to, Willis Stein & Partners, L.P., Mr. Rademacher, the Lathrop Trust
and Ms. French. In May 2001, we entered into an exchange agreement in order to
exchange all outstanding subordinated notes and accrued but unpaid interest
thereon for shares of our 12% redeemable preferred stock. Pursuant to this
agreement, we exchanged notes, including accrued but unpaid interest thereon,
with an aggregate value of $21,765,652 for 21,765,652 shares of our preferred
stock at a price of $1.00 per share. We will redeem all of our shares of
preferred stock, including the shares issued pursuant to the exchange
agreement, for approximately $36.2 million with the proceeds of this offering.

Mr. Rademacher is one of our directors and Ms. French is one of our
executive officers. Charles W. Lathrop, Jr., our chief executive officer, is
the beneficiary of the Lathrop Trust. Willis Stein is one of our principal
stockholder and the managing directors of its general partner, Willis Stein &
Partner, L.L.C., include two of our directors, John R. Willis and Daniel M.
Gill.

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, we will be authorized to issue up to
200,000,000 shares of common stock and 5,000,000 shares of preferred stock.
Shares of each class have a par value of $0.01 per share. The following
description summarizes the material provisions of our capital stock. The
summary is not complete and may not contain all the information you should
consider before investing in the common stock. You should read carefully our
Restated Certificate of Incorporation and Restated Bylaws, which are included
as exhibits to the registration statement of which this prospectus is a part.

Common Stock

As of April 30, 2002, there were 12,156,329 shares of common stock
outstanding, which were held of record by 29 stockholders. Following this
offering, there will be 17,658,598 shares of common stock outstanding, after
giving effect to the exercise of the NEBS warrant (assuming no exercise of the
underwriters' over-allotment option). Each share of our common stock entitles
the holder to one vote on all matters submitted to a vote of stockholders,
including the election of directors. Subject to any preference rights of
holders of preferred stock, the holders of common stock are entitled to receive
dividends, if any, declared from time to time by the directors out of legally
available funds. The payment of dividends is expected to be restricted by the
terms of our new revolving credit facility. In the event of our liquidation,
dissolution or winding up, the holders of common stock are entitled to share
ratably in all assets remaining after the payment of liabilities, subject to
any rights of holders of preferred stock to prior distribution.

The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable and the shares of common stock to be issued on
completion of this offering will be fully paid and nonassessable.

Serial Preferred Stock

Upon completion of this offering, we will redeem all outstanding shares of
our preferred stock for $ . Thereafter, pursuant to our certificate of
incorporation, our board of directors will have the authority, without further
action by the stockholders, to designate and issue preferred stock and to
designate the rights, preferences and privileges of each series of preferred
stock, which may be greater than the rights attached to our common stock. It is
not possible to state the actual effect of the issuance of any shares of our
preferred stock on the rights of holders of our common stock until the board of
directors determines the specific rights attached to that preferred stock. The
effects of issuing preferred stock could include one or more of the following:

. restricting dividends on our common stock;

. diluting the voting power of our common stock;

. impairing the liquidation rights of our common stock; or

. delaying or preventing a change of control of Advantage.

There will be no shares of preferred stock outstanding after the redemption
of our preferred stock upon the completion of this offering, and we have no
current plans to issue any shares of preferred stock.

Warrant

In August 2001, we granted NEBS a warrant to purchase up to 1,069,772 shares
of our common stock at a purchase price of $12.67 per share. As of April 30,
2002, NEBS had the right to acquire 320,932 shares of our common stock under
the vested portion of the warrant. We estimate that NEBS will be entitled to
acquire 641,863 additional shares under the performance-based portion of the
warrant at the time of the offering and that NEBS will purchase the maximum
number of shares it is entitled to purchase under the warrant. Its right to
exercise this warrant terminates upon the consummation of this offering. See
"Certain Relationships and Related Transactions--Common Stock Purchase Warrant."

Options

As of February 22, 2002, options to purchase a total of 905,550 shares of
common stock were outstanding, of which 480,573 have vested. The exercise
prices of the vested options range from $0.15 to $12.03.

Anti-Takeover Effects of our Certificate of Incorporation and Bylaws

Some provisions of our certificate of incorporation and bylaws may be deemed
to have an anti-takeover effect and may delay or prevent a tender offer or
takeover attempt that a stockholder might consider to be in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.

These provisions include:

Classified Board of Directors

Upon completion of this offering, our board of directors will be divided
into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the board of directors will be elected each
year. These provisions, when coupled with the provisions of our certificate of
incorporation and bylaws authorizing the board of directors to fill vacant
directorships or increase the size of the board of directors, may deter a
stockholder from removing incumbent directors and simultaneously gaining
control of the board of directors by filling the vacancies created by this
removal with its own nominees.

Cumulative Voting

Our certificate of incorporation expressly denies our stockholders the right
to cumulative voting in the election of directors. As a result, stockholders
may not aggregate their votes for a single director.

Stockholder Action; Special Meeting of Stockholders

Our certificate of incorporation eliminates the ability of stockholders to
act by written consent. It further provides that special meetings of our
stockholders may be called only by a majority of the board of directors. As a
result, stockholders must rely on the board of directors to call a special
meeting or wait until the next annual meeting to hold a vote on extraordinary
matters like a significant transaction.

Advance Notice Requirements for Stockholder Proposals and Directors
Nominations

Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice in
writing. To be timely, a stockholder's notice must be delivered to or mailed
and received at our principal executive offices not less than 90 days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders. However, in the event that the annual meeting is called for a
date that is not within 30 days before or after that anniversary date, notice
by the stockholder in order to be timely must be received not later than the
close of business on the tenth day following the date on which notice of the
date of the annual meeting was mailed to stockholders or made public, whichever
first occurs. Our bylaws also specify requirements as to the form and content
of a stockholder's notice. These provisions may preclude stockholders from
bringing matters before an annual meeting of stockholders or from making
nominations for directors at an annual meeting of stockholders.

Authorized But Unissued Shares

The authorized but unissued shares of common stock and preferred stock will
be available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate

purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of a majority of our stock
by means of a proxy contest, tender offer, merger or otherwise.

Amendments; Supermajority Vote Requirements

The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless either a
corporation's certificate of incorporation or bylaws require a greater
percentage. Our certificate of incorporation imposes supermajority vote
requirements in connection with the amendment of provisions of our certificate
of incorporation and bylaws, including those provisions relating to the
classified board of directors, action by written consent and the ability of
stockholders to call special meetings.

Material Provisions of Delaware Law

Following the consummation of this offering, we will be subject to the
"Business Combination" provisions of the Delaware General Corporation Law. In
general, such provisions prohibit a publicly-held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless:

. the transaction is approved by the board of directors prior to the date
the "interested stockholder" obtained such status;

. upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85.0% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or

. on or subsequent to such date, the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested
stockholder."

A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person, other than Willis Stein, who, together
with affiliates and associates, owns, or at any time in the previous three
years owned, 15.0% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to Advantage and, accordingly, may discourage attempts to acquire our
company.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A. Its address is 150 Royall Street, Canton, Massachusetts 02021.

Listing

We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "APAY."

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there was no market for our common stock. We can
make no predictions as to the effect, if any, that sales of shares of common
stock or the availability of shares of common stock for sale will have on the
market price prevailing from time to time. Nevertheless, sales of significant
amounts of our common stock in the public market, or the perception that such
sales may occur, could adversely affect prevailing market prices.

Sale of Restricted Shares

Upon completion of this offering, we will have 17,658,598 shares of common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of options outstanding after February 22, 2001. Of these
shares of common stock, the 5,500,000 shares of common stock being sold in this
offering, plus any shares issued upon exercise of the underwriters'
over-allotment option, will be freely tradeable without restriction under the
Securities Act, except for any such shares which may be held or acquired by an
"affiliate" of ours, as that term is defined in Rule 144 promulgated under the
Securities Act, which shares will be subject to the volume limitations and
other restrictions of Rule 144 described below. An aggregate of 12,158,598
shares of common stock held by our existing stockholders upon completion of the
offering will be "restricted securities," as that phrase is defined in Rule
144, and may not be resold in the absence of registration under the Securities
Act or pursuant to an exemption from such registration, including among others,
the exemptions provided by Rule 144, 144(k) or 701 under the Securities Act,
which rules are summarized below. Taking into account the lockup agreements
described below and the provisions of Rules 144, 144(k) and 701, additional
shares will be available for sale in the public market as follows:

. 11,222 shares will be available for immediate sale on the date of this
prospectus;

. 12,099,376 shares will be available for sale 180 days after the date of
this prospectus, the expiration date for the lockup agreements, pursuant
to Rules 144 and 144(k); and

. 48,000 shares will be available for sale approximately one year after the
date of this prospectus pursuant to Rule 144.

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our "affiliates," would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:

. 1.0% of the number of shares of common stock then outstanding, which will
equal approximately 176,586 shares immediately after this offering; or

. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the sale
on Form 144 is filed.

Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of certain public information
about us.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

Rule 701

Securities issued in reliance on Rule 701, such as shares of common stock
acquired upon exercise of options granted under our stock plans, are also
restricted and, beginning 90 days after the effective date of this prospectus,
may be sold by stockholders other than affiliates of ours subject only to the
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its one-year holding period requirement.

Options

We intend to file registration statements on Form S-8 under the Securities
Act to register approximately 2,655,550 shares of common stock issuable under
our stock plans. These registration statements are expected to be filed after
six months following the effective date of the registration statement of which
this prospectus is a part and will be effective upon filing. Shares issued upon
the exercise of stock options after the effective date of the Form S-8
registration statements will be eligible for resale in the public market
without restriction, subject to Rule 144 limitations applicable to affiliates
and the lockup agreements described below.

Lockup Agreements

Notwithstanding the foregoing, Advantage, our executive officers, directors
and substantially all of our existing stockholders and holders of a substantial
majority of our options have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of our common stock for a period of 180 days
after the date of this prospectus without the prior written consent of Lehman
Brothers Inc. except, in the case of Advantage, for the shares of common stock
to be issued in connection with the offering or pursuant to employee benefit
plans existing on the date of this prospectus, permitted transfers to related
parties that agree to be bound by the foregoing restrictions, and permitted
sales of shares acquired in the open market following the completion of the
offering.

Registration Rights

After the completion of this offering, the holders of approximately
12,044,226 shares of our common stock and rights to acquire common stock,
assuming no exercise of the underwriters' over-allotment option, will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of a registration rights agreement
between us, Willis Stein & Partners, L.P. and certain other holders of
registrable securities, if we propose to register any of our securities under
the Securities Act, such holders are entitled to notice of such registration
and are entitled to include shares of common stock in the registration at our
expense. Additionally, Willis Stein, which holds 7,013,481 shares of common
stock, after deducting shares to be sold pursuant to this offering and assuming
no exercise of the underwriters' over-allotment option, has the right to demand
registration of their shares under the Securities Act at any time. All of these
registration rights are subject to conditions and limitations, including the
right of the underwriters of an offering to limit the number of shares included
in such registration. The expenses incurred in such registrations described
above will be borne by us. All holders with registration rights have agreed not
to exercise their registration rights until 180 days following the date of this
prospectus unless Lehman Brothers agrees otherwise.

UNDERWRITING

Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the underwriters
named below for whom Lehman Brothers Inc., CIBC World Markets Corp., Robert W.
Baird & Co. Incorporated and First Union Securities, Inc. are acting as
representatives, has agreed to purchase from us, on a firm commitment basis,
subject only to the conditions contained in the underwriting agreement, the
respective number of shares of common stock shown opposite its name below:

Number of
Underwriters Shares
------------ ----------

Lehman Brothers Inc...............
CIBC World Markets Corp...........
Robert W. Baird & Co. Incorporated
First Union Securities, Inc.......
----------
Total......................
==========

The underwriting agreement provides that the underwriters' obligations to
purchase our common stock depends on the satisfaction of the conditions
contained in the underwriting agreement, which include:

. if any shares of common stock are purchased by the underwriters, then all
of the shares of common stock the underwriters agreed to purchase must be
purchased;

. the representations and warranties made by us to the underwriters are true;

. there is no material change in the financial markets; and

. we deliver customary closing documents to the underwriters.

Commissions and Expenses

The representatives have advised us that the underwriters propose to offer
the common stock directly to the public at the public offering price presented
on the cover page of this prospectus, and to selected dealers, that may include
the underwriters, at the public offering price less a selling concession not in
excess of $ per share to brokers and dealers. The underwriters may allow,
and the selected dealers may reallow, a concession not in excess of $ per
share. After the offering, the underwriters may change the offering price and
other selling terms.

The following table summarizes the underwriting discounts and commissions we
will pay. The underwriting discounts and commissions are equal to the public
offer price per share, less the amount paid to us per share. The underwriting
discounts and commissions equal % of the initial public offering price.

Total Without With
Per Share Over-Allotment Over-Allotment
--------- -------------- --------------

Paid by us $ $ $

We estimate that the total expenses of the offering, including registration,
filing and listing fees, printing fees and legal and accounting expenses, but
excluding underwriting discounts and commissions, will be approximately $1.5
million.

Over-Allotment Option

Willis Stein & Partners, L.P. has granted to the underwriters an option to
purchase up to an aggregate of 825,000 shares of common stock, exercisable to
cover over-allotments, if any, at the public offering price

less the underwriting discounts and commissions shown on the cover page of this
prospectus. The underwriters may exercise this option at any time until 30 days
after the date of the underwriting agreement. To the extent the underwriters
exercise this option, each underwriter will be committed, so long as the
conditions of the underwriting agreement are satisfied, to purchase a number of
additional shares proportionate to that underwriter's initial commitment as
indicated in the preceding table.

Lockup Agreements

We have agreed that, without the prior written consent of Lehman Brothers
Inc., we will not, directly or indirectly, offer, sell or dispose of any common
stock or any securities which may be converted into or exchanged for any common
stock for a period of 180 days from the date of this prospectus. We and all of
our executive officers, directors and substantially all of our stockholders
holding in the aggregate 12,099,376 shares of our common stock, have agreed
under lockup agreements not to, without the prior written consent of Lehman
Brothers Inc., directly or indirectly, offer, sell or otherwise dispose of any
common stock or any securities which may be converted into or exchanged or
exercised for any common stock for a period of 180 days from the date of this
prospectus.

Offering Price Determination

Prior to this offering, there has been no public market for our common
stock. The initial public offering price has been negotiated between the
representatives and us. In determining the initial public offering price of our
common stock, the representatives considered

. prevailing market conditions;

. our historical performance and capital structure;

. estimates of our business potential and earnings prospects;

. an overall assessment of our management; and

. the consideration of these factors in relation to market valuation of
companies in related businesses.

Indemnification

We and the selling stockholders have agreed to indemnify the underwriters
against liabilities relating to the offering, including liabilities under the
Securities Act and liabilities arising from breaches of the representations and
warranties contained in the underwriting agreement, and to contribute to
payments that the underwriters may be required to make for these liabilities.
We have further agreed to indemnify Lehman Brothers Inc. against liabilities
related to the directed share program referred to below, including liabilities
under the Securities Act.

Stabilization, Short Positions and Penalty Bids

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids or purchases for the purpose
of pegging, fixing or maintaining the price of the common stock, in accordance
with Regulation M under the Securities Exchange Act of 1934:

. Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option, in whole or in part, or purchase
shares in the open market.

. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specific maximum.

. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the position
can only be closed out by buying shares in the open market. A naked short
position is more likely to be created if the underwriters are concerned
that there could be downward pressure on the price of the shares in the
open market after pricing that could adversely affect investors who
purchase in the offering.

. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
common stock or preventing or retarding a decline in the market price of our
common stock. As a result, the price of our common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of our common stock. In addition, neither we nor
any of the underwriters make any representation that the representatives will
engage in these stabilizing transactions or that any transaction, once
commenced, will not be discontinued without notice.

Stamp Taxes

Purchasers of the shares of our common stock offered by this prospectus may
be required to pay stamp taxes and other charges under the laws and practices
of the country of purchase, in addition of the offering price listed on the
cover of this prospectus.

Offer and Sales in Canada

This prospectus is not, and under no circumstances is it to be construed as,
an advertisement or a public offering of shares in Canada or any province or
territory thereof. Any offer or sale of shares in Canada will be made only
under an exemption from the requirements to file a prospectus supplement or
prospectus with the relevant Canadian securities regulators and only by a
dealer registered in accordance with local provincial securities laws or,
alternatively, pursuant to an exemption from the dealer registration
requirement in the relevant province or territory of Canada in which such offer
or sale is made.

Directed Share Program

At our request, the underwriters have reserved up to 385,000, or 7.0% of the
common stock offered by this prospectus, for sale under a directed share
program to specified business associates. All of the persons purchasing the
reserved shares must commit to purchase no later than the close of business on
the day following the date of this prospectus. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase the reserved shares. Shares committed to be purchased by directed
share participants which are not so purchased will be reallocated for sale to
the general public in the offering. All sales of shares pursuant to the
directed share program will be made at the initial public offering price set
forth on the cover page of this prospectus.

Electronic Distribution

A prospectus in electronic format may be made available on the Internet
sites or through other online services maintained by one or more of the
underwriters and/or selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view offering terms
online and, depending upon the particular underwriter or selling group member,
prospective investors may be allowed to place orders online. The underwriters
may agree with us to allocate a specific number of shares for sale to online
brokerage account holders. Any such allocation for online distributions will be
made by the representatives on the same basis as other allocations.

Other than the prospectus in electronic format, the information on any
underwriter's or selling group member's web site and any information contained
in any other web site maintained by an underwriter or selling group member is
not part of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved and/or endorsed by us or any
underwriter or selling group member in its capacity as underwriter or selling
group member and should not be relied upon by investors.

Other

First Union Securities, Inc., one of the underwriters, is an indirect,
wholly-owned subsidiary of Wachovia Corporation. Wachovia Corporation conducts
its investment banking, institutional and capital markets businesses through
its various bank, broker-dealer and nonbank subsidiaries (including First Union
Securities, Inc.) under the trade name of Wachovia Securities. Any references
to "Wachovia Securities" in this prospectus, however, do not include Wachovia
Securities, Inc., member NASD/SIPC and a separate broker-dealer subsidiary of
Wachovia Corporation and an affiliate of First Union Securities, Inc., which
may or may not be participating as a selling dealer in the distribution of the
securities offered by this prospectus.

Relationships

Certain of the underwriters and their affiliates have engaged and may engage
in commercial and investment banking transactions with us in the ordinary
course of their business. They have received customary fees and expenses for
these commercial and investment banking transactions. In particular, an
affiliate for CIBC World Markets Corp. is a lender under our senior credit
facility. As a result of our use of a portion of the net proceeds of the
offering to repay indebtedness under the senior credit facility, this affiliate
will receive more than 10% of the net offering proceeds. In addition, an
affiliate of CIBC World Markets Corp. owns shares of our common stock and
preferred stock. We also intend to use a portion of the net offering proceeds
to redeem the preferred stock. The offering therefore is being conducted in
accordance with the applicable provisions of Rule 2710 of the National
Association of Securities Dealers, Inc. Conduct Rules. Rule 2710(c)(8) requires
that the initial public offering price of the shares of common stock be no
higher than that recommended by a "qualified independent underwriter," as
defined by the NASD. Accordingly, Lehman Brothers Inc. is assuming the
responsibilities of acting as the qualified independent underwriter in pricing
the offering and conducting due diligence. The initial public offering price of
the shares of common stock will be no higher than that recommended by Lehman
Brothers Inc. Lehman Brothers Inc. will receive a fee of $20,000 for acting as
qualified independent underwriter. We have agreed to indemnify Lehman Brothers
Inc. against liabilities incurred in connection with acting as a qualified
independent underwriter, including liabilities under the Securities Act.

In connection with this offering, we are planning to enter into a new senior
revolving credit facility as described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." We anticipate that an affiliate of CIBC World Markets Corp.
will be the administrative agent and a lender under this new credit facility
and will receive customary compensation in connection therewith. Other
underwriters may also be lenders under the new credit facilities.

Discretionary Sales

The underwriters have informed us and the selling stockholders that they
will not confirm sales to accounts over which they exercise discretionary
authority without prior written approval of the customer.

EXPERTS

The consolidated financial statements of Advantage Payroll Services, Inc.
and Subsidiaries (formerly Advantage Business Services Holdings, Inc.) as of
February 22, 2002, May 25, 2001 and May 26, 2000 and for the nine months ended
February 22, 2002 and for each of the three years in the period ended May 25,
2001 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
Advantage Payroll Services, Inc. by Kirkland & Ellis (a partnership that
includes professional corporations), Chicago, Illinois. Some legal matters in
connection with this offering will be passed upon for the underwriters by
Latham & Watkins, Chicago, Illinois. Kirkland & Ellis and Latham & Watkins
have, from time to time, represented, and may continue to represent, some of
the underwriters in connection with various legal matters and Willis Stein &
Partners, L.P. and some of their affiliates, including Advantage Payroll
Services, Inc., in connection with legal matters.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the common stock offered by
this prospectus. This prospectus, which is a part of the registration
statement, does not contain all of the information in the registration
statement or the exhibits and schedules which are part of the registration
statement.

For more information about our company and the common stock offered by this
prospectus, we refer you to the registration statement and the exhibits and
schedules filed as part of the registration statement. You may read and copy
any document we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our filings with the Securities and
Exchange Commission are also available to the public from the Securities and
Exchange Commission's world wide web site at www.sec.gov.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934 and
will file periodic reports, proxy statements and other information with the
Securities and Exchange Commission. These periodic reports, proxy statements
and other information will be available for inspection and copying at the
Securities and Exchange Commission's public reference rooms and the web site of
the Securities and Exchange Commission.

INDEX TO FINANCIAL STATEMENTS

Advantage Payroll Services, Inc. Consolidated Financial Statements

Report of PricewaterhouseCoopers LLP, Independent Accountants........................................ F-2
Consolidated Balance Sheets as of May 26, 2000 and May 25, 2001 and as of February 22, 2002.......... F-3
Consolidated Statements of Operations for the years ended May 28, 1999, May 26, 2000 and May 25, 2001
and for the nine months ended February 23, 2001 (unaudited) and February 22, 2002.................. F-4
Consolidated Statements of Stockholders' Deficit for the years ended May 28, 1999, May 26, 2000 and
May 25, 2001 and for the nine months ended February 22, 2002....................................... F-5
Consolidated Statements of Cash Flows for the years ended May 28, 1999, May 26, 2000 and May 25,
2001 and for the nine months ended February 23, 2001(unaudited) and February 22, 2002.............. F-6
Notes to Consolidated Financial Statements........................................................... F-7

F-1

Report of Independent Accountants

To the Board of Directors and Stockholders of
Advantage Payroll Services, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' deficit and cash flows
present fairly, in all material respects, the financial position of Advantage
Payroll Services, Inc. and its Subsidiaries (formerly Advantage Business
Services Holdings, Inc.) as of February 22, 2002, May 25, 2001 and May 26,
2000, and the results of their operations and their cash flows for the nine
months ended February 22, 2002 and for each of the three years in the period
ended May 25, 2001 in conformity with accounting principles generally accepted
in the United States of America. 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 of America, 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 our
opinion.

/s/ PricewaterhouseCoopers LLP
Portland, ME

March 18, 2002

F-2

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
May 26, 2000 and May 25, 2001, and February 22, 2002

February 22,
May 26, 2000 May 25, 2001 2002
------------ ------------ ------------
Assets

Current assets:
Cash and cash equivalents..................................... $ 9,130,164 $ 4,305,147 $ 2,872,419
Accounts receivable........................................... 639,855 645,091 1,544,136
Interest receivable........................................... 918,184 795,632 1,774,731
Supplies inventory............................................ 164,106 505,945 323,245
Prepaid expenses and other current assets..................... 1,025,839 828,377 1,395,652
------------ ------------ ------------
Current assets before client payroll funds invested....... 11,878,148 7,080,192 7,910,183
Client payroll funds invested................................. 88,032,488 110,504,761 168,976,768
------------ ------------ ------------
Total current assets...................................... 99,910,636 117,584,953 176,886,951
Net property and equipment....................................... 6,887,051 8,597,791 11,695,943
Goodwill......................................................... 14,636,359 30,902,796 43,826,814
Other intangible assets.......................................... 5,340,834 9,694,423 14,222,418
Other assets..................................................... 401,925 266,036 182,649
------------ ------------ ------------
Total assets.............................................. $127,176,805 $167,045,999 $246,814,775
============ ============ ============
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion of long-term debt............................. $ 3,015,711 $ 4,322,812 $ 9,750,000
Accounts payable.............................................. 1,142,885 1,485,890 1,853,509
Accrued expenses.............................................. 1,504,454 2,554,079 3,562,472
Interest payable.............................................. 1,458,736 1,750,315 140,557
------------ ------------ ------------
Current liabilities before client payroll obligations..... 7,121,786 10,113,096 15,306,538
Client payroll obligations.................................... 90,705,030 111,986,588 168,883,146
------------ ------------ ------------
Total current liabilities................................. 97,826,816 122,099,684 184,189,684
Long-term debt, excluding current portion........................ 20,328,452 34,396,947 29,746,947
Junior Subordinated Debt......................................... 19,577,093 21,109,495 --
Redeemable preferred stock, par $0.01 per share, authorized
35,000,000, issued and outstanding 6,311,833 at May 26,
2000 and May 25, 2001 and 30,468,485 at February 22, 2002
(liquidation preference of $7,973,525 at May 26, 2000,
$8,974,273 at May 25, 2001 and $36,179,803 at February 22,
2002).......................................................... 7,667,281 8,685,364 35,329,543
Commitments......................................................
Stockholders' deficit:
Common stock, par $0.01 per share, authorized 16,000,000,
issued 10,707,140 at May 26, 2000, 11,039,642 at May
25, 2001 and 12,117,747 at February 22, 2002................ 128,998 132,323 143,104
Additional paid-in capital.................................... 16,163,687 20,160,361 37,892,700
Accumulated other comprehensive income:
Unrealized gain (loss) on investments, net of tax......... (2,371,464) (968,235) 93,622
Accumulated deficit........................................... (5,691,626) (12,117,508) (14,128,393)
Treasury stock, 9,418 shares at cost.......................... (26,452,432) (26,452,432) (26,452,432)
------------ ------------ ------------
Total stockholders' deficit............................... (18,222,837) (19,245,491) (2,451,399)
------------ ------------ ------------
Total liabilities and stockholders' deficit............... $127,176,805 $167,045,999 $246,814,775
============ ============ ============

The accompanying notes are an integral part of these consolidated financial
statements.

F-3

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended May 28, 1999, May 26, 2000 and May 25, 2001, and
for the Nine Months Ended February 23, 2001 (Unaudited) and February 22, 2002

Nine Months Nine Months
Ended Ended
February 23, February 22,
1999 2000 2001 2001 2002
----------- ----------- ----------- ------------ ------------
(Unaudited)

Payroll service revenue................ $25,068,248 $30,186,208 $42,065,118 $30,344,064 $46,633,467
Interest on client payroll funds
invested............................. 4,409,571 5,544,218 8,032,633 5,753,225 5,681,320
----------- ----------- ----------- ----------- -----------
Total revenue................... 29,477,819 35,730,426 50,097,751 36,097,289 52,314,787
Operating expenses:
Operating costs:
Wages and benefits.............. 5,050,188 5,799,666 9,365,703 6,694,654 9,857,991
Other operating costs........... 2,758,205 4,789,087 7,552,194 5,444,381 8,396,758
Conversion expenses................. 1,425,832 1,056,048 1,969,577 1,365,489 3,415,635
Selling, general and
administrative.................... 15,991,562 21,784,332 26,239,133 19,327,385 24,835,841
Depreciation and amortization....... 1,817,219 3,014,345 4,699,327 3,328,888 3,021,422
----------- ----------- ----------- ----------- -----------
Operating income (loss)................ 2,434,813 (713,052) 271,817 (63,508) 2,787,140
Interest expense....................... 3,907,702 4,619,195 5,868,318 4,242,326 1,775,725
Investment and other income............ 143,108 126,801 215,367 207,663 26,578
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes......................... (1,329,781) (5,205,446) (5,381,134) (4,098,171) 1,037,993
----------- ----------- ----------- ----------- -----------
Income tax expense (benefit)........... (439,000) (801,000) 44,000 34,000 --
----------- ----------- ----------- ----------- -----------
Net income (loss)...................... (890,781) (4,404,446) (5,425,134) (4,132,171) 1,037,993
Preferred stock dividends.............. (670,030) (825,174) (1,000,748) (739,000) (3,048,878)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
stockholders......................... $(1,560,811) $(5,229,620) $(6,425,882) $(4,871,171) $(2,010,885)
=========== =========== =========== =========== ===========
Basic and diluted earnings per share... $ (0.17) $ (0.54) $ (0.59) $ (0.45) $ (0.17)
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding.......................... 9,250,000 9,751,714 10,925,216 10,890,214 11,803,588
=========== =========== =========== =========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.

F-4

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Years Ended May 28, 1999, May 26, 2000 and May 25, 2001 and
for the Nine Months Ended February 22, 2002

Common stock Treasury stock
------------------- -------------------
Shares Amount Shares Amount
---------- -------- ------ ------------

Balance at May 29, 1998....................................................... 9,259,418 $114,521 9,418 $(26,452,432)
---------- -------- ----- ------------
Net loss......................................................................
Unrealized loss on investments, net of tax....................................
Reclassification adjustments for gains on investments realized in net loss,
net of tax...................................................................

Total comprehensive loss......................................................
Preferred stock dividends.....................................................
---------- -------- ----- ------------
Balance at May 28, 1999....................................................... 9,259,418 114,521 9,418 (26,452,432)
---------- -------- ----- ------------
Net loss......................................................................
Unrealized loss on investments, net of tax....................................

Total comprehensive loss......................................................
Common stock issued, net of issuance costs.................................... 1,447,722 14,477
Preferred stock dividends.....................................................
---------- -------- ----- ------------
Balance at May 26, 2000....................................................... 10,707,140 128,998 9,418 (26,452,432)
---------- -------- ----- ------------
Net loss......................................................................
Unrealized gain on investments, net of tax....................................
Reclassification adjustment for gains on investments realized in net loss, net
of tax.......................................................................

Total comprehensive loss......................................................
Common stock issued, net of issuance costs.................................... 332,502 3,325
Preferred stock dividends.....................................................
---------- -------- ----- ------------
Balance at May 25, 2001....................................................... 11,039,642 132,323 9,418 (26,452,432)
---------- -------- ----- ------------
Net income....................................................................
Unrealized gain on investments, net of tax....................................
Reclassification adjustment for gains on investments realized in net income,
net of tax...................................................................

Total comprehensive income....................................................
Common stock issued, net of issuance costs.................................... 1,078,105 10,781
Preferred stock dividends.....................................................
---------- -------- ----- ------------
Balance at February 22, 2002.................................................. 12,117,747 $143,104 9,418 $(26,452,432)
========== ======== ===== ============

Unrealized
Additional gain (loss) Accumulated
paid-in on earnings
Capital investments (deficit)
----------- ----------- ------------

Balance at May 29, 1998....................................................... $ 1,998,519 $ -- $ 1,098,805
----------- ----------- ------------
Net loss...................................................................... (890,781)
Unrealized loss on investments, net of tax.................................... (163,668)
Reclassification adjustments for gains on investments realized in net loss,
net of tax................................................................... (338,101)

Total comprehensive loss......................................................
Preferred stock dividends..................................................... (670,030)
----------- ----------- ------------
Balance at May 28, 1999....................................................... 1,998,519 (501,769) (462,006)
----------- ----------- ------------
Net loss...................................................................... (4,404,446)
Unrealized loss on investments, net of tax.................................... (1,869,695)

Total comprehensive loss......................................................
Common stock issued, net of issuance costs.................................... 14,165,168
Preferred stock dividends..................................................... (825,174)
----------- ----------- ------------
Balance at May 26, 2000....................................................... 16,163,687 (2,371,464) (5,691,626)
----------- ----------- ------------
Net loss...................................................................... (5,425,134)
Unrealized gain on investments, net of tax.................................... 1,656,262
Reclassification adjustment for gains on investments realized in net loss, net
of tax....................................................................... (253,033)

Total comprehensive loss......................................................
Common stock issued, net of issuance costs.................................... 3,996,674
Preferred stock dividends..................................................... (1,000,748)
----------- ----------- ------------
Balance at May 25, 2001....................................................... 20,160,361 (968,235) (12,117,508)
----------- ----------- ------------
Net income.................................................................... 1,037,993
Unrealized gain on investments, net of tax.................................... 1,413,107
Reclassification adjustment for gains on investments realized in net income,
net of tax................................................................... (351,250)

Total comprehensive income....................................................
Common stock issued, net of issuance costs.................................... 17,732,339
Preferred stock dividends..................................................... (3,048,878)
----------- ----------- ------------
Balance at February 22, 2002.................................................. $37,892,700 $ 93,622 $(14,128,393)
=========== =========== ============

Total
------------

Balance at May 29, 1998....................................................... $(23,240,587)
------------
Net loss...................................................................... (890,781)
Unrealized loss on investments, net of tax.................................... (163,668)
Reclassification adjustments for gains on investments realized in net loss,
net of tax................................................................... (338,101)
------------
Total comprehensive loss...................................................... (1,392,550)
Preferred stock dividends..................................................... (670,030)
------------
Balance at May 28, 1999....................................................... (25,303,167)
------------
Net loss...................................................................... (4,404,446)
Unrealized loss on investments, net of tax.................................... (1,869,695)
------------
Total comprehensive loss...................................................... (6,274,141)
Common stock issued, net of issuance costs.................................... 14,179,645
Preferred stock dividends..................................................... (825,174)
------------
Balance at May 26, 2000....................................................... (18,222,837)
------------
Net loss...................................................................... (5,425,134)
Unrealized gain on investments, net of tax.................................... 1,656,262
Reclassification adjustment for gains on investments realized in net loss, net
of tax....................................................................... (253,033)
------------
Total comprehensive loss...................................................... (4,021,905)
Common stock issued, net of issuance costs.................................... 3,999,999
Preferred stock dividends..................................................... (1,000,748)
------------
Balance at May 25, 2001....................................................... (19,245,491)
------------
Net income.................................................................... 1,037,993
Unrealized gain on investments, net of tax.................................... 1,413,107
Reclassification adjustment for gains on investments realized in net income,
net of tax................................................................... (351,250)
------------
Total comprehensive income.................................................... 2,099,850
Common stock issued, net of issuance costs.................................... 17,743,120
Preferred stock dividends..................................................... (3,048,878)
------------
Balance at February 22, 2002.................................................. $ (2,451,399)
============

The accompanying notes are an integral part of these consolidated financial
statements.

F-5

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended May 28, 1999, May 26, 2000 and May 25, 2001 and
for the Nine Months Ended February 23, 2001 (Unaudited) and February 22, 2002

Nine Months Nine Months
Ended Ended
February 23, February 22,
1999 2000 2001 2001 2002
------------ ----------- ------------ ------------ ------------
(Unaudited)

Cash flows from operating activities:
Net income (loss)...................................... $ (890,781) $(4,404,446) $ (5,425,134) $ (4,132,171) $ 1,037,993
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation.......................................... 600,397 1,443,528 1,965,753 1,375,203 1,622,050
Amortization.......................................... 1,216,822 1,570,817 2,733,574 1,953,685 1,399,372
Noncash interest on Junior Subordinated Notes......... 1,063,603 1,301,427 1,435,328 1,086,594 --
Realized gain on available-for-sale securities........ (338,101) -- (253,033) -- (351,250)
Amortization of unearned compensation................. 114,408 114,408 114,409 85,806 85,806
Gain on sale of fixed assets.......................... (144,417) (17,295) -- -- --
Deferred income taxes................................. (59,000) (140,000) -- -- --
Changes in operating assets and liabilities, net of
businesses acquired:
Accounts receivable................................ 128,577 (14,999) 412,345 (260,756) (899,045)
Interest receivable................................ (221,407) (293,278) 122,552 (642,276) (979,099)
Supplies inventory................................. (58,270) 114,611 (341,839) (212,661) 182,700
Prepaid expenses and other current assets.......... (17,579) (248,720) 197,462 39,457 (455,262)
Accrued expenses................................... (595,111) 70,517 (550,124) 196,508 764,792
Accounts payable................................... (241,868) 619,943 343,005 (76,139) 367,619
Interest payable................................... 642,319 532,969 291,579 (385,062) (1,609,758)
------------ ----------- ------------ ------------ ------------
Net cash provided by (used in) operating
activities..................................... 1,199,592 649,482 1,045,877 (971,812) 1,165,918
------------ ----------- ------------ ------------ ------------
Cash flows from investing activities:
Acquisition of payroll processing assets and associate
operations............................................ (855,700) (4,467,660) (18,291,127) (18,169,989) (20,028,229)
Purchase of property and equipment..................... (1,462,373) (5,093,593) (2,549,654) (2,001,653) (3,237,292)
Proceeds from sale of property and equipment........... -- 217,295 -- -- --
Purchases of available-for-sale securities............. (29,650,713) (8,073,956) (54,885,057) (7,112,342) (80,002,750)
Sales and maturities of available-for-sale securities.. 21,204,030 1,000,000 22,290,539 2,028,280 58,142,117
Net change in direct payroll funds invested in money
market funds, cash equivalents and other.............. (24,414,000) 3,170,641 24,792,151 (26,016,498) (17,178,219)
Net change in client payroll obligations............... 33,198,784 3,902,810 7,455,402 30,500,562 38,876,510
Increase in goodwill and other intangible assets....... (116,401) (95,434) (194,633) (138,289) (11,278)
Decrease in other assets............................... 152,215 82,440 135,889 158,114 83,387
------------ ----------- ------------ ------------ ------------
Net cash used in investing activities........... (1,944,158) (9,357,457) (21,246,490) (20,751,815) (23,355,754)
------------ ----------- ------------ ------------ ------------
Cash flows from financing activities:
Repayments of long-term debt........................... (1,036,550) (6,255,959) (3,015,712) (2,265,712) (3,222,812)
Net borrowing under revolving credit facility.......... -- -- -- -- 4,000,000
Financing cost......................................... -- -- -- -- (163,200)
Issuance of common stock, net of issuance costs........ -- 12,707,087 -- -- 17,743,120
Issuance of preferred stock............................ -- 894,737 -- -- 2,400,000
Issuance of junior subordinated debt................... -- 2,522,182 -- -- --
Issuance of senior secured debt........................ 850,000 7,700,352 18,391,308 18,391,308 --
------------ ----------- ------------ ------------ ------------
Net cash provided by (used in) financing
activities..................................... (186,550) 17,568,399 15,375,596 16,125,596 20,757,108
------------ ----------- ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents.................................... (931,116) 8,860,424 (4,825,017) (5,598,031) (1,432,728)
Cash and cash equivalents, beginning of period........... 1,200,856 269,740 9,130,164 9,130,164 4,305,147
------------ ----------- ------------ ------------ ------------
Cash and cash equivalents, end of period................. $ 269,740 $ 9,130,164 $ 4,305,147 $ 3,532,133 $ 2,872,419
============ =========== ============ ============ ============

The accompanying notes are an integral part of these consolidated financial
statements.

F-6

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operation

Advantage Payroll Services, Inc. and Subsidiaries ("Advantage" or the
"Company"), provides payroll processing, payroll tax filing and related
services to businesses in all 50 states through our network of 41 offices.
These services include the preparation of payroll checks, internal accounting
records, federal, state and local payroll tax returns, and collection and
remittance of payroll and payroll tax obligations for small to mid-sized
businesses. These services are marketed primarily through the Company's direct
sales force. Additionally, the Company generates sales through a private label
program with a related party and through its network of associate offices. The
Company's operations constitute one reportable segment.

The Company utilizes a 52/53-week year ending on the last Friday in May. The
years ended 2001, 2000 and 1999 each contain 52 weeks. The nine-month periods
ending February 22, 2002 and February 23, 2001 each contain 39 weeks.

2. Summary of Significant Accounting Policies:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation. Prior to September 28, 2001, the
Company's corporate name was Advantage Business Services Holdings, Inc.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and money market funds with
original maturities of three months or less when purchased. Amounts recorded in
the consolidated balance sheet approximate fair value.

Concentrations

Substantially all of the Company's deposited cash is maintained at a large
credit-worthy financial institution. These deposits may exceed the amount of
any insurance provided.

Supplies Inventory

Supplies inventory is carried at the lower of cost, first-in, first-out
(FIFO) method or market.

Accounts Receivable

Accounts receivable consists of amounts billed to clients for services
rendered, less an allowance for doubtful accounts of $91,000, $146,000 and
$94,000 at May 26, 2000, May 25, 2001 and February 22, 2002, respectively.

Client Payroll Funds Invested

Client payroll funds invested are primarily invested in money market funds
and high grade fixed income instruments. All of the Company's marketable
securities are classified as "available-for-sale" and are reported on the
consolidated balance sheet at fair value. Unrealized gains and losses, net of
applicable income taxes, are included in total comprehensive income in the
consolidated statements of stockholders' deficit. Realized gains and losses are
recorded as interest on client payroll funds invested in the consolidated
statements of operations.

F-7

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Property and Equipment

Property and equipment is stated at cost. Major renewals and betterments are
capitalized, while replacements, maintenance and repairs that do not improve or
extend the lives of the respective assets are expensed as incurred.
Depreciation for data processing equipment and software and furniture, fixtures
and equipment is computed by the straight-line method, and for certain assets,
the double-declining balance method. Depreciation of building and improvements
is computed by the straight-line method.

Impairment of Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. The
Company has identified no such impairment losses in the periods presented.

Software Development and Enhancements

The Company incurs certain costs to maintain its computer operations. All
such costs are expensed as incurred. Expenditures for major software purchases
and software developed for internal use are capitalized and amortized by the
straight-line method over the estimated useful lives of the related assets,
generally three to five years. At May 26, 2000, May 25, 2001 and February 22,
2002, unamortized capitalized software cost was approximately $665,000,
$1,366,000 and $2,660,000, respectively. Amortization expense related to
capitalized software was approximately $56,000, $376,000, $623,000, $584,000
(unaudited) and $467,000 for the years ending May 28, 1999, May 26, 2000 and
May 25, 2001 and the nine months ended February 23, 2001 and February 22, 2002.

Goodwill and Other Intangible Assets

On May 26, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets." SFAS 142
requires that goodwill not be amortized but be tested for impairment by
comparing the fair value of the reporting unit to its carrying amount,
including goodwill. The Company performed an initial impairment test of its
goodwill and determined that no impairment of recorded goodwill existed. Under
SFAS 142 goodwill is required to be tested for impairment at least annually and
more frequently if an event occurs which indicates that goodwill may be
impaired. We perform impairment tests related to goodwill and other intangible
assets on a periodic basis. Because our business is largely homogenous and we
integrate our new acquisitions fully into our existing systems, we evaluate our
business as a single reporting unit for purposes of goodwill impairment
testing. No amortization expense related to the Company's goodwill was recorded
in the nine-month period ended February 22, 2002 compared to amortization
expense of $546,995, $722,196, $1,625,509 and $1,057,305 (unaudited) for the
years ended May 28, 1999, May 26, 2000, May 25, 2001 and the nine months ended
February 23, 2001, respectively. Excluding goodwill amortization from prior
periods, net loss applicable to common stockholders and basic and diluted
earnings per share would have been as follows:

Nine months
Years ended ended
------------------------------------- February 23,
May 28, 1999 May 26, 2000 May 25, 2001 2001
------------ ------------ ------------ ------------
(Unaudited)

Net loss applicable to common stockholders $(1,013,816) $(4,507,424) $(4,800,373) $(3,813,866)
Basic and diluted earnings per share...... $ (0.11) $ (0.46) $ (0.44) $ (0.35)

F-8

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Goodwill and other intangible assets are comprised of the cost of business
acquisitions in excess of the fair value assigned to the net tangible assets
acquired, customer lists and deferred financing costs. The determination of
fair value of acquired assets were estimated by management with the assistance
of third party valuation experts when appropriate. For all business
combinations subsequent to June 30, 2001 the Company applied the provisions of
SFAS No. 141 "Business Combination." SFAS 141 requires the use of the purchase
method of accounting for all business combinations. Goodwill will initially be
recognized as an asset and measured as the excess of the cost of the acquired
entity over the net of the amounts assigned to assets acquired and liabilities
assumed. Intangible assets other than goodwill will be recognized as an asset
apart from goodwill if that asset arises from contractual or other legal
rights. Prior to the adoption of SFAS No. 142 goodwill was amortized on a
straight-line basis over 10 to 20 years. Customer lists are amortized on a
straight-line basis over 10 years, the estimated economic useful life of the
acquired customers, and deferred financing costs are amortized on a
straight-line basis over the life of the related financing.

Revenue Recognition

Revenue is recognized as payroll and related services are rendered. In
connection with its integrated payroll processing and payroll tax filing
services, the Company collects funds from clients for payment of payroll taxes
and other withholdings, holds such funds until payment is due, handles all
regulatory correspondence and amendments, absorbs regulatory charges for
certain penalties and interest, remits the funds to the appropriate taxing
authority and files federal, state and local tax returns. In addition to fees
charged to clients for these services, the Company receives interest during the
interval between the receipt and disbursement of funds by investing the
collected but unremitted funds. Investment income on payroll funds invested is
recorded as earned as revenue in the consolidated statements of operations, as
the collection, holding and remittance of these funds is a significant
component of the Company's service to its clients. These collected but
unremitted funds and the related liability to clients for such funds are
included in the accompanying consolidated balance sheets as current assets and
current liabilities.

Income Taxes

The Company accounts for deferred taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using their enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered.

Stock-based Compensation Cost

In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has elected to account for stock-based
compensation in accordance with Accounting Principles Board Opinion (APB) No.
25 "Accounting for Stock Issued to Employees," and, accordingly, does not
recognize compensation expense for its plans to the extent employee options are
issued at exercise prices equal to or greater than the fair market value at the
date of grant. The Company discloses the summary of pro forma effects to
reported net income and earnings per share as if the Company elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123.

Commissions to Associates

The Company provides all centralized back-office payroll processing and tax
filing services for associate offices including the billing and collection of
processing fees and the collection and remittance of payroll and payroll tax
funds pursuant to the Company's contracts with its customers. Losses incurred
in connection with the

F-9

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

collection of these amounts are the responsibility of the Company. Commissions
earned by associates are based on the volume of payrolls processed. Revenue
generated from customers as a result of these relationships and commissions
paid to associates are included in the consolidated statements of operations as
payroll service revenue and selling, general and administrative expense,
respectively. Associate payroll service revenue and related commissions were as
follows:

Years ended Nine months ended
-------------------------------------- -------------------------
February 23, February 22,
May 28, 1999 May 26, 2000 May 25, 2001 2001 2002
------------ ------------ ------------ ------------ ------------
(Unaudited)

Payroll service revenue $14,292,854 $16,486,611 $15,029,723 $11,545,795 $11,968,089
Commissions............ $ 8,654,603 $ 9,525,679 $ 9,267,577 $ 7,097,805 $ 7,420,107

Conversion Expenses

Conversion expenses are costs associated with converting customers acquired
from other payroll processing systems onto the Company's processing system.
Conversion expenses primarily include salaries and benefits of Company
employees directly performing conversion procedures, salaries, benefits and
stay bonuses paid to employees of acquired companies performing duplicative
functions, such as automated clearing house (ACH) processing, tax processing
and information technology support, who will not be retained after conversion
is completed, payment of salaries and benefits of our employees directly
performing conversion procedures, travel costs and lease expenses of duplicate
facilities. The Company will only continue to incur conversion expenses until
acquired clients have been converted and in future periods to the extent that
the Company completes additional acquisitions.

Conversion expenses were as follows:

Salaries and benefit of Company
employees and contractors........... $ 580,466 $ 249,404 $ 861,744 $ 662,228 $ 782,779
Salaries, benefits and stay bonuses of
acquired company employees
performing duplicative functions.... -- 230,167 646,656 414,775 1,990,307
Travel................................ 292,424 195,623 333,408 198,535 233,710
Duplicate facilities and other........ 552,942 380,854 127,769 89,951 408,839
---------- ---------- ---------- ---------- ----------
$1,425,832 $1,056,048 $1,969,577 $1,365,489 $3,415,635
========== ========== ========== ========== ==========

Use of Estimates

The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
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 consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Because
of the use of estimates inherent in the financial reporting process, actual
results could differ from those estimates.

Advertising Expenses

The cost of advertising is expensed as incurred.

F-10

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Interim Financial Information

The consolidated interim statement of operations and cash flows for the
nine-month period ended February 23, 2001, together with the financial data and
other information for this period disclosed in these notes to the financial
statements, are unaudited. In the opinion of management, the interim financial
statements have been prepared on the same basis as the audited financial
statements and reflect all adjustments (consisting only of normal recurring
adjustments) necessary for the fair presentation of the interim results. Since
our business is seasonal, and we normally realize the largest portion of
revenues in our third quarter, the results of operations for the interim period
is not necessarily indicative of the results to be expected for any future
periods.

Recently Issued Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets," or SFAS No. 144. It supercedes SFAS No. 121
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
the Disposed of" and APB Opinion No. 30 "Reporting the Effects of Disposal of a
Segment of a Business." It establishes a single accounting model based upon the
framework of SFAS No. 121. It removes goodwill and intangible assets from its
scope. It describes a probability-weighted cash flow estimation approach to
deal with certain situations. It also establishes a "primary asset" approach to
determine the cash flow estimation period for a group of assets and liabilities
that represents the unit of accounting for a long-lived asset to be held and
used. The provisions of SFAS 144 are effective for fiscal years beginning after
December 15, 2001. The Company has not fully assessed the impact of the
adoption of SFAS 144 upon its financial positions or results of operations.

3. Client Payroll Funds Invested

Client payroll funds invested were as follows:

February 22,
May 26, 2000 May 25, 2001 2002
------------ ------------ ------------

Money market funds, cash equivalents and other $51,968,493 $ 38,293,406 $ 73,491,673
----------- ------------ ------------
Available-for-sale securities:
Corporate bonds............................ 8,174,503 1,471,001 1,022,280
U.S. government agency securities.......... 25,278,280 68,577,297 92,813,799
Mutual funds............................... 984,024 942,066 911,097
Other securities........................... 1,627,188 1,220,991 737,919
----------- ------------ ------------
Total available-for-sale...................... 36,063,995 72,211,355 95,485,095
----------- ------------ ------------
Total client payroll funds invested........... $88,032,488 $110,504,761 $168,976,768
=========== ============ ============

Unrealized gains and losses on the above available-for-sale investments were:

February 22,
May 26, 2000 May 25, 2001 2002
------------ ------------ ------------

Unrealized losses $2,371,464 $1,097,204 $353,432
Unrealized gains. -- 128,969 447,054

Realized gains related to available-for-sale securities included in revenue
in the consolidated statements of operations were approximately $338,101, $0,
$253,033, $0 (unaudited) and $351,250 for the years ending May 28, 1999, May
26, 2000, May 25, 2001 and the nine months ending February 23, 2001 and
February 22, 2002, respectively. There were no realized losses on
available-for-sale investments for any of the periods presented. Cost used in
determining realized gains and losses is based on specific identification.

F-11

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The fair value of available-for-sale securities at May 25, 2001 and February
22, 2002, by contractual maturity, is shown below:

February 22,
May 25, 2001 2002
------------ ------------

Due in one year or less............... $ 1,165,687 $ 99,000
Due after one year through five years. 6,332,839 587,200
Due after five years through ten years 63,462,539 93,749,242
Due after ten years................... 1,250,290 1,049,653
----------- -----------
$72,211,355 $95,485,095
=========== ===========

The Company is exposed to credit risk from the possible inability of
borrowers to meet the terms of their obligations. In addition, the Company is
exposed to interest rate risk as rate volatility will cause fluctuation in the
market value of investments held. The Company attempts to limit this risk
primarily by investing in A-rated or higher securities and in short- to
medium-term investments.

4. Recapitalization

On February 10, 1998, the Company entered into a Purchase and
Recapitalization Agreement (the "Recapitalization") between the Company, its
subsidiaries, and its stockholders in order to reconstitute the Company's
capital structure. In connection with the Recapitalization, the Company (a)
purchased 7,937 shares of old common stock, (b) exchanged 1,481 shares of old
common stock for newly issued Common Stock, Preferred Stock and Junior
Subordinated Debt, (c) sold newly issued Common Stock, Preferred Stock and
Junior Subordinated Debt and (d) acquired the remaining outstanding capital
stock of the subsidiaries not previously wholly-owned by the Company. The
Recapitalization and related transactions have been recorded at historical cost.

5. Acquisitions

During the fiscal years ending May 26, 2000 and May 25, 2001 and the
nine-month period ending February 22, 2002, the Company acquired the assets of
several payroll processing businesses. The acquisitions have been accounted for
using the purchase method of accounting. The purchase price has been allocated
to each acquisition as follows (all amounts in thousands except shares):

Client Payroll
Acquisition Shares Cash Working Fixed Customer --------------------
date issued(1) paid(2) capital(3) assets lists Goodwill Assets Obligations
----------- --------- ------- ---------- ------ -------- -------- -------- -----------

2000 Acquisitions Various 327,950 $ 4,702 $(1,134) $ 200 $ 1,575 $ 5,653 $ -- $ --
2001 Acquisitions Various 332,502 18,415 (1,057) 1,127 5,171 17,989 13,014 13,826
2002 Acquisitions Various -- 20,126 112 1,483 5,651 12,880 18,020 18,020

- --------

(1)Fair value of shares issued was $12.03 per share for 2001 acquisitions and
$4.50 per share for 2000 acquisitions.

(2)Including transaction fees.
(3)Excluding client payroll assets and obligations, including deferred tax
liabilities of $614 for 2000 acquisitions.

Prior to the adoption of SFAS 142, goodwill was amortized on a straight-line
basis over 10 to 20 years. Customer lists are amortized over 10 years, the
estimated average retention life. The Company uses the discounted cash flow
method to estimate the value of its customer list. As of February 22, 2002, the
allocation of purchase price for the above allocations is final.

F-12

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The acquisitions have been reflected in the Company's results since the date
of acquisition. Pro forma information has not been provided because the
acquisitions, both individually and in the aggregate, are not significant.

6. Basic and Diluted Earnings Per Share

Basic earnings per share is calculated by dividing net loss applicable to
common stockholders by the weighted average shares outstanding. Diluted
earnings per share is calculated similar to basic earnings per share, except
that the average shares outstanding are increased for the dilutive effect of
additional shares issuable upon the exercise of stock options and warrants. In
fiscal 1999, 2000 and 2001 and for the nine month periods ended February 23,
2001 and February 22, 2002, the Company incurred a net loss applicable to
common stockholders, as a result, the impact of stock options and warrants on
the earnings per share calculation was not dilutive.

Basic and diluted earnings per share computation are as follows:

Years ended Nine months ended
------------------------------------- ------------------------
February 23, February 22,
May 28, 1999 May 26, 2000 May 25, 2001 2001 2002
------------ ------------ ------------ ------------ ------------
(Unaudited)

Basic earnings per share:
Net income (loss)............. $ (890,781) $(4,404,446) $(5,425,134) $(4,132,171) $ 1,037,993
Preferred stock dividends..... (670,030) (825,174) (1,000,748) (739,000) (3,048,878)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
stockholders................ $(1,560,811) $(5,229,620) $(6,425,882) $(4,871,171) $(2,010,885)
Weighted average common
shares outstanding.......... 9,250,000 9,751,714 10,925,216 10,890,214 11,803,588
----------- ----------- ----------- ----------- -----------
Basic earnings per share......... $ (0.17) $ (0.54) $ (0.59) $ (0.45) $ (0.17)
=========== =========== =========== =========== ===========
Diluted earnings per share....... $ (0.17) $ (0.54) $ (0.59) $ (0.45) $ (0.17)
=========== =========== =========== =========== ===========

The following table summarizes the common stock equivalents not included in
the diluted earnings per share calculation because to do so would be
antidilutive for the periods:

Effect of common equivalent shares:
Stock options to purchase common
stock........................... 701,000 678,100 783,600 800,117 905,550
Warrants to purchase common stock. -- 1,069,772 1,069,772 1,069,772 1,069,772
------- --------- --------- --------- ---------
Total antidilutive common stock
equivalents..................... 701,000 1,747,872 1,853,372 1,869,889 1,975,322
======= ========= ========= ========= =========

F-13

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Property and Equipment

Property and equipment consist of the following:

Estimated
useful life February 22,
in years May 26, 2000 May 25, 2001 2002
----------- ------------ ------------ ------------

Land.......................................... -- $ 150,000 $ 150,000 $ 150,000
Buildings and improvements.................... 20-40 3,755,693 3,755,693 4,073,471
Data processing equipment and software........ 3-7 4,600,200 7,555,113 10,932,829
Furniture, fixtures and equipment............. 3-7 2,018,531 2,740,111 3,730,907
----------- ----------- -----------
10,524,424 14,200,917 18,887,207
Less accumulated depreciation and amortization 3,637,373 5,603,126 7,191,264
----------- ----------- -----------
Net property and equipment................. $ 6,887,051 $ 8,597,791 $11,695,943
=========== =========== ===========

Building and improvements include $178,674 of leasehold improvements at
February 22, 2002.

Depreciation expense was $600,397, $1,443,528, $1,965,753, $1,375,203
(unaudited) and $1,622,050 for the years ended May 28, 1999, May 26, 2000, May
25, 2001 and the nine months ended February 23, 2001 and February 22, 2002,
respectively.

8. Goodwill and Other Intangibles

Goodwill and other intangibles consist of the following:

Accumulated
Gross amortization Net
----------- ------------ -----------

May 26, 2000
Goodwill................................ $16,018,562 $(1,382,203) $14,636,359
=========== =========== ===========
Customer list........................... $ 5,551,738 $ (968,575) $ 4,583,163
Deferred financing and acquisition costs 1,325,236 (567,565) 757,671
----------- ----------- -----------
Total other intangibles.............. $ 6,876,974 $(1,536,140) $ 5,340,834
=========== =========== ===========
May 25, 2001
Goodwill................................ $34,006,329 $(3,103,533) $30,902,796
=========== =========== ===========
Customer list........................... $10,722,938 $(1,737,083) $ 8,985,855
Deferred financing and acquisition costs 1,519,869 (811,301) 708,568
----------- ----------- -----------
Total other intangibles.............. $12,242,807 $(2,548,384) $ 9,694,423
=========== =========== ===========
February 22, 2002
Goodwill................................ $46,900,967 $(3,074,153) $43,826,814
=========== =========== ===========
Customer list........................... $16,627,804 $(2,919,177) $13,708,627
Deferred financing and acquisition costs 1,546,677 (1,032,886) 513,791
----------- ----------- -----------
Total other intangibles.............. $18,174,481 $(3,952,063) $14,222,418
=========== =========== ===========

At May 26, 2000, May 25, 2001 and February 22, 2002, deferred financing and
acquisition costs include $37,998, $137,994 and $0, respectively, of
acquisition costs that are not amortized. Upon completion of a transaction,
acquisition costs are included in the allocation of purchase price.

F-14

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As of February 22, 2002, the amounts of gross goodwill, customer list and
deferred financing and acquisition deductible for tax purposes are $33,083,198,
$11,153,066 and $1,545,074, respectively.

Amortization expense was $1,216,822, $1,570,817, $2,733,574, $1,953,685
(unaudited) and $1,399,372 for the years ending May 28, 1999, May 26, 2000, May
25, 2001 and for the nine months ending February 23, 2001 and February 22,
2002, respectively.

As of May 25, 2001, the estimated aggregate intangible amortization expense
for the next five fiscal years is as follows:

2002 $1,833,510
2003 1,833,510
2004 1,833,510
2005 1,750,826
2006 1,662,780

9. Debt

Long-term and Junior Subordinated Debt consists of the following:

February 22,
May 26, 2000 May 25, 2001 2002
------------ ------------ ------------

Senior Acquisition Line of Credit......... $11,550,352 $29,941,660 $28,618,848
Senior Term Loan.......................... 11,778,099 8,778,099 6,878,099
Revolving Credit Facility................. -- -- 4,000,000
12% Payment-in-Kind Junior
Subordinated Debt........................ 20,321,323 21,756,652 --
Unearned compensation related to 12%
Payment-in-Kind Junior
Subordinated Debt........................ (744,230) (647,157) --
Other..................................... 15,712 -- --
----------- ----------- -----------
42,921,256 59,829,254 39,496,947
Current portion of long-term debt......... 3,015,711 4,322,812 9,750,000
----------- ----------- -----------
Long-term and Junior Subordinated Debt. $39,905,545 $55,506,442 $29,746,947
=========== =========== ===========

Senior Credit Facility

On September 6, 2001, the Company modified its senior credit facility to
extend the principal repayment schedule for both the term loan and the
acquisition line of credit and provided for a $5,000,000 revolving credit
facility which is available through February 10, 2003.

During 1998, the Company entered into a $50,000,000 Credit Agreement with a
syndicate of financial institutions, comprised of a $15,000,000 Term Loan and a
$35,000,000 Acquisition Line of Credit (collectively, the "Senior Credit
Facility"). In fiscal year 2000, the Company made an unscheduled $3,000,000
payment in connection with stock sale, which reduced the Acquisition Line of
Credit to $32,000,000. Under the terms of the Credit Agreement, the Company
must comply with certain restrictive financial covenants including interest
coverage and leverage ratio tests. In addition, the Company is restricted from
taking certain corporate actions and

F-15

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

making certain payments. The Senior Credit Facility is collateralized by
substantially all of the assets and capital stock of the Company and its
subsidiaries. In connection with obtaining the Senior Credit Facility, the
Company incurred $1,183,321 in fees which have been capitalized as deferred
debt issuance costs and are amortized over the term of the debt.

The Senior Credit Facility provides that a change in control, as defined in
the Credit Agreement, constitutes an event of default, which could require the
immediate repayment of the Senior Credit Facility.

The Company may elect to voluntarily repay either the Term Loan or the
Acquisition Line of Credit at any time. Certain events, such as asset sales,
the generation of Excess Cash Flow (as defined in the Credit Agreement) and the
issuance of securities, including an initial public offering, trigger mandatory
partial or total prepayment of the Senior Credit Facility.

Term Loan

Under the Term Loan, principal payments are due quarterly (other than with
respect to the last installment, which is due on February 10, 2003), at
increasing amounts (ranging from $200,000 to $1,828,000) plus interest through
February 10, 2003. Advances bear interest at the Company's option at a rate
equal to either (i) 2.50% per annum plus the LIBOR Rate or (ii) 1.25% per annum
plus the Base Rate (a rate equal to the higher of (a) the Prime Rate and (b)
the Federal Funds Rate plus 1/2 of 1%). Under terms of the credit agreement,
the Company must comply with certain restrictive covenants including interest
coverage and leverage ratio tests. At May 25, 2001 and February 22, 2002 the
interest rate on the Term Loan was 7.7% and 4.7%, respectively.

Acquisition Line of Credit

Under the Acquisition Line of Credit, funds were allowed to be utilized for
acquisitions permitted by the Lenders. Payments are due quarterly beginning on
June 1, 2001 (other than with respect to the last installment, which is due on
February 10, 2005), at increasing amounts (ranging from $100,000 to
$4,623,000), plus interest through February 10, 2005. Advances under the
Acquisition Line of Credit bear interest at the Company's option at a rate
equal to either (i) 3.00% per annum plus the LIBOR Rate or (ii) 1.75% per annum
plus the Base Rate (a rate equal to the higher of (a) the Prime Rate and (b)
the Federal Funds Rate plus 1/2 of 1%). The Company also paid annual commitment
fees equal to 0.5%, paid monthly, of the outstanding unutilized acquisition
line of credit. At May 25, 2001 and February 22, 2002, the interest rate on the
Acquisition Line of Credit was 7.1% and 4.9%, respectively.

Revolving Credit Facility

Under the terms of the $5,000,000 revolving credit facility the Company must
comply with certain financial covenants prior to being able to draw funds.
Interest on amounts borrowed is payable monthly at either LIBOR plus 3.25% or
base rate plus 2.0%. An annual commitment fee equal to 1/2 of 1% of available
funds is payable monthly. The weighted average interest rate on the revolving
credit facility was 5.1% for the nine months ended February 22, 2002. At
February 22, 2002 the interest rate on the Revolving Credit Facility was 6.8%.

12% Payment-in-Kind Junior Subordinated Notes

The Junior Subordinated Notes (the "Notes") bear interest at 12% per annum,
which interest accrues quarterly through the maturity date on February 10,
2008. Interest which is accrued is payable in cash to Note holders ninety days
subsequent to year-end, at a rate of 44% of accrued interest for the fiscal
year, unless

F-16

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

otherwise limited by the Senior Credit Facility. The Company may redeem the
Notes anytime prior to the maturity date at face value plus any accrued
interest payable thereon. The Notes contain covenants similar to the Senior
Credit Facility.

Effective at the beginning of fiscal 2002, holders of the Notes exchanged
all outstanding Notes, including accrued but unpaid interest thereon, for
21,756,652 shares of preferred stock. The exchange was recorded at fair value
with no resulting gain or loss.

In connection with the recapitalization of the Company in 1998, shares of
the Company's existing Common Stock held in trust for the benefit of an officer
of the Company were exchanged for $970,735 of Notes. The face value of these
Notes was recorded as unearned compensation, and is presented on the Company's
balance sheet as a reduction to the carrying value of the Notes. The unearned
compensation is being amortized on a straight-line basis over 10 years. Upon
exchange of the Notes for preferred stock, the remaining unamortized unearned
compensation was reclassified as a reduction of preferred stock.

Future Payments

As of May 25, 2001, the scheduled future maturities of long-term debt
through fiscal 2005 are as follows:

2002 $ 4,322,812
2003 6,928,099
2004 8,980,000
2005 18,488,848
-----------
$38,719,759
===========

10. Capital Stock

Preferred Stock

Preferred stock activity (excluding unearned compensation) was as follows:

Preferred stock
----------------------
Shares Amount
---------- -----------

Balance at May 29, 1998......................... 5,417,096 $ 5,583,584
Dividends....................................... 670,030
---------- -----------
Balance at May 28, 1999......................... 5,417,096 $ 6,253,614
========== ===========
Shares issued................................... 894,737 894,737
Dividends....................................... 825,174
---------- -----------
Balance at May 26, 2000......................... 6,311,833 $ 7,973,525
========== ===========
Dividends....................................... 1,000,748
---------- -----------
Balance at May 25, 2001......................... 6,311,833 $ 8,974,273
========== ===========
Shares issued in exchange for subordinated notes 21,756,652 21,756,652
Shares issued................................... 2,400,000 2,400,000
Dividends....................................... -- 3,048,878
---------- -----------
Balance at February 22, 2002.................... 30,468,485 $36,179,803
========== ===========

F-17

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Holders of the Company's preferred stock are entitled to receive cumulative
dividends payable at the rate of 12% per annum on the sum of the Liquidation
Value of such preferred stock. Liquidation value of the preferred stock is
$1.00 per share. In the event of liquidation of the Company, holders of the
preferred stock are entitled to receive an amount per share equal to the
Liquidation Value prior and in preference to any distribution of Company assets
to holders of common stock, plus all declared and unpaid dividends. The
preferred stock has no voting rights, and is not convertible into common stock.
The preferred stock may be redeemed at liquidation value at the option of the
majority of the preferred stockholders after February 2018.

In connection with the Recapitalization, shares of the Company's existing
common stock held in trust for the benefit of an officer of the Company were
exchanged for $346,691 of preferred stock. The face value of this Preferred
Stock was recorded as unearned compensation, and is presented on the Company's
balance sheet as a reduction of the carrying value of the Preferred Stock. The
unearned compensation is being amortized on a straight-line basis over 15
years. Unamortized unearned compensation was $323,578, $306,244, $288,909 and
$850,260 as of May 28, 1999, May 26, 2000, May 25, 2001 and February 22, 2002,
respectively. The unamortized unearned compensation related to the 12%
payment-in-kind junior subordinated notes was reclassified as a reduction of
preferred stock upon completion of the exchange as discussed in Note 9.

Stock Option Plan

In February 1998, the Company adopted the 1998 Key Employees Stock Option
Plan, which authorizes the granting of stock options by a committee of the
Board of Directors for up to a maximum of 750,000 shares of Common Stock.
Effective January 1, 2000 the Company adopted the 2000 Management and Sales
Employees Stock Option Plan, which authorizes the granting of options up to a
maximum of 100,000 shares of common stock. Effective January 1, 2001 the
Company adopted the 2001 Management and Sales Employees Stock Option Plan which
authorized the granting of options up to a maximum 200,000 shares of common
stock. Options granted under the Plans vest ratably over a period of three to
five years from the date of grant and are exercisable over a period of not more
than ten years from the date of grant. In addition, shares issued in
conjunction with the exercise of stock options under the Plans are generally
subject to restrictions on the sale or transfer of such shares.

Stock option activity was as follows:

Weighted
average
exercise
Options price
-------- --------

Balance May 29, 1998 600,000 $ 0.15
Granted................. 218,000 0.44
Forfeited............... (117,000) 0.15
--------
Balance May 28, 1999 701,000 0.24
Granted................. 54,600 3.05
Forfeited............... (27,500) 0.17
Exercised............... (50,000) 0.15
--------
Balance May 26, 2000 678,100 0.48
Granted................. 129,400 12.08
Forfeited............... (23,900) 1.20
--------
Balance May 25, 2001 783,600 2.37
Granted................. 160,450 16.50
Forfeited............... (30,167) 12.07
Exercised............... (8,333) 12.03
--------
Balance February 22, 2002 905,550 4.59
========

F-18

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Options outstanding at May 25, 2001 were as follows:

Weighted average Options exercisable
------------------------------- ----------------------------------
Range of Options Remaining Shares subject to Weighted average
exercise price outstanding Exercise price contractual life options exercise price
- -------------- ----------- -------------- ---------------- ----------------- ----------------

$0.15--$1.00 647,000 $ 0.30 7.0 344,000 $ 0.24
$9.00--$16.50 136,600 $11.98 9.3 2,160 $10.77

The estimated average fair value of options granted during 2001, 2000 and
1999 were $3.13, $0.82 and $0.12 on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions:

1999 2000 2001
------- ------- -------

Expected stock price volatility 0% 0% 0%
Risk-free interest rate........ 6.5% 6.5% 6.0%
Expected life of options....... 5 years 5 years 5 years
Expected annual dividend....... none none none

If the fair value method prescribed by FAS No. 123 had been used, pro forma
net loss and net loss per common share would have been as follows:

1999 2000 2001
----------- ----------- -----------

Net loss applicable to common stockholders--pro forma.......... $(1,566,543) $(5,242,453) $(6,502,027)
Net loss applicable to common stockholders per share (basic and
diluted)..................................................... $ (0.17) $ (0.54) $ (0.60)

Common Stock and Common Stock Warrant

F-19

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

According to the terms of the warrant, upon the consummation of the initial
public offering, the warrant will terminate and a formula will be used to
determine the number of shares exercisable under the performance-based portion
of the warrant. The number of active clients used to determine the number of
shares of common stock purchasable is based on the number of active clients
secured during the quarter before the initial public offering multiplied by the
remaining twelve quarters in the initial term of the agreement. The purpose of
this provision is to terminate any performance awards after the initial public
offering without limiting the award that NEBS may have earned had the agreement
run its full term. The maximum number of shares purchasable under the
performance-based portion of the warrant is 748,840 shares. We currently
estimate that the performance-based portion of the NEBS warrant will become
exercisable for 641,863 shares, of which 106,977 shares will become exercisable
in the quarter ended May 30, 2002 and the remainder upon the consummation of
this offering.

11. Related Party

As discussed in Common Stock and Common Stock Warrant in Note 10, the
Company has entered into an alliance agreement with a stockholder for the
stockholder to sell payroll services under a private label processed by the
Company. The Company is responsible for providing all payroll processing and
tax filing services to the accounts sold under the private label program,
including the billing and collection of processing fees. Losses incurred in
connection with the collection of these amounts are the responsibility of the
Company. In addition to the warrant described in Note 10, the stockholder is
paid a commission based on the value of services provided to the private label
accounts. Commissions paid to the stockholder are included in selling, general
and administrative expenses.

Private label payroll service revenue and related commissions were as
follows:

Years ended Nine months ended
-------------------------------------- -----------------------------------
May 28, 1999 May 26, 2000 May 25, 2001 February 23, 2001 February 22, 2002
------------ ------------ ------------ ----------------- -----------------
(Unaudited)

Payroll service revenues $-- $3,846 $539,972 $247,254 $1,621,777
Commissions............. -- 1,000 152,800 71,733 412,216

12. Income Taxes

Income tax expense (benefit) consists of the following:

Nine months ended
Years ended -------------------------
-------------------------------------- February 23, February 22,
May 28, 1999 May 26, 2000 May 25, 2001 2001 2002
------------ ------------ ------------ ------------ ------------
(Unaudited)

Current:
Federal.................... $(350,000) $(319,000) $ -- $ -- $ --
State...................... (30,000) (38,000) 44,000 34,000 --
--------- --------- ------- ------- ----
(380,000) (357,000) 44,000 34,000 --
--------- --------- ------- ------- ----
Deferred:
Federal.................... (52,000) (334,000) -- -- --
State...................... (7,000) (110,000) -- -- --
--------- --------- ------- ------- ----
(59,000) (444,000) -- -- --
--------- --------- ------- ------- ----
Income tax expense (benefit) $(439,000) $(801,000) $44,000 $34,000 $ --
========= ========= ======= ======= ====

F-20

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A reconciliation of the differences between income tax benefit at statutory
rates and the effective tax rate is as follows:

Nine months ended
Years ended ------------------------
------------------------------------- February 23, February 22,
May 28, 1999 May 26, 2000 May 25, 2001 2001 2002
------------ ------------ ------------ ------------ ------------
(Unaudited)

Tax benefit on income at statutory rates $(452,000) $(1,770,000) $(1,892,000) $(1,395,000) $ 353,000
State taxes, net of federal tax benefit. (48,000) (188,000) (316,000) (114,000) 38,000
NOL utilized............................ -- (299,000) -- -- --
Permanent items......................... 61,000 32,000 258,000 209,000 133,000
Miscellaneous........................... -- 48,000 8,000 2,000 --
Valuation allowance..................... -- 1,376,000 1,986,000 1,332,000 (524,000)
--------- ----------- ----------- ----------- ---------
$(439,000) $ (801,000) $ 44,000 $ 34,000 $ --
========= =========== =========== =========== =========

The tax effect of significant temporary differences which result in deferred
tax assets are as follows:

February 22,
May 26, 2000 May 25, 2001 2002
------------ ------------ ------------

Current:
Allowance for doubtful accounts............................ $ 34,000 $ 55,000 $ 35,000
Investment allowances...................................... 113,000 151,000 81,000
Compensated absences....................................... 10,000 19,000 74,000
Accrued expenses........................................... -- 131,000 82,000
Other...................................................... (19,000) 145,000 17,000
----------- ----------- -----------
Total current............................................ 138,000 501,000 289,000
----------- ----------- -----------
Noncurrent:
Deferred compensation...................................... 100,000 143,000 280,000
Unrealized valuation adjustment (reflected in statements of
stockholder's deficit)................................... 901,000 364,000 (35,000)
NOL carryforward............................................ 1,752,000 3,216,000 3,298,000
AMT credits................................................. -- 62,000 62,000
Fixed assets................................................ -- -- (151,000)
Intangible asset............................................ (614,000) (498,000) (897,000)
----------- ----------- -----------
Total noncurrent......................................... 2,139,000 3,287,000 2,557,000
----------- ----------- -----------
2,277,000 3,788,000 2,846,000
Valuation allowance......................................... (2,277,000) (3,788,000) (2,846,000)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========

The Company follows the provisions of SFAS No. 109, "Accounting for Income
Taxes." Under SFAS No. 109, deferred tax assets or liabilities are computed
based on the differences between the financial statement and income tax bases
of assets and liabilities using the current tax rates. Deferred income tax
expenses or credits are based on changes in the asset or liability from period
to period.

Due to the uncertainty surrounding the timing of the realization of the
deferred tax assets, the Company has recorded a full valuation allowance
against this otherwise recognizable asset.

F-21

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As of February 22, 2002, the Company has approximately $8,768,000 in net
operating loss carryforwards available to offset future taxable income. The net
operating loss carryforwards expire through the year 2022.

Under the Tax Reform Act of 1986, the utilization of a corporation's net
operating loss carryforwards is limited following a greater than 50% change in
ownership within a three year period. Due to the Company's current and
subsequent equity transactions, the Company's net operating loss carryforwards
may be subject to an annual limitation. This annual limitation is determined by
multiplying the market value of the Company on the date of ownership change (as
defined by the Internal Revenue Code) by the federal long-term tax exempt rate.
Any unused annual limitation may be carried forward to future years for the
balance of the net operating loss carryforward period. Of the total loss
available, approximately $765,000 is subject to annual limitations due to
certain cumulative changes in the ownership interest of significant
stockholders in one of the subsidiaries over a three-year period in excess of
50%.

13. Commitments

Employee Benefits

The Company has established a 401(k) plan that is funded by employee
withholdings, with administrative fees paid by the Company. Effective June 1,
1998, the Company provides a partial matching contribution, at the rate of 50%
of the employee's contribution up to 4% of the employee's salary. Contribution
expense was approximately $0, $97,000, $165,000, $116,988 (unaudited) and
$219,437 for the years ended
May 28, 1999, May 26, 2000, May 25, 2001 and the nine-month periods ended
February 23, 2001 and
February 22, 2002, respectively.

Basic Commitments

As of May 25, 2001 commitments for rental payments for each of the next five
fiscal years and thereafter under noncancelable operating leases primarily for
facilities are as follows:

2002................................... $1,189,746
2003................................... 994,941
2004................................... 921,310
2005................................... 699,540
2006................................... 224,814

Total rentals under cancelable and noncancelable leases charged to expense,
principally leased facilities, were approximately $447,710, $827,194,
$1,230,274, $885,006 (unaudited) and $1,423,357 for the years ended May 28,
1999, May 26, 2000, May 25, 2001 and the nine months ended February 23, 2001
and February 22, 2002, respectively.

F-22

ADVANTAGE PAYROLL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. Supplemental Disclosure of Cash Flow Information

Supplemental cash flow information is presented below:

Cash paid for:
Income taxes, net of refunds.......... $ 226,300 $ (257,185) $ (374,391) $ (107,188) $ 40,059
Interest.............................. 2,201,780 2,784,000 4,141,411 3,540,142 3,385,483
Supplemental cash flow disclosures:
Preferred stock dividend-in-kind...... 1,063,603 825,174 1,000,748 739,000 3,048,878
Payroll processing assets acquired and
liabilities assumed (net of cash
acquired of $87,094 in 2000 and
$125,719 in 2001):
Working capital..................... -- (829,370) (1,994,680) (1,518,634) (131,588)
Fixed assets........................ -- 201,500 1,126,839 1,150,626 1,482,910
Goodwill and other intangibles...... -- 7,182,088 23,158,967 22,663,755 18,483,518
Deferred taxes...................... -- (614,000) --
Common stock issued in connection
with purchase of payroll processing
assets.............................. -- 1,472,558 3,999,999 3,999,999 --
Note receivable issued for sale of
software............................ 459,970 -- -- -- --
Write-off of intangible assets related
to software sold.................... 315,553 -- -- -- --
Exchange of junior subordinated notes
for preferred stock................. -- -- -- -- 21,756,652

15. Subsequent Events

On February 25, 2002, the Company acquired an associate payroll processing
operation for approximately $1,750,000 in cash and the issuance of 48,000
shares of common stock valued at $19.00 per share resulting in a total purchase
price of approximately $2.7 million.

In March 2002, the principal stockholder of the Company amended and restated
an incentive compensation agreement with certain executives of the Company
originally entered into in February 1998 in order to allow the Company to
record a one-time pretax, non-cash compensation charge at the time of the
Company's initial public offering. The amended and restated agreement entitles
the executives to receive a fixed number of shares of common stock of the
Company currently owned by the principal stockholder in the event that the
Company completes an initial public offering of its common stock by July 31,
2002. The shares of stock will be held in a trust for the benefit of the
executives and will be distributed to the executives on a pro rata basis
immediately following any distribution subsequent to the initial public
offering by the principal stockholder to its general and limited partners of
cash, securities or other property received by the principal stockholder on
account of its security ownership in the Company. Upon the tenth anniversary of
the consummation of the Company's initial public offering, the trustee will
distribute to the executives the remainder of the trust assets. Once the trust
is

F-23

created and the shares are transferred, each executive's right to receive
distributions from the trust is unconditional and irrevocable, whether he or
she remains employed by the Company. As of February 22, 2002, the Company had
not recorded any compensation charges related to this agreement. While the
Company will not actually bear any cash expense or issue any additional shares
in connection with this transfer, the Company will be required under applicable
accounting rules to record a one-time pretax, noncash compensation charge in
the quarter the Company's initial public offering is consummated as a result of
this agreement. Based on an assumed initial offering price of $19.00, the
midpoint of the range set forth on the cover of this prospectus, the Company
will incur a $5.7 million charge in the quarter the initial public offering is
consummated as a result of the amended and restated incentive compensation
agreement.

F-24

[Inside back cover art: map of nationwide office network; list of services;
Advantage logos.]

[GRAPHIC]

Map

5,500,000 Shares

[LOGO] Advantage Payroll Services

Common Stock

---------------------
PROSPECTUS
, 2002
---------------------

LEHMAN BROTHERS

CIBC WORLD MARKETS

ROBERT W. BAIRD & CO.

WACHOVIA SECURITIES

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following is a statement of estimated expenses, to be paid solely by the
Registrant, of the issuance and distribution of the securities being registered
hereby:

Securities and Exchange Commission registration fee................ $ 13,225
NASD filing fee.................................................... 14,875
Blue Sky fees and expenses (including attorneys' fees and expenses) 7,500
Printing expenses.................................................. 350,000
Accounting fees and expenses....................................... 500,000
Transfer agent's fees and expenses................................. 20,000
Legal fees and expenses............................................ 500,000
Miscellaneous expenses............................................. 94,400
----------
Total....................................................... $1,500,000
==========

Item 14. Indemnification of Directors and Officers.

The Registrant is incorporated under the laws of the State of Delaware.
Section 145 ("Section 145") of the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (the "DGCL"), provides
that a Delaware corporation may indemnify any persons who were, are or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the
fact that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, were or are threatened
to be made, a party to any threatened, pending or completed action or suit by
or in the right of the corporation by reasons of the fact that such person was
a director, officer, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.

Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.

The Registrant's certificate of incorporation provides that to the fullest
extent permitted by the DGCL and except as otherwise provided in its bylaws,
none of the Registrant's directors shall be liable to it or its

II-1

stockholders for monetary damages for a breach of fiduciary duty. In addition,
the Registrant's certificate of incorporation provides for indemnification of
any person who was or is made or threatened to be made a party to any action,
suit or other proceeding, whether criminal, civil, administrative or
investigative, because of his or her status as a director or officer of the
Registrant, or service as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise at the
request of the Registrant to the fullest extent authorized under the DGCL
against all expenses, liabilities and losses reasonably incurred by such
person. Further, all of the directors and officers of the Registrant are
covered by insurance policies maintained and held in effect the Registrants
against certain liabilities for actions taken in their capacities as such,
including liabilities under the Securities Act.

Item 15. Recent Sales of Unregistered Securities.

During the last three years, we have issued the following securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act"):

On July 23, 1999, we issued 81,987.5 shares of common stock and 245,962.5
shares of common stock, which had an aggregate value of approximately
$1,476,000, to Addie M. Rutledge and J. Stokes Mayfield, respectively, in
connection with our acquisition all of the outstanding stock of Allied Payroll
Services Inc.

On September 30, 1999, we issued 473,684 shares of preferred stock and
$1,326,316 junior subordinated notes to Willis Stein & Partners, L.P. for an
aggregate of $1,800,000 in cash.

On December 3, 1999, we issued 421,053 shares of preferred stock and
$1,178,947 junior subordinated notes to Willis Stein & Partners, L.P. for an
aggregate of $1,600,000 in cash.

On March 23, 2000, we sold 1,069,772 shares of our common stock to NEBS for
$12.03 per share for an aggregate purchase price of $12,869,357. On August 9,
2001, we sold an additional 1,069,772 shares of our common stock to NEBS and a
warrant to purchase shares of common stock for an aggregate purchase price of
$17,651,238.

On June 12, 2000, we issued 11,222 shares of common stock, which had a value
of approximately $135,000, to Michael and Jan Nadeau, JTWROS, as partial
consideration in connection with the purchase of an associate office run by the
Nadeaus.

On July 17, 2000, we issued 20,781 shares of common stock, which had a value
of approximately $250,000, to Charles J. Glavin, Jr. as partial consideration
in connection with the purchase of an associate office run by Mr. Glavin.

On September 21, 2000, we issued 266,002 shares of common stock, which had a
value of approximately $3,200,000, to the sellers of Related Payroll Services,
Inc. as partial consideration in connection with our acquisition of such
business.

On October 6, 2000, we issued 24,938 shares of common stock, which had a
value of approximately $300,000, to Raynold A. Gauvin as partial consideration
in connection with the purchase of an associate office run by Mr. Gauvin.

On January 16, 2001, we issued 9,559 shares of common stock, which had a
value of approximately $115,000, to Richard A. and Pamela Rudd, JTWROS, as
partial consideration in connection with the purchase of an associate office
run by the Rudds.

On May 25, 2001, we sold 692,999 shares of preferred stock to W. Scott
Adair, 1,149,395 shares of preferred stock to Nancy M. French, 1,217,920 shares
of preferred stock to The Lathrop Trust, 34,148 shares of preferred stock to
Edward Levy, 692,999 shares of preferred stock to Thomas G. Poling, 46,954
shares of preferred stock to Hollis W. Rademacher and 17,922,237 shares of
preferred stock to Willis Stein & Partners, L.P. in exchange for junior
subordinated notes, for an aggregate purchase price of $21,756,652 including
accrued but unpaid interest thereon, held by such persons.

II-2

On July 20, 2001, we sold 800,000 shares of preferred stock to Willis Stein
& Partners, L.P. in exchange for $0.8 million in cash.

On August 9, 2001, we sold 1,600,000 shares of preferred stock to Willis
Stein & Partners, L.P. in exchange for $1.6 million in cash.

On February 25, 2002, we issued 48,000 shares of common stock, which had a
value of approximately $1,121,000, to Mark and Judy Chase as partial
consideration in connection with the purchase of the associate office run by
the Chases.

During the last three years, certain current and former employees acquired a
total of 58,533 shares of common stock for an aggregate purchase price of
$110,156 through the exercise of stock options.

The sales and issuances listed above were deemed exempt from registration
under the Securities Act by virtue of Section 4(2) and Rule 701 thereof. Except
as otherwise indicated, the Company received investment representations from
each purchaser, including representations that such purchaser was an
"accredited investor" as defined in Rule 501(a) under the Securities Act, and
based its reliance on Section 4(2) on those representations. Certain defined
terms used herein not otherwise defined have the meanings ascribed to them in
the prospectus, which forms a part of this registration statement.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

Reference is made to the attached Exhibit Index.

(b) Financial Statement Schedules.

The following financial statement schedules are included in this
Registration Statement:

Schedule II--Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore has been omitted.

Item 17. Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

II-3

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424 (b) (1) or (4) or
497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Advantage
Payroll Services, Inc. has duly caused this Amendment No. 3 to Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Auburn, State of Maine, on May 20, 2002.

ADVANTAGE PAYROLL SERVICES, INC.

*
By: _______________________________
Name: Charles W. Lathrop, Jr.
Title: Chairman, President and Chief
Executive
Officer

* * * *

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-1 has been signed by the following
persons in the capacities indicated on

May 20, 2002.

Signature Title
--------- -----

* Chairman, President and Chief Executive Officer
----------------------- (Principal Executive Officer)
Charles W. Lathrop, Jr.

/S/ PETER J. MCGRAIL Vice President, Chief Financial Officer and Assistant
----------------------- Secretary (Principal Financial and Accounting
Peter J. McGrail Officer)

* Director
-----------------------
George P. Allman

* Director
-----------------------
Daniel M. Gill

* Director
-----------------------
Lawrence R. Pugh

* Director
-----------------------
Hollis W. Rademacher

* Director
-----------------------
John R. Willis

/S/ PETER J. MCGRAIL
*By: __________________
As Attorney-in-Fact

II-5

EXHIBIT INDEX

Exhibit
No. Description
- ------- -----------

1.1 Form of Underwriting Agreement*

3.1 Form of Restated Certificate of Incorporation*

3.2 Form of Restated Bylaws*

4.1 Specimen Common Stock Certificate*

4.2 Registration Rights Agreement dated February 10, 1998, as amended*

4.3 Registration Rights Agreement dated July 23, 1999*

5.1 Opinion of Kirkland & Ellis*

10.1 Charles W. Lathrop, Jr. Employment Agreement*

10.2 Peter J. McGrail Employment Agreement*

10.3 Nancy M. French Employment Agreement*

10.4 David R. Meagher Employment Agreement*

10.5 1998 Key Employees Stock Option Plan*

10.6 Management and Sales Employees Stock Option Plan*

10.7 2001 Management and Sales Employees Stock Option Plan*

10.8 Form of 2002 Stock Option Plan*

10.9 Form of Indemnification Agreement entered into between Advantage and its directors and executive
officers*

10.10 Alliance Agreement+*

10.11 Common Stock Purchase Warrant*

10.12 Form of Associate License Agreement*

10.13 Exchange Agreement*

10.14 Restated Additional Incentive Agreement*

21.1 Subsidiaries*

23.1 Consent of PricewaterhouseCoopers LLP

23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1)*

24.1 Powers of Attorney (included in Part II to the Registration Statement)*

- --------
+A portion of this exhibit has been omitted pursuant to a request for
confidential treatment.
*Previously filed.

Report of Independent Accountants on
Financial Statement Schedule

To the Board of Directors and Stockholders
of Advantage Payroll Services, Inc.

Our audits of the consolidated financial statements referred to in our
report dated March 18, 2002 appearing in this Registration Statement on Form
S-1 of Advantage Payroll Services, Inc. (formerly Advantage Business Services
Holdings, Inc.) also included an audit of the financial statement schedule
listed in Item 16(b) of this Registration Statement on Form S-1. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
Portland, ME
March 18, 2002

Advantage Payroll Services, Inc.
Schedule II--Valuation and Qualifying Accounts

Additions charged Additions charged to
Description Beginning Balance to costs other accounts Deductions(1) Balance EOP
- ----------- ----------------- ----------------- -------------------- ------------- -----------

Reserve for Uncollectable Accounts(2)

Year ended May 28, 1999 $ 185,694 $ 47,099 $ 232,793
Year ended May 26, 2000 232,793 158,965 391,758
Year ended May 25, 2001 391,758 192,128 $ (37,342) 546,544
Nine months ended
February 22, 2002 546,544 79,742 (316,388) 309,898

Deferred Tax Valuation
Year ended May 26, 2000 -- 1,376,000 $ 901,000 2,277,000
Year ended May 25, 2001 2,277,000 1,986,000 (475,000) 3,788,000
Nine months ended
February 22, 2002 3,788,000 (524,000) (418,000) 2,846,000

- --------
(1)Amounts represent the write off of accounts deemed to be uncollectible.
(2)The reserve for uncollectible accounts represent the combined balance of the
allowance for doutful accounts and our reserve for clients' inability to
meet their payroll obligation.