<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-K

           FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
                OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 1998.

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

  For the transition period from _________ to _________.

                        Commission file number 000-23711

                                  Acsys, Inc.
             (Exact Name of Registrant as Specified in Its Charter)

         Georgia                                       58-2299173
(State or Other Jurisdiction                        (I.R.S. Employer
 of Incorporation or Organization)                 Identification No.)
                                        
              75 14th Street, Suite 2200, Atlanta, Georgia 30309
                    (Address of Principal Executive Offices)

                                  404-817-9440
              (Registrant's telephone number including area code)

          Securities registered pursuant to Section 12(b) of the Act:
                                      None

Title of Each Class                    Name of Each Exchange on Which Registered
      N/A                                                 N/A
          Securities registered pursuant to Section 12(g) of the Act:
                      Common Stock, No Par Value Per Share
                                (Title of Class)

  Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

  The aggregate market value of the voting common equity held by non-affiliates
of the registrant, based upon the closing sale price of common stock on March
12, 1999, as reported by the Nasdaq Stock Market, was approximately
$27,718,119.*

                      DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on April 26, 1999, to be filed within 120 days after the
end of the registrant's fiscal year, are incorporated by reference into Part
III, Items 10  13 of this Form 10-K.  As of March 12, 1999, the number of shares
outstanding of the registrant's Common Stock was 14,466,023.
 

*Solely for purposes of this calculation, all executive officers and directors
of the registrant and all shareholders reporting beneficial ownership of more
than 5% of the registrant's Common Stock are considered to be affiliates.

                                        
<PAGE>
 
                               Index of Form 10-K


<TABLE>
<CAPTION>
Part I                                                                                                     Page
<S>           <C>                                                                                         <C>
Item 1.       Business..................................................................................       3
Item 2.       Properties................................................................................       8
Item 3.       Legal Proceedings.........................................................................       8
Item 4.       Submission of Matters to a Vote of Security Holders.......................................       8

Part II
Item 5.       Market for Registrant's Common Equity and Related Stockholder Matters.....................       9
Item 6.       Selected Financial Data...................................................................      11
Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations.....      13
Item 7A       Quantitative and Qualitative Disclosures About Market Risk................................      19
Item 8.       Financial Statements and Supplementary Data...............................................      19
Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosures  ...      19

Part III
Item 10.      Directors and Executive Officers of the Registrant  ......................................      20
Item 11.      Executive Compensation  ..................................................................      20
Item 12.      Security Ownership of Certain Beneficial Owners and Management  ..........................      20
Item 13.      Certain Relationships and Related Transactions  ..........................................      20

Part IV
Item 14.      Exhibits, Financial Statement Schedule, and Reports on Form 8-K  .........................      21

Signatures  ............................................................................................      25
</TABLE>

                                      -2-
<PAGE>
 
                                     PART I

This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended.  These statements relate to future economic
performance, plans and objectives of management for future operations and
projections of revenue and other financial items that are based on the beliefs
of our management, as well as assumptions made by, and information currently
available to, our management.  The words "expect," "estimate," "anticipate,"
"believe," "intend," and similar expressions are intended to identify forward-
looking statements.  Such statements involve risks, uncertainties and
assumptions, including industry and economic conditions, competition and other
factors discussed in this and our other filings with the Securities and Exchange
Commission, including the "Risk Factors" section of the prospectus included in
our Registration Statement on Form S-1 (File number 333-67437), as declared
effective by the Securities and Exchange Commission on December 1, 1998.  If one
or more of these risks or uncertainties materialize or underlying assumptions
prove incorrect, actual outcomes may vary materially from those indicated.  See
Item 7  "Management's Discussion and Analysis of Financial Condition and Results
of Operations-Disclosure Regarding Forward-Looking Statements."


ITEM 1.   BUSINESS.

General

Acsys, Inc. is one of the leading providers of specialty professional staffing
services in the United States with 40 offices in major metropolitan markets
across the country.  Our vision is to be recognized by our clients, employees
and competitors as the preeminent and most innovative provider of financial and
information technology ("IT") human capital.  Our clients come from many
industries, including communications, consumer products, energy, financial
services, healthcare, industrial, media, professional services, retail and
technology.

Our clients are experiencing a rapidly changing environment as employers.  These
pervasive changes require our clients to have the flexibility to vary the number
of employees to meet their changing business needs.  Additionally, our clients
are now outsourcing entire portions of their finance and information processing
departments where historically such services were performed by permanent
employees.  These changes are resulting in the growing demand for temporary
staffing services.  Over 80% of our business is in finance and information
technology temporary staffing services that address these changing needs of our
clients.  We are expanding this segment of our business by adding complementary
services and by cross selling our existing services into new markets.  We
believe we are strategically positioned to help our clients profitably address
the changes which are rapidly affecting their business.

Our Company's success comes from excelling in the finance and information
technology niches which have shared some of the highest growth within the
staffing industry.  We excel in these niches by recruiting and retaining
talented professionals with our training and education programs and with our
attractive compensation and benefits programs.  It is those professionals that
drive our success by consistently exceeding our clients' expectations.  We
ensure that we achieve this high level of performance by recruiting the best
professionals, and by implementing technology advances and improvements to make
our professionals more effective. Our success also comes from rapidly
integrating a collection of separate companies into one company with one culture
and one purpose.   By the end of 1999, Acsys will operate under one national
brand with a national marketing focus.

We were formed as a Georgia corporation in March 1997 and since then have
acquired 11 accounting and finance and IT specialty professional staffing
businesses.  In February 1998, we completed our IPO of 

                                      -3-
<PAGE>
 
2,842,000 shares of Common Stock at $8.50 per share, raising approximately $20.1
million after deducting underwriting discounts and offering expenses.


The Staffing Industry

The staffing industry generally consists of companies which provide four basic
services to clients: temporary staffing, placement and search, professional
employer organization services and outplacement. Based on information from the
Staffing Industry Report, a leading staffing industry publication, staffing
industry revenues increased from approximately $35.5 billion in 1992 to
approximately $87.9 billion in 1997, representing a compound annual growth rate
of 18%. According to industry sources, in 1997 the staffing industry employed
approximately 5.5 million people per day. While the industry has undergone
consolidation in the last few years, it remains fragmented with over 9,300
temporary staffing firms and over 3,400 placement and search firms. Within the
overall staffing industry, the placement and search sector had 1997 revenues of
$10.9 billion and grew from 1992 revenues of $4.0 billion also representing a
compound annual growth rate of 20%.

Acsys' temporary staffing services are focused on the accounting and finance
portion of the specialty professional segment, which according to the Staffing
Industry Report, had 1997 revenues of $6.3 billion, representing 12% of the
$54.5 billion temporary staffing sector. The Staffing Industry Report recently
estimated that the specialty professional segment grew by 25% in 1998. In
addition to accounting and finance, the specialty professional segment, as
defined by the Staffing Industry Report, includes legal, laboratory and other
professional staffing services (excluding IT and technical services). The
temporary specialty professional staffing segment is one of the fastest growing
segments of the temporary staffing sector, with profit margins greater than
those of the traditional clerical and light industrial temporary staffing
business. According to the Staffing Industry Report, the IT/technical segment of
the temporary staffing sector had 1997 revenues of $14.8 billion, representing
27% of the temporary staffing sector. This segment includes IT services such as
consulting systems, network integration and support, and IT supplemental
staffing.

A significant part of the IT segment of our business is the implementation of
Enterprise Resource Planning ("ERP") software particularly SAPTM, PeopleSoftTM
and J.D. EdwardsTM ERP software.  ERP software helps companies better manage
their business by redesigning their business processes in such areas as product
development, service delivery, manufacturing, human resources, finance and
accounting. Although these services may be offered by ERP software developers,
in many cases ERP implementation and systems integration services are provided
by third party service providers, such as Acsys.

Temporary staffing has become widely accepted as a valuable tool for managing
personnel costs and for meeting specialized or fluctuating employment
requirements. Businesses are experiencing a rapidly changing environment and
must be flexible to vary the number of employees to meet their needs.  Temporary
staffing companies offer a means of dealing with these changes.  In addition,
employees increasingly look to temporary assignments as a way to build
experience, make contacts, and receive training and valuable exposure to a
variety of work settings, as well as a means to gain full-time employment.

The placement and search sector of the staffing industry had 1997 revenues of
$10.9 billion, representing 10% of the staffing industry. This sector was
expected to grow 19% in 1998, according to the Staffing Industry Report.
Personnel placed by companies in this sector cover a wide range of industries
and a variety of position levels. Placement and search firms fulfill their
clients' needs by identifying, evaluating and recommending qualified candidates
for positions. Placement and search firms are generally characterized as either
retained search or contingency placement, depending upon how their fees are
determined. Retained search firms receive a retainer at the outset of an
assignment, while contingency firms, such as Acsys, receive compensation upon
successful completion of a search and placement of a recommended candidate.
Contingency firms typically fill mid-level positions for a fee equal to a
percentage of the candidates' first year annual salary.

We believe that companies have become increasingly reliant on placement and
search firms for a number of reasons. The continued strength and growth of the
economy has reduced the pool of available specialty professionals and increased
the difficulty of finding talented candidates. Professional employee turnover
has increased as more employees spend their careers with a number of different
organizations in various locations. 

                                      -4-
<PAGE>
 
Many companies are outsourcing anciliary activities, such as recruiting, to
reduce costs and increase efficiencies. A permanent placement firm may also
serve in a consultative role to the client by providing objective feedback on
candidates and advice regarding the appropriate qualifications and compensation
for a particular position.

In summary, we believe that a number of factors may increase demand for
specialty professional temporary staffing and permanent placement services.
These factors include:

  .  Use of temporary employees to fill higher-skilled positions.
  .  Employers' difficulty in locating qualified employees.
  .  Desire of employers to utilize candidates with the latest training and
     current skill sets demanded in the increasingly technology-reliant business
     environment.
  .  Trend to outsource non-core functions to reduce costs and increase
     efficiencies.
  .  Employment candidates' attraction to industry-focused specialty service
     providers.
  .  Employment candidates seeking more flexibility and opportunities to gain
     experience in a variety of work settings.


Operating Strategy

The key elements of Acsys' operating strategy are as follows:

Focus on Specialty Professional Markets.   We focus primarily on temporary
staffing positions that require specialized skills such as accounting and
finance and ERP software implementation (particularly the ERP software developed
by SAP(TM)). We believe that our years of experience, reputation for client
service and the industry expertise of our staffing professionals give us a
competitive advantage. For example, many of our staffing professionals in the
accounting and finance sector are certified public accountants. We believe that
these specialized characteristics also provide an opportunity for Acsys to
generate higher margins than those of traditional clerical and light industrial
staffing companies.

Establish and Leverage National Brand.   Our operating offices will all operate
under the Acsys brand name. We are supporting this name change with national
advertising and support programs. We believe that we can develop brand equity
through our leadership as a specialty professional staffing firm, thus enabling
us to increase market share and achieve marketing efficiencies and greater
operating leverage.

Emphasize Client Relationships.   We believe that client relationships and the
staffing professionals who develop and maintain those relationships are our most
important assets.  We are seeing increasing changes in our clients' businesses
and with these changes their temporary staffing needs, and we are meeting those
needs by providing trained professionals who understand the businesses they
service.  Moreover, we believe that the central function of management,
including our senior executive team, is to support the professionals who
directly interact with the client.  We have built common infrastructure and
systems to help our professionals meet those needs.

Company Integration.  We began as individual companies operating independent of
each other.  Our operating offices are still responsible for growing their
businesses in their individual markets.  However, we have consolidated senior
management responsibility and integrated the majority of our back office and
front office support systems.

Growth Strategy

Acsys' goal is to build a national specialty professional staffing business with
offices in major United States metropolitan markets. The key elements of its
growth strategy in order of relative importance are as follows:

Temporary Staffing Services.  We intend to build our temporary staffing business
by responding to the demands of our clients. Our strategy in meeting these needs
is to add complementary services such as permanent placement, and cross selling
our existing services into new markets.

                                      -5-
<PAGE>
 
Enhance and Expand Existing Offices. We plan to expand our current offices by
building on existing client relationships through cross selling of services,
pursuing new clients and by replicating successful marketing sales and business
techniques on an national level.  We rely on our operating office managers to
drive this internal growth and to determine which sales, marketing and business
techniques are most appropriate for their respective local markets.

Introduce New Services.   We plan to develop new specialty professional staffing
services internally by leveraging our existing expertise and reputation in
specialty professional staffing services, particularly in markets where our
clients have solicited us for those new services. Examples of our internal
development of new service offerings include the addition of IT staffing
services in several offices, with plans to offer IT services in other offices,
and the development of Acsys Business Consulting, a program that focuses on
staffing higher-end positions on an interim basis.  We may also acquire
specialty staffing services firms with new or expanded services and market those
services through our existing offices.

Pursue Strategic Acquisitions.   We intend to acquire accounting and finance and
IT staffing and permanent placement businesses and other specialty professional
staffing businesses. We seek acquisition candidates with characteristics such as
attractive geographic market locations, strong market shares, recognized local
brand names and new or expanded specialties that we can add to our existing
services. We also focus on acquisition targets that have strong management teams
and complementary cultures. To accomplish acquisitions, we plan to use equity,
debt, available cash and combinations of all three as consideration.

Open New Offices.   We plan to continue to grow our business by opening new
offices. We will open two types of new offices, spin-offs from existing offices
and "de novo" offices. A spin-off office is opened in an existing geographic
market by breaking a branch office in two. Such an office provides greater
geographic coverage and increased market penetration at a low marginal cost. De
novo offices represent an initial presence in new geographic markets.

Services

Acsys currently offers the following services:

Accounting and Finance Temporary Staffing.   We provide temporary staffing
services to clients in a variety of industries, such as telecommunications,
health care, banking, manufacturing and government. Our temporary staffing
clients are Fortune 1000 companies, middle market companies, governmental
agencies and nonprofit organizations. Some of our temporary employees may decide
to accept an offer of permanent employment from the client and thereby "convert"
the temporary position to a permanent position.  Accounting and finance
staffing, including other staffing services, represented 47.1%, 52.4% and 34.8%
of total revenues for the years ended December 31, 1998, 1997, and 1996,
respectively.

Information Technology.  We are a full service IT solutions provider.  We offer
consultants and placement services through a network of highly qualified IT
professionals.  We believe that to achieve growth in the IT sector we should
focus on specific niches.  A major portion of our IT business is our ERP
implementation consulting services.  We are a SAP(TM) National Implementation
Partner and provide staff augmentation for the implementation of PeopleSoftTM
and J.D. Edwards(R) software.  Information technology staffing services
represented 32.3%, 24.5% and 17.3% of total revenues for the years ended
December 31, 1998, 1997 and 1996, respectively.

Accounting and Finance Permanent Placement.   We are in the permanent placement
business primarily because it complements our temporary staffing services, and
is an important driver in the growth of our temporary staffing business.  Our
permanent placement business specializes in placing mid-level accounting,
financial, tax and banking personnel in permanent positions with a diverse mix
of companies ranging from small businesses and nonprofit organizations to
Fortune 1000 companies. Substantially all of our permanent placement business is
on a contingency basis; we are not compensated for a permanent placement
assignment unless the candidate we recommend is hired by a client. Fees for
successful permanent placements are paid by the employer and are generally equal
to a percentage of the candidate's first-year annual compensation. Generally, if
a candidate placed by Acsys is terminated or resigns during a specified guaranty
period (typically 90-180 days), we either fill the position without further
charge or provide a prorated refund.  Accounting and 

                                      -6-
<PAGE>
 
finance permanent placements represented 20.6%, 23.2% and 21.5% of total
revenues for the years ended December 1998, 1997 and 1996, respectively.

Other Staffing Services.   Our corporate staffing services place temporary
office and administrative personnel, ranging from executive assistants to office
managers. These services are included under temporary staffing service revenues
in the consolidated financial statements included in this report.


Acquisitions

One element of our growth strategy is to acquire accounting, finance,
information technology and other specialty professional staffing businesses.  To
accomplish acquisitions, we plan to use equity, debt, available cash and
combinations of all three as consideration.  We believe that we have a strategic
advantage in competing for acquisitions as a result of:  (i) our focus on the
specialty professional staffing segment of the staffing industry;  (ii)  the
personal relationships of our key executives with managers and owners of other
professional staffing firms;  (iii)  our merger and acquisition execution
capabilities;  and (iv) our greater visibility and resources as a public
company.

There can be no assurance that we will be able to successfully identify suitable
acquisition candidates, complete acquisitions or integrate acquired businesses
into our operations.  Once integrated, acquired companies may not achieve levels
of revenues, profitability or productivity comparable to those of our existing
locations or otherwise perform as expected.  Acquisitions also involve special
risks, including risks associated with unanticipated problems, liabilities and
contingencies, and possible adverse effects on earnings resulting from increased
goodwill amortization, increased interest costs, the issuance of additional
securities and difficulties related to the integration of the acquired business,
some or all of which could have a material adverse effect on our business,
operations or financial condition.  See Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Disclosure Regarding
Forward-Looking Statements."


Industry Segments

We adopted Statement of Financial Accounting Standards No 131, "Disclosure about
Segments of an Enterprise and Related Information."  See Note 12 of our attached
Consolidated Financial Statements for information regarding the segments of our
business.


Employees

We have 575 full-time internal staff employees as of February 28, 1999.  In
addition to our internal staff employees, temporary professionals placed by us
are our employees while they are working on assignments. Neither our internal
staff nor our temporary employees are represented by a collective bargaining
agreement. Hourly wages for our temporary employees are determined according to
market conditions.  We pay mandated costs of employment, including the
employer's share of Social Security and Medicare taxes (FICA), federal and state
unemployment taxes, unemployment compensation insurance and workers'
compensation insurance. We offer access to various insurance programs and
benefits to our temporary employees. We believe our employee relations are
satisfactory.


Competition

The staffing industry is highly competitive, with limited barriers to entry. We
believe that availability and quality of employment candidates, reliability of
service and price of services are the most significant competitive factors in
the specialty professional staffing sector. We believe we derive a competitive
advantage from our extensive experience with and commitment to the specialty
professional staffing market, our strong local market presence and reputation,
and our various marketing activities. A number of firms offer services similar
to ours on a national, regional and local basis. We compete for our clients,
candidates and acquisitions with many local and regional companies and also face
competition from a number of international and national 

                                      -7-
<PAGE>
 
specialty professional staffing companies including Robert Half International,
Inc., Romac International, Inc., Accountants, Inc. and Accountants on Call, as
well as professional staffing divisions of larger general staffing firms, such
as Interim Services, Inc., Norrell, Inc. and Olsten Corporation. These firms
currently have materially greater financial and operating resources than Acsys.

Service Marks and Tradenames

We currently operate under various tradenames and service marks, the most
significant of which are Acsys, Staffing Edge and several variations of Don
Richard Associates. Consistent with our strategy of establishing a nationwide
brand presence, we plan to conduct all of our business under the Acsys brand in
the near future.


ITEM 2.   PROPERTIES.

We own no real property.  We lease all of our offices.  We believe our
facilities are adequate for our needs and do not anticipate any material
difficulties in replacing such facilities or securing facilities for new
offices.


ITEM 3.   LEGAL PROCEEDINGS.

From time to time we are or may be in the future, involved in litigation
incidental to our business including employment practice claims assessed by
individuals or governmental agencies.  There is currently no  litigation which
management believes is material.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted in the fourth quarter of 1998.

                                      -8-
<PAGE>
 
                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                              STOCKHOLDER MATTERS.
                                        

Market Information and Holders of Record

Our Common Stock began trading on the Nasdaq Stock Market's National Market on
February 6, 1998 under the symbol "ACSY."  Before that date, there was no
established public trading market for the Common Stock.  On March 11, 1999 there
were 54 holders of record of our Common Stock.

Price Range of Common Stock

The following table sets forth, for the period indicated, the high and low sales
prices of the Common Stock.

<TABLE>
<CAPTION>
Period                                                 High               Low
                                                  -------------     -------------
<S>                                                <C>                <C>
First Quarter (from February 6, 1998).............      $16.500           $11.063
Second Quarter....................................       20.500            13.000
Third  Quarter....................................       13.750             6.250
Fourth Quarter....................................        9.750             2.969
</TABLE>


Dividends

We do not anticipate paying any cash dividends on our Common Stock in the
foreseeable future because we intends to retain our earnings, if any, to finance
the expansion of our business and for general corporate purposes. Any payment of
future dividends will be at the discretion of our board of directors and will
depend upon, among other things, our earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions with respect to
the payment of dividends and other factors that our board of directors deems
relevant. Our credit facility currently prohibits the payment of dividends
without the lender's consent.

We were an S-corporation from our inception through February 5, 1998, the date
of our IPO, except for ICON Search and Consulting, Inc. ("ICON"), which was a C-
corporation.  As explained in Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources,"
in 1998 we distributed to our shareholders the approximate amount that they
needed to fund the payment of federal and state income taxes payable on our
taxable income during that period.

Recent Sales of Unregistered Securities

Acsys sold no securities which were not registered under the Securities Act of
1933, as amended, during 1998, except for the following:

(i)  Acsys entered into an employment agreement dated March 10, 1997 with
     Timothy Mann, Jr., Acsys' Chief Executive Officer, pursuant to which Acsys
     granted Mr. Mann options to acquire an aggregate of 248,555 shares of
     Common Stock (135,198 granted on May 19, 1997 and 113,357 granted on
     February 5, 1998, the effective date of Acsys' initial public offering).
     Acsys also entered into any employment agreement dated September 3, 1997
     with Lester E. Gallagher, III, then Acsys' Chief Financial Officer,
     pursuant to which Acsys granted to Mr. Gallagher options to acquire 66,229
     shares of Common Stock on February 5, 1998, the effective date of Acsys'
     initial public offering.

                                      -9-
<PAGE>
 
(ii)  Acsys entered into that certain Agreement and Plan of Merger dated as of
      March 31, 1998 by and among Acsys, Dramondi, Inc., TGS Resource Group,
      Inc. (doing business as Don Richard Associates of Richmond) ("TGS") the
      shareholders of TGS. Pursuant to such agreement, Acsys issued a total of
      66,731 shares of Common Stock to the TGS shareholders.

(iii) Acsys entered into that certain Agreement and Plan of Merger dated as of
      March 31, 1998 by and among Acsys, ICON Merger Subsidiary, Inc., ICON, and
      the shareholders of ICON named therein. Pursuant to such an agreement, a
      wholly-owned subsidiary of Acsys merged with and into ICON. Also pursuant
      to such agreement, Acsys issued a total of 2,820,360 shares of Commons
      Stock to Icon Shareholders. Others received options to purchase shares of
      Acsys Common Stock in exchange for ICON options.

(iv)  Acsys entered into that certain Agreement and Plan of Merger dated as of
      July 1, 1998 by and among Acsys, Acsys NY, Inc., KPD Systems, Inc. ("KPD")
      and Howard Sapolsky, the sole shareholder of KPD.  Pursuant to such Acsys
      issued a total of 77,504 shares of Common Stock to Mr. Sapolsky.

(v)   Acsys entered into that certain Agreement and Plan of Merger dated as of
      August 3, 1998, by and among Acsys, SE Merger Subsidiary, Inc., Staffing
      Edge, Inc. ("Staffing Edge") and certain shareholders of Staffing Edge.
      Pursuant to such agreement, Staffing Edge shareholders received as partial
      consideration 81,766 shares of Acsys' common.


The issuance of securities described above was made in reliance on one or more
of the exemptions from registration under the Securities Act of 1933, as
amended, including those provided by Section 4(2), and Regulation D and Rule 701
thereunder.

                                      -10-
<PAGE>
 
ITEM 6.   SELECTED FINANCIAL DATA.

All of the financial data set forth below have been restated to give effect to
the acquisitions of Infinity Enterprises, Inc.; David C. Cooper & Associates,
Inc.; DCAA Professional Temporaries, Inc.; EKT, Inc., Cama of Tampa, Inc.; Rylan
Forbes Consulting Group, Inc.; Acsys Resources, Inc.; and Icon Search and
Consulting, Inc. ("ICON"), which have been accounted for under the pooling of
interests method of accounting (the "Pooling Acquisitions"). Additionally, the
financial data set forth above includes results of operations of Infinity
Enterprises, Inc., ICON and Cama of Tampa, Inc. from March 1, 1994, September
12, 1994, and January 1, 1996, respectively, the dates of their formation. The
acquisitions of C.P.A. Staffing, Inc.; C.P.A. Search, Inc.; Career Placement
Associates (together "CPA Staffing") in August 1997; TGS in March 1998; KPD in
July 1998; and Staffing Edge in August 1998 have been accounted for under the
purchase method of accounting and are included in the historical statements of
operations from their respective dates of acquisition (the "Purchase
Acquisitions"). The entities acquired in the Pooling Acquisitions and the
Purchase Acquisitions are collectively referred to as the "Acquired Companies."
Prior to becoming a publicly traded company in February, 1998, we were an S-
corporation, except for ICON which was a C-corporation; accordingly, certain
financial data may not be comparable to or indicative of our post-IPO results.
The following table contains certain financial and operating data and is
qualified by the more detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-K. The balance sheet data as of
December 31, 1998, 1997, 1996 and 1995 and the Statements of Operations Data for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994 were derived from
the Consolidated Financial Statements and Notes thereto that have been audited
by Arthur Andersen LLP, independent public accountants. The balance sheet data
as of December 31, 1994 has been derived from our unaudited financial statements
which, in the opinion of management, have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of normal
recurring adjustments, which management considers necessary for a fair
presentation of the selected financial data shown. The financial data shown
below should be read in conjunction with the Consolidated Financial Statements
and the related Notes thereto and Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                ------------------------------------------------------------
                                                                     1998         1997        1996        1995        1994
                                                                ------------------------------------------------------------
<S>                                                             <C>              <C>         <C>         <C>         <C>
                                                                           (In thousands, except per share data)
Statements of Operations Data:
Service revenues:
  Temporary staffing  .........................................    $103,067      $60,057     $44,556     $28,215     $21,153
  Permanent placement  ........................................      26,831       18,071      12,186       8,269       6,258
                                                                ------------------------------------------------------------
   Total service revenues  ....................................     129,898       78,128      56,742      36,484      27,411
Direct cost of services  ......................................      72,170       42,583      30,616      18,284      14,036
                                                                ------------------------------------------------------------
   Gross profit  ..............................................      57,728       35,545      26,126      18,200      13,375
Selling, general and administrative expenses  .................      48,260       29,979      20,769      13,893      10,231
Combination expenses  .........................................       1,730        1,797          --          --          --
Amortization and depreciation  ................................       1,658          715         693         682         547
Severance and franchise termination costs  ....................         650          682         567         166         561
                                                                ------------------------------------------------------------
   Operating income  ..........................................       5,430        2,372       4,097       3,459       2,036
Other expense, net  ...........................................       1,129          788         811         865         853
                                                                ------------------------------------------------------------
Income before income taxes  ...................................       4,301        1,584       3,286       2,594       1,183
Income taxes (1)  .............................................       5,527          438         419         133          --
Net income (loss)  ............................................    $ (1,226)     $ 1,146     $ 2,867     $ 2,461     $ 1,183
                                                                ============================================================
Basic and diluted net income (loss) per share  ................      $(0.09)       $0.02       $0.27       $0.24       $0.12
                                                                ============================================================
Shares used in computing basic net income (loss) per share.....      14,016       10,440       9,972      10,094      10,094
                                                                ============================================================
Shares used in computing diluted net income (loss) per share...      14,016       10,544       9,972      10,094      10,094
                                                                ============================================================
</TABLE>
                                                                                

                                      -11-
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                     ------------------------------------------------------------------------------
                                                           1998             1997            1996           1995            1994
                                                     --------------   --------------   ------------   ------------   --------------
<S>                                                    <C>              <C>              <C>            <C>            <C>
                                                                                      (In thousands)
Balance Sheet Data:
Working capital  .......................................    $15,366          $ 4,921        $ 4,309        $ 2,216          $ 1,486
Total assets    ........................................     86,363           33,352         18,167         14,503           12,787
Long-term debt, including current maturities  ..........     38,320           11,754          8,847          8,905            9,925
Redeemable common stock  ...............................         --            1,220            288             --               --
Shareholders' equity  ..................................     33,703           10,801          4,175          2,670              927
</TABLE>

(1) Prior to the IPO, we operated as an S-corporation for income tax purposes,
    except for ICON which was a C-corporation. Accordingly, income tax expense
    prior to the IPO resulted from the operating earnings of ICON. In connection
    with the IPO, we terminated our S-corporation status and recorded a charge
    to income tax expense of approximately $3,000,000 in 1998 representing the
    tax effect of differences in the bases of assets and liabilities for
    financial reporting and income tax purposes. See Note 3 of Notes to
    Consolidated Financial Statements for information concerning the computation
    of the income taxes. Also, see Item 7 "Management's Discussion and Analysis
    of Financial Condition and Results of Operations."

                                      -12-
<PAGE>
 
The following discussion should be read in conjunction with the Selected
Financial Data (Item 6) and the Consolidated Financial Statements including the
related footnotes thereto and is qualified in its entirety by the foregoing and
other more detailed financial information appearing elsewhere herein.  Results
of operations and the percentage relationships among any amounts included in the
results of operations, and any trends which might appear to be inferable
therefrom, should not be taken as being necessarily indicative of trends or in
operations or the results of operations for any future period.

ITEM 7.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS.


Introduction

Acsys is one of the leading specialty professional staffing and permanent
placement firms in the United States. We operate 40 offices serving major
metropolitan markets across the United States, with a more significant presence
in the Eastern and Midwestern United States. We were formed in March 1997 and
since our formation have acquired 11 businesses.

Each of our acquisitions, other than the Purchase Acquisitions, was accounted
for as a pooling of interests. Our financial statements include the results of
operations of the Purchase Acquisitions from their acquisition dates forward.
The results of operations of C.P.A. Staffing, TGS, KPD and Staffing Edge are
included beginning August 12, 1997, March 31, 1998, July 1, 1998 and August 4,
1998 (their respective dates of acquisition). As a result, combined results may
not be comparable to or indicative of future performance. Our revenues and
expenses may be significantly affected by the number and timing of the
acquisition of additional businesses, the opening of additional offices or the
introduction of new services. The timing of such expansion activities may also
affect period-to-period comparisons.

Results of Operations

The following table sets forth the consolidated statements of operations for the
indicated periods.

<TABLE>
<CAPTION>
                                                                For the Year Ended December 31,
                                                     ---------------------------------------------------
                                                            1998              1997              1996
                                                     ---------------    ---------------   --------------
<S>                                                    <C>                <C>               <C>
Service revenues:                                                       (In thousands)
  Temporary staffing  ...............................       $103,067            $60,057          $44,556
  Permanent placement  ..............................         26,831             18,071           12,186
                                                     ---------------    ---------------   --------------
     Total service revenues  ........................        129,898             78,128           56,742
Direct cost of services  ............................         72,170             42,583           30,616
                                                     ---------------    ---------------   --------------
     Gross profit  ..................................         57,728             35,545           26,126
Selling, general and administrative expenses  .......         48,260             29,979           20,769
Combination expenses  ...............................          1,730              1,797               --
Amortization and depreciation  ......................          1,658                715              693
Severance and franchise termination costs  ..........            650                682              567
                                                     ---------------    ---------------   --------------
     Operating income  ..............................          5,430              2,372            4,097
Other expense, net  .................................          1,129                788              811
                                                     ---------------    ---------------   --------------
Income before income taxes  .........................          4,301              1,584            3,286
Income taxes.........................................          5,527                438              419
                                                     ---------------    ---------------   --------------
Net income (loss)....................................       $ (1,226)           $ 1,146          $ 2,867
                                                     ===============    ===============   ==============
</TABLE>
                                                                                

                                      -13-
<PAGE>
 
Results for 1998 Compared to Results for 1997

Service Revenues.  Total service revenues in 1998 increased $51.8 million, or
66.3%, to $129.9 million from $78.1 million in 1997.  Temporary staffing service
revenues, excluding IT contract service revenues, in 1998 increased $20.3
million, or 49.7%, to $61.2 million in 1998 as compared to $40.9 million in
1997. The increase in temporary staffing service revenues is primarily
attributable to the increase in billing rates and the impact of the acquisitions
of C.P.A. Staffing, TGS, KPD and Staffing Edge.  IT contract service revenue
increased $22.7 million, or 118.3% to $41.9 million in 1998 as compared to $19.2
million in 1997 due to the growth of our ERP implementation consulting services;
particularly our SAP implementation services.  Permanent placement service
revenues in 1998 increased $8.7 million, or 48.5%, to $26.8 million from $18.1
million in 1997. Permanent placement service revenues increased primarily due to
increases in the number of permanent placements, the increase in placement fees
and the acquisitions completed in 1998 (the "1998 Acquisitions").

Gross Profit.   Gross profit increased $22.2 million, or 62.4%, to $57.7 million
in 1998 from $35.5 million for 1997. Gross profit as a percentage of service
revenues in 1998 decreased to 44.4% of revenues compared to 45.5% of revenues in
1997. The gross profit percentage decline resulted from the decrease in 1998 of
the higher margin permanent placement revenues as a percentage of the total
revenues and as a result of the growth in 1998 of the IT business which has
higher billing rates but lower margins than the rest of our business.

Selling, General and Administrative Expenses.   Selling, general and
administrative ("SG&A") expenses increased $18.3 million, or 61.0%, to $48.3
million in 1998 from $30.0 million in 1997. As a percentage of revenues, SG&A
expenses were 37.2% in 1998 compared with 38.4% in 1997. This decrease as a
percentage of revenues is primarily attributable to the spreading of overhead
costs over a substantially larger revenue base.

Combination Expenses.   Combination expenses in 1998 and 1997 were $1.7 million
and $1.8 million, respectively, reflecting transaction costs for the Pooling
Acquisitions.

Amortization and Depreciation.   Amortization and depreciation for 1998
increased $943,000 from 1997. Amortization and depreciation in 1998 includes
goodwill amortization as a result of the C.P.A. Staffing acquisition in August
1997 and the 1998 Acquisitions that were accounted for as purchase transactions.
Depreciation expense also increased as a result of capital expenditures in 1997
and 1998.

Severance and Franchise Termination Costs.   We recorded a charge of $650,000 in
1998 consisting principally of severance obligations resulting from
consolidating our corporate offices in Atlanta.  In 1997, we recognized $512,000
of severance expense as a result of the termination of the employment of our
former President.  Additionally in 1997, we recognized $170,000 related to the
termination of a franchise agreement by Cama of Tampa, Inc.

Other Expense, net.   Other expense, net consists principally of interest
expense.  In 1998, we recorded interest expense of $1.3 million, consisting of
interest on borrowings under our revolving credit facility and interest on non-
compete and severance arrangements partially offset by interest income on short-
term investments of $123,000. For 1997, we recorded other expense, net of
$788,000 consisting principally of interest expense on our credit facility and
other long-term debt. See "Liquidity and Capital Resources."

Income Tax Expense.   Prior to February 5, 1998, we were an S-corporation and
not subject to income taxes, except for ICON which was a C-corporation. In
connection with the IPO and the termination of our S-corporation status, we
recorded a deferred tax liability of approximately $3.0 million in 1998 to
recognize income tax expense created by our change to a C-corporation, which
primarily relates to a change from the cash to accrual method of accounting for
income tax purposes. We are paying the deferred tax liability, which was created
by this charge, over a four-year period. For 1997, the income tax provision
relates exclusively to ICON, which as a C-corporation was subject to corporate
income taxes.

Net Income (Loss).   We recognized a net loss and a net loss per share of $1.2
million and $0.09, respectively, in 1998 compared to net income and net income
per share of $1.1 million and $0.02, respectively, for 1997. The calculation of
the net income per share for 1997 reflects a reduction of $932,000 to net income
available to common shareholders for the accretion on redeemable common shares.

                                      -14-
<PAGE>
 
Results for 1997 Compared to Results for 1996

Service Revenues.   Total service revenues increased $21.4 million, or 37.7%, to
$78.1 million in 1997 from $56.7 million in 1996. A total of $2.8 million of the
increase is attributable to revenues from C.P.A. Staffing from its acquisition
date on August 12, 1997. Temporary staffing service revenues increased $6.1
million, or 17.6%, to $40.9 million in 1997 from $34.8 million in 1996.
Temporary staffing service revenues increased primarily as a result of the
acquisition of CPA Staffing in August of 1997, increased billing rates, and
increased revenues from offices opened in 1996 and 1995.  IT contract service
revenue increased $9.4 million, or 95.7% to $19.2 million in 1998 as compared to
$9.8 million in 1997 due to the growth of ERP implementation consulting
services.   Permanent placement service revenues increased $5.9 million or
48.3%, to $18.1 million in 1997 from $12.2 million in 1996. Permanent placement
service revenues increased primarily due to increases in permanent placements
and in the number and productivity of consultants and in billings to existing
clients.

Gross Profit.   Gross profit increased $9.4 million, or 36.1%, to $35.5 million
in 1997 from $26.1 million in 1996. Gross profit as a percentage of service
revenues decreased to 45.5% in 1997 from 46.0% in 1996. This decrease is
primarily due to an increase in our IT business in 1997 as compared to 1996
which is at a lower gross margin percentage but at higher dollar amounts than
the remainder of our business. This decrease in gross margin percentage was not
offset by the increase in the percentage of service revenues derived from
permanent placement services, which increased to 23.1% of total service revenues
in 1997 from 21.5% in 1996. Permanent placement service revenues generate higher
gross profits than temporary staffing service revenues because sales commissions
and other costs associated with permanent placement services are included in
SG&A expenses.

Selling, General and Administrative Expenses.   SG&A expenses increased $9.2
million, or 44.3%, to $30.0 million in 1997 from $20.8 million in 1996.
Approximately $2.5 million of the increase was attributable to sales commissions
associated with the increase in service revenues. An additional $2.2 million of
the increase was the result of additional personnel costs. The 1997 results also
reflect approximately $900,000 of C.P.A. Staffing-related selling, general and
administrative expenses from its date of acquisition. In addition, we incurred
expenses in 1997 in connection with the introduction of Acsys Business
Consulting staffing services and IT temporary staffing services and with general
integration-related expenses. As a result of the above factors, SG&A expenses as
a percentage of revenues increased to 38.4% in 1997 from 36.6% in 1996.

Combination Expenses.   In 1997, we recognized expenses of $1.8 million for
legal, accounting and other expenses related to certain of the Pooling
Acquisitions consummated in 1997.

Amortization and Depreciation.  In 1996, we fully amortized a non-compete
agreement. The favorable effect of the decrease in non-compete agreement
amortization was offset in 1997 by an increase in amortization of goodwill
associated with the acquisition of C.P.A. Staffing. In addition, depreciation
increased due to an increase in capital expenditures in 1997.

Severance and Franchise Termination Costs.   In 1997, we recognized $512,000 of
expense as a result of the restructured employment relationship with our former
President. Additionally during 1997, we recognized $170,000 related to the
termination of a franchise agreement by Cama of Tampa, Inc. In 1996, we incurred
$459,000 in severance payments to a former employee of Acsys Resources, Inc. in
connection with his employment termination. Also in 1996, we recorded $108,000
of franchise termination costs related to the termination of the Acsys
Resources, Inc. franchise agreement. We are not currently a party to any
franchise agreements.

Other Expense, net.   Other expense net, which is primarily comprised of
interest expense is comparable for 1997 and 1996.

Net Income.  We recognized net income and net income per share of $1.1 million
and $0.02 in 1997 compared to net income and net income per share of $2.9
million and $0.27 in 1996.  The calculation of the net income per share for 1997
and 1996 reflects a reduction of $932,000 and $224,000, respectively, to net
income available to common shareholder for the accretion of the redeemable
shares.

                                      -15-
<PAGE>
 
Liquidity and Capital Resources

Net cash used for operating activities was $6.8 million in 1998.  The use of
cash is primarily due to the net loss and changes in accounts receivable and
accrued liabilities.  In 1997, net cash provided by operations was $488,000,
principally due to net income and changes in accounts receivable, prepaid
expenses and accrued liabilities.

Net cash used in investing activities was $37.4 million in 1998. Included in
cash used for investing activities was $34.3 million (net of cash acquired) paid
in connection with the 1998 Acquisitions and $3.1 million used for capital
expenditures.

Net cash provided by financing activities was $45.6 million in 1998. Upon
completion of our IPO, we raised $20.1 million, net of expenses paid. We used
approximately $11.1 million to immediately repay our then current borrowings
under our credit facility. We subsequently borrowed approximately $31.5 million
in connection with our acquisition of Staffing Edge in August 1998 and made
other borrowings to fund operations. Additionally, in 1998, we paid $834,000 in
connection with our obligation to pay certain pre-IPO S-corporation tax
liabilities of persons who were shareholders during the period we were an S-
corporation.

At December 31, 1998 the outstanding balance under our $40.0 million secured 
revolving credit facility was approximately $37.7 million. In March 1999, our 
lender waived the requirement to reduce our outstanding borrowings to $25.0 
million at April 30, 1999. As a result, we can now have up to $40.0 million 
outstanding under our existing revolving credit facility through April 30, 2000.
We have engaged NationsBanc Montgomery Securities LLC to syndicate a new $80 
million secured credit facility to replace our current credit facility and we 
anticipate this will close in April 1999. Our plans to replace our credit 
facility is a forward-looking statement that is subject to risks and 
uncertainties. Actual results and working capital needs could differ materially 
from those estimated due to a number of factors, including the use of funds for 
acquisitions. In addition, future acquisitions may require additional debt and 
equity financing.

The Nasdaq Stock Market has various requirements for continued listing on the
National Market including a requirement that the minimum bid price per share of
the listed capital stock of each listed company not fall below $5.00 for any 30-
consecutive business day period.  After the 30-day period, the issuer has 90
calendar days to achieve compliance by meeting the minimum bid price for 10
consecutive business days.  We have received notice from the Nasdaq National
Market that our Common Stock has not met the $5.00 minimum bid requirement and
that we have until May 12, 1999 to achieve compliance.  We believe that we will
meet the minimum bid price in the prescribed period, however, in the event that
this does not happen, we will take the necessary measures to ensure that we
continue to meet the Nasdaq Stock Market's requirements.  There can be no
assurance that such actions will be effective and that we will be able to
continue to list our common stock on the Nasdaq Stock Market's National Market.


Recent Trends and Developments

In the fourth quarter of 1998, our permanent placement revenue declined 13% from
the levels realized in the third quarter of 1998.  The decline affected all of
our geographical markets and appears to have been related to an overall slowdown
in the hiring of permanent employees.  At this time, the decline in permanent
placement revenue does not appear to be a trend that will continue in 1999.

Our SG&A expenses as a percentage of revenue increased substantially in the
fourth quarter of 1998 because we incurred integration costs in amounts that
contemplated much higher revenues than were achieved.  In the first quarter of
1999, we took certain actions necessary to keep the level of SG&A in line with
revenues and announced plans designed to further reduce our future SG&A costs.
These plans include the closure of an under-performing office, severance costs
incurred in connection with planned management changes principally related to
integration, and a reduction in the number of permanent placement consultants we
employ.  

                                      -16-
<PAGE>
 
Implementation of these plans will result in charges to be taken in
1999, that are estimated to be up to $3.3 million.

In the fourth quarter of 1998, we generated approximately 21.7% of our revenues
and 11.5% of our gross profit from the placement of contract professionals in
positions related to the implementation of SAP's ERP software.  SAP has
announced that it has experienced a slowdown in orders for its software.  SAP
believes this slowdown is related to its clients allocating resources away from
ERP implementation in order to address year 2000 issues.  In the first quarter
of 1999 we experienced a significant decrease of our contract staffing business
related to the implementation of SAP ERP software.  Like SAP, we believe the
decrease is due to clients allocating their resources away form SAP
implementation to address year 2000 issues and thus, that the decrease will be
temporary.  Our belief that this trend is temporary is a forward-looking
statement that is subject to risks and uncertainties.  Actual results may differ
materially from our estimate due to a variety of factors, including continued
decreased demand for SAP software and the attendant implementation services.


Year 2000 Computer Issues

Introduction.  The Year 2000 issue refers to the problems that result from the
many existing computer software programs and operating systems that use only two
digits rather than four to define the applicable year in a date field. These
programs were designed and developed without considering the impact of the
upcoming change in the century.  If not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000.

Acsys' State of Readiness.  We have assessed our major IT vendors and technology
providers and are in the process of testing our systems to determine Year 2000
compliance. In addition, we are in the process of assessing our non-IT systems
that utilize embedded technology such as microcontrollers and reviewing them for
Year 2000 compliance.

To operate our business, we rely upon government agencies, utility companies,
providers of telecommunication services, suppliers, and other third party
service providers ("Primary Service Providers"), over which we assert little
control. Our ability to conduct our core business depends upon the ability of
these Primary Service Providers to fix their Year 2000 issues and to the extent
they cannot or do not fix their Year 2000 issues, our financial condition could
be materially and adversely affected. In addition, our customers may experience
Year 2000 issues that could have a material adverse effect on their business and
their need for our services, which in turn could have a material adverse effect
on our business.

We use various software packages in conducting and accounting for our temporary
staffing, permanent placement and general accounting operations. These packages,
among other things, track and accumulate temporary staff time and client
billings, process staff payroll, and produce financial statements and other
financial data. We use software packages and hardware in certain locations that
may not be Year 2000 compliant.

We expect that our information systems integration efforts will enable us to be
fully Year 2000 compliant, although we cannot guarantee that software
represented by vendors as Year 2000 compliant will in fact be compliant.
Further, we use third-party payroll processing companies, and although we expect
that these companies will be Year 2000 compliant, no assurances can be given in
that regard. In pursuing our acquisition strategy we could acquire an entity
that is not Year 2000 compliant. Depending on the size of the entity acquired,
noncompliance could negatively affect our results of operations.

Costs to Address Acsys' Year 2000 Issues.   We expense costs associated with
Year 2000 system changes as the costs are incurred except for system change
costs that we would otherwise capitalize. To date we have incurred costs of
approximately $600,000 in connection with our Year 2000 compliance plan (our
"Year 2000 Plan"), and we expect to spend an additional $400,000 to complete our
Year 2000 Plan. The financial impact of these expenses has not been material,
and we do not expect future remediation costs to be material to our consolidated
financial position or results of operations. We cannot estimate the future costs
incurred as a result of Year 2000 issues suffered by our Primary Service
Providers and customers, and we cannot be assured that we will successfully
address the Year 2000 issues present in our own systems.

                                      -17-
<PAGE>
 
Risks Presented by Year 2000 Issues.   We have begun the system testing phase of
our Year 2000 Plan. As a result of system integration testing, we may identify
areas of our business that are at risk of Year 2000 disruption. The absence of
any such determination at this point represents only the status currently in the
implementation of our Year 2000 Plan, and should not be construed to mean that
there is no area of our business which is at risk of a Year 2000 related
disruption. As noted above, many of our Primary Service Providers and customers
may not appropriately address their Year 2000 issues, the result of which could
have a material adverse effect on our financial condition and results of
operations.

Acsys' Contingency Plans.   Our Year 2000 Plan calls for the development of
contingency plans for areas of the business that are susceptible to a
substantive risk of a disruption resulting from a Year 2000 related event.
Because we have only recently begun system integration testing, and have not
fully assessed our risk from potential Year 2000 failures, we have not yet
developed detailed contingency plans specific to Year 2000 events for any
specific area of business. We do, however, maintain contingency plans, outside
of the scope of the Year 2000 issue, designed to address various other business
interruptions. We are prepared for the possibility that system integration
testing may hereafter identify certain areas of business at risk. Consistent
with our Year 2000 Plan, we will develop specific Year 2000 contingency plans
for such areas of business as and if such determinations are made.


Disclosure Regarding Forward-Looking Statements
-----------------------------------------------

This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements appear in a number of places
in this report and include all statements that are not historical facts. Some of
the forward-looking statements relate to the intent, belief or expectations of
Acsys and our management regarding our strategies and plans for: operations,
growth, including current and potential new services; acquisitions; recruiting;
year 2000 compliance; and sales and marketing strategies. Other forward-looking
statements relate to trends affecting our financial condition and results of
operations; our anticipated capital needs and expenditures; and litigation in
which we are involved. Forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and actual results may differ
materially from those that are anticipated in the forward-looking statements as
a result of:

  .  our relatively brief combined operating history;
  .  the strength of demand for temporary staffing and permanent placement
     services in our markets;
  .  our ability to implement internal controls and reporting systems;
  .  risks associated with opening new offices and offering new services;
  .  the availability of qualified personnel to staff and supervise new offices;
  .  our ability to identify, acquire and integrate acquisitions;
  .  the possible effects of a downturn in the economy:
  .  the general level of economic activity and unemployment;
  .  existing and emerging competition;
  .  the availability of capital to fund acquisitions;
  .  our ability to maintain sufficient profit margins despite pricing
     pressures;
  .  the changing regulatory environment; and
  .  our ability to address the Year 2000 issue.

In addition, the market price of the Common Stock may from time to time be
significantly volatile as a result of, among other things:

  .  our operating results;
  .  the operating results of other staffing companies;
  .  changes in the performance of the stock market in general; and
  .  the trading volume of our Common Stock.

                                      -18-
<PAGE>
 
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
           RISK.

Acsys does not engage in investing in or trading market risk sensitive
instruments.  We also do not purchase, for investment, hedging, or for purposes
"other than trading," instruments that are likely to expose Acsys to market
risk, whether interest rate, foreign currency exchange, commodity price or
equity price risk, except as discussed in the following paragraph.  We have not
entered into any forward or futures contracts, purchased any options or entered
into any interest rate swaps.  We currently do not have any foreign operations
and thus we do not believe that we have any exposure to foreign currency
exchange rate risk.

We have minimal interest rate risk under our existing credit facility.  A change
in either our lender's prime rate, the federal funds rate or the London Inter-
Bank Offering Rate (LIBOR) would affect the rate at which that we could borrow
funds under our existing credit agreement. See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources."


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements of Acsys, including our consolidated balance sheets, as
of December 31, 1998 and 1997, consolidated statements of income for the years
ended December 31, 1998, 1997 and 1996, consolidated statements of cash flows
for the years ended December 31, 1998, 1997 and 1996 and consolidated statements
of redeemable common stock and shareholders' equity for the years ended December
31, 1998, 1997 and 1996, together with the report thereon of Arthur Andersen LLP
dated February 2, 1999, (except with respect to the matter discussed in Note 4,
as to which the date is March 23, 1999) and the schedule containing certain
supplemental information are attached hereto as pages F-1 through F-22.


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURES.

There have been no disagreements with or change in the registrant's independent
public accountants since our inception in March 1997.

                                      -19-
<PAGE>
 
                                    PART III


Reference is made to the information that is responsive to this Item appearing
in our definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on April 26, 1999 (the "Proxy Statement"), to be filed with the Securities
and Exchange Commission within 120 days after the end of our fiscal year, which
information is incorporated herein by reference.


ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Reference is made to the information that is responsive to this Item appearing
in the Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after the end of our fiscal year, which information is
incorporated herein by reference.


ITEM 11.   EXECUTIVE COMPENSATION.

Reference is made to the information that is responsive to this Item appearing
in the Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after the end of our fiscal year, which information in
incorporated herein by reference.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT.

Reference is made to the information that is responsive to this Item appearing
in the Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after the end of our fiscal year, which information in
incorporated herein by reference.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is made to the information that is responsive to this Item appearing
in the Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after the end of our fiscal year, which information in
incorporated herein by reference.

                                      -20-
<PAGE>
 
                                    PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM
           8-K.

(a)(1) Financial Statements.

       The following consolidated financial statements of Acsys and its
       subsidiaries and report of independent auditors are included in Item 8
       hereof:

         Report of Independent Public Accountants on Financial Statements   
         Consolidated Balance Sheets as of December 31, 1998 and 1997       
         Consolidated Statements of Operations for the years ended December 31,
         1998, 1997 and 1996                                                   
         Consolidated Statements of Cash Flows for the years ended December 31,
         1998, 1997 and 1996                                                   
         Consolidated Statements of Redeemable Common Stock and Shareholders' 
         Equity for the years ended December 31, 1998, 1997 and 1996   
         Notes to Consolidated Financial Statements                    

(a)(2) Except for the following, all schedules for which provision is made in
       the applicable accounting regulations of the Securities and Exchange
       Commission either have been included in the Consolidated Financial
       Statements or are not required under the related instructions, or are
       applicable and therefore have been omitted:

         Report of Independent Public Accountants
         Schedule II--Valuation and Qualifying Accounts.

(a)(3) Exhibits. The following exhibits are either provided with this Report or
       are incorporated herein by reference.


<TABLE>
<CAPTION>
  EXHIBIT     
   NUMBER                                 DESCRIPTION     
------------  -----------------------------------------------------------------
 
<C>           <S>
     2.1  Agreement and Plan of Reorganization dated as of April 16, 1997 by and among
          Acsys and David C. Cooper & Associates, Inc., DCCA Professional Temporaries,
          Inc., EKT, Inc., and Infinity Enterprises, Inc., and Cooper Acquisition, Inc.,
          DCCA Acquisition, Inc., EKT Acquisition, Inc., and Infinity Acquisition, Inc.,
          and the shareholders named therein. (Filed as Exhibit 2.1 to Acsys' Registration
          Statement on Form S-1, File No. 333-38465 (the "February 1998 S-1") and
          incorporated herein by reference.)

     2.2  Agreement and Plan of Reorganization dated as of April 24, 1997 by and among
          Acsys, Cama of Tampa, Inc., Cama Acquisition, Inc. and Stephen S. Tutwiler.
          (Filed as Exhibit 2.2 to the February 1998 S-1, and incorporated herein by
          reference.)

     2.3  Agreement and Plan of Merger by and among Acsys, RFCG Merger Subsidiary, Inc.,
          Rylan Forbes Consulting Group, Inc., and the shareholders of Rylan Forbes
          Consulting Group, Inc. dated as of July 25, 1997. (Filed as Exhibit 2.3 to the
          February 1998 S-1, and incorporated herein by reference.)
</TABLE> 

                                      -21-
<PAGE>
 
<TABLE> 
<S>       <C> 
     2.4  Agreement and Plan of Merger by and among Acsys, the shareholders of Acsys, AcSys
          Resources, Inc., ASRI Merger Subsidiary, Inc. and the shareholders of AcSys
          Resources, Inc. dated as of September 3, 1997. (Filed as Exhibit 2.4 to the
          February 1998 S-1, and incorporated herein by reference.)

     2.5  Agreement and Plan of Merger among AcSys Resources, Inc., Acsys Staffing
          Acquisition Corp., Acsys Search Acquisition Corp., Acsys Career Acquisition
          Corp., and C.P.A. Staffing, Inc., C.P.A. Search, Inc., Career Placement
          Associates, Inc. and John Ficquette and Louis Boohaker dated as of August 12,
          1997. (Filed as Exhibit 2.5 to the February 1998 S-1, and incorporated herein by
          reference.)

     2.6  Agreement and Plan of Merger by and among Acsys, Icon Merger Subsidiary, Inc.,
          Icon Search and Consulting, Inc. ("Icon"), and the shareholders of Icon named
          therein dated as of March 31, 1998. (Filed as Exhibit 2.6 to the Quarterly Report
          on Form 10-Q dated May 15, 1998, File No. 000-23711 (the "May 15 10-Q"), and
          incorporated herein by reference.)

     2.7  Agreement and Plan of Merger, dated as of August 3, 1998, by and among Acsys,
          Inc., SE Merger Subsidiary, Inc., Staffing Edge, Inc. and certain stockholders of
          Staffing Edge, Inc. (Filed as Exhibit 2.1 to the Current Report on Form 8-K dated
          August 19, 1998, File No. 000-23711, and incorporated herein by reference.)

     3.1  Articles of Incorporation of Acsys. (Filed as Exhibit 3.1 to February 1998 S-1,
          and incorporated herein by reference.)

   3.1.1  Amendments to Articles of Incorporation. (Filed as Exhibit 3.1.1 to Acsys'
          Registration Statement on Form S-1, File No.333-67437 the ("November 1998 S-1.")
          and incorporated herein by reference.)

     3.2  Bylaws of Acsys. (Filed as Exhibit 3.2 to February 1998 S-1, and incorporated
          herein by reference.)

    10.1  Amended and Restated 1997 Stock Option Plan of Acsys. (Filed as Exhibit 10.1 to
          February 1998 S-1, and incorporated herein by reference.)
 
  10.1.1  Amendment to Amended and Restated Stock Option Plan of Acsys dated April 29, 1998.

    10.2  Employment Agreement by and between Acsys and Timothy Mann, Jr. dated March 12,
          1997. (Filed as Exhibit 10.3 to February 1998 S-1, and incorporated herein by
          reference.)

    10.3  Amendment No. 1 to Employment Agreement by and between Acsys and Timothy Mann,
          Jr. dated September 3, 1997. (Filed as Exhibit 10.4 to February 1998 S-1, and
          incorporated herein by reference.)

    10.4  Amendment No. 2 to Employment Agreement by and between Acsys and Timothy Mann,
          Jr. dated October 14, 1997. (Filed as Exhibit 10.5 to February 1998 S-1, and
          incorporated herein by reference.)

    10.5  Employment Agreement by and between Acsys and Edward S. Baumstein dated September
          3, 1997. (Filed as Exhibit 10.6 to February 1998 S-1, and incorporated herein by
          reference.)

    10.6  Amendment No. 1 to Employment Agreement by and between Acsys and Edward S.
          Baumstein dated as of October 14, 1997. (Filed as Exhibit 10.7 to February 1998
          S-1, and incorporated herein by reference.)

    10.7  Stock Option Agreement by and between Acsys and Timothy Mann,Jr. dated May 19,
          1997. (Filed as Exhibit 10.8 to February 1998 S-1, and incorporated herein by
          reference.)
</TABLE> 

                                      -22-
<PAGE>
 
<TABLE> 
<S>       <C> 
    10.8  Stock Option Agreement by and between Acsys and Timothy Mann,Jr. dated May 19,
          1997. (Filed as Exhibit 10.9 to February 1998 S-1, and incorporated herein by
          reference.)

   10.10  Form of Employment Agreement between Acsys and key employees.  (Filed as Exhibit
          10.11 to February 1998 S-1, and incorporated herein by reference.)

   10.11  Amended and Restated Registration Rights Agreement dated as of September 3, 1997
          by and among Acsys and certain holders of the capital stock of Acsys. (Filed as
          Exhibit 10.12 to February 1998 S-1, and incorporated herein by reference.)

 10.11.1  Registration Rights Joinder Agreement dated May 22, 1998 by and among Acsys and
          certain holders of the capital stock of Acsys.  (Filed as Exhibit 10.12.1 to
          Quarterly Report on Form 10-Q dated August 14, 1998, File No. 000-23711 (the
          "August 14 10-Q"), and incorporated herein by reference.)

 10.11.2  Registration Rights Joinder Agreement dated July 1, 1998 by and among Acsys and
          Howard Sapolsky. (Filed as Exhibit 10.1 to Quarterly Report on Form 10-Q dated
          November 16, 1998, File No. 000-23711 (the "November 16 10-Q"), and incorporated
          herein by reference.)

 10.11.3  Registration Rights Joinder Agreement dated August 3, 1998 by and among Acsys and
          certain holders of capital stock of Acsys.  (Filed as Exhibit 10.2 to the
          November 16 10-Q and incorporated herein by reference.)

 10.11.4  Registration Rights Joinder Agreement dated March 31, 1998 by and among Acsys and
          certain holders of capital stock of Acsys. (Filed as Exhibit 10.11.4 to November
          1998 S-1, and incorporate herein by reference.)

   10.12  Revolving Credit Agreement dated May 16, 1997 by and among Acsys and certain
          lenders. (Filed as Exhibit 10.13 to February 1998 S-1, and incorporated herein by
          reference.)

 10.12.1  Amendment No. 1 to Credit Agreement dated January 29, 1998 by and among Acsys,
          NationsBank, National Association as Lender, and NationsBank, National
          Association as Agent for the Lenders. (Filed as Exhibit 10.13.1 to the August 14
          10-Q, and incorporated herein by reference.)

 10.12.2  Amendment No. 2 to Credit Agreement dated August 3, 1998 by and among Acsys,
          NationsBank, National Association as Lender and NationsBank, National Association
          as Agent for the Lenders. (Filed as Exhibit 10.3 to the November 16 10-Q, and
          incorporated herein by reference.)

 10.12.3  Letter Agreement to Credit Agreement dated December 29, 1998 by and among Acsys,
          NationsBank, National Association, as Agent and the Lenders party thereto.
 
 10.12.4  Letter Agreement to Credit Agreement dated March 23, 1999 by and among Acsys,
          NationsBank, National Association, as Agent and the Lenders party thereto.
 
   10.13  Form of Indemnification Agreement entered into between Acsys and its directors
          and officers. (Filed as Exhibit 10.14 to February 1998 S-1, and incorporated
          herein by reference.)
   10.14  Form of S-corporation Tax Allocation and Indemnification Agreement entered into
          between Acsys and certain of its shareholders.  (Filed as Exhibit 10.15 to
</TABLE> 

                                      -23-
<PAGE>
 
<TABLE>  
<S>       <C> 
          February 1998 S-1, and incorporated herein by reference.)

   10.16  Employment Agreement between Acsys and Robert M. Kwatnez dated as of March 31,
          1998 and effective on May 22, 1998. (Filed as Exhibit 10.18 to the August 14
          10-Q, and incorporated herein by reference.)

   10.17  Non-Solicitation and Non-Competition Agreement between Acsys and Robert M.
          Kwatnez dated as of March 31, 1998 and effective on May 22, 1998. (Filed as
          Exhibit 10.19 to the August 14 10-Q, and incorporated herein by reference.)

   10.18  Employment Agreement between Acsys and Brady W. Mullinax, Jr., dated as of August
          21, 1998. (Filed as Exhibit 10.4 to Quarterly Report on Form 10-Q dated November
          16, 1998, File No. 000-23711, and incorporated herein by reference.)

   10.19  Non-Qualified Stock Option Agreement by and between Acsys and Brady W. Mullinax,
          Jr. dated August 21, 1998. (Filed as Exhibit 10.5 to the November 16 10-Q, and
          incorporated herein by reference.)

   10.20  Incentive Stock Option Agreement by and between Acsys and Brady W. Mullinax, Jr.
          dated August 21, 1998. (Filed as Exhibit 10.6 to the November 16 10-Q, and
          incorporated herein by reference.)

   10.21  Incentive Stock Option Agreement by and between Acsys and Timothy Mann, Jr.,
          dated October 27, 1998.

   10.22  Non-Qualified Stock Option Agreement by and between Acsys and Timothy Mann, Jr.
          dated October 27, 1998.
 
   10.23  Separation and Release Agreement by and between Acsys and Edward S. Baumstein
          dated March 12, 1999.
 
    21.1  Subsidiaries of Acsys.  (Filed as Exhibit 21.1 to the Registration Statement on
          Form S-1 filed on November 17, 1998, and incorporated herein by reference.)

    23.1  Consent of Arthur Andersen LLP.

    24.1  Power of Attorney [included on signature page].

    27.1  Financial Data Schedule (for SEC use only).
</TABLE>

(b)  Reports on Form 8-K.

  Except for the following, no Current Reports on Form 8-K were filed by Acsys
  with the Securities and Exchange Commission during the fourth quarter of 1998:


     (1)  Current Report on Form 8-K, dated November 18, 1998 (Item 5: Other
          Events); and
     (2)  Current Report on Form 8-K/A, dated October 19, 1998, amending Current
          Report on Form 8-K dated August 4, 1998 (Item 7: Financial Statements
          of Businesses Acquired (Staffing Edge, Inc.) and Pro Forma Financial
          Information unaudited).

                                      -24-
<PAGE>
 
                                   SIGNATURES
                                        
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                  ACSYS, Inc.

                             By:        /s/   BRADY W. MULLINAX, JR.
                                ------------------------------------------------
                                              Brady W. Mullinax, Jr.
                                Chief Financial Officer, Treasurer and Secretary

                                                 March 30, 1999

                               POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and
directors of Acsys, Inc. (the "Company"), a Georgia corporation, for himself and
not for one another, does hereby constitute and appoint David C. Cooper, Timothy
Mann, Jr. and Brady W. Mullinax, Jr. and each of them, a true and lawful
attorney in his name, place and stead, in any and all capacities, to sign his
name to any and all amendments to this Annual Report on Form 10-K, and to cause
the same (together with all Exhibits thereto) to be filed with the Securities
and Exchange Commission, granting unto said attorneys and each of them full
power and authority to do and perform any act and thing necessary and proper to
be done in the premises, as fully to all intents and purposes as the undersigned
could do if personally present, and each of the undersigned for himself hereby
ratifies and confirms all that said attorneys or any one of them shall lawfully
do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
             Signatures                               Title                               Date
------------------------------------  --------------------------------------  ----------------------------
<S>                                   <C>                                     <C>
 
          /s/   David C. Cooper       Chairman of the Board of Directors      March 30, 1999
------------------------------------
         David C. Cooper
 
          /s/   Timothy Mann, Jr      Chief Executive Officer and Director    March 30, 1999
------------------------------------  (Principal Executive Officer)
         Timothy Mann, Jr.
 
        /s/   Beth Monroe-Chase       Chief Development Officer, Executive    March 30, 1999
------------------------------------  Vice President and Director
       Beth Monroe-Chase
 
        /s/   Brady W. Mullinax, Jr.  Chief Financial Officer (Principal      March 30, 1999
------------------------------------  Financial and Accounting Officer)
       Brady W. Mullinax, Jr.  
 
          /s/   Barry M. Abelson      Director                                March 30, 1999
------------------------------------
        Barry M. Abelson
 
          /s/   Paul J. Klaassen      Director                                March 30, 1999
------------------------------------
        Paul J. Klaassen
 
      /s/   Robert M. Kwatnez         Director                                March 30, 1999     
------------------------------------                                                             
       Robert M. Kwatnez                                                                          

      /s/   William Porter Payne      Director                                March 30, 1999
------------------------------------
       William Porter Payne

      /s/   Harry J. Sauer            Director                                March 30, 1999
------------------------------------
        Harry J. Sauer
</TABLE>

                                      -25-
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                        
To Acsys, Inc.:

We have audited the accompanying consolidated balance sheets of Acsys, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, redeemable common stock and shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Acsys, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.


                                         /s/ Arthur Andersen LLP

Philadelphia, PA,
  February 2, 1999 (except with respect to the matter
  discussed in Note 4, as to which the date is March 23, 1999)
 

                                      F-1
<PAGE>
 
<TABLE>
<CAPTION>
                                               ACSYS, INC. AND SUBSIDIARIES
                                                CONSOLIDATED BALANCE SHEETS
                                             (In thousands-except share data)
 
 
                                                                                                           December 31,
                                                                                                   ------------------------
                                                                                                         1998        1997
                                                                                                   ------------------------
<S>                                                                                                    <C>         <C>
ASSETS
 CURRENT ASSETS:
      Cash and cash equivalents                                                                    $ 1,777          $   370
      Accounts receivable, (net of allowances of $958 and $503 at                                             
             December 31, 1998 and 1997, respectively)                                              22,836           12,343
      Prepaid expenses and other                                                                     2,073            1,455
                                                                                              ------------     ------------
           Total current assets                                                                     26,686           14,168
 PROPERTY AND EQUIPMENT, net                                                                         4,979            1,928
 GOODWILL AND OTHER INTANGIBLE ASSETS, net                                                          54,366           15,783
 DEFERRED INITIAL PUBLIC OFFERING COSTS                                                                  -            1,200
 DEFERRED INCOME TAXES                                                                                   -              103
 OTHER ASSETS                                                                                          332              170
                                                                                              ------------     ------------
           Total assets                                                                            $86,363          $33,352
                                                                                              ============     ============
                                                                                                              
LIABILITIES AND SHAREHOLDERS' EQUITY                                                                          
 CURRENT LIABILITIES:                                                                                         
      Bank overdrafts                                                                              $ 1,206          $ 1,489
      Current portion of long-term debt                                                                 44               47
      Accounts payable                                                                               2,571              774
      Accrued liabilities                                                                            7,086            5,844
      Deferred income taxes                                                                            413            1,093
                                                                                              ------------     ------------
           Total current liabilities                                                                11,320            9,247
                                                                                              ------------     ------------

 LONG-TERM DEBT                                                                                     38,276           11,707
                                                                                              ------------     ------------

 DEFERRED INCOME TAXES                                                                               2,771                -
                                                                                              ------------     ------------
 OTHER LONG-TERM LIABILITIES                                                                           293              377
                                                                                              ------------     ------------
 COMMITMENTS AND CONTINGENCIES (Note 5)                                                                       
 REDEEMABLE COMMON STOCK, no par value,                                                                       
     122,012 shares issued and outstanding at December 31, 1997                                          -            1,220
                                                                                              ------------     ------------
 SHAREHOLDERS' EQUITY:                                                                                        
     Preferred stock, no par value, 5,000,000 shares authorized, no                                           
      Shares issued or outstanding                                                                       -                -
     Common stock, no par value, 45,000,000 shares authorized                                                 
      14,452,466 and 11,191,568 issued and outstanding at                                                     
      December 31, 1998 and 1997, respectively                                                      30,499            7,597
     Retained earnings                                                                               3,204            3,204
                                                                                              ------------     ------------
                                                                                                              
        Total shareholders' equity                                                                  33,703           10,801
                                                                                              ------------     ------------
        Total liabilities and shareholders' equity                                                 $86,363          $33,352
                                                                                              ============     ============
 
 The accompanying notes are an integral part of these statements
 
</TABLE>

                                      F-2
<PAGE>
 
<TABLE>
<CAPTION>
                                              ACSYS, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                         (In thousands - except per share data)
 
 
 
 
                                                             For the Year Ended December 31,
                                                     ----------------------------------------------
                                                          1998              1997            1996
                                                     ----------------------------------------------
<S>                                                  <C>              <C>              <C>
SERVICE REVENUES:                                    
          Temporary staffing                            $103,067          $60,057          $44,556
          Permanent placement                             26,831           18,071           12,186
                                                     -----------    -------------    -------------
               Total service revenues                    129,898           78,128           56,742
                                                     -----------    -------------    -------------
DIRECT COST OF SERVICES, consisting of                                              
     payroll, payroll taxes and benefit costs for                                   
     temporary employees                                  72,170           42,583           30,616
                                                     -----------    -------------    -------------
               Gross profit                               57,728           35,545           26,126
SELLING, GENERAL AND ADMINISTRATIVE                                                 
     EXPENSES                                             48,260           29,979           20,769
COMBINATION EXPENSES                                       1,730            1,797                -
AMORTIZATION AND DEPRECIATION                              1,658              715              693
SEVERANCE AND FRANCHISE TERMINATION                                                 
     COSTS                                                   650              682              567
                                                     -----------    -------------    -------------
               Operating income                            5,430            2,372            4,097
OTHER INCOME (EXPENSE):                                                             
      Interest income                                        123               44               74
      Interest expense                                    (1,252)            (867)            (881)
      Other                                                    -               35               (4)
                                                     -----------    -------------    ------------- 
INCOME BEFORE INCOME TAXES                                 4,301            1,584            3,286
      Income taxes                                         5,527              438              419
                                                     -----------    -------------    ------------- 
NET INCOME (LOSS)                                       $ (1,226)         $ 1,146          $ 2,867
                                                     ===========    =============    =============
NET INCOME (LOSS) PER SHARE:                                                        
      Basic and diluted net income (loss) per share       $(0.09)           $0.02            $0.27
                                                     ===========    =============    =============
      Shares used in computing basic net income                                                              
              (loss) per share                            14,016           10,440            9,972
                                                     ===========    =============    =============
      Shares used in computing diluted net income
             (loss) per share                             14,016           10,544            9,972
                                                     ===========    =============    =============
 
The accompanying notes are an integral part of these statements
</TABLE>

                                      F-3
<PAGE>
 
<TABLE>
<CAPTION>
                                                       ACSYS, INC. AND SUBSIDIARIES
                                            CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK
                                                         AND SHAREHOLDERS' EQUITY
                                                    (In thousands- except share data)

                                                                                          Shareholders' Equity
                                             Redeemable              ------------------------------------------------------------
                                            Common Stock                 Common Stock
                                        -----------------------      ----------------------      Retained     Treasury 
                                         Shares         Amount        Shares         Amount      Earnings       Stock       Total
                                        -----------    --------      ---------      -------      --------      -------     ------- 
<S>                                     <C>              <C>         <C>              <C>          <C>          <C>          <C>
BALANCE, DECEMBER 31, 1995                       -     $     -       10,094,306      $   144      $ 2,656        $(131)     $ 2,669
  Assumption of debt accounted          
      for as a distribution                      -           -                -            -         (300)           -         (300)
  Push down of new accounting           
      basis in purchase transaction              -           -                -          300            -            -          300
  Contributions from shareholders                -           -                -          150            -            -          150
  Distributions to shareholders                  -           -                -            -         (766)           -         (766)
  Purchase of Common Stock              
      in connection with the            
     redemption agreement                  122,012          64         (122,012)         (64)           -         (458)        (522)
  Accretion of redeemable Common        
      Stock to redemption value                  -         224                -            -         (224)           -         (224)
  Net income                                     -           -                -            -        2,867            -        2,867
                                        ----------     -------       ----------      -------      -------        -----      -------
                                        
BALANCE, DECEMBER 31, 1996                 122,012         288        9,972,294          530        4,233         (589)       4,174
  Distributions to shareholders                  -           -                -            -       (1,243)           -       (1,243)
  Issuance of Common Stock in           
      connection with acquisition                -           -        1,219,274        7,067            -          589        7,656
  Accretion of redeemable Common        
      Stock to redemption value                  -         932                -            -         (932)                     (932)

  Net income                                     -           -                -            -        1,146            -        1,146
                                        ----------     -------       ----------      -------      -------        -----      -------
                                        
BALANCE, DECEMBER 31, 1997                 122,012       1,220       11,191,568        7,597        3,204            -       10,801
  Issuance of Common Stock upon initial 
      public offering, net of offering           -           -        2,842,500       20,070            -            -       20,070
       costs                            
  Resetting of retained earnings in     
      connection with termination       
      of S-corporation status                    -           -                -       (1,597)       1,597            -            -
  Termination of redemption rights in   
      connection with the initial public  (122,012)     (1,220)         122,012        1,220            -            -        1,220
       offering                         
  Issuance of Common Stock in           
      connection with acquisitions               -           -          229,337        3,031            -            -        3,031
  Exercise of employee stock options             -           -           67,049          178            -            -          178
  Tax benefit of non-qualified          
      stock option exercises                     -           -                -            -          221            -          221
  Distributions to shareholders         
      for taxes on S-corporation earning         -           -                -            -         (592)           -         (592)

  Net loss                                       -           -                -            -       (1,226)           -       (1,226)

                                        ----------     -------       ----------      -------      -------        -----      -------
BALANCE, DECEMBER 31, 1998                       -     $     -       14,452,466      $30,499      $ 3,204        $   -      $33,703
                                        ==========     =======       ==========      =======      =======        =====      =======
 
The accompanying notes are an integral part of these statements.
</TABLE>

                                      F-4
<PAGE>
 
<TABLE>
<CAPTION>
                                                      ACSYS, INC. AND SUBSIDIARIES
                                                  CONSOLIDATED STATEMENT OF CASH FLOWS
                                                             (In thousands)
 
                                                                                                  For the Year Ended December 31,
                                                         
                                                                                                1998         1997        1996
                                                                                              --------      -------     ------- 
<S>                                                                                           <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income (loss)                                                                        $ (1,226)    $ 1,146     $ 2,867
      Adjustments to reconcile net income (loss) to net cash                                   
           provided by (used in) operating activities-                                         
           Amortization and depreciation                                                          1,658         715         693
           Imputed interest                                                                          61          74          71
           Non-cash severance charge                                                                  -           -         458
           Deferred tax expense                                                                   2,173         551         387
           Other                                                                                      -           8         (45)
      Changes in operating assets and liabilities net of  effect of purchase acquisitions-     
           Accounts receivable, net                                                              (6,727)     (2,860)     (3,085)
           Prepaid expenses and other                                                                13      (1,200)       (190)
           Other assets                                                                             (87)         99           -
           Accounts payable                                                                       1,112         242         104
           Accrued liabilities and other                                                         (3,699)      1,377         579
           Other long-term liabilities                                                              (84)        336           -
                                                                                               --------     -------     ------- 
                Net cash provided by (used in) operating activities                              (6,806)        488       1,839
                                                                                               --------     -------     ------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                          
           Net cash paid for business acquisitions                                              (34,260)     (1,996)          -
           Capital expenditures                                                                  (3,152)     (1,214)       (562)
                                                                                               --------     -------     ------- 
                Net cash used in investing activities                                           (37,412)     (3,210)       (562)
                                                                                               --------     -------     ------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                          
           Net proceeds from initial public offering                                             20,070           -           -
           Changes in bank overdrafts                                                              (283)      1,224         217
           Net borrowings (repayments) on lines of credit                                             -      (1,108)        508
           Net borrowings on revolving credit facility                                           26,610      12,207           -
           Proceeds from long-term debt                                                               -           -         326
           Repayments of long-term debt                                                             (44)     (9,374)     (1,811)
           Distributions to shareholders for taxes on S-corporation earnings                       (834)       (843)       (766)
           Deferred financing costs                                                                 (72)       (232)          -
           Proceeds from exercise of employee stock options                                         178           -           -
           Changes in restricted cash                                                                 -         116         (89)
           Net repayments of notes payable to shareholders                                            -           -        (150)
           Shareholder contributions                                                                  -           -         150
                                                                                               --------     -------     ------- 
                Net cash provided by (used in) financing activities                              45,625       1,990      (1,615)
                                                                                               --------     -------     ------- 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                              1,407        (732)       (338)
CASH AND CASH EQUIVALENTS, beginning of year                                                        370       1,102       1,440
                                                                                               --------     -------     ------- 
CASH AND CASH EQUIVALENTS, end of year                                                         $  1,777     $   370     $ 1,102
                                                                                               ========     =======     ======= 
 
 The accompanying notes are an integral part of theses statements
</TABLE>

                                      F-5
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Description of Business:

Acsys, Inc. and Subsidiaries (the "Company") is a specialty professional
staffing firm that operates offices primarily located in major metropolitan
areas in the eastern and Midwestern United States.

The Company was formed on March 10, 1997 and effected a business combination on
May 16, 1997 in which it acquired all of the issued and outstanding common stock
of Infinity Enterprises, Inc.; David C. Cooper & Associates, Inc.; DCCA
Professional Temporaries, Inc.; and EKT, Inc. in exchange for 4,240,283 shares
of the Company's Common Stock (the "May 16 Pooling"). Subsequent to the May 16
Pooling, the Company acquired all of the issued and outstanding common stock of
the following companies, in the same manner:

<TABLE>
<CAPTION>
Name                                                     Acquisition Date        Shares Issued
----                                                     ----------------        -------------
<S>                                                      <C>                     <C>
Cama of Tampa, Inc.   .................................  May 19, 1997                 131,143
Rylan Forbes Consulting Group, Inc.   .................  July 25, 1997                462,292
Acsys Resources, Inc.   ...............................  September 3, 1997          3,659,502
ICON Search and Consulting, Inc.   ....................  May 22, 1998               2,820,360
</TABLE>

The business combinations referred to above have been accounted for under the
pooling of interests method of accounting. Thus, the accompanying financial
statements have been restated to include the accounts and operating results of
the combined companies for all dates and periods prior to the combinations.

Upon closing these acquisitions, the Company entered into employment agreements
with certain officers and employees (see Note 5). Those agreements provide for
reduced compensation from amounts previously charged to expense. The reduction
in compensation was approximately $1,330,000 and $2,341,000 for the years ended
December 31, 1998 and 1997, respectively.  The following is an unaudited
supplemental pro forma presentation of the years ended December 31, 1998 and
1997 statements of operations to reflect the reduction of compensation and an
adjustment to reflect income taxes as if the Company terminated its S-
corporation status as of January 1, 1997:

<TABLE>
<CAPTION>
 
                                                                                     For the year ended December 31,
                                                                                ----------------------------------------
                                                                                        1998                  1997
                                                                                -----------------     ------------------
<S>                                                                               <C>                   <C>
                                                                                  (In thousands -except per share data)
  Income before income taxes, as reported  .....................................          $ 4,301                $ 1,584
  Supplemental pro forma adjustment to compensation expense  ...................            1,330                  2,341
                                                                                -----------------     ------------------
  Supplemental pro forma income, before pro forma income taxes  ................            5,631                  3,925
  Supplemental pro forma income taxes  .........................................            3,051                  2,329
                                                                                -----------------     ------------------ 
  Supplemental pro forma net income after contractual reduction in
     salaries and income taxes..................................................          $ 2,580                $ 1,596
                                                                                =================     ==================

  Net income (loss) per diluted share as reported...............................          $ (0.09)               $  0.02
                                                                                =================     ==================
  Supplemental pro forma net income per diluted share, as adjusted
    for reduction in salaries and income taxes  ................................          $  0.18                $  0.06
                                                                                =================     ==================
  Shares used in computing supplemental pro forma net income per
    diluted share, as adjusted for reduction in salaries and income taxes  .....           14,345                 10,544
                                                                                =================     ==================
</TABLE>

                                      F-6
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        
This supplemental pro forma presentation is shown solely as a result of the
significant change in the Company's compensation arrangements following the
acquisition, in order to assess the impact on the Company's results of
operations. This presentation assumes that the duties and responsibilities of
the officers and employees have not been diminished given the reduction in
compensation and, as such, that other costs will not be incurred that offset
this pro forma adjustment to compensation expense.

2. Initial Public Offering:

In February 1998, the Company completed its initial public offering ("IPO") of
2,842,500 shares of Common Stock at a price of $8.50 per share, generating net
cash proceeds of approximately $20.1 million after deducting underwriters'
discount and offering costs of approximately $2.4 million.


3. Summary of Significant Accounting Policies:

Risks and Uncertainties

The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations include, but are
not limited to the following: the Company's relatively brief combined operating
history, our ability to implement internal controls and reporting systems, risks
associated with opening new offices and offering new services, the availability
of qualified personnel to staff and supervise new offices, our ability to
identify, acquire and integrate acquisitions, the possible effects of a downturn
in the economy, the demand for temporary staffing and permanent placement
services in our markets, the general level of economic activity and
unemployment, existing and emerging competition, the availability of capital to
fund acquisitions, our ability to maintain sufficient profit margins despite
pricing pressures, the changing regulatory environment and our ability to
address the Year 2000 issue.

Credit risk with respect to accounts receivable is dispersed due to the nature
of the business, the large number of customers, and the diversity of industries
serviced. At December 31, 1998 and 1997, no one customer represented greater
than 10% of accounts receivable or greater than 10% of revenues for the periods
then ended.

For the years ended December 31, 1998 and 1997, the Company recognized 21% and
35% of total revenues, respectively, from implementing SAP Enterprise Resource
Planning ("ERP") Software.

Pervasiveness of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant intercompany
transactions and accounts have been eliminated.

Cash and Cash Equivalents

The Company considers cash on deposit with financial institutions and all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents. The Company generally limits its investments in cash
equivalents to money market funds and certificates of deposit.

                                      F-7
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        

Property and Equipment

Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are depreciated using the straight-line method over the shorter of
the estimated useful life of the asset or the remaining term of the lease.

<TABLE>
<CAPTION>
                                                                                December 31,          
                                                                      --------------------------------
                                                         Useful Lives      1998              1997     
                                                       -------------- --------------    -------------- 
<S>                                                    <C>               <C>               <C>
                                                                 (In thousands)
Office equipment, computers and software..........        3-7 years       $ 4,520           $ 1,806

Office furniture and fixture......................       3-7 years          2,070               960

Leasehold improvements............................         7 years            370               343
                                                                          -------           -------  
                                                                            6,960             3,109
Less--Accumulated depreciation....................                         (1,981)           (1,181)
                                                                          -------           -------  
                                                                          $ 4,979           $ 1,928
                                                                          =======           =======
</TABLE>
                                                                                
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$713,000 $386,000, and $284,000, respectively.

Intangible Assets

<TABLE>
<CAPTION>
                                                                        December 31,
                                                              ------------------------------
                                                                    1998             1997
                                                              --------------    ------------
<S>                                                             <C>               <C>
                                                                       (In thousands)
Goodwill  .................................................          $55,610         $16,397
Deferred financing costs  .................................              288             232
Other  ....................................................              267               8
                                                              --------------    ------------
                                                                      56,165          16,637
Less--Accumulated amortization  ...........................           (1,799)           (854)
                                                              --------------    ------------
                                                                     $54,366         $15,783
                                                              ==============    ============
</TABLE>
                                                                                
Goodwill was recorded in connection with the acquisition on February 28, 1994 of
certain assets of a predecessor by Infinity Enterprises, Inc., the acquisition
on January 1, 1996 of common stock from the previous shareholders of Cama of
Tampa, Inc., the acquisitions of C.P.A. Staffing, Inc.; C.P.A. Search, Inc.;
Career Placement Associates (together "CPA Staffing") on August 12, 1997 and the
acquisitions on March 31, 1998, July 1, 1998 and August 4, 1998 of TGS Resource
Group, Inc., KPD Systems Inc. and Staffing Edge, Inc., respectively (see Note
11). Goodwill is being amortized on a straight-line basis over 40 years.

Deferred financing costs are being amortized over the three-year term of the
credit facility.

Amortization expense for intangible assets for the years ended December 31,
1998, 1997 and 1996 was $945,000, $329,000, and $409,000, respectively.

                                      F-8
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        
Long-Lived Assets

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If changes in circumstances
indicate that the carrying amount of an asset that an entity expects to hold and
use may not be recoverable, future cash flows expected to result from the use of
the asset and its disposition will be estimated. If the undiscounted value of
the future cash flows is less than the carrying amount of the asset, an
impairment will be recognized. Management believes that there has been no
impairment of long-lived assets as of December 31, 1998.

Accrued Liabilities

<TABLE>
<CAPTION>
 
                                                             December 31
                                                  -------------------------------
                                                        1998             1997
                                                  --------------   --------------
<S>                                                 <C>              <C>
                                                         (In thousands)
Salaries and commissions  ......................       $2,895           $2,722
Acquisition-related transaction costs  .........        1,871               --
Combination costs  .............................           --            1,612
Payroll taxes  .................................          854              308
Shareholder distributions  .....................           --              400
Accrued severance costs  .......................          278              164
Other    .......................................        1,188              638
                                                       ------           ------
                                                       $7,086           $5,844
                                                       ======           ======
</TABLE>
                                                                                
Revenue Recognition

The Company recognizes permanent placement revenues when the employment offer
and acceptance has occurred and the candidate's employment start date has been
established. Revenues from permanent placements are reported in the consolidated
statements of operations net of estimated adjustments due to placed candidates
that terminate employment within the Company's guarantee period (generally 90-
180 days). The Company recognizes temporary staffing revenues when the services
are performed.

Gross Profit

Gross profit is determined by deducting the direct cost of services for
temporary staffing revenues (temporary and contract personnel payroll, payroll
taxes and benefit costs) from total service revenues. The primary costs
associated with permanent placement revenues are sales commissions, which
increase in proportion with service revenue from permanent placements.
Consistent with industry practice, these costs are included in selling, general
and administrative expenses.

Supplemental Cash Flow Information

For the years ended December 31, 1998, 1997, and 1996, the Company paid interest
of $1,033,000, $867,000, and $873,000, respectively.  The Company financed
equipment purchases under capital leases of $100,000 in 1996 and purchased
Common Stock for debt in the amount of $443,000 in 1996.

                                      F-9
<PAGE>
 




                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        
The following table displays the net non-cash assets that were acquired in 1998
and 1997. The 1998 assets acquired are from the Company's acquisitions of TGS
Resource Group, Inc. ("TGS"), KPD Systems, Inc. ("KPD") and Staffing Edge, Inc.
("Staffing Edge") on March 31, 1998, July 1, 1998 and August 4, 1998,
respectively. The 1997 assets acquired are from the Company's August 1997
acquisition of C.P.A. Staffing. These transactions are described in Note 11:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                     -------------------------------------
                                                         1998                1997
                                                     ------------        -------------
<S>                                                    <C>                  <C>
                                                                 (In thousands)
Non-cash assets (liabilities)
Accounts receivable  ..............................     $ 3,766              $ 1,124
Prepaid expenses and other  .......................         568                    1
Property and equipment  ...........................       1,007                  167
Other assets  .....................................          74                   --
Goodwill.  ........................................      39,456                8,754
Accounts payable  .................................        (684)                 (69)
Accrued liabilities  ..............................      (6,613)                (325)
Deferred tax liabilities  .........................        (283)                  --
                                                     ----------             --------
Net non-cash assets acquired  .....................      37,291                9,652
Common stock issued  ..............................      (3,031)              (7,656)
                                                     ----------             --------
Net cash paid for acquisitions  ...................     $34,260              $ 1,996
                                                     ==========             ========
</TABLE>
                                                                                
Income Taxes

The Company follows SFAS No. 109, "Accounting for Income Taxes." Under SFAS No.
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates that are expected to be in effect when the
differences reverse.

Prior to the IPO in February 1998 (see Note 2), the Company and its subsidiaries
were S-corporations for federal and state income tax reporting purposes except
for Icon Search and Consulting, Inc. ("ICON"), which was a C-corporation.
Accordingly, income tax expense and deferred taxes reflected in the Company's
financial statements prior to February 1998 were generated from the operating
activities of ICON.

In connection with the IPO, the Company and its subsidiaries terminated their S-
corporation status and recorded income tax expense and a corresponding net
deferred tax liability of approximately $3,000,000, representing the tax effect
of differences in bases of assets and liabilities for financial reporting and
income tax purposes.


Net Income (Loss) Per Share

The Company has presented net income (loss) per share pursuant to SFAS No. 128,
"Earnings Per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98.

Basic net income (loss) per share is computed by dividing the net income (loss)
for each year by the weighted average number of common shares outstanding for
each year. Diluted net income (loss) per share is computed by dividing net
income (loss) for each year by the weighted average number of common shares and
dilutive Common Stock equivalents outstanding during each year.  The average
number of common shares outstanding in 1997 and 1996 excludes the redeemable
common shares, as the accretion on the redeemable Common Stock of $932,000 in
1997 and $224,000 in 1996 is deducted in arriving at the net income (loss)
available to common shareholders. The average number of shares outstanding has
been retroactively restated to include the shares issued for the business
combinations accounted for as pooling of interests.

                                      F-10
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Fair Value of Financial Instruments

Management believes that the carrying amounts of certain financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses approximate their fair values as of each balance sheet date
given the relatively short maturity of these instruments. The fair values of
long-term debt instruments have been estimated by discounting future cash flows
based on the current interest rate environment and remaining term to maturity.
The carrying amount of long-term debt approximates the fair value.

Reclassifications

Certain amounts in prior year's financial statements have been reclassified to
conform with the current year presentation.
 
4.    Debt:

The following table summarizes the Company's borrowings:
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                               --------------------------------
                                                                                     1998              1997
                                                                               --------------    --------------
<S>                                                                              <C>               <C>
                                                                                         (In thousands)
  Revolving Credit Facility  ..............................................           $37,660           $11,050
  Non-compete agreements with former shareholders of Infinity
    Enterprises, Inc., maturing February 2009  ............................             1,017             1,116
  Other  ..................................................................                 4                10
                                                                               --------------    --------------
                                                                                       38,681            12,176
  Less--Unamortized discount  .............................................              (361)             (422)
                                                                               --------------    --------------
                                                                                       38,320            11,754
  Less--Current portion  ..................................................               (44)              (47)
                                                                               --------------    -------------- 
                                                                                      $38,276           $11,707
                                                                               ==============    ==============
</TABLE>
                                                                                

The Company has a $40.0 million revolving credit facility (the "Credit
Facility"), and as of December 31, 1998, the Company had borrowed approximately
$37.7 million under the Credit Facility.   Borrowings under the Credit Facility
have been used to finance the Company's business acquisitions and for general
corporate purposes. The Company's Credit Facility was amended on several
occasions in 1998 and again in March 1999 related to increasing the maximum
permissible borrowing amount, and extending the agreement's maturity date, from
May 31, 2000 to June 30, 2002.

In March 1999, the Company's lender waived the requirement to reduce the
outstanding borrowings to $25.0 million at April 30, 1999.  As a result, the
maximum amount of available borrowings remains at $40.0 million through April
30, 2000.  Accordingly, the Company has classified the entire $37.7 million
borrowed under the Credit Facility as long-term debt.  From May 1, 2000 through
the Credit Facility's maturity date of June 30, 2002, the maximum amount
available under the Credit Facility will be $25.0 million.  It is the Company's
intent to refinance or replace the existing Credit Facility with a larger
borrowing facility by April 30, 1999.

                                      F-11
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        
Under the terms of the Credit Facility, the Company can elect on a monthly basis
to pay interest at either: (A) the greater of (i) the bank's prime rate or (ii)
the federal funds rate plus 0.5%, plus a margin which ranges up to 0.75%; or
(B) LIBOR plus a margin, which ranges from 1.25% to 2.50.  The Company incurred
interest expense under the Credit Facility of $1,150,000 in 1998 and $443,000 in
1997.  The weighted average interest rate on borrowings under the Credit
Facility was 7.75% and 7.51% for the years ended December 31, 1998 and 1997,
respectively.

Borrowings under the Credit Facility are collateralized by all of the assets of
the Company and a pledge of all of the capital stock of its subsidiaries.
Borrowings are also guaranteed by each of the subsidiaries. The Credit Facility
also contains various financial and non-financial covenants and prohibits the
payment of dividends without the lender's consent.   As of December 31, 1998,
the Company was in compliance with all financial and non-financial covenants.

The Company has discounted the non-compete obligations to reflect their fair
market value based on average borrowing rates available to the Company. The rate
used to determine the discount was approximately 9.25%. The discount is being
amortized over the term of the notes using the effective interest rate method.
Amortization expense included in interest expense in the accompanying statements
of operations for the years ended December 31, 1998, 1997 and 1996 was
approximately $61,000, $74,000, and $ 71,000, respectively. The obligations
under the non-compete agreements with former shareholders are secured by certain
property and equipment and Common Stock of the Company, and are personally
guaranteed by certain shareholders of the Company.

Annual maturities of long-term debt as of December 31, 1998 are as follows:

<TABLE>
<S>                                                              <C>
    1999  ..................................................        $    44
    2000  ..................................................         12,705
    2001....................................................             49
    2002  ..................................................         25,054
    2003  ..................................................             59
    Thereafter  ............................................            409
                                                                    -------
                                                                    $38,320
                                                                    =======
</TABLE>
                                                                                
5.   Commitments and Contingencies:

In connection with the business combinations, the Company entered into
employment agreements with certain shareholders who are also officers or
employees of the Company. Each employment agreement provides for a guaranteed
base salary over a three-year period and a discretionary bonus to be determined
by the Board of Directors. For the years ending December 31, 1999, 2000 and
2001, the Company is obligated to pay approximately $3,120,000 $2,084,000, and
$360,000, respectively, in salaries under these agreements. The agreements
contain non-compete covenants and can be terminated based on certain events, as
defined. In addition, the agreements provide for lump sum payments equal to
three times current salary upon certain triggering events such as a change in
control, among other events.

                                      F-12
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        

The Company leases office space under non-cancelable operating leases. Certain
leases require additional payments for taxes and operating expenses and provide
for renewal options. Future minimum payments required under operating leases
that have an initial or remaining non-cancelable lease term in excess of one
year at December 31, 1998 are as follows:

<TABLE>
<S>                                                              <C>
  1999  ....................................................     $ 3,163
  2000  ....................................................       3,011
  2001  ....................................................       2,804
  2002  ....................................................       2,299
  2003  ....................................................       1,611
  Thereafter  ..............................................       1,757
                                                                 -------
                                                                 $14,645
                                                                 =======
</TABLE>
                                                                                
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$2,638,000, $863,000 and $969,000, respectively.

From time to time, the Company is involved in litigation incidental to its
business including employment practices claims assessed by individuals or
governmental agencies.  There is currently no litigation which management
believes is material.


6.   Termination of Franchise Agreements and Severance Costs:

The Company recorded a charge of $650,000 in 1998 consisting of severance
obligations resulting from consolidating its corporate offices in Atlanta,
Georgia.

                                      F-13
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        

The Company recorded a $512,000 charge in 1997 as a result of the termination of
employment of a former executive, representing the present value of future
severance payments due under his employment agreement. The severance obligation
is being paid in monthly installments of $16,667 beginning December 1997 and is
recorded in other current and long-term liabilities in the accompanying balance
sheet.

As of December 31, 1998, approximately $453,000 of severance payments remained
to be paid out under the terms of the 1997 and 1998 arrangements.

Prior to May 31, 1994, Acsys Resources, Inc. ("Acsys Resourses") operated as a
franchisee under a franchise agreement, which provided for various marketing and
royalty payments to the franchisor based on revenues. Effective May 31, 1994,
Acsys Resources and the franchisor terminated the agreement. The termination
agreement provided for payments to the franchisor of $360,000, which were made
and recorded as an expense in 1994. In addition, Acsys Resources was required to
pay to the franchisor 1% of revenues for the period June 1, 1994 through May 31,
1995, and 2% of revenues for the period June 1, 1995 through May 31, 1996,
resulting in an expense of $201,000 in 1994, $166,000 in 1995, and $108,000 in
1996. In May 1997, Cama of Tampa, Inc. terminated its franchise agreement and
made a one-time payment to the franchisor of $170,000, which was recorded as an
expense for the year ended December 31, 1997.


7.   Retirement Savings Plan:

Acsys Resources has a defined contribution retirement plan for the benefit of
all eligible employees. The plan qualifies under Section 401(k) of the Internal
Revenue Code and allows for eligible employees to contribute to the plan up to
15% of their pretax compensation, subject to the maximum contributions allowed
by the Internal Revenue Code. The plan provides for discretionary matching
contributions by Acsys Resources based on a percentage of the participant's
contributions to the plan and a discretionary profit sharing contribution based
on employee compensation. Acsys Resources made $55,000, $35,000 and $30,000 in
1998, 1997 and 1996, respectively, in matching contributions and no
discretionary contributions were made to the plan.

8.   Income Taxes:

The components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                       ------------------------------------------------------
                                                              1998               1997               1996
                                                       ----------------   ---------------     ---------------
<S>                                                      <C>                <C>                 <C>
                                                                            (In thousands)
Federal:
  Current  ............................................          $2,781             $ (96)              $  27
  Deferred  ...........................................           1,859               464                 326
                                                       ----------------   ---------------     ---------------
                                                                  4,640               368                 353
                                                       ----------------   ---------------     ---------------
State:
  Current  ............................................             573               (17)              $   5
  Deferred  ...........................................             314                87                  61
                                                       ----------------   ---------------     ---------------
                                                                    887                70                  66
                                                       ----------------   ---------------     ---------------
                                                                 $5,527             $ 438               $ 419
                                                       ================   ===============     ===============
</TABLE>

                                      F-14
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The tax effect of significant temporary differences is as follows:

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                   -------------------------------------
                                                                           1998                1997
                                                                   -----------------    ----------------
<S>                                                                  <C>                  <C>
                                                                               (In thousands)
GROSS DEFERRED TAX ASSETS:
  Reserves not currently deductible for tax  ...................             $   432             $    72
  Accrued liabilities  .........................................                  78                  --
  Operating loss carryforwards  ................................                  --                 103
                                                                   -----------------    ----------------
                                                                                 510                 175
GROSS DEFERRED TAX LIABILITY:
  Difference between cash basis of
    accounting (tax) and accrual basis of
    accounting (book)  .........................................              (3,050)             (1,165)
  Amortization and depreciation  ...............................                (586)                 --
  Other     ....................................................                 (58)                 --
                                                                   -----------------    ----------------
                                                                              (3,694)             (1,165)
                                                                   -----------------    ----------------
     Net deferred income tax liability  ........................             $(3,184)            $  (990)
                                                                   =================    ================
</TABLE>


The federal statutory income tax rate is reconciled to the effective tax rate as
follows:

<TABLE>
<CAPTION>
                                                                      December 31,
                                                    ------------------------------------------------
                                                          1998              1997             1996
                                                    -------------     -------------     ------------
<S>                                                       <C>               <C>               <C>
Federal statutory rate...........................         34.0%             34.0%            34.0%
Reinstatement of deferred taxes as a result of   
 termination of S-corporation status.............         69.7                --               --
                                                 
State income taxes, net of federal benefit.......          3.4               4.0              4.0
Income allocated to S-corporation period.........         (2.4)            (12.3)           (25.8)
Expenses not deductible for tax purposes.........         23.8               1.9              0.5
                                                 -------------     -------------     ------------
                                                         128.5%             27.6%            12.7%
                                                 =============     =============     ============
</TABLE>


9. Related Parties:

At December 31, 1998, the Company had outstanding advances totaling $244,000 to
four of its shareholders which are recorded as prepaid and other current assets
in the accompanying balance sheet.

The Company owed three shareholders a total of $178,000 at December 31, 1997 for
compensation earned but not paid.

10. Capital Transactions:

Stock Option Plans

The Company currently has three stock option plans that provide for the granting
of stock options to officers, employees and directors.  The objectives of these
plans include attracting and retaining personnel, providing for additional
performance incentives, and promoting the success of the Company by providing
employees the opportunity to acquire the Company's Common Stock.  As described
below, the Company's 1997 Stock Option Plan (the "1997 Option Plan") is the only
plan with stock option awards available for grant.

                                      F-15
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        

1997 Option Plan

In May 1997, the Company established the 1997 Stock Option Plan (the "Option
Plan") authorizing 2,000,000 shares of Common Stock to be issued under the plan.
The Option Plan provides that the number of shares of Common Stock available for
issuance thereunder shall be automatically increased on the first trading day of
each calendar year by the lesser of (i) three percent of the number of shares
outstanding on the preceding trading day or (ii) 500,000 shares. Shares of
Common Stock which are attributable to awards which have expired, terminated or
have been canceled or forfeited during any calendar year are available for
issuance or use in connection with future awards during such calendar year.  As
of January 1, 1999 the number of authorized shares of Common Stock available for
issuance under the plan was increased to 2,433,573 shares.  In 1998, the Company
issued options to purchase 1,816,751 shares of Common Stock, net of
cancellations, to certain employees and executive officers of the Company at
exercise prices that range from $8.50 to $18.50 per share.  In 1997, the Company
issued 97,698 non-qualified stock options and 37,500 qualified stock options at
$8.00 per share to an officer of the Company.

Acsys Resources Plan

In January 1997, prior to its acquisition by the Company, Acsys Resources issued
stock options to its officers and employees under the Acsys Resources 1996
Equity Compensation Plan (the "Acsys Resources Plan"). In September 1997 in
connection with merger of the Company and Acsys Resources, the Acsys Resources
Plan stock options were exchanged for 109,622 of the Company's stock options at
an exercise price of $2.66 per share. The exchange ratio was based on the
exchange ratio used to effect the merger between Acsys Resources and the Company
on September 3, 1997.  In connection with the merger, these options became fully
vested in accordance with change of control provision included in the Acsys
Resources Plan.

ICON Plan

In May, 1997, prior to its acquisition by the Company,  ICON issued stock
options to certain employees.  In May 1998, in connection with the merger of the
Company and ICON, the ICON stock options were exchanged for 39,480 stock options
at an aggregate exercise price of  $35.40. In connection with the merger, these
options became fully vested.

Below is a summary of the status of the Company's stock options outstanding.
<TABLE>
<CAPTION>
                                                                                     Weighted
                                                                                      Average
                                                        Options Outstanding       Exercise Price
                                                       --------------------     -----------------
                                                           (In thousands)
<S>                                                      <C>                      <C>
Balance at December 31, 1996                                      -                      -
Options granted                                                         284                $ 4.83
                                                       --------------------     -----------------
Balance at December 31, 1997                                            284                  4.83
Options granted                                                       1,999                 10.48
Options exercised                                                       (67)                 2.66
Options cancelled/forfeited                                            (182)                 9.20
                                                       --------------------     -----------------
Balance at December 31, 1998                                          2,034                $10.06
                                                       ====================     =================
 
 
Number of shares exercisable at December 31, 1998                       334                $ 5.77
                                                       ====================     =================
</TABLE>

                                      F-16
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        
The Company accounts for its option plan under opinion No. 25, "Accounting for
Stock Issued to Employees."  In 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). SFAS 123 established a fair value based
method of accounting for stock-based compensation plans. SFAS 123 requires that
an employer's financial statements include certain disclosures about stock-based
employee compensation arrangements regardless of the method used to account for
the plan. Had the Company recognized compensation cost for its stock option
plans consistent with the provisions of SFAS 123, the following pro forma net
loss per common share for the years ended December 31, 1998 and 1997 would have
resulted:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                             -----------------------------------
                                                                                    1998               1997
                                                                             -----------------------------------
<S>                                                                            <C>                <C>
                                                                                (In thousands-except per share
                                                                                             data)
Net income (loss):
  As reported  ............................................................           $(1,226)           $ 1,146
                                                                                =============       ============
  As calculated in accordance with SFAS 123  ..............................           $(2,743)           $   871
                                                                                =============       ============
Net income (loss) per common share:
  As reported  ............................................................           $ (0.09)           $  0.02
                                                                                =============       ============
  As calculated in accordance with SFAS 123  ..............................           $ (0.20)           $ (0.01)
                                                                                =============       ============
  Shares used in calculating net income per diluted common share  .........            14,016             10,440
                                                                                =============       ============
</TABLE>


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model, with a risk-free interest rate of 5.4% and
6.5% for the years ended December 31 1998 and 1997, respectively, no expected
dividend yield and an expected life of five years. A volatility of 0% was
assumed for the year ended December 31, 1997 as the Company was privately held
and a volatility rate of 60% was assumed for 1998 as the Company completed its
IPO in February, 1998.  As of December 31, 1997 and 1998, the weighted average
fair value of the options outstanding was $1.61 and $5.46 per option,
respectively.

Redemption and Severance Agreements

In September 1996, Acsys Resources, entered into a Stock Redemption Agreement
with one of its shareholders. Under this agreement, Acsys Resources repurchased
a portion of the shares owned by this shareholder for $458,500. This agreement
initially required Acsys Resources to repurchase 122,012 shares of common stock
at a price based on an earnings formula defined in the Stock Redemption
Agreement. The owner of these 122,012 shares of redeemable common stock entered
into a contractual waiver of all redemption rights effective upon the IPO.
Accordingly, upon completion of the Company's IPO, these shares have been
reclassified as common stock.

In connection with the Stock Redemption Agreement, Acsys Resources and the
shareholder also entered into a severance agreement. Under this agreement, the
shareholder received $458,500, which was charged to expense in 1996.  The
Company paid $200,000 and $717,000 in September 1996 and September 1997,
respectively in settlement of amounts due under this agreement.

                                      F-17
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        
11. Acquisitions:

Pooling Transaction

On May 22, 1998, the Company acquired all of the outstanding stock of ICON, an
Atlanta-based information technology staffing company, in a stock-for-stock
merger. As noted earlier, this transaction was accounted for

as a pooling of interests for accounting purposes and as a tax-free
reorganization. Under the terms of the merger agreement, ICON shareholders
received 2,820,360 shares of Common Stock in exchange for all of the equity
interests in ICON. In connection with the merger, the Company recorded a charge
for combination expenses of

$1,730,000 in 1998, including investment banking, legal and accounting fees, and
other transaction costs associated with the merger.

Purchase Transactions

On August 4, 1998, the Company acquired all of the outstanding stock of Staffing
Edge, a specialty professional staffing firm with offices throughout the
Midwestern United States, for $22,510,000 in cash, 81,766 shares of Common Stock
with an estimated fair value of $838,000, transaction costs of $2,101,000 and
assumption of debt of $7,040,000. The Company has accounted for this transaction
under the purchase method of accounting.  The excess of approximately
$32,512,000 of the purchase price over the estimated fair value of net assets
acquired was recorded as goodwill and is being amortized on a straight line
basis over forty years.  The results of operations for Staffing Edge are
included from the date of acquisition.

On July 1, 1998, the Company acquired all of the outstanding stock of KPD, an
information technology staffing firm located on Long Island, New York. The
Company accounted for this transaction under the purchase method of accounting.
The results of operations for KPD are included from the date of acquisition.

On March 31, 1998, the Company acquired all of the outstanding stock of TGS, an
accounting and finance staffing firm located in Richmond, Virginia. The Company
has accounted for this transaction under the purchase method of accounting. The
results of operations of TGS are included from the date of acquisition.

On August 12, 1997, the Company acquired all of the outstanding stock of C.P.A.
Staffing, Inc. for $1,900,000 in cash, 1,219,274 shares of Common Stock with an
estimated fair value of $7,770,000 and transaction costs of $144,000.  The
Company has accounted for this transaction under the purchase method of
accounting.  The excess of approximately $8,750,000 of the purchase price over
the estimated fair value of the net assets acquired was recorded as goodwill and
is being amortized on a straight-line basis over forty years.  The results of
operations for C.P.A. Staffing are included from the date of acquisition.

                                      F-18
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                        
The following table summarizes the unaudited pro forma results of operations of
the Company for the years ended December 31, 1997 and 1998 assuming that the
acquisitions of C.P.A. Staffing, TGS, KPD and Staffing Edge had occurred on
January 1, 1997:

<TABLE>
<CAPTION>
                                                                               For the Year Ended
                                                                                  December 31,
                                                                   ---------------------------------------
                                                                           1998                  1997
                                                                   -------------------   -----------------
<S>                                                                  <C>                   <C>
                                                                     (in thousands--except per share data)
Service revenues  .............................................          $148,303            $107,805
Pro forma net income  .........................................             1,503                  15
Pro forma diluted net income (loss) per share  ................              0.10               (0.08)
Shares used in computing pro forma diluted net income per      
  share amounts  ..............................................            14,452              11,420
</TABLE>



12.  Segment and Related Information

The Company adopted Statement of Financial Accounting Standards No 131,
"Disclosures about Segments of an Enterprise and Related Information" in 1998.
This Statement changes the way the Company reports information about its
operating segments.

The Company operates throughout major metropolitan markets in the United States.
Within each market, the Company offers a variety of placement services that
result in differing profit margins.  The Company has three reportable segments:
Permanent Placement, Temporary Staffing, and IT Contract services.  While there
is cross selling, these segments are managed separately as each business
generally offers different services, has distinct candidate and client pools,
and requires different marketing strategies.

The Permanent Placement segment provides contingency-based placement services
for clients by identifying, evaluating and recommending qualified candidates;
the permanent placement segment generates revenue equal to a percentage of a
candidate's first year annual salary.   The Temporary placement segment provides
professional and clerical employees to clients, generally billing clients on an
hourly basis.   The Information Technology segment provides clients on a
contracted or hourly basis to assist in ERP software implementation and other
systems integration services.

The accounting policies for all segments are the same as those described in the
summary of significant accounting policies. The Company does not allocate
depreciation expense or assets to the segment due to the nature of the Company's
service-based operations, which are not capital intensive.  Depreciation expense
is included in Corporate for each of the years ended December 31, 1998, 1997 and
1996.  The Company evaluates performance based on profit or loss from operations
before depreciation, amortization, interest and income taxes.

                                      F-19
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


The Revenues and operating income for each of the three identifiable business
segments are as follows:

<TABLE>
<CAPTION>
                                                           December 31,
                                      ----------------------------------------------------
Revenues:                                   1998                1997               1996
                                      --------------      -------------      -------------
<S>                                     <C>                 <C>                <C>
                                                          (In thousands)
 Permanent Placements                       $ 26,831            $18,071            $12,186
 Temporary Services                           61,197             40,879             34,756
 IT Contract Services                         41,870             19,178              9,800
                                      --------------      -------------      -------------
                                            $129,898            $78,128            $56,742
                                      ==============      =============      =============
                                  
Operating Income (Loss):          
 Permanent Placements                          3,145              2,403              1,883
 Temporary Services                            7,628              5,279              4,350
 IT Contract Services                          4,538              1,695              1,322
 Corporate                                    (7,501)            (4,526)            (2,891)
 Combination Costs                            (1,730)            (1,797)                 -
 Severance and Franchise          
 Termination Costs                              (650)              (682)              (567)
                                      --------------      -------------      -------------
                                            $  5,430            $ 2,372            $ 4,097
                                      ==============      =============      =============
</TABLE>



13. Subsequent Events (unaudited)

On February 7, 1999, the Company announced plans designed to reduce the
Company's selling general and administrative costs.  These plans include the
closure of underperforming offices in certain cities and the terminations of
employees. Charges to be incurred in the first quarter of 1999 are expected to
be up to $3.3 million.

                                      F-20
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Acsys, Inc.:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Acsys, Inc. and Subsidiaries and have
issued our report thereon dated February 2, 1999, (except with respect to the
matter discussed in Note 4, as to which the date is March 23, 1999).  Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule of valuation and qualifying accounts is the
responsibility of management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


                                     /s/   ARTHUR ANDERSEN LLP


Philadelphia, PA.
February 2, 1999

                                      F-21
<PAGE>
 
                          ACSYS, INC. AND SUBSIDIARIES

                 SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
                  Years ended December 31, 1996, 1997 and 1998

<TABLE>
<CAPTION>
                                                                                                           
                                                                     Charged to                            
                                                      Beginning      costs and                      Ending 
             Description                               Balance        expenses     Deductions      Balance 
             -----------                            -----------      -----------   ----------      ---------
1996
<S>                                                  <C>             <C>           <C>            <C>
Allowance for doubtful accounts  .................       $166           318          (171)          $313
1997
Allowance for doubtful accounts  .................       $313           345          (155)          $503
1998
Allowance for doubtful accounts  .................       $503         1,140          (685)          $958
</TABLE>

                                      F-22